N-CSR 1 highyieldincome-ncsr.txt RIVERSOURCE HIGH YIELD INCOME SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-3848 ------------ RIVERSOURCE HIGH YIELD INCOME SERIES, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 5/31 -------------- Date of reporting period: 5/31 -------------- Annual Report RIVERSOURCE [LOGO](SM) INVESTMENTS RIVERSOURCE(SM) HIGH YIELD BOND FUND -------------------------------------------------------------------------------- ANNUAL REPORT FOR THE PERIOD ENDED MAY 31, 2006 > RIVERSOURCE HIGH YIELD BOND FUND SEEKS TO PROVIDE SHAREHOLDERS WITH HIGH CURRENT INCOME AS ITS PRIMARY OBJECTIVE AND, AS ITS SECONDARY OBJECTIVE, CAPITAL GROWTH. -------------------------------------------------------------------------------- (This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money.) TABLE OF CONTENTS Fund Snapshot ............................................................ 2 Performance Summary ...................................................... 4 Questions & Answers with Portfolio Management ............................ 5 The Fund's Long-term Performance ......................................... 8 Investments in Securities ................................................ 10 Financial Statements ..................................................... 20 Notes to Financial Statements ............................................ 24 Report of Independent Registered Public Accounting Firm .................. 38 Federal Income Tax Information ........................................... 39 Fund Expenses Example .................................................... 42 Board Members and Officers ............................................... 44 Approval of Investment Management Services Agreement ..................... 47 Proxy Voting ............................................................. 48 Results of Meeting of Shareholders ....................................... 49
DALBAR [LOGO] RATED 2006 FOR COMMUNICATION RiverSource Funds' shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 1 -------------------------------------------------------------------------------- FUND SNAPSHOT AT MAY 31, 2006 -------------------------------------------------------------------------------- PORTFOLIO MANAGER < --------------------------------------------------------------------------------
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Scott Schroepfer, CFA* 3/99 20
* This Fund is managed by a team of portfolio managers led by Scott Schroepfer. This high-yield sector team is led by Jennifer Ponce de Leon. -------------------------------------------------------------------------------- FUND OBJECTIVE < -------------------------------------------------------------------------------- For investors primarily seeking high current income and, secondarily, capital growth. Inception dates by class A: 12/8/83 B: 3/20/95 C: 6/26/00 I: 3/4/04 Y: 3/20/95 Ticker symbols by class A: INEAX B: IEIBX C: APECX I: RSHIX Y: -- Total net assets $2.021 billion Number of holdings 234 Weighted average life(1) 6.9 years Effective duration(2) 4.2 years Weighted average bond rating(3) B
(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. -------------------------------------------------------------------------------- STYLE MATRIX < --------------------------------------------------------------------------------
--------------------------------- DURATION SHORT INT. LONG --------------------------------- HIGH --------------------------------- MEDIUM QUALITY --------------------------------- LOW ---------------------------------
Shading within the style matrix indicates areas in which the Fund generally invests. -------------------------------------------------------------------------------- CREDIT QUALITY SUMMARY < -------------------------------------------------------------------------------- Percentage of bond portfolio assets BBB bonds 2.9% --------------------------------------------- BB bonds 23.6 --------------------------------------------- B bonds 58.3 --------------------------------------------- CCC bonds 15.2 ---------------------------------------------
Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 2.0% of the portfolio rating above was determined through internal analysis. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. 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. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. -------------------------------------------------------------------------------- 2 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SEC YIELDS < -------------------------------------------------------------------------------- At May 31, 2006 by class A: 6.49% B: 6.04% C: 6.04% I: 7.06% Y: 6.97% At June 30, 2006 by class A: 6.72% B: 6.27% C: 6.29% I: 7.49% Y: 7.23% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 4 for additional performance information. -------------------------------------------------------------------------------- SECTOR COMPOSITION* < -------------------------------------------------------------------------------- Percentage of portfolio assets at May 31, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Consumer Discretionary 21.9% Telecommunication 18.2% Materials 13.8% Health Care 10.4% Industrials 7.7% Utilities 7.2% Energy 5.8% Short-Term Securities** 5.8% Consumer Staples 4.8% Financials 4.4%
* Sectors can be comprised of several industries. Please refer to the section entitled "Investments in Securities" for a complete listing. No single industry exceeds 25% of portfolio assets. ** Of the 5.8%, 0.2% is due to security lending activity and 5.6% is the Fund's cash equivalent position. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 3 -------------------------------------------------------------------------------- PERFORMANCE SUMMARY -------------------------------------------------------------------------------- PERFORMANCE COMPARISON For the year ended May 31, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] RiverSource High Yield Bond Fund Class A (excluding sales charge) +8.27% JP Morgan Global High Yield Index (unmanaged) +7.40% Lipper High Current Yield Bond Funds Index +7.08%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS Y (INCEPTION DATES) (12/8/83) (3/20/95) (6/26/00) (3/4/04) (3/20/95) AFTER AFTER NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(5) AT MAY 31, 2006 ---------------------------------------------------------------------------------------------------- 1 year +8.27% +3.11% +7.45% +2.45% +7.47% +6.47% +8.69% +8.45% ---------------------------------------------------------------------------------------------------- 3 years +10.76% +8.97% +9.93% +8.81% +9.83% +9.83% N/A +10.94% ---------------------------------------------------------------------------------------------------- 5 years +6.93% +5.90% +6.13% +5.83% +6.14% +6.14% N/A +7.10% ---------------------------------------------------------------------------------------------------- 10 years +5.00% +4.50% +4.21% +4.21% N/A N/A N/A +5.15% ---------------------------------------------------------------------------------------------------- Since inception +8.24% +8.00% +5.64% +5.64% +4.63% +4.63% +8.48% +6.60% ---------------------------------------------------------------------------------------------------- AT JUNE 30, 2006 ---------------------------------------------------------------------------------------------------- 1 year +6.08% +1.04% +5.28% +0.33% +5.28% +4.29% +6.49% +6.25% ---------------------------------------------------------------------------------------------------- 3 years +9.39% +7.63% +8.57% +7.42% +8.60% +8.60% N/A +9.57% ---------------------------------------------------------------------------------------------------- 5 years +7.35% +6.31% +6.54% +6.24% +6.49% +6.49% N/A +7.44% ---------------------------------------------------------------------------------------------------- 10 years +4.94% +4.43% +4.15% +4.15% N/A N/A N/A +5.09% ---------------------------------------------------------------------------------------------------- Since inception +8.18% +7.95% +5.55% +5.55% +4.47% +4.47% +7.94% +6.50% ----------------------------------------------------------------------------------------------------
