-----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, LFIqCWlalVNPIWRJplmi6O9TfqiJ+owNz4/EzTG0qAdKsFeRrkCirJcUI4P1wJa9 RPHCvkOet8CSDlVW1RYkVQ== 0000950137-08-009971.txt : 20080801 0000950137-08-009971.hdr.sgml : 20080801 20080801083137 ACCESSION NUMBER: 0000950137-08-009971 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080531 FILED AS OF DATE: 20080801 DATE AS OF CHANGE: 20080801 EFFECTIVENESS DATE: 20080801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE HIGH YIELD INCOME SERIES, INC. CENTRAL INDEX KEY: 0000728374 IRS NUMBER: 411458705 STATE OF INCORPORATION: MN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-03848 FILM NUMBER: 08983357 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 HIGH YIELD INCOME SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP EXTRA INCOME FUND INC/MN DATE OF NAME CHANGE: 20000825 FORMER COMPANY: FORMER CONFORMED NAME: IDS EXTRA INCOME FUND INC DATE OF NAME CHANGE: 19920703 0000728374 S000003310 RiverSource High Yield Bond Fund C000008855 RiverSource High Yield Bond Fund Class I RSHIX C000008857 RiverSource High Yield Bond Fund Class A INEAX C000008858 RiverSource High Yield Bond Fund Class B IEIBX C000008859 RiverSource High Yield Bond Fund Class C APECX C000042972 RiverSource High Yield Bond Fund Class R2 C000042973 RiverSource High Yield Bond Fund Class R3 C000042974 RiverSource High Yield Bond Fund Class R4 RSHYX C000042975 RiverSource High Yield Bond Fund Class R5 RSHRX C000042976 RiverSource High Yield Bond Fund Class W RHYWX N-CSR 1 c27712nvcsr.txt CERTIFIED SHAREHOLDER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File Number 811-3848 RIVERSOURCE HIGH YIELD INCOME SERIES, INC. (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (Address of principal executive offices) (Zip code) Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474 (Name and address of agent for service) Registrant's telephone number, including area code: (612) 671-1947 Date of fiscal year end: 5/31 Date of reporting period: 5/31 Annual Report and Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE HIGH YIELD BOND FUND ANNUAL REPORT FOR THE PERIOD ENDED MAY 31, 2008 (Prospectus also enclosed) RIVERSOURCE HIGH YIELD BOND FUND SEEKS TO PROVIDE SHAREHOLDERS WITH HIGH CURRENT INCOME AS ITS PRIMARY OBJECTIVE AND, AS ITS SECONDARY OBJECTIVE, CAPITAL GROWTH. This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money. (SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS -------------------------------------------------------------- Your Fund at a Glance............... 2 Manager Commentary.................. 6 The Fund's Long-term Performance ... 12 Fund Expenses Example............... 14 Portfolio of Investments............ 17 Financial Statements................ 28 Notes to Financial Statements....... 34 Report of Independent Registered Public Accounting Firm........... 59 Federal Income Tax Information...... 61 Board Members and Officers.......... 66 Approval of Investment Management Services Agreement............... 70 Proxy Voting........................ 72
(DALBAR LOGO) The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 1 YOUR FUND AT A GLANCE ---------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource High Yield Bond Fund (the Fund) Class A shares declined 2.40% (excluding sales charge) for the 12 months ended May 31, 2008. > The Fund underperformed its benchmark, the JP Morgan Global High Yield Index, which fell 1.00% for the same period. > The Fund underperformed the Lipper High Current Yield Bond Funds Index, representing the Fund's peer group, which declined 2.13% during the same time frame. ANNUALIZED TOTAL RETURNS (for period ended May 31, 2008) - --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years - --------------------------------------------------------------------------------- RiverSource High Yield Bond Fund Class A (excluding sales charge) -2.40% +6.02% +8.38% +3.63% - --------------------------------------------------------------------------------- JP Morgan Global High Yield Index (unmanaged) -1.00% +6.38% +8.46% +5.65% - --------------------------------------------------------------------------------- Lipper High Current Yield Bond Funds Index -2.13% +5.61% +7.60% +3.56% - ---------------------------------------------------------------------------------
(See "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- 2 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- STYLE MATRIX - ----------------------------------------
DURATION SHORT INT. LONG HIGH MEDIUM QUALITY X LOW
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO STATISTICS - ---------------------------------------- Weighted average life(1) 5.6 years - -------------------------------------------- Effective duration(2) 3.6 years - -------------------------------------------- Weighted average bond rating(3) B+ - --------------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - ----------------------------------------
Total Net Expenses(a) - ------------------------------------------------------- Class A 1.13% 1.02% - ------------------------------------------------------- Class B 1.89% 1.78% - ------------------------------------------------------- Class C 1.88% 1.77% - ------------------------------------------------------- Class I 0.72% 0.65% - ------------------------------------------------------- Class R2 1.51% 1.45% - ------------------------------------------------------- Class R3 1.26% 1.20% - ------------------------------------------------------- Class R4 1.02% 0.95% - ------------------------------------------------------- Class R5 0.78% 0.70% - ------------------------------------------------------- Class W 1.17% 1.10% - -------------------------------------------------------
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until May 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds), will not exceed 1.02% for Class A, 1.78% for Class B, 1.77% for Class C, 0.65% for Class I, 1.45% for Class R2, 1.20% for Class R3, 0.95% for Class R4, 0.70% for Class R5 and 1.10% for Class W. (1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 3 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT MAY 31, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 12/8/83) -2.40% +6.02% +8.38% +3.63% N/A - -------------------------------------------------------------------------------------------- Class B (inception 3/20/95) -3.17% +5.08% +7.48% +2.81% N/A - -------------------------------------------------------------------------------------------- Class C (inception 6/26/00) -3.21% +5.21% +7.50% N/A +4.50% - -------------------------------------------------------------------------------------------- Class I (inception 3/4/04) -2.36% +6.31% N/A N/A +6.89% - -------------------------------------------------------------------------------------------- Class R2 (inception 12/11/06) -2.75% N/A N/A N/A +1.91% - -------------------------------------------------------------------------------------------- Class R3 (inception 12/11/06) -2.47% N/A N/A N/A +2.20% - -------------------------------------------------------------------------------------------- Class R4 (inception 3/20/95) -1.87% +6.20% +8.57% +3.78% N/A - -------------------------------------------------------------------------------------------- Class R5 (inception 12/11/06) -2.06% N/A N/A N/A +2.64% - -------------------------------------------------------------------------------------------- Class W (inception 12/1/06) -2.87% N/A N/A N/A +2.09% - -------------------------------------------------------------------------------------------- WITH SALES CHARGE Class A (inception 12/8/83) -7.02% +4.34% +7.34% +3.10% N/A - -------------------------------------------------------------------------------------------- Class B (inception 3/20/95) -7.69% +3.92% +7.18% +2.81% N/A - -------------------------------------------------------------------------------------------- Class C (inception 6/26/00) -4.11% +5.21% +7.50% N/A +4.50% - --------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 4 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT - --------------------------------------------------------------------------------
AT JUNE 30, 2008 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 12/8/83) -2.16% +4.83% +7.28% +3.46% N/A - -------------------------------------------------------------------------------------------- Class B (inception 3/20/95) -2.91% +4.03% +6.47% +2.67% N/A - -------------------------------------------------------------------------------------------- Class C (inception 6/26/00) -2.97% +4.02% +6.48% N/A +4.20% - -------------------------------------------------------------------------------------------- Class I (inception 3/4/04) -1.76% +5.24% N/A N/A +6.39% - -------------------------------------------------------------------------------------------- Class R2 (inception 12/11/06) -2.47% N/A N/A N/A +0.82% - -------------------------------------------------------------------------------------------- Class R3 (inception 12/11/06) -2.17% N/A N/A N/A +1.11% - -------------------------------------------------------------------------------------------- Class R4 (inception 3/20/95) -1.94% +5.01% +7.47% +3.61% N/A - -------------------------------------------------------------------------------------------- Class R5 (inception 12/11/06) -2.15% N/A N/A N/A +1.29% - -------------------------------------------------------------------------------------------- Class W (inception 12/1/06) -2.60% N/A N/A N/A +1.01% - -------------------------------------------------------------------------------------------- WITH SALES CHARGE Class A (inception 12/8/83) -8.90% +3.19% +6.28% +2.93% N/A - -------------------------------------------------------------------------------------------- Class B (inception 3/20/95) -7.45% +2.88% +6.16% +2.87% N/A - -------------------------------------------------------------------------------------------- Class C (inception 6/26/00) -3.87% +4.02% +6.48% N/A +4.20% - --------------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R2, Class R3, Class R4, Class R5 and Class W shares. Class I, Class R2, Class R3, Class R4 and Class R5 are available to institutional investors only. Class W shares are offered through qualifying discretionary accounts. * For classes with less than 10 years performance. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 5 MANAGER COMMENTARY ------------------------------------------------------------- Dear Shareholders: RiverSource High Yield Bond Fund (the Fund) Class A shares declined 2.40% (excluding sales charge) for the 12 months ended May 31, 2008. The Fund underperformed its benchmark, the JP Morgan Global High Yield Index (JP Morgan Index), which fell 1.00% during the same period. The Fund also underperformed the Lipper High Current Yield Bond Funds Index, representing the Fund's peer group, which declined 2.13% during the same time frame. SIGNIFICANT PERFORMANCE FACTORS The high yield corporate bond market experienced more ups and downs during the annual period than at any other time in recent memory. The high yield market had rallied strongly going into the annual period, with spreads, or the yield differential between these securities and Treasuries, reaching an all-time low level in May 2007. During June and July 2007, problems in the subprime mortgage market spilled over into most other credit markets in general, and into the high yield corporate bond market in particular. High yield corporate bonds traded down sharply, as investors grew increasingly risk averse and spreads widened. In August, the high yield bond market stabilized somewhat, and from September through most SECTOR DIVERSIFICATION(1) (at May 31, 2008; % of portfolio assets) - ----------------------------------------------------------------- Consumer Discretionary 16.4% - -------------------------------------------------------------- Consumer Staples 6.9% - -------------------------------------------------------------- Energy 11.4% - -------------------------------------------------------------- Financials 3.9% - -------------------------------------------------------------- Health Care 10.6% - -------------------------------------------------------------- Industrials 5.0% - -------------------------------------------------------------- Materials 11.4% - -------------------------------------------------------------- Mortgage-Backed 0.4% - -------------------------------------------------------------- Telecommunication 25.2% - -------------------------------------------------------------- Utilities 6.9% - -------------------------------------------------------------- Other(2) 1.9% - --------------------------------------------------------------
(1) Sectors can be comprised of several industries. Please refer to the section entitled "Portfolio of Investments" for a complete listing. No single industry exceeds 25% of portfolio assets. (2) Cash & Cash Equivalents. - -------------------------------------------------------------------------------- 6 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- of October, the market actually rallied. Then, a second wave of concern hit the market amid a liquidity crunch, recession worries and ongoing turmoil in the housing, subprime mortgage and credit markets. Large investment banks took major credit-related write-downs and the highly leveraged structured product market remained somewhat dysfunctional. Thus, November through March proved to be another difficult span for the high yield bond market, with spreads widening once again. The high yield bank loan sector performed particularly poorly in January and February, hit by the combination of growing credit concerns, the liquidity crunch and an overhang of supply with dried-up demand. All of this turmoil culminated in mid-March when the Federal Reserve Board (the Fed) orchestrated a buyout of Bear Stearns, which was on the verge of collapsing, by JPMorgan Chase. The Fed's actions stabilized the markets somewhat in the last months of the annual period by demonstrating that the Fed would do whatever was necessary to quiet fears and prevent systemic failure. In April, the high yield corporate bond market bounced back somewhat, with spreads tightening. The high yield corporate bond market exhibited relative stability during May. The Fund's overweight positioning in the health care sector relative to the JP Morgan Index helped the Fund's results most, as this defensive sector proved to be less volatile than others in the high yield bond market. The bonds of hospital companies IASIS HEALTHCARE, HCA and COMMUNITY HEALTH SYSTEMS performed particularly well. The Fund also benefited from its overweight exposure to the QUALITY BREAKDOWN (at May 31, 2008; % of portfolio assets excluding cash equivalents and equities) - ----------------------------------------------------------------- AAA bonds 0.4% - -------------------------------------------------------------- BBB bonds 1.9% - -------------------------------------------------------------- BB bonds 33.4% - -------------------------------------------------------------- B bonds 49.2% - -------------------------------------------------------------- CCC bonds 14.4% - -------------------------------------------------------------- Non-rated bonds 0.7% - --------------------------------------------------------------
