EX-99.17(J) 14 c50116l.txt Semiannual Report (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE HIGH YIELD BOND FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED NOVEMBER 30, 2008 RIVERSOURCE HIGH YIELD BOND FUND SEEKS TO PROVIDE SHAREHOLDERS WITH HIGH CURRENT INCOME AS ITS PRIMARY OBJECTIVE AND, AS ITS SECONDARY OBJECTIVE, CAPITAL GROWTH. (SINGLE STRATEGY FUNDS ICON) TABLE OF CONTENTS -------------------------------------------------------------- Your Fund at a Glance.............. 3 Manager Commentary................. 7 Fund Expenses Example.............. 14 Portfolio of Investments........... 17 Statement of Assets and Liabilities...................... 29 Statement of Operations............ 31 Statements of Changes in Net Assets........................... 33 Financial Highlights............... 35 Notes to Financial Statements...... 44 Proxy Voting....................... 60
(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. -------------------------------------------------------------------------------- 2 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT YOUR FUND AT A GLANCE ---------------------------------------------------------- (UNAUDITED) FUND SUMMARY -------------------------------------------------------------------------------- > RiverSource High Yield Bond Fund (the Fund) Class A shares declined 26.68% (excluding sales charge) for the six months ended Nov. 30, 2008. > The Fund outperformed its benchmark, the JP Morgan Global High Yield Index, which fell 31.31%. > The Fund also outperformed the Lipper High Current Yield Bond Funds Index, representing the Fund's peer group, which declined 31.70% during the same time frame. ANNUALIZED TOTAL RETURNS (for period ended Nov. 30, 2008) --------------------------------------------------------------------------------
6 months* 1 year 3 years 5 years 10 years ------------------------------------------------------------------------ RiverSource High Yield Bond Fund Class A (excluding sales charge) -26.68% -25.75% -5.45% +0.01% +1.27% ------------------------------------------------------------------------ JP Morgan Global High Yield Index (unmanaged)(1) -31.31% -30.23% -6.98% -1.22% +2.02% ------------------------------------------------------------------------ Lipper High Current Yield Bond Funds Index(2) -31.70% -31.20% -7.93% -2.07% +0.11% ------------------------------------------------------------------------
* Not annualized. 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. (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 SEMIANNUAL REPORT 3 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- 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) 4.8 years -------------------------------------- Effective duration(2) 3.2 years -------------------------------------- Weighted average bond rating(3) BB- --------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) --------------------------------------------------------------------------------
Total fund Net fund expenses 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. -------------------------------------------------------------------------------- 4 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS --------------------------------------------------------------------------------
AT NOV. 30, 2008 SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** Class A (inception 12/8/83) -26.68% -25.75% -5.45% +0.01% +1.27% N/A ------------------------------------------------------------------------------------- Class B (inception 3/20/95) -27.06% -26.32% -6.17% -0.75% +0.50% N/A ------------------------------------------------------------------------------------- Class C (inception 6/26/00) -26.81% -26.18% -6.11% -0.77% N/A +0.44% ------------------------------------------------------------------------------------- Class I (inception 3/4/04) -26.27% -25.46% -5.08% N/A N/A -0.47% ------------------------------------------------------------------------------------- Class R2 (inception 12/11/06) -26.85% -26.30% N/A N/A N/A -13.47% ------------------------------------------------------------------------------------- Class R3 (inception 12/11/06) -26.30% -25.63% N/A N/A N/A -12.95% ------------------------------------------------------------------------------------- Class R4 (inception 3/20/95) -26.60% -25.56% -5.27% +0.19% +1.43% N/A ------------------------------------------------------------------------------------- Class R5 (inception 12/11/06) -26.56% -25.50% N/A N/A N/A -12.83% ------------------------------------------------------------------------------------- Class W (inception 12/1/06) -26.68% -26.05% N/A N/A N/A -13.05% ------------------------------------------------------------------------------------- With sales charge Class A (inception 12/8/83) -30.25% -29.29% -6.94% -0.97% +0.75% N/A ------------------------------------------------------------------------------------- Class B (inception 3/20/95) -30.58% -29.75% -7.20% -1.04% +0.50% N/A ------------------------------------------------------------------------------------- Class C (inception 6/26/00) -27.52% -26.86% -6.11% -0.77% N/A +0.44% -------------------------------------------------------------------------------------
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. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 5 YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AT DEC. 31, 2008 SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** Class A (inception 12/8/83) -23.82% -24.59% -5.18% -0.11% +1.58% N/A ------------------------------------------------------------------------------------- Class B (inception 3/20/95) -24.51% -25.55% -6.07% -0.97% +0.76% N/A ------------------------------------------------------------------------------------- Class C (inception 6/26/00) -24.34% -25.40% -6.00% -1.00% N/A +0.60% ------------------------------------------------------------------------------------- Class I (inception 3/4/04) -24.07% -24.68% -4.97% N/A N/A -0.15% ------------------------------------------------------------------------------------- Class R2 (inception 12/11/06) -24.25% -25.11% N/A N/A N/A -12.11% ------------------------------------------------------------------------------------- Class R3 (inception 12/11/06) -23.73% -24.46% N/A N/A N/A -11.62% ------------------------------------------------------------------------------------- Class R4 (inception 3/20/95) -23.73% -24.38% -4.88% +0.07% +1.75% N/A ------------------------------------------------------------------------------------- Class R5 (inception 12/11/06) -23.69% -24.33% N/A N/A N/A -11.47% ------------------------------------------------------------------------------------- Class W (inception 12/1/06) -24.07% -24.88% N/A N/A N/A -11.72% ------------------------------------------------------------------------------------- With sales charge Class A (inception 12/8/83) -27.36% -28.19% -6.67% -1.08% +1.06% N/A ------------------------------------------------------------------------------------- Class B (inception 3/20/95) -28.11% -28.99% -7.09% -1.26% +0.76% N/A ------------------------------------------------------------------------------------- Class C (inception 6/26/00) -25.06% -26.09% -6.00% -1.00% N/A +0.60% -------------------------------------------------------------------------------------
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. *Not annualized. **For classes with less than 10 years performance. -------------------------------------------------------------------------------- 6 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT MANAGER COMMENTARY ------------------------------------------------------------- (UNAUDITED) Dear Shareholders: RiverSource High Yield Bond Fund (the Fund) Class A shares declined 26.68% (excluding sales charge) for the six months ended Nov. 30, 2008. The Fund outperformed its benchmark, the JP Morgan Global High Yield Index (JP Morgan Index), which fell 31.31%. The Fund also outperformed the Lipper High Current Yield Bond Funds Index, representing the Fund's peer group, which declined 31.70% during the same time frame. SIGNIFICANT PERFORMANCE FACTORS The high yield corporate bond market exhibited relative stability during the first months of the semiannual period. However, an ongoing litany of bad news, beginning in mid-September with the bankruptcy of Lehman Brothers, drove credit markets, in general, and the high yield corporate bond market, in particular, to decline sharply. High yield corporate bond spreads, or the yield differential between these securities and Treasuries, widened significantly, as a succession of financial institutions went out of business, were forced to merge or were taken over by the U.S. government. The effect of the near-collapse of the financial system on the high yield corporate bond market was compounded during the period by poor technical and fundamental factors. On the technicals side, there was tremendous forced selling, as hedge funds and others liquidated SECTOR DIVERSIFICATION(1) (at Nov. 30, 2008; % of portfolio assets) --------------------------------------------------------------------- Consumer Discretionary 19.2% ------------------------------------------------ Consumer Staples 6.2% ------------------------------------------------ Energy 7.4% ------------------------------------------------ Financials 4.5% ------------------------------------------------ Health Care 8.8% ------------------------------------------------ Industrials 3.8% ------------------------------------------------ Materials 11.1% ------------------------------------------------ Mortgage-Backed 0.2% ------------------------------------------------ Telecommunication 24.9% ------------------------------------------------ Utilities 6.5% ------------------------------------------------ Other(2) 7.4% ------------------------------------------------