(1) Excluding sales charge. (2) Returns at public offering price (POP) reflect a sales charge of 4.75%. (3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as follows: first year 5%; second and third year 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. (4) 1% CDSC applies to redemptions made within the first year of purchase. (5) Sales charge is not applicable to these shares. Shares available to institutional investors only. -------------------------------------------------------------------------------- 4 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, portfolio manager Scott Schroepfer discusses RiverSource High Yield Bond Fund's results and positioning for the annual period ended May 31, 2006. Q: How did RiverSource High Yield Bond Fund perform for the annual period ended May 31, 2006? A: RiverSource High Yield Bond Fund rose 8.27% (Class A shares excluding sales charge) for the annual period ended May 31, 2006, outperforming its benchmark, the JP Morgan Global High Yield Index (JP Morgan Index), which advanced 7.40% during the period. The Fund also outperformed its peer group, the Lipper High Current Yield Bond Funds Index, which returned 7.08% during the same time frame. Q: What factors most significantly affected performance for the period? A: The fiscal year began with a strong bond market and during the period the difference between higher quality and lower quality bonds grew tighter so that owning riskier positions wasn't yielding as much reward. During the annual period, two factors, in particular, contributed to the Fund's outperformance. The Fund benefited from an overweight to B-rated securities relative to the JP Morgan Index. Heading into the fiscal year, the Fund had just finished an aggressive buying opportunity in the market, adding positions to the Fund's portfolio in the auto industry and the paper and forest products industry. The Fund subsequently benefited when the market saw early strength in the beginning of the period. The Fund also benefited from strong security selection. In particular, we added to the Fund's position in General Motors' financial services subsidiary GMAC early during the fiscal year when auto-related bonds declined in value. Adding to the credit paid off during the period as GMAC performed well and contributed to performance. Q: Which bonds were the best and worst performers for the Fund during the 12-month period? A: The Fund's greater-than-JP Morgan Index weight in the strongly performing telecommunication sector contributed to performance, specifically holding Qwest Communications Intl. Qwest turned in strong results during the period and the Fund benefited. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 5 -------------------------------------------------------------------------------- QUESTIONS & ANSWERS > WE INCREASED CREDIT QUALITY BY SELLING MANY OF THE FUND'S B-RATED BONDS AND BUYING BB-RATED BONDS. In addition, we had been holding health retailer General Nutrition Centers in the Fund's portfolio despite weak results from the company because we believed the company was poised to turn around its operations. Holding the credit during the annual period paid off, and it turned out to be one of the strongest performers for the Fund. A weaker performer for the Fund during the 12-month period was hospital management company LifeCare, which was impacted by Hurricane Katrina and expected changes in government reimbursement policies. The credit suffered weak performance as a result. Video and DVD retailer Movie Gallery also detracted from performance during the period. Q: What changes did you make to the portfolio and how is it currently positioned? A: During the second half of the period, as the difference in yields between higher quality and lower quality bonds continued to grow tighter, we became more aggressive in upgrading the credit quality of the Fund's portfolio. We increased credit quality by selling many of the Fund's B-rated bonds and buying BB-rated bonds. The difference between B-rated bonds and BB-rated bonds was at an all-time tight level during the period, meaning that the Fund just wasn't being rewarded to own incrementally riskier positions. In addition, as we found attractive buying opportunities during the period, we added to the Fund's positions in certain cyclical industries such as paper and building materials. In particular, we increased the Fund's position in NewPage, a coated paper supplier. -------------------------------------------------------------------------------- 6 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- QUESTIONS & ANSWERS Currently the Fund has greater-than-JP Morgan Index weights in the gaming and media industries as well as the telecommunication sectors. The Fund also continues to be overweight in the health care sector relative to the JP Morgan Index, specifically, hospitals. The Fund remains underweight in the technology and manufacturing industries relative to the JP Morgan Index. Q: What is the Fund's tactical view and strategy for the months ahead? A: We still have a positive view of the economy going forward and believe company fundamentals remain solid. We believe the Federal Reserve Board is nearing the end of its rate hikes. Typically when rates stop rising, the difference between corporate bonds and higher quality government bonds widens. If the difference between yields widens, we will use the opportunity to add some positions back into the portfolio that we like for the long term because of our generally positive outlook on the economic environment. We continue to believe 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 risks outweigh a bond's total return potential. We have a bottom-up approach when selecting credits. One of our competitive advantages is that our team of nine analysts performs in-depth research to acquire deep knowledge and insight of the industries they cover. We believe that good security selection based on quality and in-depth security research will be key to performance in the near term. We will continue to seek opportunities to capitalize on attractively valued bonds that have the potential for positive returns. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 7 -------------------------------------------------------------------------------- THE FUND'S LONG-TERM PERFORMANCE The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource High Yield Bond Fund Fund Class A shares (from 6/1/96 to 5/31/06) as compared to the performance of two widely cited performance indices, the JP Morgan Global High Yield Index and the Lipper High Current Yield Bond Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. DISTRIBUTION SUMMARY The table below details the Fund's income and capital gain distributions for the fiscal years shown. More information on the other classes can be found in the Financial Highlights section of this report's Notes to Financial Statements.