Bond ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 0.9% of the bond portfolio assets were determined through internal analysis. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 7 MANAGER COMMENTARY (continued) ------------------------------------------------- energy sector. Here, holdings in energy infrastructure company DRESSER, INC. and exploration and production company SANDRIDGE ENERGY boosted results. In industrials, aluminum producer NORANDA ALUMINUM was an outstanding performer given rising commodity prices during the annual period. The Fund's underweight position in the automotive industry also contributed positively to performance, as this industry fared poorly during the period. Conversely, retailer CLAIRE'S STORES, which had conducted a leveraged buyout in early 2007, performed poorly and detracted from the Fund's results. We sold the Fund's position in this issue during the second half of the fiscal year. Similarly, holding a position in REALOGY, the parent company of Century 21, ERA, Coldwell Banker and Sotheby's Intl Realty, detracted from the Fund's performance. REALOGY, which had completed a leveraged buyout in the spring of 2007, got swept by the brush of the massive slowdown in the housing market and concerns over housing depreciation. We maintained the Fund's holding in REALOGY, but did reduce the position during the period. TOP TEN HOLDINGS (at May 31, 2008; % of portfolio assets) - ----------------------------------------------------------------- Select Medical 8.45% 2015 1.4% - -------------------------------------------------------------- Dresser 8.47% 2015 1.3% - -------------------------------------------------------------- ASG Consolidated LLC/Finance 11.35% 2011 1.3% - -------------------------------------------------------------- DIRECTV Holdings LLC/Finance 7.63% 2016 1.3% - -------------------------------------------------------------- Charter Communications 4.89-4.90% 2014 1.2% - -------------------------------------------------------------- Cott Beverage USA 8.00% 2011 1.2% - -------------------------------------------------------------- Liberty Media LLC 5.70% 2013 1.2% - -------------------------------------------------------------- INVISTA 9.25% 2012 1.1% - -------------------------------------------------------------- Alltel Communications 5.55% 2015 1.1% - -------------------------------------------------------------- IASIS Healthcare LLC 8.13% 2014 1.1% - --------------------------------------------------------------
For further detail about these holdings, please refer to the section entitled "Portfolio of Investments." 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. - -------------------------------------------------------------------------------- 8 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- The Fund's positioning in the homebuilder industry further detracted from results. Holdings such as HOVNANIAN ENTERPRISES and WILLIAM LYON HOMES, which we continued to hold, and STANDARD PACIFIC, which we sold by the end of the period, each lagged. We had shifted to a modestly overweight allocation in homebuilders during the first half of the period, seeking to build positions on market weakness given what we believed to be still-attractive longer-term fundamentals. However, it turned out that we bought a bit prematurely, as the housing industry continued to deteriorate during the period, prompting us to reduce the Fund's position in this group to an approximately equal weighting to the JP Morgan Index by the end of the period. Also within the homebuilders area, we moved into more senior parts of companies' capital structures during the second half of the period. For example, we sold subordinated bonds and senior bonds of HOVNANIAN ENTERPRISES and bought senior secured bonds of HOVNANIAN ENTERPRISES instead. Performance from yellow pages publisher R.H. DONNELLEY was disappointing during the period, as pressures on print media grew with the omnipresence of the Internet. Still, we maintained the Fund's sizable position in R.H. DONNELLEY, as we believe the market overreacted and its sell-off was overdone. A holding in subprime auto lender TRIAD ACQUISITION also detracted from the Fund's performance as the credit crunch took hold. However, we believe prospects for a positive outcome in our TRIAD ACQUISITION position remains intact; the Fund continued to hold a position in this issue. CHANGES TO THE FUND'S PORTFOLIO Overall, we sought to use periods of strength in the high yield corporate bond market, such as the rally in April, to reduce the Fund's exposure to lower-rated issues and more cyclical sectors, and to increase its position in higher-rated securities and more defensive areas of the market. More specifically, we completely eliminated the Fund's exposure to the retail sector and reduced its allocation to homebuilders. We increased the Fund's position in energy to a meaningful overweight, as this sector tends to be more defensive and was benefiting from soaring oil and gas prices. We also increased the Fund's exposure to cable TV and satellite cable providers. We added to the Fund's holdings in wireline and wireless telecommunications companies as well. For example, we established a position in the bank debt of ALLTELL. Just after the close of the Fund's fiscal year, ALLTELL announced that it was going to be acquired by Verizon Wireless in a $28 billion deal that will create the biggest mobile phone company in the U.S. We also bought SPRINT ahead of its downgrade from investment grade status during the period in anticipation of just such a move. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 9 MANAGER COMMENTARY (continued) ------------------------------------------------- We strive to select the right bonds while maintaining a diligent review of potential credit risks at individual companies. We added bank loan exposure across certain core holdings in the Fund during periods of market weakness, as these securities tend to be comparatively defensive in nature over time. In many cases, this positioned the Fund in a more senior part of a company's capital structure, thus reducing the overall risk within the portfolio. At the end of the period, the Fund had materially greater exposure than the JP Morgan Index in the energy, health care, cable TV, wireline telecommunications and wireless telecommunications industries, with lesser overweights in the media, chemicals and food industries. Underweights in the Fund's portfolio included the technology, manufacturing and industrial, retail and automotive areas. The Fund also maintained holdings in the gaming and utilities industries, each at approximately equal weighting to the JP Morgan Index. OUR FUTURE STRATEGY In our view, the high yield corporate bond market may well continue to be challenged over the months ahead, as a confluence of factors take hold. These factors include a weaker economy, slowed consumer spending, skyrocketing oil, gas and other commodity prices, a higher default rate and limited access to capital. One of the major questions that faces the market going forward is how the Fed will reconcile the need to both fight inflationary pressures and stimulate the economy. All told, this scenario indicates a difficult environment for the high yield corporate bond market, especially if the Fed chooses to increase rates, as we believe it eventually will. Given that we are in the latter stages of the economic cycle and the risk we see for the further widening of spreads within the high yield corporate bond market, we intend to maintain the Fund's overweight positions in more defensive names and sectors and more modest exposure to cyclical areas of the market. We further intend to continue upgrading credit quality in the - -------------------------------------------------------------------------------- 10 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- Fund's portfolio, seeking opportunities to reduce the Fund's position in lower- rated bonds and to move into higher-rated high yield bonds. Going forward, we also believe more than ever that the key to potential outperformance will be leveraging our strength in credit research. We strive to select the right bonds while maintaining a diligent review of potential credit risks at individual companies. We sell bonds when we believe that risks outweigh a bond's total return potential. We have a bottom-up approach when selecting credits. One of our competitive advantages is that our team of nine analysts performs in-depth research to acquire deep knowledge and insight of the industries it covers. We believe that good security selection based on quality and in-depth security research will be key to performance in the near term. We intend, of course, to continue to seek opportunities to capitalize on attractively valued bonds that have the potential for positive returns. LOGO Scott Schroepfer, CFA(R) Portfolio Manager Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource fund. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 11 THE FUND'S LONG-TERM PERFORMANCE ----------------------------------------------- The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource High Yield Bond Fund Class A shares (from 6/1/98 to 5/31/08) as compared to the performance of two widely cited performance indices, the JP Morgan Global High Yield Index and the Lipper High Current Yield Bond Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS - --------------------------------------------------------------------------------
Results at May 31, 2008 1 YEAR 3 YEARS 5 YEARS 10 YEARS RIVERSOURCE HIGH YIELD BOND FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,298 $11,359 $14,250 $13,604 - ----------------------------------------------------------------------------------------------- Average annual total return -7.02% +4.34% +7.34% +3.10% - ----------------------------------------------------------------------------------------------- JP MORGAN GLOBAL HIGH YIELD INDEX(1) Cumulative value of $10,000 $9,900 $12,039 $15,009 $17,333 - ----------------------------------------------------------------------------------------------- Average annual total return -1.00% +6.38% +8.46% +5.65% - ----------------------------------------------------------------------------------------------- LIPPER HIGH CURRENT YIELD BOND FUNDS INDEX(2) Cumulative value of $10,000 $9,787 $11,779 $14,423 $14,194 - ----------------------------------------------------------------------------------------------- Average annual total return -2.13% +5.61% +7.60% +3.56% - -----------------------------------------------------------------------------------------------
Results for other share classes can be found on pages 4 and 5. - -------------------------------------------------------------------------------- 12 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE HIGH YIELD BOND FUND LINE GRAPH)
RIVERSOURCE HIGH YIELD BOND FUND CLASS A LIPPER HIGH CURRENT YIELD (INCLUDES SALES CHARGE) JP MORGAN GLOBAL HIGH BOND FUNDS INDEX(2) ($13,604) YIELD INDEX(1) ($17,333) ($14,194) ----------------------- ------------------------ ------------------------- '98 $ 9,525 $10,000 $10,000 '99 9,178 9,999 9,920 '00 8,923 9,722 9,639 '01 8,839 10,027 9,324 '02 8,458 10,310 8,984 '03 9,095 11,549 9,837 '04 10,233 13,078 11,028 '05 11,416 14,399 12,049 '06 12,360 15,465 12,902 '07 13,938 17,508 14,503 '08 13,604 17,333 14,194
(1) The JP Morgan Global High Yield Index is an unmanaged index used to mirror the investable universe of the U.S. dollar global high yield corporate debt market of both developed and emerging markets. The index reflects reinvestment of all distributions and changes in market prices. (2) The Lipper High Current Yield Bond Funds Index includes the 30 largest high yield bond funds tracked by Lipper Inc. The index's returns include net reinvested dividends. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 13 FUND EXPENSES EXAMPLE ---------------------------------------------------------- (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is 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 the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds' expense ratio as of the most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended May 31, 2008. ACTUAL EXPENSES The first line of the 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 titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the 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 and other funds. To do so, compare this 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 the 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 the 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. - -------------------------------------------------------------------------------- 14 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT - --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED DEC. 1, 2007 MAY 31, 2008 THE PERIOD(A) EXPENSE RATIO - ------------------------------------------------------------------------------------------- Class A - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,012.70 $ 5.55(c) 1.11% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,019.34 $ 5.57(c) 1.11% - ------------------------------------------------------------------------------------------- Class B - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,003.60 $ 9.32(c) 1.87% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,015.56 $ 9.37(c) 1.87% - ------------------------------------------------------------------------------------------- Class C - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,008.70 $ 9.29(c) 1.86% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,015.61 $ 9.32(c) 1.86% - ------------------------------------------------------------------------------------------- Class I - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,011.10 $ 3.45(c) .69% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,021.43 $ 3.47(c) .69% - ------------------------------------------------------------------------------------------- Class R2 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,007.50 $ 7.44(c) 1.49% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,017.45 $ 7.47(c) 1.49% - ------------------------------------------------------------------------------------------- Class R3 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,009.10 $ 6.24(c) 1.25% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.65 $ 6.27(c) 1.25% - ------------------------------------------------------------------------------------------- Class R4 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,014.10 $ 4.76(c) .95% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.14 $ 4.77(c) .95% - ------------------------------------------------------------------------------------------- Class R5 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,014.40 $ 3.81(c) .76% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,021.08 $ 3.82(c) .76% - -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 15 FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED DEC. 1, 2007 MAY 31, 2008 THE PERIOD(A) EXPENSE RATIO - ------------------------------------------------------------------------------------------- Class W - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,008.60 $ 5.69(c) 1.14% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,019.19 $ 5.72(c) 1.14% - -------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Based on the actual return for the six months ended May 31, 2008: +1.27% for Class A, +0.36% for Class B, +0.87% for Class C, +1.11% for Class I, +0.75% for Class R2, +0.91% for Class R3, +1.41% for Class R4, +1.44% for Class R5 and +0.86% for Class W. (c) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until May 31, 2009, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding fees and expenses of acquired funds) will not exceed 1.02% for Class A, 1.78% for Class B, 1.77% for Class C, 0.65% for Class I, 1.45% for Class R2, 1.20% for Class R3, 0.95% for Class R4, 0.70% for Class R5 and 1.10% for Class W. Any amounts waived will not be reimbursed by the Fund. This change was effective June 1, 2008. Had this change been in place for the entire six month period ended May 31, 2008, the actual expenses paid would have been $5.10 for Class A, $8.87 for Class B, $8.84 for Class C, $3.25 for Class I, $7.24 for Class R2, $5.99 for Class R3, $3.51 for Class R5 and $5.49 for Class W; the hypothetical expenses paid would have been $5.12 for Class A, $8.92 for Class B, $8.87 for Class C, $3.27 for Class I, $7.27 for Class R2, $6.02 for Class R3, $3.52 for Class R5 and $5.52 for Class W. The actual and hypothetical expenses paid for Class R4 would have been the same as those expenses presented in the table above. - -------------------------------------------------------------------------------- 16 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------- MAY 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (82.6%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (0.4%)(f) Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09-25-47 2.89% $9,255,082(i) $5,345,447 - ---------------------------------------------------------------------------------- AEROSPACE & DEFENSE (2.4%) Alion Science and Technology 02-01-15 10.25 10,600,000 7,473,000 DRS Technologies 02-01-16 6.63 1,315,000 1,370,888 02-01-18 7.63 4,020,000 4,331,550 L-3 Communications 06-15-12 7.63 5,205,000 5,296,088 07-15-13 6.13 2,035,000 1,973,950 L-3 Communications Series B 10-15-15 6.38 10,100,000 9,733,874 Moog Sr Sub Nts 06-15-18 7.25 3,695,000(d,g) 3,731,950 --------------- Total 33,911,300 - ---------------------------------------------------------------------------------- BUILDING MATERIALS (0.8%) Gibraltar Inds Series B 12-01-15 8.00 11,907,000 10,001,880 Norcraft Companies LP/Finance 11-01-11 9.00 824,000 836,360 --------------- Total 10,838,240 - ---------------------------------------------------------------------------------- CHEMICALS (4.5%) Chemtura 06-01-16 6.88 14,736,000 13,704,480 Hexion US Finance/Nova Scotia Finance Sr Secured 11-15-14 9.75 6,881,000 7,569,100 INVISTA Sr Unsecured 05-01-12 9.25 15,521,000(d) 15,986,629