(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. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 7 MANAGER COMMENTARY (continued) ------------------------------------------------- portfolios. This hit the high yield bank loan sector particularly hard, but dragged down high yield corporate bonds as well. At the same time, growing concerns about a consumer-led recession led to weak fundamentals for many companies issuing debt. The toxic combination of these factors led to extremely high levels of investor risk aversion and thus the significant market decline in the high yield corporate bond market. At the end of November, high yield corporate bond spreads stood at the widest levels seen in recent history. While a broad-based decline across all sectors of the JP Morgan Index generated disappointing performance for the Fund, sector and security selection decisions overall supported its outperformance of its benchmark index and peer group on a relative basis. The Fund's overweight positioning in the health care, wireline telecommunications and cable TV industries helped its results most relative to the JP Morgan Index, as these defensive, comparatively stable sectors proved to be less volatile than others in the high yield bond market. The Fund's underweight positions in the automotive industry and technology sector also contributed positively to performance, as these areas fared poorly during the period. QUALITY BREAKDOWN (at Nov. 30, 2008; % of portfolio assets excluding cash equivalents and equities) --------------------------------------------------------------------- AAA bonds 0.3% ------------------------------------------------ BBB bonds 3.6% ------------------------------------------------ BB bonds 33.8% ------------------------------------------------ B bonds 46.9% ------------------------------------------------ CCC bonds 13.7% ------------------------------------------------ CC bonds 0.1% ------------------------------------------------ C bonds 0.3% ------------------------------------------------ Non-rated bonds 1.3% ------------------------------------------------
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 1.4% of the bond portfolio assets were determined through internal analysis. -------------------------------------------------------------------------------- 8 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- From an individual security perspective, a holding in subprime auto lender TRIAD ACQUISITION actually performed well during the period. In winding down its business, Triad made a tender offer to buy its own bonds at a premium to where they were trading, and we took advantage of the offer. A position in wireless telecommunications company CENTENNIAL COMMUNICATIONS also contributed to the Fund's results, as it agreed during the period to be sold to AT&T. The bank debt of paper company GEORGIA-PACIFIC traded higher in a brief rebound during the period, and we took the opportunity to sell the Fund's position at a profit. Conversely, the Fund's positioning in the gaming industry detracted from its results. The Fund began the period with a roughly equal weighting to the JP Morgan Index in gaming. We increased exposure to this area during the semiannual period based on a long-held and widespread view that gaming was a rather recession-resistant industry. However, the gaming industry surprised many when it was hit hard during the period TOP TEN HOLDINGS (at Nov. 30, 2008; % of portfolio assets) --------------------------------------------------------------------- Triad Acquisition 11.13% 2013 2.0% ------------------------------------------------ ASG Consolidated LLC/Finance 11.50% 2011 1.8% ------------------------------------------------ INVISTA 9.25% 2012 1.5% ------------------------------------------------ Liberty Media LLC 5.70% 2013 1.5% ------------------------------------------------ Dresser 7.99% 2015 1.4% ------------------------------------------------ Centennial Communications 9.63% 2013 1.3% ------------------------------------------------ NRG Energy 7.38% 2017 1.3% ------------------------------------------------ Rainbow Natl Services LLC 8.75% 2012 1.2% ------------------------------------------------ Cott Beverages USA 8.00% 2011 1.1% ------------------------------------------------ CSC Holdings 8.50% 2015 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. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 9 MANAGER COMMENTARY (continued) ------------------------------------------------- by the downturn in the economy, especially casinos in Las Vegas. Fund positions in FONTAINEBLEAU LAS VEGAS HOLDINGS and STATION CASINOS were particular disappointments. The Fund held both bonds and bank debt in a casino construction project of Fontainebleau Las Vegas. While the project remained on time and on budget, its prospects for profitability going forward grew dimmer, given the economic outlook and the tremendous amount of other new construction taking place in Las Vegas. The position fell rather dramatically during the period, but we continued to hold it given our view of ultimate value relative to current market prices. Station Casinos is a casino operator, primarily in Las Vegas, which had conducted a leveraged buyout. It, too, declined along with the gaming industry as a whole, but given its highly leveraged balance sheets, we sold the Fund's position in Station Casinos by the end of the period. An overweight exposure to the energy sector further detracted from the Fund's results, which was hurt by declining oil and gas prices during the period. We reduced the Fund's position as energy prices declined, but not fast enough to completely avoid feeling the impact of the sector's downturn. A modest overweight position in chemicals also hurt, as many companies in this area proved to be sensitive to economic pressures. In the packaging industry, a position in VITRO, a Mexican glass bottle manufacturer, detracted from the Fund's performance. Vitro experienced both fundamental weakness and problems due to derivatives exposure. The Fund continued to hold a position in this issue however, as we believe Vitro's prospects remain solid. CHANGES TO THE FUND'S PORTFOLIO Overall, we sought to take profits from those sectors and securities that had performed well during the prior fiscal period in order to take advantage of opportunities created by more recent weakness in the high yield corporate bond market. For example, as mentioned, following a sustained period of strong performance, we reduced the Fund's position in energy to a rather neutral weight compared to the JP Morgan Index as oil and gas prices declined. Primarily for issue-specific reasons, we also reduced the Fund's overweight position in health care to a more modest overweight allocation. Seeing more attractive opportunities elsewhere, we redeployed the proceeds into the gaming sector, as mentioned, and into the cable industry, bringing both to overweight positions. Within gaming, -------------------------------------------------------------------------------- 10 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- we focused on what are considered new jurisdictions, such as Native American casinos, which we still consider to be compelling opportunities, and steered away from established jurisdictions, such as Las Vegas and Atlantic City. We added select positions in cable TV and satellite cable providers, as this industry has historically been a defensive area featuring a rather stable cash flow. We selectively added bank loan exposure across certain core holdings in the Fund during this period of market weakness, as these securities tend to be comparatively defensive in nature over time. We continued to find value in these securities at quite attractive levels. Certainly bank loans can be volatile over the short term, as was seen during this period. However, in many cases, holdings in these bank loans positioned the Fund in a more senior part of a company's capital structure, thus reducing the overall risk within the portfolio over the longer term. At the end of the period, the Fund had materially greater exposure than the JP Morgan Index in the cable TV, gaming, and wireline telecommunications industries with a lesser overweight in the health care sector. Underweights in the Fund's portfolio included the housing, technology, manufacturing and industrial, retail and automotive areas. The Fund also maintained holdings in the energy, utilities and wireless telecommunications 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 choppy and volatile over In our view, the high yield corporate bond market may well continue to be choppy and volatile over the months ahead. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 11 MANAGER COMMENTARY (continued) ------------------------------------------------- the months ahead. Several factors contributing to our outlook including unemployment possibly heading over 7%, consumers likely to be increasing their savings at the expense of spending, the possibility of the credit crisis resulting in a recession that lasts well into 2009, and the deterioration of the bank lending environment and companies' ability to access capital. The outcome of these concerns is key to the default rate going forward. For 2009, we anticipate that the default rate may well soar into the 8% to 10% range. One of the major questions that faces the market going forward is how, outside of interest rate cuts, the Fed and the incoming Presidential administration will be able to stimulate the economy. All told, this scenario indicates a difficult environment for the high yield corporate bond market over the near term. Over the long term, we believe that many securities in the high yield sector were trading at extremely compelling values at the end of the semiannual period. Given this view, we intend to begin carefully moving the Fund's portfolio away from its defensive posture to a slightly more aggressive stance. In doing so, we are seeking to take positions in those select issues that have strong fundamentals and solid prospects but that have fallen significantly in recent months. In implementing this strategy going forward, we 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. -------------------------------------------------------------------------------- 12 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- 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. (PHOTO - ) 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 SEMIANNUAL 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 expense ratio of each of the acquired funds as of the acquired fund's 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 Nov. 30, 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 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JUNE 1, 2008 NOV. 30, 2008 THE PERIOD(A) EXPENSE RATIO ------------------------------------------------------------------------------------------ Class A ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 733.20 $4.41 1.02% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,019.85 $5.14 1.02% ------------------------------------------------------------------------------------------ Class B ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 729.40 $7.67 1.78% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,016.06 $8.95 1.78% ------------------------------------------------------------------------------------------ Class C ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 731.90 $7.64 1.77% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,016.11 $8.90 1.77% ------------------------------------------------------------------------------------------ Class I ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 737.30 $2.82 .65% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,021.69 $3.28 .65% ------------------------------------------------------------------------------------------ Class R2 ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 731.50 $6.26 1.45% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,017.70 $7.29 1.45% ------------------------------------------------------------------------------------------ Class R3 ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 737.00 $5.20 1.20% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,018.95 $6.04 1.20% ------------------------------------------------------------------------------------------ Class R4 ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 734.00 $4.11 .95% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,020.19 $4.78 .95% ------------------------------------------------------------------------------------------ Class R5 ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 734.40 $3.03 .70% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,021.44 $3.53 .70% ------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 15 FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JUNE 1, 2008 NOV. 30, 2008 THE PERIOD(A) EXPENSE RATIO ------------------------------------------------------------------------------------------ Class W ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 733.20 $4.75 1.10% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,019.45 $5.54 1.10% ------------------------------------------------------------------------------------------
(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 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Nov. 30, 2008: -26.68% for Class A, -27.06% for Class B, -26.81% for Class C, -26.27% for Class I, -26.85% for Class R2, -26.30% for Class R3, -26.60% for Class R4, -26.56% for Class R5 and -26.68% for Class W. -------------------------------------------------------------------------------- 16 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT PORTFOLIO OF INVESTMENTS ------------------------------------------------------- NOV. 30, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (78.3%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (0.2%)(F) Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09-25-47 1.90% $8,876,968(i) $2,073,730 -------------------------------------------------------------------------------------------------- AEROSPACE & DEFENSE (1.8%) Alion Science and Technology 02-01-15 10.25 10,600,000 5,830,000 L-3 Communications 06-15-12 7.63 983,000 904,360 07-15-13 6.13 2,035,000 1,729,750 L-3 Communications Series B 10-15-15 6.38 8,575,000 7,117,250 Moog Sr Sub Nts 06-15-18 7.25 629,000(d) 484,330 ----------- Total 16,065,690 -------------------------------------------------------------------------------------------------- BROKERAGE (0.1%) Lehman Brothers Holdings Sr Unsecured 05-02-18 6.88 6,150,000(b,g,o) 615,000 -------------------------------------------------------------------------------------------------- BUILDING MATERIALS (0.8%) Gibraltar Inds Series B 12-01-15 8.00 11,907,000 7,441,875 -------------------------------------------------------------------------------------------------- CHEMICALS (4.6%) Chemtura 06-01-16 6.88 14,736,000 8,104,800 Hexion US Finance/Nova Scotia Finance Sr Secured 11-15-14 9.75 6,881,000 3,578,120 INVISTA Sr Unsecured 05-01-12 9.25 16,861,000(d) 13,320,190 MacDermid Sr Sub Nts 04-15-17 9.50 7,518,000(d) 3,909,360 Momentive Performance Pay-in-kind 12-01-14 10.13 15,620,000(n) 4,607,900 NALCO 11-15-11 7.75 3,370,000 2,990,875 11-15-13 8.88 5,155,000 4,124,000 ----------- Total 40,635,245 -------------------------------------------------------------------------------------------------- CONSUMER CYCLICAL SERVICES (0.7%) West Corp 10-15-16 11.00 14,909,000 6,410,870 -------------------------------------------------------------------------------------------------- CONSUMER PRODUCTS (2.1%) AAC Group Holding Sr Unsecured 10-01-12 10.25 5,800,000(d) 5,220,000 American Achievement Group Holding Sr Unsecured Pay-in-kind 10-01-12 14.75 1,632,455(n) 1,552,873 Jarden 05-01-17 7.50 7,263,000 4,720,950 Sealy Mattress 06-15-14 8.25 2,256,000 1,229,520 Visant Holding Sr Disc Nts (Zero coupon through 12-01-08, thereafter 10.25%) 12-01-13 8.91 4,815,000(m) 3,514,950 Visant Holding Sr Nts 12-01-13 8.75 3,080,000 2,217,600 ----------- Total 18,455,893 --------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ELECTRIC (5.1%) Dynegy Holdings Sr Unsecured 05-01-16 8.38% $4,852,000 $3,372,140 05-15-18 7.13 8,020,000 4,731,800 Edison Mission Energy Sr Unsecured 06-15-16 7.75 1,672,000 1,308,340 Energy Future Holdings 11-01-17 10.88 10,711,000(d) 6,908,595 Midwest Generation LLC Pass-Through Ctfs Series B 01-02-16 8.56 5,858,628 5,360,644 Mirant North America LLC 12-31-13 7.38 7,769,000 6,720,185 NRG Energy 01-15-17 7.38 14,165,000 11,438,238 Texas Competitive Electric Holdings LLC 11-01-15 10.25 7,395,000(d) 4,732,800 ----------- Total 44,572,742 -------------------------------------------------------------------------------------------------- ENTERTAINMENT (1.4%) AMC Entertainment 02-01-16 11.00 5,748,000 4,081,080 United Artists Theatre Circuit Pass-Through Ctfs Series BB5 07-01-15 9.30 6,368,250(k) 5,986,154 United Artists Theatre Circuit Pass-Through Ctfs Series BC3 07-01-15 9.30 2,047,393(k) 1,924,550 ----------- Total 11,991,784 -------------------------------------------------------------------------------------------------- ENVIRONMENTAL (0.1%) Clean Harbors Sr Secured 07-15-12 11.25 957,000 972,551 -------------------------------------------------------------------------------------------------- FOOD AND BEVERAGE (3.8%) ASG Consolidated LLC/Finance Sr Disc Nts 11-01-11 11.50 19,195,000 16,411,725 Cott Beverages USA 12-15-11 8.00 16,541,000 9,759,190 Pinnacle Foods Finance LLC 04-01-17 10.63 13,508,000 7,564,480 ----------- Total 33,735,395 -------------------------------------------------------------------------------------------------- GAMING (6.8%) Boyd Gaming Sr Sub Nts 02-01-16 7.13 15,590,000 8,808,350 Circus & Eldorado Jt Venture/Silver Legacy Capital 1st Mtge 03-01-12 10.13 9,215,000 5,943,675 Firekeepers Development Authority Sr Secured 05-01-15 13.88 7,160,000(d) 4,725,600 Fontainebleau Las Vegas Holdings LLC/Capital 2nd Mtge 06-15-15 10.25 14,586,000(d) 1,896,180 Indianapolis Downs LLC/Capital Sr Secured 11-01-12 11.00 7,040,000(d) 3,308,800 MGM Mirage 04-01-13 6.75 2,475,000 1,287,000 06-01-16 7.50 4,450,000 2,291,750 MGM Mirage Sr Secured 11-15-13 13.00 5,150,000(d) 4,377,500 Pokagon Gaming Authority Sr Nts 06-15-14 10.38 8,325,000(d) 7,034,625 Shingle Springs Tribal Gaming Authority Sr Nts 06-15-15 9.38 15,499,000(d) 7,362,025 Tunica-Biloxi Gaming Authority Sr Unsecured 11-15-15 9.00 10,245,000(d) 8,759,475 Wynn Las Vegas LLC/Capital 1st Mtge 12-01-14 6.63 3,700,000 2,617,750 ----------- Total 58,412,730 --------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 18 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) GAS DISTRIBUTORS (0.9%) Southwestern Energy Sr Nts 02-01-18 7.50% $4,875,000(d) $4,119,375 Williams Partners LP/Finance Sr Unsecured 02-01-17 7.25 4,835,000 3,795,475 ----------- Total 7,914,850 -------------------------------------------------------------------------------------------------- GAS PIPELINES (0.6%) Southern Star Central Sr Nts 03-01-16 6.75 6,815,000 5,520,150 -------------------------------------------------------------------------------------------------- HEALTH CARE (5.9%) Community Health Systems 07-15-15 8.88 8,208,000 6,586,920 DaVita 03-15-13 6.63 4,421,000 3,912,585 03-15-15 7.25 4,236,000 3,664,140 HCA Sr Secured 11-15-16 9.25 1,255,000 1,019,688 HCA Sr Secured Pay-in-kind 11-15-16 9.63 2,860,000(n) 2,059,200 HCA Sr Unsecured 02-15-16 6.50 12,190,000 6,826,400 NMH Holdings Sr Unsecured Pay-in-kind 06-15-14 9.94 5,927,654(d,i,n) 4,208,634 Omnicare 12-15-13 6.75 4,638,000 3,872,730 Omnicare Sr Sub Nts 06-01-13 6.13 3,765,000 3,012,000 Select Medical Sr Unsecured 09-15-15 8.83 15,812,000(i) 9,012,840 Vanguard Health Holding I LLC (Zero coupon through 10-01-09, thereafter 11.25%) 10-01-15 7.09 2,955,000(m) 2,275,350 Vanguard Health Holding II LLC 10-01-14 9.00 6,532,000 5,225,600 ----------- Total 51,676,087 -------------------------------------------------------------------------------------------------- HOME