CLASS A -------------------------------------------------- Short-term Long-term Fiscal year ended Income capital gains capital gains TOTAL -------------------------------------------------------------------------------- May 31, 2006 $0.20 $-- $-- $0.20 -------------------------------------------------------------------------------- May 31, 2005 0.19 -- -- 0.19 -------------------------------------------------------------------------------- May 31, 2004 0.20 -- -- 0.20 -------------------------------------------------------------------------------- May 31, 2003 0.21 -- -- 0.21(1) -------------------------------------------------------------------------------- May 31, 2002 0.29 -- -- 0.29(2) --------------------------------------------------------------------------------
(1) $0.01 per share represents a tax return of capital. (2) $0.05 per share represents a tax return of capital. -------------------------------------------------------------------------------- 8 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE HIGH YIELD BOND FUND [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
RIVERSOURCE JP MORGAN LIPPER HIGH HIGH YIELD BOND FUND CLASS A GLOBAL HIGH YIELD CURRENT YIELD BOND (INCLUDES SALES CHARGE) INDEX(1) FUNDS INDEX(2) 9525 10000 10000 10565 11362 11277 11964 12755 12837 11528 12754 12734 11208 12400 12374 11103 12790 11969 10624 13150 11532 11424 14731 12628 12853 16682 14157 14339 18366 15466 15525 19726 16561
-------------------------------------------------------------------------------- COMPARATIVE RESULTS Results at May 31, 2006
SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(3) RIVERSOURCE HIGH YIELD BOND FUND (INCLUDES SALES CHARGE) -------------------------------------------------------------------------------------------------------------------- Class A Cumulative value of $10,000 $10,311 $12,940 $13,319 $15,525 $56,409 -------------------------------------------------------------------------------------------------------------------- Average annual total return +3.11% +8.97% +5.90% +4.50% +8.00% -------------------------------------------------------------------------------------------------------------------- JP MORGAN GLOBAL HIGH YIELD INDEX(1) -------------------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $10,740 $13,390 $15,422 $19,726 N/A -------------------------------------------------------------------------------------------------------------------- Average annual total return +7.40% +10.22% +9.05% +7.03% N/A -------------------------------------------------------------------------------------------------------------------- LIPPER HIGH CURRENT YIELD BOND FUNDS INDEX(2) -------------------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $10,708 $13,115 $13,836 $16,561 $56,965 -------------------------------------------------------------------------------------------------------------------- Average annual total return +7.08% +9.46% +6.71% +5.17% +8.04% --------------------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 4. (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, but excludes brokerage commissions or other fees. (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. (3) Fund data is from Dec. 8, 1983. Lipper peer group data is from Dec. 1, 1983. The Fund began operating before the inception of the JP Morgan Global High Yield Index. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 9 -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES RiverSource High Yield Bond Fund MAY 31, 2006 (Percentages represent value of investments compared to net assets)
-------------------------------------------------------------------------------- BONDS (92.3%) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) AEROSPACE & DEFENSE (2.6%) Communications & Power Inds Sr Sub Nts 02-01-12 8.00% $ 8,935,000 $ 9,292,400 CPI Intl Sr Nts 02-01-15 10.56 9,095,000(n) 9,367,850 DRS Technologies 02-01-16 6.63 5,315,000 5,155,550 02-01-18 7.63 4,020,000 4,060,200 DRS Technologies Sr Sub Nts 11-01-13 6.88 6,125,000 6,002,500 L-3 Communications 06-15-12 7.63 6,955,000 7,128,875 07-15-13 6.13 1,035,000 975,488 L-3 Communications Sr Sub Nts Series B 10-15-15 6.38 11,100,000 10,489,500 -------------- Total 52,472,363 -------------------------------------------------------------------------------- AUTOMOTIVE (3.9%) Ford Motor Credit 06-16-08 6.63 19,305,000 18,283,495 GMAC 08-28-07 6.13 4,915,000 4,809,966 09-15-11 6.88 26,010,000 24,434,315 11-01-31 8.00 3,290,000 3,092,600 Insurance Auto Auctions 04-01-13 11.00 14,695,000 15,282,800 Lear Series B 05-15-09 8.11 11,090,000 10,785,025 08-01-14 5.75 1,860,000 1,515,900 -------------- Total 78,204,101 