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) CHEMICALS (CONT.) MacDermid Sr Sub Nts 04-15-17 9.50% $5,098,000(d) $4,932,315 Momentive Performance Pay-in-kind 12-01-14 10.13 13,455,000(n) 11,941,313 NALCO 11-15-11 7.75 3,980,000 4,059,600 NALCO Sr Sub Nts 11-15-13 8.88 5,155,000 5,425,638 --------------- Total 63,619,075 - ---------------------------------------------------------------------------------- CONSTRUCTION MACHINERY (0.2%) Terex 01-15-14 7.38 3,290,000 3,322,900 - ---------------------------------------------------------------------------------- CONSUMER CYCLICAL SERVICES (1.0%) Realogy 04-15-15 12.38 5,214,000 2,841,630 West Corp 10-15-14 9.50 1,240,000 1,159,400 10-15-16 11.00 11,859,000 10,495,215 --------------- Total 14,496,245 - ---------------------------------------------------------------------------------- CONSUMER PRODUCTS (2.0%) AAC Group Holding Sr Unsecured Pay-in-kind 10-01-12 14.75 1,517,579(n) 1,411,348 AAC Group Holding Sr Unsecured (Zero coupon through 10-01-08, thereafter 10.25%) 10-01-12 9.11 5,800,000(m) 5,626,000 Jarden 05-01-17 7.50 11,877,000 10,659,608 Sealy Mattress 06-15-14 8.25 3,245,000 2,863,713
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 17
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) CONSUMER PRODUCTS (CONT.) Visant Holding Sr Disc Nts (Zero coupon through 12-01-08, thereafter 10.25%) 12-01-13 8.91% $4,815,000(m) $4,688,606 Visant Holding Sr Nts 12-01-13 8.75 3,080,000 3,064,600 --------------- Total 28,313,875 - ---------------------------------------------------------------------------------- ELECTRIC (5.1%) Dynegy Holdings Sr Unsecured 05-01-16 8.38 6,610,000 6,643,050 05-15-18 7.13 8,020,000 7,398,450 Edison Mission Energy Sr Unsecured 06-15-16 7.75 1,672,000 1,713,800 Energy Future Holdings 11-01-17 10.88 2,320,000(d) 2,418,600 Midwest Generation LLC Pass-Through Ctfs Series B 01-02-16 8.56 5,858,628 6,217,469 Mirant Americas Generation LLC Sr Unsecured 05-01-11 8.30 4,870,000 5,052,625 Mirant North America LLC 12-31-13 7.38 9,509,000 9,580,318 NRG Energy 02-01-14 7.25 5,441,000 5,332,180 02-01-16 7.38 1,215,000 1,184,625 01-15-17 7.38 14,165,000 13,846,287 Reliant Energy 12-15-14 6.75 1,660,000 1,689,050 Reliant Energy Sr Unsecured 06-15-17 7.88 3,450,000 3,475,875 Texas Competitive Electric Holdings LLC 11-01-15 10.25 7,395,000(d) 7,542,900 --------------- Total 72,095,229 - ---------------------------------------------------------------------------------- ENTERTAINMENT (1.0%) AMC Entertainment 02-01-16 11.00 5,748,000 5,834,220
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) ENTERTAINMENT (CONT.) United Artists Theatre Circuit Pass-Through Ctfs Series BB5 07-01-15 9.30% $6,678,996(l) $6,745,786 United Artists Theatre Circuit Pass-Through Ctfs Series BC3 07-01-15 9.30 2,147,298(l) 2,168,771 --------------- Total 14,748,777 - ---------------------------------------------------------------------------------- ENVIRONMENTAL (0.4%) Clean Harbors Sr Secured 07-15-12 11.25 5,435,000 5,774,688 - ---------------------------------------------------------------------------------- FOOD AND BEVERAGE (4.4%) ASG Consolidated LLC/Finance Sr Disc Nts (Zero coupon through 11-01-08, thereafter 11.50%) 11-01-11 11.35 19,195,000(m) 17,755,374 Constellation Brands 12-15-14 8.38 4,990,000 5,239,500 09-01-16 7.25 5,305,000 5,278,475 05-15-17 7.25 6,195,000 6,117,563 Cott Beverages USA 12-15-11 8.00 19,335,000 16,289,738 Pinnacle Foods Finance LLC Sr Sub Nts 04-01-17 10.63 13,488,000 11,599,680 --------------- Total 62,280,330 - ---------------------------------------------------------------------------------- GAMING (5.2%) Circus & Eldorado Jt Venture/Silver Legacy Capital 1st Mtge 03-01-12 10.13 9,215,000 9,226,519 Firekeepers Development Authority Sr Secured 05-01-15 13.88 7,160,000(d) 7,213,700 Fontainebleau Las Vegas Holdings LLC/Capital 2nd Mtge 06-15-15 10.25 14,586,000(d) 10,611,314 Indianapolis Downs LLC/Capital Sr Secured 11-01-12 11.00 3,522,000(d) 3,275,460 MGM Mirage 06-01-16 7.50 4,450,000 3,954,938
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) GAMING (CONT.) Pokagon Gaming Authority Sr Nts 06-15-14 10.38% $9,555,000(d) $10,343,287 Shingle Springs Tribal Gaming Authority Sr Nts 06-15-15 9.38 8,790,000(d) 7,647,300 Station Casinos Sr Sub Nts 02-01-14 6.50 5,075,000 3,197,250 03-01-16 6.88 6,902,000 4,201,593 03-15-18 6.63 6,944,000 4,062,240 Tunica-Biloxi Gaming Authority Sr Unsecured 11-15-15 9.00 10,245,000(d) 10,014,488 --------------- Total 73,748,089 - ---------------------------------------------------------------------------------- GAS DISTRIBUTORS (0.4%) Southwestern Energy Sr Unsecured 02-01-18 7.50 4,875,000(d) 4,990,781 - ---------------------------------------------------------------------------------- GAS PIPELINES (1.3%) MarkWest Energy Partners LP/Finance Sr Nts 04-15-18 8.75 6,280,000(d) 6,578,300 Southern Star Central Sr Nts 03-01-16 6.75 7,040,000 6,784,800 Williams Partners LP/Finance Sr Unsecured 02-01-17 7.25 4,835,000 4,943,788 --------------- Total 18,306,888 - ---------------------------------------------------------------------------------- HEALTH CARE (7.8%) Community Health Systems 07-15-15 8.88 14,192,000 14,635,499 DaVita 03-15-13 6.63 9,346,000 9,088,985 03-15-15 7.25 7,525,000 7,355,688 HCA Sr Secured 11-15-16 9.25 5,956,000 6,291,025 HCA Sr Unsecured 02-15-16 6.50 12,190,000 10,559,588
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) HEALTH CARE (CONT.) MedCath Holdings 07-15-12 9.88% $11,736,000 $12,205,440 NMH Holdings Sr Unsecured Pay-in-kind 06-15-14 9.14 5,638,357(d,i,n) 4,961,754 Omnicare 12-15-13 6.75 9,065,000 8,498,438 12-15-15 6.88 4,438,000 4,116,245 Omnicare Sr Sub Nts 06-01-13 6.13 5,655,000 5,230,875 Select Medical Sr Unsecured 09-15-15 8.45 21,884,000(i) 19,148,499 Vanguard Health Holding I LLC Sr Disc Nts (Zero coupon through 10-01-09, thereafter 11.25%) 10-01-15 7.70 2,955,000(m) 2,570,850 Vanguard Health Holding II LLC 10-01-14 9.00 6,532,000 6,711,630 --------------- Total 111,374,516 - ---------------------------------------------------------------------------------- HOME CONSTRUCTION (2.0%) Hovnanian Enterprises 05-01-13 11.50 9,940,000(d) 10,337,600 Meritage Homes Sr Nts 05-01-14 7.00 3,010,000 2,550,975 Norcraft Holdings LP/Capital Sr Disc Nts (Zero coupon through 09-01-08, thereafter 9.75%) 09-01-12 8.17 8,620,000(m) 8,016,600 William Lyon Homes 02-15-14 7.50 12,380,000 7,304,200 --------------- Total 28,209,375 - ---------------------------------------------------------------------------------- INDEPENDENT ENERGY (8.2%) Chesapeake Energy 08-15-14 7.00 5,722,000 5,700,543 01-15-16 6.63 6,892,000 6,685,240 01-15-18 6.25 2,520,000 2,362,500 Compton Petroleum Finance 12-01-13 7.63 13,746,000(c) 13,453,897
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 19
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) INDEPENDENT ENERGY (CONT.) Connacher Oil and Gas Sr Secured 12-15-15 10.25% $9,160,000(c,d) $9,663,799 Denbury Resources 12-15-15 7.50 6,465,000 6,545,813 EXCO Resources 01-15-11 7.25 9,018,000 8,848,912 Forest Oil 06-15-19 7.25 2,803,000 2,753,948 Forest Oil Sr Nts 06-15-19 7.25 4,437,000(d) 4,359,353 Hilcorp Energy I LP/Finance Sr Unsecured 11-01-15 7.75 10,895,000(d) 10,649,862 KCS Energy 04-01-12 7.13 6,645,000 6,478,875 Newfield Exploration Sr Sub Nts 05-15-18 7.13 4,445,000 4,389,438 PetroHawk Energy 07-15-13 9.13 4,980,000 5,179,200 Quicksilver Resources 04-01-16 7.13 7,850,000 7,653,750 Range Resources 05-15-16 7.50 3,250,000 3,315,000 05-01-18 7.25 2,010,000 2,045,175 Sandridge Energy Pay-in-kind 04-01-15 8.63 12,345,000(d,n) 12,684,487 Sandridge Energy Sr Nts 06-01-18 8.00 4,330,000(d) 4,373,300 --------------- Total 117,143,092 - ---------------------------------------------------------------------------------- MEDIA CABLE (3.2%) Cablevision Systems Sr Unsecured Series B 04-15-12 8.00 6,465,000 6,287,213 Charter Communications Holdings II LLC/Capital 10-01-13 10.25 4,200,000 3,895,500 Charter Communications Holdings II LLC/Capital Series B 09-15-10 10.25 4,617,000 4,588,144
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MEDIA CABLE (CONT.) Charter Communications Operating LLC/Capital Sr Secured 04-30-14 8.38% $956,000(d) $939,270 09-15-14 10.88 7,415,000(d) 7,924,781 CSC Holdings Sr Nts 06-15-15 8.50 10,045,000(d,g) 10,057,555 Mediacom LLC/Capital Sr Unsecured 01-15-13 9.50 5,920,000 5,653,600 Videotron Sr Nts 04-15-18 9.13 1,545,000(c,d) 1,653,150 Virgin Media Finance 04-15-14 8.75 5,145,000(c) 5,054,963 --------------- Total 46,054,176 - ---------------------------------------------------------------------------------- MEDIA NON CABLE (9.1%) Dex Media West LLC/Finance Sr Sub Nts Series B 08-15-13 9.88 4,719,000 4,547,936 Dex Media West LLC/Finance Sr Unsecured Series B 08-15-10 8.50 1,360,000 1,363,400 DIRECTV Holdings LLC/Finance 06-15-15 6.38 5,175,000 4,909,781 DIRECTV Holdings LLC/Finance Sr Nts 05-15-16 7.63 17,505,000(d) 17,461,237 EchoStar DBS 02-01-16 7.13 15,494,000 14,796,770 Idearc 11-15-16 8.00 3,941,000 2,817,815 Lamar Media Series B 08-15-15 6.63 6,030,000 5,683,275 Lamar Media Series C 08-15-15 6.63 4,146,000 3,907,605 Lamar Media Sr Unsecured 08-15-15 6.63 7,632,000 7,193,160
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 20 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MEDIA NON CABLE (CONT.) LBI Media Sr Sub Nts 08-01-17 8.50% $5,112,000(d) $4,089,600 Liberty Media LLC Sr Unsecured 05-15-13 5.70 17,771,000 16,260,234 02-01-30 8.25 5,855,000 5,261,654 Radio One 02-15-13 6.38 12,370,000 9,339,350 Radio One Series B 07-01-11 8.88 1,035,000 870,694 Rainbow Natl Services LLC 09-01-12 8.75 12,485,000(d) 12,797,125 09-01-14 10.38 3,003,000(d) 3,213,210 RH Donnelley Sr Disc Nts Series A-1 01-15-13 6.88 1,420,000 951,400 RH Donnelley Sr Disc Nts Series A-2 01-15-13 6.88 6,010,000 4,026,700 RH Donnelley Sr Unsecured 01-15-13 6.88 12,483,000 8,363,610 --------------- Total 127,854,556 - ---------------------------------------------------------------------------------- METALS (1.7%) California Steel Inds Sr Nts 03-15-14 6.13 3,984,000 3,476,040 CII Carbon LLC 11-15-15 11.13 3,890,000(d) 3,821,925 Freeport-McMoRan Copper & Gold Sr Unsecured 04-01-15 8.25 7,965,000 8,442,900 04-01-17 8.38 1,350,000 1,451,250 Noranda Aluminum Acquisition Sr Unsecured Pay-in-kind 05-15-15 6.83 8,070,000(d,i,n) 7,081,425 --------------- Total 24,273,540 - ---------------------------------------------------------------------------------- NON CAPTIVE CONSUMER (0.7%) Triad Acquisition Sr Unsecured Series B 05-01-13 11.13 17,150,000 10,204,250 - ----------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) NON CAPTIVE DIVERSIFIED (1.3%) Ford Motor Credit LLC Sr Unsecured 08-10-11 9.88% $4,908,000 $4,661,177 GMAC LLC Sr Unsecured 09-15-11 6.88 6,010,000 5,066,977 08-28-12 6.88 11,560,000 9,311,452 --------------- Total 19,039,606 - ---------------------------------------------------------------------------------- OIL FIELD SERVICES (1.6%) Helix Energy Solutions Group Sr Unsecured 01-15-16 9.50 9,820,000(d) 10,212,800 Key Energy Services 12-01-14 8.38 11,620,000(d) 11,997,650 --------------- Total 22,210,450 - ---------------------------------------------------------------------------------- OTHER FINANCIAL INSTITUTIONS (1.0%) Cardtronics 08-15-13 9.25 8,906,000 8,527,495 Cardtronics Sr Sub Nts 08-15-13 9.25 5,653,000(d) 5,412,748 --------------- Total 13,940,243 - ---------------------------------------------------------------------------------- OTHER INDUSTRY (0.9%) Baldor Electric 02-15-17 8.63 2,855,000 2,926,375 Chart Inds Sr Sub Nts 10-15-15 9.13 9,185,000 9,414,625 --------------- Total 12,341,000 - ---------------------------------------------------------------------------------- PACKAGING (1.4%) Crown Americas LLC/Capital 11-15-15 7.75 4,597,000 4,826,850 Owens-Brockway Glass Container 05-15-13 8.25 1,857,000 1,921,995 Vitro 02-01-17 9.13 16,236,000(c) 13,719,420 --------------- Total 20,468,265 - ---------------------------------------------------------------------------------- PAPER (2.8%) Boise Cascade LLC 10-15-14 7.13 5,867,000 5,118,958
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 21
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) PAPER (CONT.) Cascades 02-15-13 7.25% $2,985,000(c) $2,626,800 Georgia-Pacific LLC 01-15-17 7.13 8,968,000(d) 8,855,899 Jefferson Smurfit US Sr Unsecured 06-01-13 7.50 8,335,000 7,334,800 NewPage Secured 05-01-12 10.00 1,165,000(d) 1,240,725 NewPage Sr Secured 05-01-12 10.00 5,072,000 5,401,680 Norampac 06-01-13 6.75 6,045,000(c) 5,138,250 Smurfit-Stone Container Enterprises Sr Unsecured 03-15-17 8.00 4,535,000 3,911,438 --------------- Total 39,628,550 - ---------------------------------------------------------------------------------- PHARMACEUTICALS (0.7%) Warner Chilcott 02-01-15 8.75 9,902,000 10,149,550 - ---------------------------------------------------------------------------------- RAILROADS (0.1%) Kansas City Southern Railway Sr Nts 06-01-15 8.00 1,828,000(g) 1,837,140 - ---------------------------------------------------------------------------------- TECHNOLOGY (2.1%) Communications & Power Inds 02-01-12 8.00 9,130,000 8,970,225 CPI Intl Sr Unsecured 02-01-15 8.94 2,558,000(i) 2,602,765 NXP BV/Funding LLC 10-15-15 9.50 2,145,000(c) 2,024,344 SS&C Technologies 12-01-13 11.75 3,414,000 3,593,235 SunGard Data Systems 08-15-15 10.25 12,375,000 12,870,000 --------------- Total 30,060,569 - ----------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) TRANSPORTATION SERVICES (0.6%) Hertz 01-01-16 10.50% $5,604,000 $5,589,990 Quality Distribution LLC/Capital 01-15-12 7.21 4,239,000(i) 2,818,935 --------------- Total 8,408,925 - ---------------------------------------------------------------------------------- WIRELESS (3.5%) Centennial Communications Sr Nts 01-01-13 8.45 8,346,000(i) 7,949,565 MetroPCS Wireless 11-01-14 9.25 9,995,000 9,607,694 Nextel Communications Series D 08-01-15 7.38 17,031,000 13,709,955 Sprint Capital 05-01-09 6.38 7,875,000 7,835,625 01-30-11 7.63 10,900,000 10,545,750 --------------- Total 49,648,589 - ---------------------------------------------------------------------------------- WIRELINES (4.9%) Citizens Communications Sr Nts 01-15-13 6.25 3,655,000 3,435,700 Citizens Communications Sr Unsecured 03-15-19 7.13 9,705,000 8,880,075 Fairpoint Communications Sr Unsecured 04-01-18 13.13 7,865,000(d) 8,022,300 GCI Sr Unsecured 02-15-14 7.25 9,632,000 8,283,520 Level 3 Communications Sub Nts 09-15-09 6.00 3,050,000 2,943,250 Level 3 Financing 03-15-13 12.25 4,775,000 4,966,000 Qwest Capital Funding 08-15-10 7.90 1,805,000 1,800,488 Qwest Sr Unsecured 06-15-15 7.63 11,190,000 11,134,050