CONSTRUCTION (1.5%) K Hovnanian Enterprises Sr Secured 05-01-13 11.50 7,930,000 6,066,450 Norcraft Holdings LP/Capital Sr Disc Nts 09-01-12 9.75 6,200,000 4,960,000 William Lyon Homes 02-15-14 7.50 12,380,000 2,352,200 ----------- Total 13,378,650 -------------------------------------------------------------------------------------------------- INDEPENDENT ENERGY (6.0%) Chesapeake Energy 08-15-14 7.00 5,722,000 4,348,720 01-15-16 6.63 6,892,000 4,807,170 01-15-18 6.25 2,520,000 1,650,600 Compton Petroleum Finance 12-01-13 7.63 10,221,000(c) 4,190,610 Connacher Oil and Gas Sr Secured 12-15-15 10.25 9,160,000(c,d) 4,763,200 EXCO Resources 01-15-11 7.25 9,018,000 6,943,860 Hilcorp Energy I LP/Finance Sr Unsecured 11-01-15 7.75 9,690,000(d) 6,928,350 Quicksilver Resources 08-01-15 8.25 6,324,000 4,110,600 04-01-16 7.13 3,900,000 2,242,500 Range Resources 05-15-16 7.50 3,250,000 2,697,500 05-01-18 7.25 2,010,000 1,602,975 SandRidge Energy Pay-in-kind 04-01-15 8.63 11,738,000(n) 7,453,630 ----------- Total 51,739,715 --------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 19 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MEDIA CABLE (3.3%) Charter Communications Holdings II LLC/Capital 10-01-13 10.25% $7,680,000 $3,494,400 10-01-13 10.25 2,860,000(d) 1,215,500 Charter Communications Holdings II LLC/Capital Sr Unsecured Series B 09-15-10 10.25 4,617,000 2,193,075 Charter Communications Operating LLC/Capital Sr Secured 04-30-14 8.38 4,056,000(d) 2,758,080 CSC Holdings Sr Unsecured 06-15-15 8.50 12,095,000(d) 9,676,000 Mediacom LLC/Capital Sr Unsecured 01-15-13 9.50 7,220,000 5,920,400 Virgin Media Finance 04-15-14 8.75 5,145,000(c) 3,717,263 ----------- Total 28,974,718 -------------------------------------------------------------------------------------------------- MEDIA NON CABLE (9.2%) Dex Media Sr Disc Nts 11-15-13 9.00 4,505,000 585,650 Dex Media West LLC/Finance Sr Sub Nts Series B 08-15-13 9.88 3,819,000 840,180 DIRECTV Holdings LLC/Financing 06-15-15 6.38 5,175,000 4,204,688 05-15-16 7.63 7,266,000 6,194,265 EchoStar DBS 10-01-14 6.63 5,040,000 3,603,600 02-01-16 7.13 10,449,000 7,418,790 Intelsat Sr Unsecured 08-15-14 9.25 6,925,000(d) 5,886,250 Lamar Media 08-15-15 6.63 7,632,000 5,533,200 Lamar Media Series B 08-15-15 6.63 6,030,000 4,371,750 Lamar Media Series C 08-15-15 6.63 4,146,000 3,005,850 LBI Media Sr Sub Nts 08-01-17 8.50 5,112,000(d) 1,789,200 Liberty Media LLC Sr Unsecured 05-15-13 5.70 19,626,000 13,167,966 LIN Television 05-15-13 6.50 2,655,000 1,234,575 LIN Television Series B 05-15-13 6.50 640,000 297,600 Nielsen Finance LLC 08-01-14 10.00 6,230,000 4,485,600 Radio One 02-15-13 6.38 9,914,000 3,370,760 Rainbow Natl Services LLC 09-01-12 8.75 12,485,000(d) 10,986,800 09-01-14 10.38 3,003,000(d) 2,597,595 RH Donnelley Sr Unsecured 01-15-13 6.88 1,579,000 205,270 ----------- Total 79,779,589 -------------------------------------------------------------------------------------------------- METALS (1.6%) CII Carbon LLC 11-15-15 11.13 3,890,000(d) 3,656,600 Freeport-McMoRan Copper & Gold Sr Unsecured 04-01-15 8.25 7,965,000 5,774,625 04-01-17 8.38 1,350,000 958,500 Noranda Aluminum Acquisition Pay-in-kind 05-15-15 6.60 11,258,000(i,n) 3,658,850 ----------- Total 14,048,575 -------------------------------------------------------------------------------------------------- NON CAPTIVE CONSUMER (2.1%) Triad Acquisition Sr Unsecured Series B 05-01-13 11.13 23,225,000 18,115,500 --------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 20 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) NON CAPTIVE DIVERSIFIED (0.3%) Ford Motor Credit LLC Sr Unsecured 08-10-11 9.88% $2,947,000 $1,414,560 GMAC LLC Sr Unsecured 08-28-12 6.88 3,105,000 1,086,964 ----------- Total 2,501,524 -------------------------------------------------------------------------------------------------- OIL FIELD SERVICES (0.2%) Helix Energy Solutions Group Sr Unsecured 01-15-16 9.50 3,068,000(d) 1,610,700 -------------------------------------------------------------------------------------------------- OTHER FINANCIAL INSTITUTIONS (1.2%) Cardtronics 08-15-13 9.25 8,906,000 6,601,573 Cardtronics Series B 08-15-13 9.25 5,653,000 4,190,286 ----------- Total 10,791,859 -------------------------------------------------------------------------------------------------- OTHER INDUSTRY (0.7%) Chart Inds Sr Sub Nts 10-15-15 9.13 9,185,000 6,567,275 -------------------------------------------------------------------------------------------------- PACKAGING (0.5%) Vitro 02-01-17 9.13 16,236,000(c) 4,302,540 -------------------------------------------------------------------------------------------------- PAPER (2.3%) Boise Cascade LLC 10-15-14 7.13 6,482,000 3,629,920 Cascades 02-15-13 7.25 2,985,000(c) 1,671,600 Georgia-Pacific LLC 01-15-17 7.13 4,918,000(d) 3,614,730 Jefferson Smurfit US Sr Unsecured 06-01-13 7.50 8,335,000 2,417,150 NewPage Sr Secured 05-01-12 10.00 11,127,000 6,008,580 Norampac 06-01-13 6.75 4,247,000(c) 2,165,970 Smurfit-Stone Container Enterprises Sr Unsecured 03-15-17 8.00 3,535,000 936,775 ----------- Total 20,444,725 -------------------------------------------------------------------------------------------------- PHARMACEUTICALS (1.0%) Warner Chilcott 02-01-15 8.75 9,902,000 8,738,515 -------------------------------------------------------------------------------------------------- RETAILERS (0.3%) Neiman Marcus Group Pay-in-kind 10-15-15 9.00 5,605,000(n) 2,382,125 -------------------------------------------------------------------------------------------------- TECHNOLOGY (2.1%) Communications & Power Inds 02-01-12 8.00 9,130,000 7,486,600 CPI Intl Sr Unsecured 02-01-15 8.88 1,825,000(i) 1,797,625 SS&C Technologies 12-01-13 11.75 3,414,000 3,021,390 SunGard Data Systems 08-15-15 10.25 10,890,000 6,316,200 ----------- Total 18,621,815 -------------------------------------------------------------------------------------------------- TRANSPORTATION SERVICES (0.8%) Hertz 01-01-14 8.88 2,930,000 1,512,613 01-01-16 10.50 9,479,000 3,791,600 Quality Distribution LLC/Capital 01-15-12 9.25 4,239,000(i) 1,504,845 ----------- Total 6,809,058 -------------------------------------------------------------------------------------------------- WIRELESS (4.7%) Centennial Communications Sr Nts 01-01-13 9.63 12,491,000(i) 11,679,085 Cricket Communications 07-15-15 10.00 5,915,000(d) 4,909,450 MetroPCS Wireless 11-01-14 9.25 9,995,000 8,195,900
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 21 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) WIRELESS (CONT.) Nextel Communications Series D 08-01-15 7.38% $22,311,000 $8,924,400 Nextel Communications Series E 10-31-13 6.88 365,000 153,300 Sprint Capital 01-30-11 7.63 10,570,000 7,610,400 ----------- Total 41,472,535 -------------------------------------------------------------------------------------------------- WIRELINES (5.7%) Fairpoint Communications Sr Unsecured 04-01-18 13.13 7,865,000(d) 4,011,150 Frontier Communications Sr Unsecured 03-15-19 7.13 9,705,000 5,604,638 GCI Sr Unsecured 02-15-14 7.25 4,930,000 3,956,325 Level 3 Communications Sub Nts 09-15-09 6.00 3,050,000 2,806,000 Level 3 Financing 03-15-13 12.25 5,525,000 3,176,875 Qwest Sr Unsecured 06-15-15 7.63 11,190,000 8,448,450 06-01-17 6.50 11,610,000 8,127,000 Windstream 08-01-13 8.13 1,875,000 1,546,875 08-01-16 8.63 11,807,000 9,209,459 03-15-19 7.00 4,605,000 3,188,963 ----------- Total 50,075,735 -------------------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $1,008,878,768) $686,849,745 -------------------------------------------------------------------------------------------------- SENIOR LOANS (15.2%)(h) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(a) AEROSPACE & DEFENSE (0.3%) Alion Science and Technology Term Loan TBD TBD $4,565,000(g,p) $2,967,250 -------------------------------------------------------------------------------------------------- AUTOMOTIVE (0.8%) Ford Motor Term Loan TBD TBD 3,110,000(g,p) 1,265,770 12-15-13 4.43% 8,257,975 3,360,995 Lear Term Loan TBD TBD 1,935,000(g,p) 932,032 06-27-14 3.59-6.26 3,075,000 1,481,135 ----------- Total 7,039,932 -------------------------------------------------------------------------------------------------- CHEMICALS (0.8%) Hexion Specialty Chemicals Tranche C Term Loan TBD TBD 13,162,520(g,p) 7,019,967 -------------------------------------------------------------------------------------------------- CONSUMER CYCLICAL SERVICES (0.5%) West Corp Tranche B2 Term Loan TBD TBD 2,094,837(g,p) 1,298,799 10-24-13 3.77-4.73 4,852,215 3,008,373 ----------- Total 4,307,172 -------------------------------------------------------------------------------------------------- ENTERTAINMENT (0.3%) AMC Entertainment Pay-in-kind Term Loan 06-13-12 7.82 5,910,940(n) 2,955,470 -------------------------------------------------------------------------------------------------- FOOD AND BEVERAGE (0.3%) Pinnacle Foods Finance LLC Term Loan 04-02-14 5.60-6.80 3,823,901 2,619,372 -------------------------------------------------------------------------------------------------- GAMING (1.6%) Fontainebleau Las Vegas Delayed Draw Term Loan TBD TBD 5,657,216(g,p,q) 1,923,453 Fontainebleau Las Vegas Tranche B Term Loan 06-06-14 6.07 11,314,432 3,846,907
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 22 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT --------------------------------------------------------------------------------