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BROKERAGE (0.9%) LaBranche & Co Sr Nts 05-15-09 9.50% $ 670,000 $ 711,875 05-15-12 11.00 16,080,000 17,647,800 -------------- Total 18,359,675 -------------------------------------------------------------------------------- BUILDING MATERIALS (2.5%) Ainsworth Lumber 10-01-12 7.25 7,715,000(c) 6,692,763 Gibraltar Inds Sr Sub Nts 12-01-15 8.00 9,170,000(d) 9,170,000 Norcraft Companies LP/Finance Sr Sub Nts 11-01-11 9.00 5,780,000 6,011,200 Norcraft Holdings LP/Capital Sr Disc Nts (Zero coupon through 09-01-08, thereafter 9.75%) 09-01-12 9.98 14,185,000(m) 11,915,400 Nortek Sr Sub Nts 09-01-14 8.50 11,740,000 11,798,700 NTK Holdings Sr Disc Nts (Zero coupon through 09-01-09, thereafter 10.75%) 03-01-14 9.41 4,355,000(m) 3,288,025 Ply Gem Inds Sr Sub Nts 02-15-12 9.00 2,630,000 2,478,775 -------------- Total 51,354,863 -------------------------------------------------------------------------------- CHEMICALS (3.9%) Chemtura 06-01-16 6.88 4,210,000 4,083,700 Crystal US Holdings 3 LLC/Sub3 Sr Disc Nts Series B (Zero coupon through 10-01-09, thereafter 10.50%) 10-01-14 9.75 10,321,000(m) 8,127,788
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 10 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) CHEMICALS (CONT.) Georgia Gulf Sr Nts 12-15-13 7.13% $ 7,695,000 $ 7,762,331 Hexion US Finance/Nova Scotia Finance Secured 07-15-14 9.00 9,420,000 9,749,700 INEOS Group Holdings 02-15-16 8.50 5,160,000(c,d) 4,824,600 INVISTA 05-01-12 9.25 21,710,000(d) 23,012,600 NALCO Sr Nts 11-15-11 7.75 3,980,000 3,989,950 NALCO Sr Sub Nts 11-15-13 8.88 6,155,000 6,331,956 PQ 02-15-13 8.00 11,955,000(d) 11,521,631 -------------- Total 79,404,256 -------------------------------------------------------------------------------- CONSTRUCTION MACHINERY (0.6%) Case New Holland Sr Nts 03-01-14 7.13 10,375,000(d) 10,063,750 United Rentals North America Sr Sub Nts 02-15-14 7.00 2,855,000 2,683,700 -------------- Total 12,747,450 -------------------------------------------------------------------------------- CONSUMER PRODUCTS (2.2%) AAC Group Holding Sr Disc Nts (Zero coupon through 10-01-08, thereafter 10.25%) 10-01-12 10.07 7,165,000(m) 5,767,825 Sealy Mattress Sr Sub Nts 06-15-14 8.25 10,400,000(h) 10,816,000 Spectrum Brands Sr Sub Nts 10-01-13 8.50 13,350,000 11,614,500 Visant Holding Sr Disc Nts (Zero coupon through 12-01-08, thereafter 10.25%) 12-01-13 10.25 6,815,000(m) 5,349,775 -------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) CONSUMER PRODUCTS (CONT.) Visant Holding Sr Nts 12-01-13 8.75% $11,415,000(d) $ 11,243,775 -------------- Total 44,791,875 -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING (0.9%) ALH Finance LLC/Finance Sr Sub Nts 01-15-13 8.50 2,246,000 2,201,080 Covalence Specialty Materials Sr Sub Nts 03-01-16 10.25 7,075,000(d) 7,251,875 TriMas 06-15-12 9.88 8,485,000 8,103,175 -------------- Total 17,556,130 -------------------------------------------------------------------------------- ELECTRIC (4.9%) Aquila Canada Finance 06-15-11 7.75 2,995,000(c) 3,122,288 Aquila Sr Nts 11-15-09 7.63 8,232,000 8,550,990 02-01-11 9.95 6,145,000 6,867,038 Dynegy Holdings 05-15-18 7.13 8,125,000 7,231,250 Dynegy Holdings Sr Unsecured 05-01-16 8.38 11,650,000(d) 11,591,749 Edison Mission Energy Sr Nts 06-15-16 7.75 14,325,000(d,f) 14,181,749 Midwest Generation LLC Series B 01-02-16 8.56 7,135,872 7,653,222 Mirant Americas Generation LLC Sr Nts 05-01-11 8.30 6,935,000 6,935,000 Mirant North America LLC Sr Nts 12-31-13 7.38 8,905,000(d) 8,793,688 NRG Energy 02-01-14 7.25 8,455,000 8,455,000 02-01-16 7.38 4,640,000 4,645,800 NRG Energy Tranche B Term Loan 02-01-13 6.82 6,250,000(j,n) 6,275,563
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 11 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ELECTRIC (CONT.) Reliant Energy Secured 12-15-14 6.75% $ 2,915,000 $ 2,659,938 Tenaska Alabama Partners LP Secured 06-30-21 7.00 2,869,078(d) 2,828,191 -------------- Total 99,791,466 -------------------------------------------------------------------------------- ENTERTAINMENT (1.7%) AMC Entertainment 02-01-16 11.00 10,410,000(d) 11,242,799 Hit Entertainment Tranche C Term Loan 02-24-12 8.88 5,000,000(j,n) 5,020,000 United Artists Theatre Circuit 07-01-15 9.30 10,772,606 11,203,510 Universal City Florida Holdings I/II Sr Nts 05-01-10 9.90 6,205,000(n) 6,406,663 -------------- Total 33,872,972 -------------------------------------------------------------------------------- ENVIRONMENTAL (1.8%) Allied Waste North America Secured 05-15-16 7.13 5,220,000(d) 5,037,300 Allied Waste North America Sr Nts 04-15-13 7.88 6,155,000 6,262,713 Allied Waste North America Tranche AW Term Loan 01-15-12 