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 22 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) WIRELINES (CONT.) Windstream 08-01-13 8.13% $1,875,000 $1,917,188 08-01-16 8.63 13,707,000 14,169,610 03-15-19 7.00 4,605,000 4,363,238 --------------- Total 69,915,419 - ---------------------------------------------------------------------------------- TOTAL BONDS (Cost: $1,222,149,643) $1,174,553,675 - ----------------------------------------------------------------------------------
SENIOR LOANS (13.2%)(h) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(A) AEROSPACE & DEFENSE (0.3%) Aero Technical Support 1st Lien Term Loan 08-16-14 5.96% $5,383,120 $4,548,737 - ----------------------------------------------------------------------------------- AUTOMOTIVE (0.5%) Ford Motor Term Loan 12-15-13 5.80 8,300,000 7,144,225 - ----------------------------------------------------------------------------------- CONSUMER PRODUCTS (0.4%) Spectrum Brands Letter of Credit 03-30-14 6.71-7.12 90,841 86,344 Spectrum Brands Tranche B Term Loan 03-30-13 6.59-6.73 5,671,567 5,390,824 --------------- Total 5,477,168 - ----------------------------------------------------------------------------------- ENTERTAINMENT (0.3%) AMC Entertainment Pay-in-kind Term Loan 06-13-12 7.80 5,684,904(n) 4,547,923 - ----------------------------------------------------------------------------------- GAMING (1.6%) Fontainebleau Las Vegas Delayed Draw Term Loan TBD TBD 5,657,216(g,o,p) 4,808,634 Fontainebleau Las Vegas Tranche B Term Loan 06-06-14 6.26 11,314,432 9,617,267
SENIOR LOANS (CONTINUED) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(A) GAMING (CONT.) Great Lakes Gaming of Michigan Term Loan 08-15-12 9.00% $9,133,769(l) $8,951,094 --------------- Total 23,376,995 - ----------------------------------------------------------------------------------- HEALTH CARE (1.7%) HCA Tranche B Term Loan 11-17-13 4.95 11,654,794 10,971,241 IASIS Healthcare LLC Pay-in-kind Term Loan 06-13-14 8.13 17,198,166(n) 15,220,376 --------------- Total 26,191,617 - ----------------------------------------------------------------------------------- MEDIA CABLE (1.2%) Charter Communications Term Loan 09-06-14 4.89-4.90 18,461,225 16,416,644 - ----------------------------------------------------------------------------------- MEDIA NON CABLE (1.2%) Intelsat Bermuda Term Loan 02-01-14 5.20 7,615,000(c) 7,658,786 Nielsen Finance Term Loan 08-09-13 4.73 9,736,920(c) 9,126,805 --------------- Total 16,785,591 - ----------------------------------------------------------------------------------- OIL FIELD SERVICES (1.3%) Dresser 2nd Lien Term Loan 05-04-15 8.47 19,560,000 18,663,565 - ----------------------------------------------------------------------------------- OTHER FINANCIAL INSTITUTIONS (0.6%) ACE Cash Express Term Loan 10-05-13 5.71-7.91 9,880,923 7,871,835 - ----------------------------------------------------------------------------------- TECHNOLOGY (1.2%) Flextronics Intl Term Loan 10-01-14 4.93-6.50 14,021,515 13,040,009 Flextronics Intl Tranche A1A Delayed Draw Term Loan 10-01-14 4.96 4,029,171 3,747,129 --------------- Total 16,787,138 - -----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 23
SENIOR LOANS (CONTINUED) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(A) WIRELESS (1.1%) Alltel Communications Tranche B2 Term Loan TBD TBD $3,675,000(g,o) $3,404,447 05-15-15 5.55% 12,785,000 11,843,768 --------------- Total 15,248,215 - ----------------------------------------------------------------------------------- WIRELINES (1.8%) Fairpoint Communications Tranche B Term Loan 03-08-15 5.75 14,901,000 13,497,027 Qwest Tranche B Term Loan 06-30-10 6.95 11,362,000 11,409,380 --------------- Total 24,906,407 - ----------------------------------------------------------------------------------- TOTAL SENIOR LOANS (Cost: $199,618,154) $187,966,060 - -----------------------------------------------------------------------------------
COMMON STOCKS (--%) ISSUER SHARES VALUE(A) OIL, GAS & CONSUMABLE FUELS (--%) Link Energy LLC Unit 1,646,684(b,k) $23,054 - ----------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS (--%) Crown Paper Escrow 29,470,000(b) 29 - -----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(A) TEXTILES, APPAREL & LUXURY GOODS (--%) Arena Brands 111,111(b,l,q) $-- - ----------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $18,965,223) $23,083 - -----------------------------------------------------------------------------------
OTHER (0.2%) ISSUER SHARES VALUE(A) OTHER FINANCIAL INSTITUTIONS Varde Fund V LP 25,000,000(e,l) $2,896,750 - ------------------------------------------------------------------------------------- OTHER (Cost: $--) $2,896,750 - -------------------------------------------------------------------------------------
MONEY MARKET FUND (1.8%) SHARES VALUE(A) RiverSource Short-Term Cash Fund, 2.60% 25,785,738(j) $25,785,738 - ----------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $25,785,738) $25,785,738 - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $1,466,518,758)(r) $1,391,225,306 ===================================================================================
INVESTMENTS IN DERIVATIVES CREDIT DEFAULT SWAP CONTRACTS OUTSTANDING AT MAY 31, 2008
NOTIONAL REFERENCED BUY/SELL PAY/RECEIVE EXPIRATION PRINCIPAL UNREALIZED COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE AMOUNT DEPRECIATION - ---------------------------------------------------------------------------------------------------------------- Lehman Brothers Ford Motor Sell 6.75% Dec. 20, 2012 $3,100,000 $(300,034) Special Financing
NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. At May 31, 2008, the value of foreign securities represented 4.9% of net assets. - -------------------------------------------------------------------------------- 24 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At May 31, 2008, the value of these securities amounted to $267,098,579 or 18.8% of net assets. (e) The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. (f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) At May 31, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $24,444,966. See Note 1 to the financial statements. (h) Senior loans have rates of interest that float periodically based primarily on the London Interbank Offered Rate ("LIBOR") and other short-term rates. Remaining maturities of senior loans may be less than the stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. (i) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on May 31, 2008. (j) Affiliated Money Market Fund - See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at May 31, 2008. (k) Investments representing 5% or more of the outstanding voting securities of the issuer. Transactions with companies that are or were affiliates during the year ended May 31, 2008 are as follows:
BEGINNING PURCHASE SALES ENDING DIVIDEND ISSUER COST COST COST COST INCOME VALUE(A) - ------------------------------------------------------------------------------------------------- Link Energy LLC Unit $13,076,335 $-- $-- $13,076,335 $-- $23,054
- -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 25 NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (l) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities may be valued at fair value according to procedures approved, in good faith, by the Fund's Board of Directors. Information concerning such security holdings at May 31, 2008, is as follows:
ACQUISITION SECURITY DATES COST - ---------------------------------------------------------------------------------- Arena Brands Common 09-03-92 $5,888,888 Great Lakes Gaming of Michigan Term Loan 9.00% 2012 03-01-07 thru 09-15-07 8,988,699 United Artists Theatre Circuit Pass-Through Ctfs Series BB5 9.30% 2015 12-08-95 thru 04-03-02 6,427,710 United Artists Theatre Circuit Pass-Through Ctfs Series BC3 9.30% 2015 12-06-01 1,749,146 Varde Fund V LP 04-27-00 thru 06-19-00 --*
* The original cost for this position in fiscal year 2004 was $25,000,000. From Sept. 29, 2004 through March 7, 2005, $25,000,000 was returned to the fund in the form of return of capital. (m) For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the annualized effective yield from the date of acquisition to maturity. (n) Pay-in-kind securities are securities in which the issuer makes interest or dividend payments in cash or in additional securities. The securities usually have the same terms as the original holdings. (o) Represents a senior loan purchased on a when-issued or delayed-delivery basis. Certain details associated with this purchase are not known prior to the settlement date of the transaction. In addition, senior loans typically trade without accrued interest and therefore a weighted average coupon rate is not available prior to settlement. At settlement, if still unknown, the borrower or counterparty will provide the Fund with the final weighted average coupon rate and maturity date. (p) At May 31, 2008, the Fund had unfunded senior loan commitments pursuant to the terms of the loan agreement. The Fund receives a stated coupon rate until the borrower draws on the loan commitment, at which time the rate will become the stated rate in the loan agreement.
UNFUNDED BORROWER COMMITMENT - ----------------------------------------------------------------------------- Fontainebleau Las Vegas $5,497,628
(q) Negligible market value. (r) At May 31, 2008, the cost of securities for federal income tax purposes was $1,457,911,237 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $20,165,380 Unrealized depreciation (86,851,311) - ------------------------------------------------------------------------------ Net unrealized depreciation $(66,685,931) - ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 26 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 27 FINANCIAL STATEMENTS ----------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2008 ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $1,427,656,685) $ 1,365,416,514 Affiliated money market fund (identified cost $25,785,738) 25,785,738 Other affiliated issuers (identified cost $13,076,335) 23,054 - ------------------------------------------------------------------------------- Total investments in securities (identified cost $1,466,518,758) 1,391,225,306 Capital shares receivable 669,045 Dividends and accrued interest receivable 28,357,919 Receivable for investment securities sold 40,109,356 Cash deposits and collateral held with brokers 509,000 Other receivable 220,452 - ------------------------------------------------------------------------------- Total assets 1,461,091,078 - ------------------------------------------------------------------------------- LIABILITIES Disbursements in excess of cash 72,293 Dividends payable to shareholders 657,748 Capital shares payable 2,823,450 Payable for investment securities purchased 34,968,531 Unrealized depreciation on swap contracts 300,034 Accrued investment management services fees 22,670 Accrued distribution fees 291,343 Accrued transfer agency fees 2,359 Accrued administrative services fees 2,540 Accrued plan administration services fees 179 Other accrued expenses 217,311 - ------------------------------------------------------------------------------- Total liabilities 39,358,458 - ------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 1,421,732,620 ===============================================================================
- -------------------------------------------------------------------------------- 28 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) MAY 31, 2008 REPRESENTED BY Capital stock -- $.01 par value $ 5,198,960 Additional paid-in capital 2,860,222,758 Excess of distributions over net investment income (1,470,509) Accumulated net realized gain (loss) (1,366,845,555) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (75,373,034) - ------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 1,421,732,620 ===============================================================================
Net assets applicable to outstanding shares: Class A $ 1,133,624,554 Class B $ 173,554,717 Class C $ 18,643,745 Class I $ 72,462,449 Class R2 $ 8,713 Class R3 $ 4,652 Class R4 $ 919,275 Class R5 $ 4,640 Class W $ 22,509,875 Net asset value per share of outstanding capital stock: Class A shares(1) 414,428,945 $ 2.74 Class B shares 63,456,498 $ 2.74 Class C shares 6,860,137 $ 2.72 Class I shares 26,516,567 $ 2.73 Class R2 shares 3,175 $ 2.74 Class R3 shares 1,695 $ 2.74 Class R4 shares 336,077 $ 2.74 Class R5 shares 1,695 $ 2.74 Class W shares 8,291,217 $ 2.71 - --------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $2.88. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 29 STATEMENT OF OPERATIONS YEAR ENDED MAY 31, 2008 INVESTMENT INCOME Income: Interest $ 142,173,524 Income distributions from affiliated money market fund 3,405,074 Fee income from securities lending 71,335 Less foreign taxes withheld (79,552) - ----------------------------------------------------------------------------- Total income 145,570,381 - ----------------------------------------------------------------------------- Expenses: Investment management services fees 9,610,810 Distribution fees Class A 3,139,852 Class B 2,195,630 Class C 211,821 Class R2 27 Class R3 11 Class W 140,313 Transfer agency fees Class A 1,998,209 Class B 368,434 Class C 34,645 Class R2 3 Class R3 3 Class R4 541 Class R5 3 Class W 112,250 Administrative services fees 1,069,014 Plan administration services fees Class R2 13 Class R3 11 Class R4 2,706 Compensation of board members 30,744 Custodian fees 129,000 Printing and postage 306,795 Registration fees 131,426 Professional fees 101,105 Other 491,431 - ----------------------------------------------------------------------------- Total expenses 20,074,797 Expenses waived/reimbursed by the Investment Manager and its affiliates (436,122) Earnings and bank fee credits on cash balances (88,594) - ----------------------------------------------------------------------------- Total net expenses 19,550,081 - ----------------------------------------------------------------------------- Investment income (loss) -- net 126,020,300 - -----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 30 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT STATEMENT OF OPERATIONS (CONTINUED) YEAR ENDED MAY 31, 2008 REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions $ (64,808,618) Swap transactions (8,523,183) - ----------------------------------------------------------------------------- Net realized gain (loss) on investments (73,331,801) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (113,650,004) - ----------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (186,981,805) - ----------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ (60,961,505) =============================================================================