SENIOR LOANS (CONTINUED) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(a) GAMING (CONT.) Great Lakes Gaming of Michigan Term Loan 08-15-12 9.00% $8,230,891(k) $8,066,274 ----------- Total 13,836,634 -------------------------------------------------------------------------------------------------- HEALTH CARE (2.0%) HCA Tranche B Term Loan 11-17-13 6.01 11,595,783 8,669,819 IASIS Healthcare LLC Pay-in-kind Term Loan 06-13-14 8.76 17,913,812(n) 8,956,906 ----------- Total 17,626,725 -------------------------------------------------------------------------------------------------- MEDIA CABLE (1.0%) Charter Communications Term Loan 09-06-14 3.63-5.63 12,383,461 8,342,118 -------------------------------------------------------------------------------------------------- MEDIA NON CABLE (1.1%) Dex Media West LLC Tranche B Term Loan TBD TBD 3,250,000(g,p) 1,618,500 Idearc Tranche B Term Loan 11-17-14 3.44-5.77 2,458,744 797,985 Nielsen Finance Term Loan TBD TBD 3,090,000(c,g,p) 2,056,519 08-09-13 3.77-4.39 8,232,167(c) 5,478,837 ----------- Total 9,951,841 -------------------------------------------------------------------------------------------------- METALS (0.1%) Noranda Aluminum Tranche B Term Loan TBD TBD 750,000(g,p) 438,750 -------------------------------------------------------------------------------------------------- OIL FIELD SERVICES (1.4%) Dresser 2nd Lien Term Loan 05-04-15 7.99 20,560,000 12,473,135 -------------------------------------------------------------------------------------------------- OTHER FINANCIAL INSTITUTIONS (0.6%) ACE Cash Express Tranche B Term Loan 10-05-13 6.77 9,565,855 5,261,220 -------------------------------------------------------------------------------------------------- PAPER (0.5%) Georgia-Pacific Tranche B1 Term Loan TBD TBD 5,804,290(g,p) 4,516,492 -------------------------------------------------------------------------------------------------- RETAILERS (1.4%) Neiman Marcus Group Term Loan TBD TBD 5,191,251(g,p) 3,263,065 04-06-13 4.57 2,123,950 1,335,051 Toys "R" Us Tranche B Term Loan TBD TBD 1,870,000(g,p) 1,095,502 07-19-12 5.72 11,110,199 6,508,688 ----------- Total 12,202,306 -------------------------------------------------------------------------------------------------- TECHNOLOGY (1.7%) Flextronics Intl Term Loan 10-01-14 6.13-7.07 13,951,055 9,486,718 Flextronics Intl Tranche A1A Delayed Draw Term Loan 10-01-14 7.07 4,008,924 2,726,068 SunGard Data Systems Tranche B Term Loan TBD TBD 3,305,000(g,p) 2,267,527 ----------- Total 14,480,313 -------------------------------------------------------------------------------------------------- WIRELINES (0.8%) Fairpoint Communications Tranche B Term Loan 03-08-15 6.56 11,558,000 7,235,308 -------------------------------------------------------------------------------------------------- TOTAL SENIOR LOANS) (Cost: $196,922,339) $133,274,005 --------------------------------------------------------------------------------------------------
COMMON STOCKS (--%) ISSUER SHARES VALUE(a) OIL, GAS & CONSUMABLE FUELS (--%) Link Energy LLC Unit 1,646,684(b,j) $11,527 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 23 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
COMMON STOCKS (CONTINUED) ISSUER SHARES VALUE(a) PAPER & FOREST PRODUCTS (--%) Crown Paper Escrow 29,470,000(b,k) $29 ------------------------------------------------------------------------------------- TEXTILES, APPAREL & LUXURY GOODS (--%) Arena Brands 111,111(b,k,l) 158,889 ------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $18,965,223) $170,445 ------------------------------------------------------------------------------------- OTHER (0.3%) ISSUER SHARES VALUE(a) OTHER FINANCIAL INSTITUTIONS Varde Fund V LP 25,000,000(e,k,l) $2,698,250 ------------------------------------------------------------------------------------- TOTAL OTHER (Cost: $--) $2,698,250 ------------------------------------------------------------------------------------- MONEY MARKET FUND (7.5%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 0.69% 66,162,340(r) $66,162,340 ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $66,162,340) $66,162,340 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $1,290,928,670)(s) $889,154,785 =====================================================================================
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 Nov. 30, 2008, the value of foreign securities represented 3.2% of net assets. (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 Nov. 30, 2008, the value of these securities amounted to $144,771,094 or 16.5% 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. -------------------------------------------------------------------------------- 24 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (g) At Nov. 30, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $41,979,589. 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 Nov. 30, 2008. (j) Investments representing 5% or more of the outstanding voting securities of the issuer. Transactions with companies that are or were affiliates during the six months ended Nov. 30, 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 $-- $11,527
(k) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Nov. 30, 2008, is as follows:
ACQUISITION SECURITY DATES COST ---------------------------------------------------------------------- Arena Brands Common 09-03-92 $5,888,888 Crown Paper Escrow Common 04-16-07 -- Great Lakes Gaming of Michigan Term Loan 9.00% 2012 03-01-07 thru 09-15-07 8,114,567 United Artists Theatre Circuit Pass-Through Ctfs Series BB5 9.30% 2015 12-08-95 thru 04-03-02 6,129,317 United Artists Theatre Circuit Pass-Through Ctfs Series BC3 9.30% 2015 12-06-01 1,684,496 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 (l) Security valued by management at fair value according to procedures approved, in good faith, by the Board. (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. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 25 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (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) On Sept. 15, 2008, Lehman Brothers Holdings filed a Chapter 11 bankruptcy petition. (p) 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. (q) At Nov. 30, 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 Delayed Draw $5,509,045
(r) Affiliated Money Market Fund -- See Note 5 to the financial statements. The rate shown is the seven-day current annualized yield at Nov. 30, 2008. (s) At Nov. 30, 2008, the cost of securities for federal income tax purposes was approximately $1,290,929,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $4,239,000 Unrealized depreciation (406,013,000) ------------------------------------------------------------ Net unrealized depreciation $(401,774,000) ------------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which 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. -------------------------------------------------------------------------------- 26 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- FAIR VALUE MEASUREMENTS Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to implement more uniform reporting relating to the fair valuation of securities for financial statement purposes. Mutual funds are required to implement the requirements of this standard for fiscal years beginning after Nov. 15, 2007. While uniformity of presentation is the objective of the standard, industry implementation has just begun and it is likely that there will be a range of practices utilized and it will be some period of time before industry practices become more uniform. For this reason care should be exercised in interpreting this information and/or using it for comparison with other mutual funds. Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) - Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the fund's own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with investments at that level. The following table is a summary of the inputs used to value the Fund's investments as of Nov. 30, 2008:
FAIR VALUE AT NOV. 30, 2008 ------------------------------------------------------------ LEVEL 1 LEVEL 2 QUOTED PRICES OTHER LEVEL 3 IN ACTIVE SIGNIFICANT SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL ----------------------------------------------------------------------------------- Investments in securities $66,162,340 $802,084,569 $20,907,876 $889,154,785
The following table is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
INVESTMENTS IN SECURITIES ------------------------------------------------------------------ Balance as of May 31, 2008 $26,107,878 Accrued discounts/premiums 46,978 Realized gain (loss) 412,641 Change in unrealized appreciation (depreciation) (3,618,853) Net purchases (sales) (2,040,768) Transfers in and/or out of Level 3 -- ------------------------------------------------------------------ Balance as of Nov. 30, 2008 $20,907,876 ------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 27 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- 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. -------------------------------------------------------------------------------- 28 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------- NOV. 30, 2008 (UNAUDITED)