6.76 6,000,000(f,j,n) 5,990,640 Clean Harbors 07-15-12 11.25 6,435,000 7,287,638 Waste Services Sr Sub Nts 04-15-14 9.50 11,975,000 12,304,312 -------------- Total 36,882,603 -------------------------------------------------------------------------------- FOOD AND BEVERAGE (2.0%) ASG Consolidated LLC/Finance Sr Disc Nts (Zero coupon through 11-01-08, thereafter 11.50%) 11-01-11 11.35 19,195,000(m) 16,219,775 Cott Beverages USA 12-15-11 8.00 12,050,000 12,080,125 Pinnacle Foods Holding Sr Sub Nts 12-01-13 8.25 12,385,000 12,168,263 -------------- Total 40,468,163 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) GAMING (3.7%) Boyd Gaming Sr Sub Nts 04-15-14 6.75% $13,880,000 $ 13,394,200 02-01-16 7.13 4,480,000 4,401,600 CCM Merger 08-01-13 8.00 525,000(d) 504,000 Circus & Eldorado Jt Venture/Silver Legacy Capital 1st Mtge 03-01-12 10.13 4,875,000 5,191,875 Kerzner Intl Sr Sub Nts 10-01-15 6.75 4,386,000(c) 4,627,230 MGM MIRAGE Sr Nts 02-27-14 5.88 24,510,000 22,641,112 Mohegan Tribal Gaming Authority Sr Nts 02-15-13 6.13 7,865,000 7,481,581 Tunica-Biloxi Gaming Authority Sr Unsecured 11-15-15 9.00 10,420,000(d) 10,810,750 Wheeling Island Gaming 12-15-09 10.13 1,210,000 1,258,400 Wynn Las Vegas LLC/Capital 1st Mtge 12-01-14 6.63 3,810,000 3,614,738 -------------- Total 73,925,486 -------------------------------------------------------------------------------- GAS PIPELINES (2.2%) ANR Pipeline 03-15-10 8.88 8,900,000 9,421,451 Colorado Interstate Gas Sr Nts 03-15-15 5.95 8,560,000 7,995,434 11-15-15 6.80 3,825,000(d) 3,844,125 Copano Energy LLC Sr Nts 03-01-16 8.13 7,120,000(d) 7,226,800 Southern Natural Gas 03-15-10 8.88 9,055,000 9,585,532 Southern Star Central 03-01-16 6.75 7,040,000(d) 6,864,000 -------------- Total 44,937,342 --------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 12 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) HEALTH CARE (9.2%) Accellent 12-01-13 10.50% $ 4,470,000 $ 4,704,675 Community Health Systems Sr Sub Nts 12-15-12 6.50 9,800,000 9,395,750 DaVita 03-15-15 7.25 15,425,000 15,039,374 HCA 02-15-16 6.50 4,820,000 4,555,719 HCA Sr Unsecured 01-15-15 6.38 13,950,000 13,215,226 IASIS Healthcare LLC/Capital Sr Sub Nts 06-15-14 8.75 16,700,000 16,887,874 LifeCare Holdings Sr Sub Nts 08-15-13 9.25 8,855,000(d) 6,464,150 MedCath Holdings Sr Nts 07-15-12 9.88 14,565,000 14,819,887 Omnicare Sr Sub Nts 12-15-13 6.75 6,525,000 6,329,250 12-15-15 6.88 7,980,000 7,740,600 Select Medical 02-01-15 7.63 21,513,000 19,200,352 09-15-15 10.82 10,557,000(d,n) 9,949,973 Triad Hospitals Sr Nts 05-15-12 7.00 14,380,000 14,254,175 Triad Hospitals Sr Sub Nts 11-15-13 7.00 3,545,000 3,434,219 US Oncology 08-15-14 10.75 3,710,000 4,104,188 US Oncology Holdings Sr Nts 03-15-15 10.32 10,725,000(n) 10,912,688 Vanguard Health Holding I LLC Sr Disc Nts (Zero coupon through 10-01-09, thereafter 11.25%) 10-01-15 11.07 8,015,000(m) 5,891,025 Vanguard Health Holding II LLC Sr Sub Nts 10-01-14 9.00 13,120,000 13,448,000 -------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) HEALTH CARE (CONT.) VWR Intl Sr Sub Nts 04-15-14 8.00% $ 3,130,000 $ 3,145,650 -------------- Total 183,492,775 -------------------------------------------------------------------------------- HOME CONSTRUCTION (1.8%) K Hovnanian Enterprises 05-15-16 7.50 6,715,000 6,445,138 Meritage Homes 03-15-15 6.25 12,340,000 10,920,900 Standard-Pacific Sr Nts 08-15-15 7.00 12,220,000 11,059,100 Stanley-Martin Communities LLC 08-15-15 9.75 4,004,000 3,543,540 William Lyon Homes Sr Nts 02-15-14 7.50 6,250,000 5,250,000 -------------- Total 37,218,678 -------------------------------------------------------------------------------- INDEPENDENT ENERGY (4.2%) Chesapeake Energy Sr Nts 09-15-13 7.50 705,000 720,863 08-15-14 7.00 13,924,000 13,871,784 06-15-15 6.38 5,545,000 5,226,163 Compton Petroleum Finance 12-01-13 7.63 5,470,000(c,d) 5,333,250 12-01-13 7.63 7,275,000(c) 7,093,125 Encore Acquisition 12-11-17 7.25 4,585,000 4,435,988 Encore Acquisition Sr Sub Nts 04-15-14 6.25 2,005,000 1,839,588 07-15-15 6.00 9,000,000 8,032,500 EXCO Resources 01-15-11 7.25 6,965,000 6,790,875 Hilcorp Energy I LP/Finance Sr Nts 11-01-15 7.75 8,940,000(d) 8,805,900 Pioneer Natural Resources 05-01-18 6.88 9,015,000 8,701,368 Pioneer Natural Resources Sr Nts 07-15-16 5.88 10,175,000 9,248,016 VeraSun Energy Secured 12-15-12 9.88 5,250,000(d) 5,643,750 -------------- Total 85,743,170 --------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 13 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) INTEGRATED ENERGY (0.2%) Denbury Resources Sr Sub Nts 12-15-15 7.50% $ 3,225,000 $ 3,273,375 -------------------------------------------------------------------------------- LODGING (0.4%) Vail Resorts Sr Sub Nts 02-15-14 6.75 7,915,000 7,608,294 -------------------------------------------------------------------------------- MEDIA CABLE (4.8%) CCH I LLC Secured 10-01-15 11.00 9,505,000 8,174,300 CCO Holdings LLC/Capital Sr Nts 12-15-10 9.04 7,035,000(n) 7,122,938 11-15-13 8.75 5,940,000 5,739,525 Charter Communications Operating LLC/Capital Sr Nts 04-30-12 8.00 8,885,000(d) 8,818,363 CSC Holdings Sr Nts 04-15-12 7.25 13,750,000(d) 13,578,125 CSC Holdings Sr Sub Deb 05-15-16 10.50 3,015,000 3,173,288 DIRECTV Holdings LLC/Finance 06-15-15 6.38 7,500,000 7,050,000 Echostar DBS 10-01-14 6.63 6,565,000 6,203,925 02-01-16 7.13 8,840,000(d) 8,464,300 Echostar DBS Sr Nts 10-01-11 6.38 4,940,000 4,742,400 Mediacom LLC/Capital Sr Nts 01-15-13 9.50 2,585,000 2,597,925 Quebecor Media Sr Nts 03-15-16 7.75 7,420,000(c,d) 7,494,200 Videotron Ltee 01-15-14 6.88 14,860,000(c) 14,451,349 -------------- Total 97,610,638 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MEDIA NON CABLE (8.5%) Clear Channel Communications 09-15-14 5.50% $ 5,445,000 $ 4,980,928 06-15-18 6.88 5,390,000 5,185,617 CMP Susquehanna Sr Sub Nts 05-15-14 9.88 1,237,000(d) 1,206,075 Emmis Operating Sr Sub Nts 05-15-12 6.88 11,785,000 11,549,300 Entercom Radio LLC/Capital 03-01-14 7.63 3,255,000 3,271,275 Lamar Media 01-01-13 7.25 11,500,000 11,399,375 08-15-15 6.63 5,515,000 5,239,250 Liberty Media 07-15-29 8.50 4,585,000 4,488,697 Liberty Media Sr Nts 05-15-13 5.70 25,645,000 23,567,523 LIN TV Series B 05-15-13 6.50 7,545,000 6,997,988 MediaNews Group Sr Sub Nts 10-01-13 6.88 4,800,000 4,512,000 04-01-14 6.38 6,200,000 5,611,000 Radio One 02-15-13 6.38 8,450,000 7,900,750 Rainbow Natl Services LLC Sr Nts 09-01-12 8.75 14,320,000(d) 15,179,200 Rainbow Natl Services LLC Sr Sub Deb 09-01-14 10.38 6,175,000(d) 6,900,563 RH Donnelley Sr Disc Nts 01-15-13 6.88 25,150,000(d) 22,886,499 RH Donnelley Sr Nts 01-15-13 6.88 16,975,000 15,574,562 Sinclair Broadcast Group 03-15-12 8.00 4,045,000 4,141,069 Sun Media 02-15-13 7.63 8,125,000(c) 8,287,500 -------------- Total 168,879,171 --------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 14 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) METALS (0.8%) Euramax Tranche B Term Loan 08-08-13 11.54% $ 7,455,000(j,n) $ 7,529,550 Indalex Holding Secured 02-01-14 11.50 3,815,000(d) 3,996,213 Novelis Sr Nts 02-15-15 8.00 5,000,000(c,d) 4,775,000 -------------- Total 16,300,763 -------------------------------------------------------------------------------- OIL FIELD SERVICES (1.4%) Bristow Group 06-15-13 6.13 1,545,000 1,429,125 Chaparral Energy Sr Nts 12-01-15 8.50 5,135,000(d) 5,199,188 Chart Inds Sr Sub Nts 10-15-15 9.13 8,320,000(d) 8,798,400 Grant Prideco Sr Unsecured Series B 08-15-15 6.13 2,975,000 2,789,063 Quicksilver Resources 04-01-16 7.13 9,850,000 9,406,749 -------------- Total 27,622,525 -------------------------------------------------------------------------------- OTHER FINANCIAL INSTITUTIONS (2.8%) Cardtronics Sr Sub Nts 08-15-13 9.25 13,730,000(d) 13,627,025 Dow Jones CDX HY 06-29-11 7.38 10,000,000(d) 9,881,250 Residential Capital Sr Nts 04-17-13 6.50 21,495,000 21,021,336 Triad Acquisition Sr Unsecured Series B 05-01-13 11.13 12,705,000 12,577,950 -------------- Total 57,107,561 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) PACKAGING (1.0%) Owens-Brockway Glass Container 05-15-13 8.25% $ 9,975,000 $ 10,074,750 Plastipak Holdings Sr Nts 12-15-15 8.50 4,760,000(d) 4,771,900 Solo Cup Sr Sub Nts 02-15-14 8.50 4,890,000(h) 4,401,000 -------------- Total 19,247,650 -------------------------------------------------------------------------------- PAPER (5.4%) Boise Cascade LLC 10-15-14 7.13 14,625,000 13,235,625 Cascades Sr Nts 02-15-13 7.25 10,715,000(c) 10,045,313 Crown Americas LLC/Capital Sr Nts 11-15-15 7.75 18,420,000(d) 18,558,149 Georgia-Pacific 06-15-15 7.70 8,735,000 8,560,300 Georgia-Pacific 1st Lien Term Loan 02-17-12 6.75 14,110,250(j,n) 14,127,887 Georgia-Pacific 2nd Lien Term Loan 02-17-13 7.75 3,200,000(j,n) 3,241,664 Jefferson Smurfit US 10-01-12 8.25 5,280,000 4,963,200 06-01-13 7.50 6,715,000 6,043,500 JSG Funding Sr Nts 10-01-12 9.63 9,780,000(c) 10,195,650 NewPage Secured 05-01-12 10.00 10,760,000 11,378,700 NewPage Sr Sub Nts 05-01-13 12.00 5,825,000 6,232,750 Smurfit-Stone Container Enterprises Sr Nts 02-01-11 9.75 2,790,000 2,880,675 -------------- Total 109,463,413 --------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 15 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) PHARMACEUTICALS (1.2%) CDRV Investors Sr Disc Nts (Zero coupon through 01-01-10, thereafter 9.63%) 01-01-15 10.02% $ 8,810,000(m) $ 6,343,200 