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 31 STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED MAY 31, 2008 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 126,020,300 $ 134,476,976 Net realized gain (loss) on investments (73,331,801) 41,778,854 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (113,650,004) 56,295,791 - --------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (60,961,505) 232,551,621 - --------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (92,027,977) (115,403,008) Class B (14,410,322) (23,882,544) Class C (1,392,372) (1,787,914) Class I (8,054,105) (7,229,447) Class R2 (369) (163) Class R3 (344) (170) Class R4 (82,390) (77,989) Class R5 (363) (181) Class W (4,192,045) (199,220) Tax return of capital Class A (40,163) -- Class B (6,289) -- Class C (608) -- Class I (3,515) -- Class R4 (36) -- Class W (1,829) -- - --------------------------------------------------------------------------------------- Total distributions (120,212,727) (148,580,636) - ---------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 32 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED MAY 31, 2008 2007 CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 196,422,904 $ 210,763,226 Class B shares 18,833,838 37,023,271 Class C shares 2,467,245 3,433,741 Class I shares 42,473,426 134,595,782 Class R2 shares 4,052 5,000 Class R3 shares -- 5,000 Class R4 shares 435,232 714,463 Class R5 shares -- 5,000 Class W shares 112,121,312 32,756,464 Reinvestment of distributions at net asset value Class A shares 69,001,568 85,786,874 Class B shares 11,411,686 18,654,193 Class C shares 1,125,071 1,397,368 Class I shares 8,139,335 7,136,479 Class R2 shares 38 -- Class R4 shares 83,570 77,173 Class W shares 4,214,685 167,473 Payments for redemptions Class A shares (460,100,793) (433,987,084) Class B shares (151,878,801) (181,032,353) Class C shares (8,296,094) (8,118,318) Class I shares (63,573,729) (73,179,368) Class R2 shares (183) -- Class R4 shares (734,634) (299,579) Class W shares (116,812,442) (2,950,937) - --------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (334,662,714) (167,046,132) - --------------------------------------------------------------------------------------- Total increase (decrease) in net assets (515,836,946) (83,075,147) Net assets at beginning of year 1,937,569,566 2,020,644,713 - --------------------------------------------------------------------------------------- Net assets at end of year $1,421,732,620 $1,937,569,566 ======================================================================================= Undistributed (excess of distributions over) net investment income $ (1,470,509) $ 1,192,661 - ---------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource High Yield Bond Fund (the Fund) is a series of RiverSource High Yield Income Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource High Yield Income Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests primarily in high-yielding, high risk corporate bonds, commonly known as junk bonds. The Fund offers Class A, Class B, Class C, Class I, Class R2, Class R3, Class R4, Class R5 and Class W shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - - Class C shares may be subject to a CDSC. - - Class I, Class R2, Class R3, Class R4 and Class R5 shares are sold without a front end sales charge or CDSC and are offered to qualifying institutional investors. - - Class W shares are sold without a front-end sales charge or CDSC and are offered through qualifying discretionary accounts. At May 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares and the Investment Manager owned 100% of Class R3 and Class R5 shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The 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. - -------------------------------------------------------------------------------- 34 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Swap transactions are valued through an authorized pricing service, broker, or an internal model. 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. ILLIQUID SECURITIES At May 31, 2008, investments in securities included issues that are illiquid which the Fund currently limits to 15% of net assets, at market value, at the time of purchase. Prior to July 12, 2007, the Fund limited the percent held in securities and other instruments that were illiquid to 10% of the Fund's net assets. The aggregate value of such securities at May 31, 2008 was $20,762,401 representing 1.46% of net assets. These securities may be valued at fair value according to procedures approved, in good faith, by the Board. According to Board guidelines, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. Assets are liquid if they can be sold or - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 35 disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS AND UNFUNDED LOAN COMMITMENTS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward- commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward-commitments. At May 31, 2008, the Fund has outstanding when-issued securities of $19,564,135 and other forward-commitments of $4,880,831. The Fund may enter into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrower's discretion. These commitments are disclosed in the Portfolio of Investments. At May 31, 2008, the Fund has entered into unfunded loan commitments of $5,497,628. INVESTMENTS IN LOANS The senior loans acquired by the Fund typically take the form of a direct lending relationship with the borrower acquired through an assignment of another lender's interest in a loan. The lead lender in a typical corporate loan syndicate administers the loan and monitors collateral. In the event that the lead lender becomes insolvent, enters FDIC receivership, or, if not FDIC insured, enters into bankruptcy, the Fund may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest. Loans are typically secured but may be unsecured. The primary risk arising from investing in subordinated loans or in unsecured loans is the potential loss in the event of default by the issuer of the loans. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option - -------------------------------------------------------------------------------- 36 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Fund will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At May 31, 2008, and for the year then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. At May 31, 2008, the Fund had no outstanding futures contracts. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 37 using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. At May 31, 2008, the Fund had no outstanding forward foreign currency contracts. CMBS TOTAL RETURN SWAP TRANSACTIONS The Fund may enter into swap agreements to earn the total return on a specified security or index of fixed income securities. CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of commercial mortgage-backed securities. Under the terms of the swaps, the Fund either receives or pays the total return on a reference security or index applied to a notional principal amount. In return, the Fund agrees to pay or receive from the counterparty a floating rate, which is reset periodically based on short-term interest rates, applied to the same notional amount. The notional amounts of swap contracts are not recorded in the financial statements. Swaps are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time realized gain (loss) is recorded. Payments received or made are recorded as realized gains (losses). Swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. It may not be possible for the Fund to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. Total return swaps are subject to the risk that the counterparty will default on its obligation to pay net amounts due to the Fund. At May 31, 2008, the Fund had no outstanding CMBS total return swap contracts. CREDIT DEFAULT SWAP TRANSACTIONS The Fund may enter into credit default swap contracts to increase or decrease its credit exposure to an issuer, obligation, portfolio, or index of issuers or obligations, to hedge its exposure on an obligation that it owns or in lieu of selling such obligations. As the purchaser of a credit default swap contract, the Fund purchases protection by paying a periodic interest rate on the notional amount to the counterparty. The interest amount is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as a realized loss upon payment. If the credit event specified in the contract occurs, the Fund will be required to deliver either the referenced obligation or an equivalent cash amount to the protection seller and in exchange the Fund will receive the notional amount from the seller. The difference between the value of the obligation delivered and the notional amount received will be recorded as a realized gain (loss). As the seller of a credit default swap contract, the Fund sells protection to a buyer and will generally receive a periodic interest rate on the notional amount. The interest amount is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as a realized gain upon receipt of the payment. If the credit event - -------------------------------------------------------------------------------- 38 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT specified in the contract occurs, the Fund will receive the referenced obligation or an equivalent cash amount in exchange for the payment of the notional amount to the protection buyer. The difference between the value of the obligation received and the notional amount paid will be recorded as a realized gain (loss). As a protection seller, the maximum amount of the payment made by the Fund may equal the notional amount, at par, of the underlying index or security as a result of the related credit event. The notional amounts of credit default swap contracts are not recorded in the financial statements. Any premium paid or received by the Fund upon entering into a credit default swap contract is recorded as an asset or liability and amortized daily as a component of realized gain (loss) on the Statement of Operations. At May 31, 2008, there were no credit default swap contracts outstanding which had a premium paid or received by the Fund. Credit default swap contracts are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time a realized gain (loss) is recorded. Credit default swap contracts can involve greater risks than if a fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to counterparty credit risk, leverage risk, hedging risk, correlation risk and liquidity risk. The Fund will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The 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 the shareholders. No provision for income or excise taxes is thus required. The Fund has adopted Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," which is effective for fiscal periods beginning after Dec. 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more- - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 39 likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of recognition of unrealized appreciation (depreciation) for certain derivative investments, investments in partnerships, post-October losses, market discount and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the Statement of Assets and Liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been decreased by $8,523,183 and accumulated net realized loss has been decreased by $58,996,948 resulting in a net reclassification adjustment to decrease paid-in capital by $50,473,765. The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED MAY 31, 2008 2007* - ---------------------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income........................ $92,027,977 $115,403,008 Long-term capital gain................. -- -- Tax return of capital.................. 40,163 -- CLASS B Distributions paid from: Ordinary income........................ 14,410,322 23,882,544 Long-term capital gain................. -- -- Tax return of capital.................. 6,289 -- CLASS C Distributions paid from: Ordinary income........................ 1,392,372 1,787,914 Long-term capital gain................. -- -- Tax return of capital.................. 608 -- CLASS I Distributions paid from: Ordinary income........................ 8,054,105 7,229,447 Long-term capital gain................. -- -- Tax return of capital.................. 3,515 --
- -------------------------------------------------------------------------------- 40 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT
YEAR ENDED MAY 31, 2008 2007* - ---------------------------------------------------------------------------- CLASS R2 Distributions paid from: Ordinary income........................ $ 369 $ 163 Long-term capital gain................. -- -- Tax return of capital.................. -- -- CLASS R3 Distributions paid from: Ordinary income........................ 344 170 Long-term capital gain................. -- -- Tax return of capital.................. -- -- CLASS R4 Distributions paid from: Ordinary income........................ 82,390 77,989 Long-term capital gain................. -- -- Tax return of capital.................. 36 -- CLASS R5 Distributions paid from: Ordinary income........................ 363 181 Long-term capital gain................. -- -- Tax return of capital.................. -- -- CLASS W Distributions paid from: Ordinary income........................ 4,192,045 199,220 Long-term capital gain................. -- -- Tax return of capital.................. 1,829 --
* Class R2, Class R3 and Class R5 are for the period from Dec. 11, 2006 (inception date) to May 31, 2007. Class W is for the period from Dec. 1, 2006 (inception date) to May 31, 2007. At May 31, 2008, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income........................... $ -- Undistributed accumulated long-term gain................ $ -- Accumulated realized loss............................... $(1,376,549,063) Unrealized appreciation (depreciation).................. $ (66,482,287)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 41 derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after Nov. 15, 2008. As of May 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning June 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on the Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, when available, are reinvested in additional shares of the 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 are accounted for on the date securities are purchased or sold. Dividend income, if any, is recognized on the ex-dividend date. Non-cash dividends or interest included in investment income, if any, are recorded at the fair market value of the security received. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. The Fund may place a debt security on non-accrual status and reduce related interest income when it becomes probable that the interest will not be collected and the amount of uncollectible interest can be reasonably estimated. A defaulted debt security is removed from non-accrual status when the issuer resumes interest payments or when collectibility of interest is reasonably assured. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.59% to - -------------------------------------------------------------------------------- 42 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 0.36% annually as the Fund's assets increase. The management fee for the year ended May 31, 2008 was 0.58% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.07% to 0.04% annually as the Fund's assets increase. The fee for the year ended May 31, 2008 was 0.07% of the Fund's average daily net assets. OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the year ended May 31, 2008, other expenses paid to the company were $8,708. COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R2, Class R3, Class R4 and Class R5 shares and an annual asset-based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 43 PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as a principal underwriter and distributor to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A, Class R3 and Class W shares, a fee at an annual rate of up to 0.50% of the Fund's average daily net assets attributable to Class R2 shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $698,296 for Class A, $180,498 for Class B and $3,313 for Class C for the year ended May 31, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended May 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A..................................................... 1.10% Class B..................................................... 1.86 Class C..................................................... 1.86 Class I..................................................... 0.69 Class R2.................................................... 1.25 Class R3.................................................... 0.99 Class R4.................................................... 0.76 Class R5.................................................... 0.75 Class W..................................................... 1.14