ASSETS Investments in securities, at value Unaffiliated issuers (identified cost $1,211,689,995) $ 822,980,918 Affiliated money market fund (identified cost $66,162,340) 66,162,340 Other affiliated issuers (identified cost $13,076,335) 11,527 ----------------------------------------------------------------------------------------- Total investments in securities (identified cost $1,290,928,670) 889,154,785 Capital shares receivable 2,727,895 Dividends and accrued interest receivable 24,621,619 Receivable for investment securities sold 10,722,081 Other receivable 220,452 ----------------------------------------------------------------------------------------- Total assets 927,446,832 ----------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 1,079,069 Capital shares payable 1,174,736 Payable for investment securities purchased 47,332,115 Accrued investment management services fees 28,261 Accrued distribution fees 177,586 Accrued transfer agency fees 10,097 Accrued administrative services fees 3,250 Accrued plan administration services fees 280 Other accrued expenses 195,332 ----------------------------------------------------------------------------------------- Total liabilities 50,000,726 ----------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 877,446,106 ----------------------------------------------------------------------------------------- REPRESENTED BY Capital stock -- $.01 par value $ 4,577,329 Additional paid-in capital 2,703,836,895 Excess of distributions over net investment income (1,038,245) Accumulated net realized gain (loss) (1,428,376,440) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (401,553,433) ----------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 877,446,106 -----------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 29 STATEMENT OF ASSETS AND LIABILITIES (continued) --------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $713,352,124 372,021,638 $1.92(1) Class B $ 89,891,192 46,900,987 $1.92 Class C $ 11,662,478 6,121,775 $1.91 Class I $ 49,225,589 25,697,857 $1.92 Class R2 $ 3,413 1,775 $1.92 Class R3 $ 503,624 261,213 $1.93 Class R4 $ 876,565 457,103 $1.92 Class R5 $ 3,253 1,695 $1.92 Class W $ 11,927,868 6,268,887 $1.90 -----------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $2.02. 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. -------------------------------------------------------------------------------- 30 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT STATEMENT OF OPERATIONS -------------------------------------------------------- SIX MONTHS ENDED NOV. 30, 2008 (UNAUDITED)
INVESTMENT INCOME Income: Interest $ 57,489,045 Income distributions from affiliated money market fund 531,653 Less foreign taxes withheld 102,500 -------------------------------------------------------------------------------- Total income 58,123,198 -------------------------------------------------------------------------------- Expenses: Investment management services fees 3,486,257 Distribution fees Class A 1,201,245 Class B 658,421 Class C 79,355 Class R2 26 Class R3 178 Class W 22,484 Transfer agency fees Class A 853,413 Class B 123,578 Class C 14,478 Class R2 2 Class R3 36 Class R4 220 Class R5 1 Class W 17,987 Administrative services fees 394,146 Plan administration services fees Class R2 13 Class R3 178 Class R4 1,103 Compensation of board members 15,596 Custodian fees 71,420 Printing and postage 144,550 Registration fees 46,124 Professional fees 41,402 Other 11,757 -------------------------------------------------------------------------------- Total expenses 7,183,970 Expenses waived/reimbursed by the Investment Manager and its affiliates (661,918) Earnings and bank fee credits on cash balances (10,397) -------------------------------------------------------------------------------- Total net expenses 6,511,655 -------------------------------------------------------------------------------- Investment income (loss) -- net 51,611,543 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 31 STATEMENT OF OPERATIONS (continued) --------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions $ (61,156,560) Swap transactions (374,325) -------------------------------------------------------------------------------- Net realized gain (loss) on investments (61,530,885) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (326,180,399) -------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (387,711,284) -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(336,099,741) --------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 32 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
SIX MONTHS ENDED YEAR ENDED NOV. 30, 2008 MAY 31, 2008 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 51,611,543 $ 126,020,300 Net realized gain (loss) on investments (61,530,885) (73,331,801) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (326,180,399) (113,650,004) --------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (336,099,741) (60,961,505) --------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (41,691,845) (92,027,977) Class B (5,175,486) (14,410,322) Class C (628,455) (1,392,372) Class I (2,862,512) (8,054,105) Class R2 (453) (369) Class R3 (7,416) (344) Class R4 (39,914) (82,390) Class R5 (188) (363) Class W (773,010) (4,192,045) 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 (51,179,279) (120,212,727) ---------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 33 STATEMENTS OF CHANGES IN NET ASSETS (continued) --------------------------------
SIX MONTHS ENDED YEAR ENDED NOV. 30, 2008 MAY 31, 2008 (UNAUDITED) CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 64,458,594 $ 196,422,904 Class B shares 5,159,258 18,833,838 Class C shares 1,594,148 2,467,245 Class I shares 3,609,635 42,473,426 Class R2 shares 65,652 4,052 Class R3 shares 583,511 -- Class R4 shares 436,186 435,232 Class W shares 2,444,051 112,121,312 Reinvestment of distributions at net asset value Class A shares 30,163,257 69,001,568 Class B shares 3,996,016 11,411,686 Class C shares 489,770 1,125,071 Class I shares 2,835,445 8,139,335 Class R2 shares 80 38 Class R3 shares 6,624 -- Class R4 shares 39,278 83,570 Class W shares 768,490 4,214,685 Payments for redemptions Class A shares (201,267,678) (460,100,793) Class B shares (51,308,662) (151,878,801) Class C shares (3,908,902) (8,296,094) Class I shares (8,845,144) (63,573,729) Class R2 shares (67,143) (183) Class R3 shares (9,213) -- Class R4 shares (201,327) (734,634) Class W shares (8,049,420) (116,812,442) --------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (157,007,494) (334,662,714) --------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (544,286,514) (515,836,946) Net assets at beginning of period 1,421,732,620 1,937,569,566 --------------------------------------------------------------------------------------------------- Net assets at end of period $ 877,446,106 $1,421,732,620 --------------------------------------------------------------------------------------------------- Excess of distributions over net investment income $ (1,038,245) $ (1,470,509) ---------------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 34 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(l) 2008 2007 2006 2005 Net asset value, beginning of period $2.74 $3.02 $2.89 $2.86 $2.74 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .22(b) .20 .20 .19 Net gains (losses) (both realized and unrealized) (.82) (.29) .15 .03 .12 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.71) (.07) .35 .23 .31 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.21) (.22) (.20) (.19) Tax return of capital -- (.00)(c) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.21) (.22) (.20) (.19) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $2.74 $3.02 $2.89 $2.86 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $713 $1,134 $1,463 $1,535 $1,735 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.14%(f) 1.13% 1.08% 1.08% 1.04% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.02%(f) 1.10% 1.08% 1.08% 1.04% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 8.75%(f) 7.71% 6.94% 6.78% 6.67% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% 93% 105% -------------------------------------------------------------------------------------------------------------- Total return(i) (26.68%)(j) (2.40%) 12.77%(k) 8.27% 11.56% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have 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) 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 were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) 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%. (l) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 35 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(l) 2008 2007 2006 2005 Net asset value, beginning of period $2.74 $3.02 $2.89 $2.86 $2.74 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .19(b) .18 .18 .17 Net gains (losses) (both realized and unrealized) (.82) (.29) .15 .03 .12 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.72) (.10) .33 .21 .29 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.18) (.20) (.18) (.17) Tax return of capital -- (.00)(c) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.18) (.20) (.18) (.17) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $2.74 $3.02 $2.89 $2.86 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $90 $174 $321 $433 $629 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.89%(f) 1.89% 1.84% 1.83% 1.79% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.78%(f) 1.86% 1.84% 1.83% 1.79% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 7.90%(f) 6.92% 6.18% 6.00% 5.92% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% 93% 105% -------------------------------------------------------------------------------------------------------------- Total return(i) (27.06%)(j) (3.17%) 11.91%(k) 7.45% 10.72% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have 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) 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 six months ended Nov. 30, 2008 were less than 0.01% of average net assets. 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. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) 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%. (l) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 36 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(l) 2008 2007 2006 2005 Net asset value, beginning of period $2.72 $3.00 $2.87 $2.84 $2.73 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .19(b) .18 .18 .17 Net gains (losses) (both realized and unrealized) (.81) (.29) .15 .03 .11 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.71) (.10) .33 .21 .28 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.18) (.20) (.18) (.17) Tax return of capital -- (.00)(c) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.18) (.20) (.18) (.17) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.91 $2.72 $3.00 $2.87 $2.84 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $12 $19 $26 $28 $36 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.89%(f) 1.88% 1.83% 1.83% 1.79% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.77%(f) 1.86% 1.83% 1.83% 1.79% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 7.99%(f) 6.95% 6.18% 6.02% 5.92% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% 93% 105% -------------------------------------------------------------------------------------------------------------- Total return(i) (26.81%)(j) (3.21%) 11.95%(k) 7.47% 10.35% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have 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) 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 six months ended Nov. 30, 2008 were less than 0.01% of average net assets. 