Warner Chilcott 02-01-15 8.75 18,475,000 18,428,813 ------------- Total 24,772,013 -------------------------------------------------------------------------------- RETAILERS (5.0%) AutoNation 04-15-14 7.00 6,440,000(d) 6,407,800 Blockbuster Sr Sub Nts 09-01-12 10.00 9,330,000(d) 8,723,550 General Nutrition Centers 01-15-11 8.63 4,185,000 4,247,775 General Nutrition Centers Sr Sub Nts 12-01-10 8.50 8,215,000 7,886,400 Jean Coutu Group Sr Sub Nts 08-01-14 8.50 12,445,000(c) 11,573,850 NBTY Sr Sub Nts 10-01-15 7.13 7,855,000 7,501,525 Toys "R" Us 04-15-13 7.88 18,620,000 15,268,400 10-15-18 7.38 6,875,000 5,087,500 Toys "R" Us Term Loan 08-21-06 9.86 20,893,000(j,l,n) 20,919,116 United Auto Group 03-15-12 9.63 13,310,000 14,058,688 ------------- Total 101,674,604 -------------------------------------------------------------------------------- TECHNOLOGY (0.6%) SS&C Technologies 12-01-13 11.75 3,215,000(d) 3,415,938 SunGard Data Systems Sr Unsecured 08-15-13 9.13 9,035,000(d) 9,475,456 ------------- Total 12,891,394 -------------------------------------------------------------------------------- TOBACCO (0.5%) Reynolds American Secured 06-01-16 7.63 10,855,000(d) 10,735,769 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) TRANSPORTATION SERVICES (1.7%) Avis Budget Car Rental LLC/Finance Sr Nts 05-15-14 7.63% $ 6,690,000(d) $ 6,723,450 05-15-16 7.75 4,915,000(d) 4,951,863 Hertz Sr Sub Nts 01-01-16 10.50 10,368,000(d) 11,223,359 Quality Distribution LLC/Capital 01-15-12 9.57 10,955,000(n) 11,023,469 ------------- Total 33,922,141 -------------------------------------------------------------------------------- WIRELESS (3.2%) American Tower Sr Nts 10-15-12 7.13 8,310,000 8,496,975 Centennial Communications Sr Nts 01-01-13 10.00 4,585,000 4,745,475 01-01-13 10.74 3,910,000(n) 4,076,175 Centennial Communications/Cellular Operating LLC Sr Nts 02-01-14 8.13 4,330,000 4,373,300 Dobson Cellular Systems Secured 11-01-12 9.88 7,505,000 8,105,400 Dobson Communications Sr Nts 10-15-12 9.32 8,525,000(n) 8,610,250 Rogers Wireless Secured 12-15-10 8.04 2,465,000(c,n) 2,542,031 12-15-12 7.25 2,685,000(c) 2,705,138 Rogers Wireless Sr Sub Nts 12-15-12 8.00 12,915,000(c) 13,286,306 Rural Cellular Sr Sub Nts 11-01-12 10.90 7,065,000(d,n) 7,365,263 ------------- Total 64,306,313 --------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 16 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- BONDS (CONTINUED) -------------------------------------------------------------------------------- COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) WIRELINES (5.9%) Cincinnati Bell 02-15-15 7.00% $ 6,520,000 $ 6,308,100 Cincinnati Bell Sr Sub Nts 01-15-14 8.38 3,645,000 3,681,450 Citizens Communications Sr Nts 01-15-13 6.25 13,580,000 12,968,900 Embarq 06-01-16 7.08 23,195,000 23,222,601 GCI Sr Nts 02-15-14 7.25 12,370,000 12,184,450 Level 3 Communications Sr Nts 03-01-10 11.50 1,240,000(d) 1,246,200 Level 3 Financing 10-15-11 10.75 6,175,000 6,422,000 Level 3 Financing Sr Nts 03-15-13 12.25 4,775,000(d) 5,157,000 Qwest Sr Nts 06-15-15 7.63 5,670,000 5,769,225 Qwest Tranche B Term Loan 06-30-07 6.95 22,445,000(j,n) 22,538,596 Qwest Communications Intl 02-15-14 7.50 3,000,000 2,985,000 Valor Telecommunications Enterprises LLC/Finance 02-15-15 7.75 15,605,000 16,073,150 -------------- Total 118,556,672 -------------------------------------------------------------------------------- TOTAL BONDS (Cost: $1,868,421,634) $1,865,195,664 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- COMMON STOCKS (0.1%) -------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) Arena Brands 111,111(b,l) $ 2,109,998 Link Energy LLC Unit 1,646,684(b,k) 53,517 -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $18,965,223) $ 2,163,515 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PREFERRED STOCKS & OTHER (0.8%) -------------------------------------------------------------------------------- ISSUER SHARES VALUE(a) GNC 12.00% Pay-in-kind Series A 4,590(g) $ 5,094,900 Varde Fund V LP 25,000,000(e,l) 9,242,750 Wayland Investment LLC 26,000,000(e,l) 2,421,900 -------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS & OTHER (Cost: $14,954,925) $ 16,759,550 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- SHORT-TERM SECURITIES (5.7%)(i) -------------------------------------------------------------------------------- AMOUNT EFFECTIVE PAYABLE AT ISSUER YIELD MATURITY VALUE(a) COMMERCIAL PAPER Chariot Funding LLC 06-28-06 5.02% $10,000,000(o) $ 9,961,111 Chesham Finance LLC 06-05-06 5.02 25,000,000 24,982,570 Citibank Credit Card Dakota Nts 06-01-06 5.08 31,100,000(o) 31,095,611 Jupiter Securitization 06-09-06 5.02 25,000,000(o) 24,968,688 Thunder Bay Funding LLC 06-19-06 5.02 25,000,000(o) 24,933,897 -------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (Cost: $115,958,097) $ 115,941,877 -------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $2,018,299,879)(p) $2,000,060,606 ================================================================================