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class R4.................................................... $445
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R2.................................................... $ 13 Class R3.................................................... 11 Class R4.................................................... 2,091
- -------------------------------------------------------------------------------- 44 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT Under an agreement which was effective until May 31, 2008, the Investment Manager and its affiliates contractually agreed to waive certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*), would not exceed the following percentage of the Fund's average daily net assets: Class R4.................................................... 0.95%
Effective June 1, 2008, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until May 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*) will not exceed the following percentage of the Fund's average daily net assets: Class A..................................................... 1.02% Class B..................................................... 1.78 Class C..................................................... 1.77 Class I..................................................... 0.65 Class R2.................................................... 1.45 Class R3.................................................... 1.20 Class R4.................................................... 0.95 Class R5.................................................... 0.70 Class W..................................................... 1.10
In 2005, the Fund received an amended 2003 K-1, for a partnership investment, that reported a smaller loss allocable to the Fund than originally reported. The resulting change to investment income caused taxable dividends on 2004 Forms 1099-DIV to be understated. To resolve this matter, the Fund entered into a closing agreement and in August 2007 paid $433,562 to the Internal Revenue Service. This amount is included in other expenses on the Statement of Operations. Ameriprise Financial reimbursed the Fund for this payment. This amount is included in expenses waived/reimbursed by the Investment Manager and its affiliates on the Statement of Operations. * 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 funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the year ended May 31, 2008, the Fund's custodian and transfer agency fees were reduced by $88,594 as a result of earnings and bank fee credits from overnight cash balances. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $1,013,095,267 and $1,313,559,086, respectively, for the - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 45 year ended May 31, 2008. Realized gains and losses are determined on an identified cost basis. Income from securities lending amounted to $71,335 for the year ended May 31, 2008. Expenses paid to the Investment Manager as securities lending agent were $781 for the year ended May 31, 2008, which are included in other expenses on the Statement of Operations. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. At May 31, 2008, the Fund had no securities out on loan. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
YEAR ENDED MAY 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 69,812,179 24,649,149 (164,712,404) (70,251,076) Class B 6,671,784 4,066,883 (53,611,257) (42,872,590) Class C 885,681 404,210 (2,987,355) (1,697,464) Class I 14,766,534 2,910,381 (23,351,195) (5,674,280) Class R2 1,533 14 (67) 1,480 Class R4 154,704 29,801 (263,793) (79,288) Class W 39,481,557 1,512,140 (42,718,599) (1,724,902) - ----------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 72,287,474 29,211,824 (147,814,504) (46,315,206) Class B 12,602,733 6,358,244 (62,324,222) (43,363,245) Class C 1,170,753 479,108 (2,788,522) (1,138,661) Class I 46,093,859 2,418,928 (24,630,726) 23,882,061 Class R2* 1,695 -- -- 1,695 Class R3* 1,695 -- -- 1,695 Class R4 242,099 26,192 (100,449) 167,842 Class R5* 1,695 -- -- 1,695 Class W** 10,946,268 55,840 (985,989) 10,016,119 - ----------------------------------------------------------------------------------------------
* For the period from Dec. 11, 2006 (inception date) to May 31, 2007. ** For the period from Dec. 1, 2006 (inception date) to May 31, 2007. 5. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. The cost of the Fund's - -------------------------------------------------------------------------------- 46 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $748,072,445 and $835,284,038, respectively, for the year ended May 31, 2008. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found on the Statement of Operations and the Fund's invested balance in RiverSource Short-Term Cash Fund at May 31, 2008, can be found in the Portfolio of Investments. 6. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Under the prior credit facility, a Fund paid interest on its outstanding borrowings at a rate equal to either the higher of the federal funds effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. The Fund had no borrowings during the year ended May 31, 2008. 7. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, the Fund had a capital loss carry-over of $1,320,916,274 at May 31, 2008, that if not offset by capital gains will expire as follows:
2009 2010 2011 2014 2016 $226,001,198 $517,121,802 $552,664,309 $19,078,058 $6,050,907
Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the Fund is permitted to treat net capital losses realized between Nov. 1, 2007 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At May 31, 2008, the Fund had a post-October loss of $55,632,789 that is treated for income tax purposes as occurring on June 1, 2008. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 47 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/ Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K - -------------------------------------------------------------------------------- 48 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 49 9. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $3.02 $2.89 $2.86 $2.74 $2.62 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(b) .20 .20 .19 .21 Net gains (losses) (both realized and unrealized) (.29) .15 .03 .12 .11 - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.07) .35 .23 .31 .32 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.22) (.20) (.19) (.20) Tax return of capital .00(c) -- -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.21) (.22) (.20) (.19) (.20) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.74 $3.02 $2.89 $2.86 $2.74 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1,134 $1,463 $1,535 $1,735 $1,810 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.13% 1.08% 1.08% 1.04% 1.04% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 1.10% 1.08% 1.08% 1.04% 1.04% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 7.71% 6.94% 6.78% 6.67% 7.47% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% 93% 105% 140% - ----------------------------------------------------------------------------------------------------------- Total return(h) (2.40%) 12.77%(i) 8.27% 11.56% 12.51% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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 acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. (i) During the year ended May 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower by 0.01%. - -------------------------------------------------------------------------------- 50 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $3.02 $2.89 $2.86 $2.74 $2.62 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .18 .18 .17 .19 Net gains (losses) (both realized and unrealized) (.29) .15 .03 .12 .11 - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.10) .33 .21 .29 .30 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.20) (.18) (.17) (.18) Tax return of capital .00(c) -- -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.18) (.20) (.18) (.17) (.18) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.74 $3.02 $2.89 $2.86 $2.74 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $174 $321 $433 $629 $781 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.89% 1.84% 1.83% 1.79% 1.80% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 1.86% 1.84% 1.83% 1.79% 1.80% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.92% 6.18% 6.00% 5.92% 6.70% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% 93% 105% 140% - ----------------------------------------------------------------------------------------------------------- Total return(h) (3.17%) 11.91%(i) 7.45% 10.72% 11.66% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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 acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.85% for the year ended May 31, 2008. (h) Total return does not reflect payment of a sales charge. (i) During the year ended May 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower by 0.01%. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 51 CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $3.00 $2.87 $2.84 $2.73 $2.61 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(b) .18 .18 .17 .19 Net gains (losses) (both realized and unrealized) (.29) .15 .03 .11 .11 - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.10) .33 .21 .28 .30 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.20) (.18) (.17) (.18) Tax return of capital .00(c) -- -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.18) (.20) (.18) (.17) (.18) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.72 $3.00 $2.87 $2.84 $2.73 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $19 $26 $28 $36 $39 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.88% 1.83% 1.83% 1.79% 1.80% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) 1.86% 1.83% 1.83% 1.79% 1.80% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 6.95% 6.18% 6.02% 5.92% 6.71% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% 93% 105% 140% - ----------------------------------------------------------------------------------------------------------- Total return(h) (3.21%) 11.95%(i) 7.47% 10.35% 11.71% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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 acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.85% for the year ended May 31, 2008. (h) Total return does not reflect payment of a sales charge. (i) During the year ended May 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower by 0.01%. - -------------------------------------------------------------------------------- 52 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004(B) Net asset value, beginning of period $3.02 $2.89 $2.86 $2.74 $2.83 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(c) .21 .21 .21 .08 Net gains (losses) (both realized and unrealized) (.30) .16 .03 .11 (.11) - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.07) .37 .24 .32 (.03) - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.24) (.21) (.20) (.06) Tax return of capital .00(d) -- -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.22) (.24) (.21) (.20) (.06) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.73 $3.02 $2.89 $2.86 $2.74 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $72 $97 $24 $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) .72% .67% .69% .64% .65%(g) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) .69% .67% .69% .64% .65%(g) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 8.13% 7.37% 7.49% 7.06% 7.30%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% 93% 105% 140% - ----------------------------------------------------------------------------------------------------------- Total return (2.36%) 13.21%(j) 8.69% 11.97% (1.39%)(k) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to May 31, 2004. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2008 were less than 0.01% of average net assets. (j) During the year ended May 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower by 0.01%. (k) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 53 CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007(B) Net asset value, beginning of period $3.02 $2.95 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21(c) .11 Net gains (losses) (both realized and unrealized) (.29) .05 - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.08) .16 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.09) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.74 $3.02 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.51% 1.45%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.25% 1.45%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 7.63% 6.58%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% - ----------------------------------------------------------------------------------------------------------- Total return (2.75%) 5.72%(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to May 31, 2007. (c) Per share amount has been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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 acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- 54 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007(B) Net asset value, beginning of period $3.02 $2.95 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(c) .11 Net gains (losses) (both realized and unrealized) (.29) .06 - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.07) .17 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.10) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.74 $3.02 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.26% 1.20%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .99% 1.20%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 7.82% 6.84%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% - ----------------------------------------------------------------------------------------------------------- Total return (2.47%) 5.85%(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to May 31, 2007. (c) Per share amount has been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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 acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 55 CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007 2006 2005 2004 Net asset value, beginning of period $3.01 $2.89 $2.86 $2.74 $2.62 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .23(b) .21 .21 .20 .21 Net gains (losses) (both realized and unrealized) (.29) .14 .02 .12 .12 - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.06) .35 .23 .32 .33 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.23) (.20) (.20) (.21) Tax return of capital .00(c) -- -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.21) (.23) (.20) (.20) (.21) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.74 $3.01 $2.89 $2.86 $2.74 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 $1 $1 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.02% .94% .90% .87% .88% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(f),(g) .76% .93% .90% .87% .88% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 8.07% 7.10% 6.96% 