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. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) 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%. (l) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 37 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005 Net asset value, beginning of period $2.73 $3.02 $2.89 $2.86 $2.74 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .23(b) .21 .21 .21 Net gains (losses) (both realized and unrealized) (.81) (.30) .16 .03 .11 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.70) (.07) .37 .24 .32 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.22) (.24) (.21) (.20) Tax return of capital -- (.00)(c) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.22) (.24) (.21) (.20) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $2.73 $3.02 $2.89 $2.86 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $49 $72 $97 $24 $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .71%(f) .72% .67% .69% .64% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .65%(f) .69% .67% .69% .64% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 9.16%(f) 8.13% 7.37% 7.49% 7.06% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% 93% 105% -------------------------------------------------------------------------------------------------------------- Total return (26.27%)(i) (2.36%) 13.21%(j) 8.69% 11.97% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have 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) 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 were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Not annualized. (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) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 38 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(j) 2008 2007(b) Net asset value, beginning of period $2.74 $3.02 $2.95 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(c) .21(c) .11 Net gains (losses) (both realized and unrealized) (.82) (.29) .05 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.72) (.08) .16 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.20) (.09) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $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) 1.55%(f) 1.51% 1.45%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.37%(f) 1.25% 1.45%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 8.68%(f) 7.63% 6.58%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% -------------------------------------------------------------------------------------------------------------- Total return (26.85%)(i) (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 amounts have 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 were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Not annualized. (j) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 39 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(j) 2008 2007(b) Net asset value, beginning of period $2.74 $3.02 $2.95 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .12(c) .22(c) .11 Net gains (losses) (both realized and unrealized) (.82) (.29) .06 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.70) (.07) .17 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.21) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.93 $2.74 $3.02 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $-- $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.29%(f) 1.26% 1.20%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.20%(f) .99% 1.20%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 11.54%(f) 7.82% 6.84%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% -------------------------------------------------------------------------------------------------------------- Total return (26.30%)(i) (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 amounts have 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 were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Not annualized. (j) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 40 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005 Net asset value, beginning of period $2.74 $3.01 $2.89 $2.86 $2.74 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .23(b) .21 .21 .20 Net gains (losses) (both realized and unrealized) (.82) (.29) .14 .02 .12 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.71) (.06) .35 .23 .32 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.21) (.23) (.20) (.20) Tax return of capital -- (.00)(c) -- -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.21) (.23) (.20) (.20) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $2.74 $3.01 $2.89 $2.86 -------------------------------------------------------------------------------------------------------------- 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) 1.01%(f) 1.02% .94% .90% .87% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .79%(f) .76% .93% .90% .87% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 9.20%(f) 8.07% 7.10% 6.96% 6.84% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% 93% 105% -------------------------------------------------------------------------------------------------------------- Total return (26.60%)(i) (1.87%) 12.56%(j) 8.45% 11.75% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have 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) 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 six months ended Nov. 30, 2008 were less than 0.01% of average net assets. 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. (i) Not annualized. (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) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 41 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(j) 2008 2007(b) Net asset value, beginning of period $2.74 $3.02 $2.95 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(c) .22(c) .12 Net gains (losses) (both realized and unrealized) (.82) (.28) .05 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.71) (.06) .17 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.22) (.10) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.92 $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%(f) .78% .71%(f) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .70%(f) .75% .71%(f) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 9.12%(f) 8.06% 7.33%(f) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% -------------------------------------------------------------------------------------------------------------- Total return (26.56%)(i) (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 amounts have 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 were less than 0.01% of average net assets for the six months ended Nov. 30, 2008 and for the year ended May 31, 2008. (i) Not annualized. (j) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 42 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT -------------------------------------------------------------------------------- CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended May 31, 2008(k) 2008 2007(b) Net asset value, beginning of period $2.71 $3.00 $2.94 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(c) .21(c) .11 Net gains (losses) (both realized and unrealized) (.82) (.30) .07 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.71) (.09) .18 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.20) (.12) Tax return of capital -- (.00)(d) -- -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.20) (.12) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $1.90 $2.71 $3.00 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $12 $23 $30 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) 1.16%(g) 1.17% 1.06%(g) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) 1.10%(g) 1.14% 1.06%(g) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 8.64%(g) 7.59% 6.05%(g) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 64% 95% -------------------------------------------------------------------------------------------------------------- Total return (26.68%)(j) (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 amounts have 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 six months ended Nov. 30, 2008 were less than 0.01% of average net assets. 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. (k) Six months ended Nov. 30, 2008 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 43 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- (UNAUDITED AS TO NOV. 30, 2008) 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 Nov. 30, 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 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. -------------------------------------------------------------------------------- 44 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT VALUATION OF SECURITIES Effective June 1, 2008, the Fund adopted 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. There was no impact to the Fund's net assets or results of operations upon adoption. The fair valuation measurements disclosure can be found following the Notes to Portfolio of Investments. 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. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. 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. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 45 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, which approximates fair value. ILLIQUID SECURITIES At Nov. 30, 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. The aggregate value of such securities at Nov. 30, 2008 was $18,834,146 representing 2.15% of net assets. Certain illiquid securities may be valued by management 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 disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. 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. 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 Nov. 30, 2008, the Fund has outstanding when-issued securities of $7,530,686 and other forward-commitments of $34,448,903. 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 Nov. 30, 2008, the Fund has entered into unfunded loan commitments of $5,509,045. -------------------------------------------------------------------------------- 46 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 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 (OTC 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 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. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. 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 Nov. 30, 2008, and for the six months 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 and options on futures are valued daily based upon the last sale price at the close of the 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 -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 47 recognizes a realized gain or loss when the contract is closed or expires. At Nov. 30, 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 using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. At Nov. 30, 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 -------------------------------------------------------------------------------- 48 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT Fund. At Nov. 30, 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 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 Nov. 30, 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. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 49 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. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. 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. RECENT ACCOUNTING PRONOUNCEMENT 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 derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial -------------------------------------------------------------------------------- 50 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT statements issued for periods beginning after Nov. 15, 2008. As of Nov. 30, 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. 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 collectability 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 0.36% annually as the Fund's assets increase. The management fee for the six months ended Nov. 30, 2008 was 0.59% 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 six months ended Nov. 30, 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 -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 51 administrative services to the Fund and the Board. For the six months ended Nov. 30, 2008, other expenses paid to the company were $3,522. COMPENSATION OF BOARD MEMBERS 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. 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 agreements with RiverSource Distributors, Inc. and RiverSource Fund Distributors, Inc. (collectively, the Distributor) for distribution and shareholder services. 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. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $3,630,000 and $123,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2008, and may be -------------------------------------------------------------------------------- 52 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $223,408 for Class A, $45,061 for Class B and $892 for Class C for the six months ended Nov. 30, 2008. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the six months ended Nov. 30, 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............................................. 1.02% Class B............................................. 1.78 Class C............................................. 1.77 Class I............................................. 0.65 Class R2............................................ 1.37 Class R3............................................ 1.20 Class R4............................................ 0.79 Class R5............................................ 0.70 Class W............................................. 1.10
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A.......................................... $276,815 Class B.......................................... 37,984 Class C.......................................... 4,956
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R2............................................ $4 Class R3............................................ 3 Class R4............................................ 692
The management fees waived/reimbursed at the Fund level were $341,464. 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 -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 53 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 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 six months ended Nov. 30, 2008, the Fund's custodian and transfer agency fees were reduced by $10,397 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 $312,041,673 and $471,073,686, respectively, for the six months ended Nov. 30, 2008. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED NOV. 30, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ---------------------------------------------------------------------------------- Class A 26,253,987 12,680,050 (81,341,344) (42,407,307) Class B 2,121,676 1,672,026 (20,349,213) (16,555,511) Class C 685,481 206,926 (1,630,769) (738,362) Class I 1,510,295 1,196,711 (3,525,716) (818,710) Class R2 25,004 30 (26,434) (1,400) Class R3 260,569 3,353 (4,404) 259,518 Class R4 187,394 16,813 (83,181) 121,026 Class W 974,097 323,510 (3,319,937) (2,022,330) ----------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 54 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT
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) ----------------------------------------------------------------------------------
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 purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $326,203,118 and $285,826,516, respectively, for the six months ended Nov. 30, 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 Nov. 30, 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 led by JPMorgan Chase Bank, N.A. (the Administrative Agent), 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. 16, 2008, 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 $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. 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, in addition to an upfront fee equal to its pro rata -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 55 share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the six months ended Nov. 30, 2008. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A., whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was 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 matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 7. CAPITAL LOSS CARRY-OVER 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. 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 -------------------------------------------------------------------------------- 56 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 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. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 57 both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that, in addition to the four arrangements noted above, the Seligman Parties permitted other persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at least $80 million and restitution, disgorgement, penalties and costs and injunctive relief. The Seligman Parties answered the complaint in December 2006 and believe that the claims are without merit. Any resolution of these matters may include the relief noted above or other sanctions or changes in procedures. Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains injunctive relief, each of Seligman, RiverSource Investments and their affiliates could, in the absence of the SEC in its discretion granting exemptive relief, be enjoined from providing advisory and underwriting services to the Seligman Funds and other registered investment companies including those funds in the RiverSource complex of funds. Neither Seligman nor RiverSource Investments believes that the foregoing legal action or other possible actions will have a material adverse impact on Seligman, RiverSource Investments or their current or former clients, including the Seligman Funds and other investment companies managed by RiverSource Investments; however, there can be no assurance of this or that these matters and any related publicity will not affect demand for shares of the Seligman Funds and such other investment companies or have other adverse consequences. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. -------------------------------------------------------------------------------- 58 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL REPORT 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 SEMIANNUAL REPORT 59 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. -------------------------------------------------------------------------------- 60 RIVERSOURCE HIGH YIELD BOND FUND -- 2008 SEMIANNUAL 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., and RiverSource Fund Distributors, Inc., Members FINRA, and managed by RiverSource Investments, LLC. RiverSource is part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2009 RiverSource Investments, LLC. S-6470 Z (1/09)