6.84% 7.60% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% 93% 105% 140% - ----------------------------------------------------------------------------------------------------------- Total return (1.87%) 12.56%(h) 8.45% 11.75% 12.67% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amount has been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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 acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 0.75% for the year ended May 31, 2008. (h) During the year ended May 31, 2007, Ameriprise Financial reimbursed the Fund for a loss on a trading error. Had the Fund not received this reimbursement, total return would have been lower by 0.01%. - -------------------------------------------------------------------------------- 56 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007(B) Net asset value, beginning of period $3.02 $2.95 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .22(c) .12 Net gains (losses) (both realized and unrealized) (.28) .05 - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.06) .17 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.22) (.10) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.74 $3.02 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .78% .71%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .75% .71%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 8.06% 7.33%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% - ----------------------------------------------------------------------------------------------------------- Total return (2.06%) 6.09%(i) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to May 31, 2007. (c) Per share amount has been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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 acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the year ended May 31, 2008 were less than 0.01% of average net assets. (i) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 57 CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED MAY 31, 2008 2007(B) Net asset value, beginning of period $3.00 $2.94 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21(c) .11 Net gains (losses) (both realized and unrealized) (.30) .07 - ----------------------------------------------------------------------------------------------------------- Total from investment operations (.09) .18 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.12) Tax return of capital .00(d) -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.20) (.12) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $2.71 $3.00 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $23 $30 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) 1.17% 1.06%(g) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) 1.14% 1.06%(g) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 7.59% 6.05%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 64% 95% - ----------------------------------------------------------------------------------------------------------- Total return (2.87%) 6.20%(j) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007. (c) Per share amount has been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. The ratio of net expenses after expense waiver/reimbursement and after reduction for earnings and bank fee credits was 1.13% for the year ended May 31, 2008. (j) Not annualized. - -------------------------------------------------------------------------------- 58 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RIVERSOURCE HIGH YIELD BOND FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of RiverSource High Yield Bond Fund (the Fund), of the RiverSource High Yield Income Series, Inc., as of May 31, 2008, and the related statements of operations, changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements and financial highlights of the Fund for the periods presented through May 31, 2007, were audited by other auditors whose report dated July 20, 2007, expressed an unqualified opinion on those financial statements and financial highlights. We conducted our 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 financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 59 In our opinion, the 2008 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of RiverSource High Yield Bond Fund of the RiverSource High Yield Income Series, Inc. at May 31, 2008, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota July 22, 2008 - -------------------------------------------------------------------------------- 60 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 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. Fiscal year ended May 31, 2008 CLASS A
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01800 July 25, 2007............................................... 0.01780 Aug. 24, 2007............................................... 0.01750 Sept. 24, 2007.............................................. 0.01850 Oct. 26, 2007............................................... 0.01950 Nov. 26, 2007............................................... 0.02000 Dec. 17, 2007............................................... 0.01800 Jan. 28, 2008............................................... 0.01910 Feb. 27, 2008............................................... 0.01580 March 27, 2008.............................................. 0.01430 April 28, 2008.............................................. 0.01410 May 28, 2008................................................ 0.01379 Total distributions(a)...................................... $0.20639
- -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 61 CLASS B
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01607 July 25, 2007............................................... 0.01591 Aug. 24, 2007............................................... 0.01573 Sept. 24, 2007.............................................. 0.01666 Oct. 26, 2007............................................... 0.01757 Nov. 26, 2007............................................... 0.01816 Dec. 17, 2007............................................... 0.01677 Jan. 28, 2008............................................... 0.01669 Feb. 27, 2008............................................... 0.01413 March 27, 2008.............................................. 0.01272 April 28, 2008.............................................. 0.01232 May 28, 2008................................................ 0.01208 Total distributions(a)...................................... $0.18481
CLASS C
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01598 July 25, 2007............................................... 0.01587 Aug. 24, 2007............................................... 0.01564 Sept. 24, 2007.............................................. 0.01656 Oct. 26, 2007............................................... 0.01747 Nov. 26, 2007............................................... 0.01806 Dec. 17, 2007............................................... 0.01668 Jan. 28, 2008............................................... 0.01660 Feb. 27, 2008............................................... 0.01405 March 27, 2008.............................................. 0.01265 April 28, 2008.............................................. 0.01225 May 28, 2008................................................ 0.01202 Total distributions(a)...................................... $0.18383
- -------------------------------------------------------------------------------- 62 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT CLASS I
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01901 July 25, 2007............................................... 0.01875 Aug. 24, 2007............................................... 0.01844 Sept. 24, 2007.............................................. 0.01948 Oct. 26, 2007............................................... 0.02052 Nov. 26, 2007............................................... 0.02097 Dec. 17, 2007............................................... 0.01865 Jan. 28, 2008............................................... 0.02038 Feb. 27, 2008............................................... 0.01670 March 27, 2008.............................................. 0.01516 April 28, 2008.............................................. 0.01506 May 28, 2008................................................ 0.01470 Total distributions(a)...................................... $0.21782
CLASS R2
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... 0.01697 July 25, 2007............................................... 0.01683 Aug. 24, 2007............................................... 0.01651 Sept. 24, 2007.............................................. 0.01756 Oct. 26, 2007............................................... 0.01852 Nov. 26, 2007............................................... 0.01906 Dec. 17, 2007............................................... 0.01739 Jan. 28, 2008............................................... 0.01791 Feb. 27, 2008............................................... 0.01503 March 27, 2008.............................................. 0.01355 April 28, 2008.............................................. 0.01411 May 28, 2008................................................ 0.01323 Total distributions......................................... $0.19667
- -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 63 CLASS R3
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... 0.01763 July 25, 2007............................................... 0.01749 Aug. 24, 2007............................................... 0.01717 Sept. 24, 2007.............................................. 0.01824 Oct. 26, 2007............................................... 0.01921 Nov. 26, 2007............................................... 0.01972 Dec. 17, 2007............................................... 0.01783 Jan. 28, 2008............................................... 0.01869 Feb. 27, 2008............................................... 0.01558 March 27, 2008.............................................. 0.01406 April 28, 2008.............................................. 0.01544 May 28, 2008................................................ 0.01404 Total distributions......................................... $0.20510
CLASS R4
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01825 July 25, 2007............................................... 0.01811 Aug. 24, 2007............................................... 0.01785 Sept. 24, 2007.............................................. 0.01884 Oct. 26, 2007............................................... 0.01983 Nov. 26, 2007............................................... 0.02033 Dec. 17, 2007............................................... 0.01825 Jan. 28, 2008............................................... 0.01957 Feb. 27, 2008............................................... 0.01615 March 27, 2008.............................................. 0.01465 April 28, 2008.............................................. 0.01585 May 28, 2008................................................ 0.01463 Total distributions(a)...................................... $0.21231
- -------------------------------------------------------------------------------- 64 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT CLASS R5
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01887 July 25, 2007............................................... 0.01861 Aug. 24, 2007............................................... 0.01828 Sept. 24, 2007.............................................. 0.01938 Oct. 26, 2007............................................... 0.02041 Nov. 26, 2007............................................... 0.02087 Dec. 17, 2007............................................... 0.01859 Jan. 28, 2008............................................... 0.02021 Feb. 27, 2008............................................... 0.01661 March 27, 2008.............................................. 0.01506 April 28, 2008.............................................. 0.01495 May 28, 2008................................................ 0.01457 Total distributions......................................... $0.21641
CLASS W
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for distributions: Qualified Dividend Income for individuals............. 0.00% Dividends Received Deduction for corporations......... 0.00% U.S. Government Obligations........................... 0.00%
PAYABLE DATE PER SHARE June 25, 2007............................................... $0.01772 July 25, 2007............................................... 0.01755 Aug. 24, 2007............................................... 0.01726 Sept. 24, 2007.............................................. 0.01827 Oct. 26, 2007............................................... 0.01925 Nov. 26, 2007............................................... 0.01977 Dec. 17, 2007............................................... 0.01783 Jan. 28, 2008............................................... 0.01885 Feb. 27, 2008............................................... 0.01563 March 27, 2008.............................................. 0.01416 April 28, 2008.............................................. 0.01391 May 28, 2008................................................ 0.01360 Total distributions(b)...................................... $0.20380
(a) $0.0001 per share represents a tax return of capital. (b) $0.0002 per share represents a tax return of capital. The Fund also designates as distributions of long-term gains, to the extent necessary to fully distribute such capital gains, earnings and profits distributed to shareholders on the redemption of shares. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 65 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 101 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 None 901 S. Marquette Ave. since 2006 Court, 1998-2006; Attorney Minneapolis, MN 55402 Age 53 - ----------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, RiverSource Funds, None 901 S. Marquette Ave. since 1999 1999-2006; former Governor of Minneapolis, MN 55402 Minnesota Age 73 - ----------------------------------------------------------------------------------------------------- Pamela G. Carlton Board member President, Springboard -- Partners None 901 S. Marquette Ave. since 2007 in Cross Cultural Leadership Minneapolis, MN 55402 (consulting company) Age 53 - ----------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics and None 901 S. Marquette Ave. since 2004 Management, Bentley College; former Minneapolis, MN 55402 Dean, McCallum Graduate School of Age 57 Business, Bentley College - ----------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant None 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 73 - ----------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive 901 S. Marquette Ave. since 2005 Asset Management Insurance Minneapolis, MN 55402 Age 72 - ----------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries, 901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures Minneapolis, MN 55402 Chair of the irrigation systems) Age 69 Board since 2007 - -----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 66 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT INDEPENDENT BOARD MEMBERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset None 901 S. Marquette Ave. since 2004 Management, Inc. (private real Minneapolis, MN 55402 estate and asset management Age 55 company) - ----------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer and Idera 901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Pharmaceutical, Inc. Minneapolis, MN 55402 2003 (biotechnology); former (biotechnology); Age 64 President, Forester Biotech Healthways, Inc. (health management programs) - -----------------------------------------------------------------------------------------------------
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 None 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 Age 47 and Chief Investment Officer, RiverSource Investments, LLC since 2005; Director, President, and Chief Executive Officer, Ameriprise Certificate Company since 2006; Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 - -----------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. The SAI has additional information about the Fund's Board members and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 67 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 - ------------------------------------------------------------------------------------------ Patrick T. Bannigan President since Director and Senior Vice President, Asset 172 Ameriprise 2006 Management, Products and Marketing, Financial Center RiverSource Investments, LLC since 2006; Minneapolis, MN 55474 Director and Vice President -- Asset Age 42 Management, Products and Marketing, RiverSource Distributors, Inc. since 2006; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 - ------------------------------------------------------------------------------------------ Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed 172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and Financial Center RiverSource Investments, LLC since 2006; Vice Minneapolis, MN 55474 President -- Investments, Ameriprise Age 44 Certificate Company since 2003; Senior Vice President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 - ------------------------------------------------------------------------------------------ Amy K. Johnson Vice President Vice President -- Asset Management and Trust 5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC Financial Center since 2006; Vice President -- Operations and Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC, Age 42 2004-2006; Director of Product Development -- Mutual Funds, Ameriprise Financial, Inc., 2001-2004 - ------------------------------------------------------------------------------------------ Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting, 105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Chief Financial Center Financial Officer, RiverSource Distributors, Minneapolis, MN 55474 Inc. since 2006 Age 52 - ------------------------------------------------------------------------------------------ Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset 5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since Financial Center and Secretary 2005; Chief Counsel, RiverSource Distributors, Minneapolis, MN 55474 since 2006 Inc. since 2006; Vice President, General Age 48 Counsel and Secretary, Ameriprise Certificate Company since 2005; Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 - ------------------------------------------------------------------------------------------ Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance 172 Ameriprise Officer since Officer, RiverSource Investments, LLC since Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset Minneapolis, MN 55474 Management, 2003-2006; Director of Finance, Age 47 Voyageur Asset Management, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 68 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT FUND OFFICERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - ------------------------------------------------------------------------------------------ Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering 2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since Financial Center Officer since 2004; Manager Anti-Money Laundering, Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004; Age 44 Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 - ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 69 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") RiverSource Investments provides investment advice and other services to the Fund and all RiverSource funds (collectively, the "Funds"). On an annual basis, the Fund's Board of Directors (the "Board"), including the independent Board members (the "Independent Directors"), considers renewal of the IMS Agreement. RiverSource Investments prepared detailed reports for the Board and its Contracts Committee in March and April 2008, including reports based on data provided by independent organizations to assist the Board in making this determination. In addition, throughout the year, the Board (or its committees) reviews information prepared by RiverSource Investments addressing the services RiverSource Investments provides and Fund performance. The Board accords particular weight to the work, deliberations and conclusions of the Contracts, Investment Review and Compliance Committees in determining whether to continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting, independent legal counsel to the Independent Directors reviewed with the Independent Directors various factors relevant to the Board's consideration of advisory agreements and the Board's legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors, approved renewal of the IMS Agreement. Nature, Extent and Quality of Services Provided by RiverSource Investments: The Board analyzed various reports and presentations it had received detailing the services performed by RiverSource Investments, as well as its expertise, resources and capabilities. The Board specifically considered many developments during the past year concerning the services provided by RiverSource Investments, including, in particular, the continued investment in, and resources dedicated to, the Fund's operations, particularly in the areas of trading systems, new product initiatives, legal and compliance. Further, in connection with the Board's evaluation of the overall package of services provided by RiverSource Investments, the Board considered the quality of the administrative and transfer agency services provided by RiverSource Investments' affiliates to the Fund. The Board also reviewed the financial condition of RiverSource Investments (and its affiliates) and each entity's ability to carry out its responsibilities under the IMS Agreement. The Board also discussed the acceptability of the terms of the IMS Agreement (including the relatively broad scope of services required to be performed by RiverSource Investments). The Board concluded that the services being performed under the - -------------------------------------------------------------------------------- 70 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- IMS Agreement were of a reasonably high quality, particularly in light of recent market conditions. Based on the foregoing, and based on other information received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board concluded that RiverSource Investments and its affiliates were in a position to continue to provide a high quality and level of services to the Fund. Investment Performance: For purposes of evaluating the nature, extent and quality of services provided under the IMS Agreement, the Board carefully reviewed the investment performance of the Fund. In this regard, the Board considered: (i) detailed reports containing data prepared by an independent organization showing, for various periods, the performance of the Fund, the performance of a benchmark index, the percentage ranking of the Fund among its comparison group and the net assets of the Fund; and (ii) a report detailing the Fund's performance over various periods (including since inception), recent Fund inflows (and outflows) and a comparison of the Fund's net assets from December 2006 to December 2007. The Board observed that the Fund's investment performance was appropriate in light of the particular management style and market conditions involved. Comparative Fees, Costs of Services Provided and the Profits Realized By RiverSource Investments and its Affiliates from their Relationships with the Fund: The Board reviewed comparative fees and the costs of services to be provided under the IMS Agreement. The Board members considered detailed comparative information set forth in an annual report on fees and expenses, including, among other things, data (prepared by an independent organization) showing a comparison of the Fund's expenses with median expenses paid by funds in its peer group, as well as data showing the Fund's contribution to RiverSource Investments' profitability. The Board accorded particular weight to the notion that the level of fees should reflect a rational pricing model applied consistently across the various product lines in the Funds' family, while assuring that the overall fees for each fund are generally in line with the "pricing philosophy" (i.e., that the total expense ratio of each fund, with few exceptions, is at or below the median expense ratio of funds in the same comparison group). The Board observed that the Fund's expense ratio (after considering proposed expense caps/waivers) approximated the peer group's median expense ratio. Based on its review, the Board concluded that the Fund's management fee was fair and reasonable in light of the extent and quality of services that the Fund receives. - -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT 71 APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT (continued) ---------------------------------------------------------- The Board also considered the expected profitability of RiverSource Investments and its affiliates in connection with RiverSource Investments providing investment management services to the Fund. In this regard, the Board referred to a detailed profitability report, discussing the profitability to RiverSource Investments and Ameriprise Financial from managing and operating the Fund, including data showing comparative profitability over the past two years. The Board also considered the services acquired by the investment manager through the use of commission dollars paid by the Funds on portfolio transactions. The Board noted that the fees paid by the Fund should permit the investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable. Economies of Scale to be Realized: The Board also considered the economies of scale that might be realized by RiverSource Investments as the Fund grows and took note of the extent to which Fund shareholders might also benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. Based on the foregoing, the Board, including all of the Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 10, 2008, the Board, including all of the Independent Directors, approved the renewal of the IMS Agreement. PROXY VOTING ---------------------------------------------------------------------- The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- 72 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 ANNUAL REPORT RIVERSOURCE HIGH YIELD BOND FUND 734 Ameriprise Financial Center Minneapolis, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R) mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6370 AD (7/08)
Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Pamela G. Carlton, Jeffrey Laikind and Anne P. Jones, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services Fund - Related Fees (a) Audit Fees. The fees for the year ended May 31, to Ernst & Young LLP for professional services rendered for the audit of the annual financial statements for RiverSource High Yield Income Series, Inc. were as follows: 2008 - $33,650 (b) Audit - Related Fees. The fees for the year ended May 31, to Ernst & Young LLP for additional professional services rendered in connection with the registrant's semiannual financial statement review for RiverSource High Yield Income Series, Inc. were as follows: 2008 - $350 (c) Tax Fees. The fees for the year ended May 31, to Ernst & Young LLP for tax compliance related services for RiverSource High Yield Income Series, Inc. were as follows: 2008 - $3,300 (d) All Other Fees. The fees for the year ended May 31, to Ernst & Young LLP for additional professional services rendered for RiverSource High Yield Income Series, Inc. were as follows: 2008 - $0 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by Ernst & Young LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2008 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees for the year ended May 31, to Ernst & Young LLP by the registrant for non-audit fees and by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2008 - $615,450 (h) 100% of the services performed in item (g) above during 2008 were pre-approved by the Ameriprise Financial Audit Committee and/or the RiverSource Mutual Funds Audit Committee. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource High Yield Income Series, Inc. By /s/ Patrick T. Bannigan ---------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date August 1, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ Patrick T. Bannigan ---------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date August 1, 2008 By /s/ Jeffrey P. Fox ---------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date August 1, 2008 EX-99.(A)(1) 2 c27712exv99wxayx1y.txt CODE OF ETHICS Exhibit 99.(a) (1) 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: honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 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; compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and 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: 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; 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 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 should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; 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; 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: i. 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; ii. annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; iii. not retaliate against any other Covered Officer or any employee of Ameriprise for reports of potential violations that are made in good faith; and - 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 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 iv. 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; v. will take all appropriate action to investigate such reported violations; vi. shall make a determination after the investigation and if the Funds' General Counsel believes that no violation has occurred, the Boards will be so notified and no further action is required; 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; 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; 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 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: Patrick T. Bannigan President Jeffrey P. Fox Treasurer EX-99.(A)(2) 3 c27712exv99wxayx2y.txt SEPARATE CERTIFICATION Exhibit 99.(a)(2) Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Patrick T. Bannigan, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource High Yield 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 23, 2008 /s/ Patrick T. Bannigan - ------------------------------------- Name: Patrick T. Bannigan Title: President and Principal Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey P. Fox, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource High Yield 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 23, 2008 /s/ Jeffrey P. Fox - ------------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Principal Financial Officer EX-99.(B)(1) 4 c27712exv99wxbyx1y.txt SECTION 906 CERTIFICATION Exhibit 99.(b) CERTIFICATION RIVERSOURCE HIGH YIELD 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 23, 2008 /s/ Patrick T. Bannigan ----------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date: July 23, 2008 /s/ Jeffrey P. Fox ----------------------------------------- Jeffrey P. Fox Treasurer and Principal 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. -----END PRIVACY-ENHANCED MESSAGE-----