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 17 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES -------------------------------------------------------------------------------- (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. At May 31, 2006, the value of foreign securities represented 5.8% 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 has been determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At May 31, 2006, the value of these securities amounted to $425,770,503 or 21.1% of net assets. (e) The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. (f) At May 31, 2006, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $20,362,354. (g) 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. (h) At May 31, 2006, security was partially or fully on loan. See Note 5 to the financial statements. (i) Cash collateral received from security lending activity is invested in short-term securities and represents 0.2% of net assets. See Note 5 to the financial statements. 5.5% of net assets is the Fund's cash equivalent position. (j) Remaining maturities of floating rate 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. (k) Investments representing 5% or more of the outstanding voting securities of the issuer. Transactions with companies that are or were affiliates during the year ended May 31, 2006 are as follows:
BEGINNING PURCHASE SALES ENDING DIVIDEND ISSUER COST COST COST COST INCOME VALUE(a) -------------------------------------------------------------------------------------------- Link Energy LLC Unit $13,412,897 $ -- $336,562 $13,076,335 $-- $53,517
(l) Identifies issues considered to be illiquid as to their marketability. These securities may be valued at fair value according to methods selected in good faith by the Fund's Board of Directors. Information concerning such security holdings at May 31, 2006, is as follows:
ACQUISITION SECURITY DATES COST --------------------------------------------------------------- Arena Brands Common 09-03-92 $5,888,888 Toys "R" Us 9.86% Term Loan B 2006 08-24-05 thru 01-06-06 20,764,730 Varde Fund V LP 04-27-00 thru 06-19-00 --* Wayland Investment LLC 05-19-00 10,189,325
* The original cost for this position in fiscal year 2004 was $25,000,000. During the fiscal year 2005 $25,000,000 was returned to the Fund in the form of return of capital. (m) For those zero coupon bonds that become coupon paying at a future date, the interest rate disclosed represents the annualized effective yield from the date of acquisition to maturity. (n) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on May 31, 2006. (o) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At May 31, 2006, the value of these securities amounted to $90,959,307 or 4.5% of net assets. -------------------------------------------------------------------------------- 18 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) -------------------------------------------------------------------------------- (p) At May 31, 2006, the cost of securities for federal income tax purposes was $2,027,502,255 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 37,758,429 Unrealized depreciation (65,200,078) -------------------------------------------------------------------------------- Net unrealized depreciation $ (27,441,649) --------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (I) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (II) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (III) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (IV) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at www.riversource.com/funds. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 19 -------------------------------------------------------------------------------- FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES RiverSource High Yield Bond Fund MAY 31, 2006 ----------------------------------------------------------------------------------------------------------------------- ASSETS ----------------------------------------------------------------------------------------------------------------------- Investments in securities, at value (Note 1)* Investments in securities of unaffiliated issuers (identified cost $2,005,223,544) $ 2,000,007,089 Investments in securities of affiliated issuers (identified cost $13,076,335) 53,517 ----------------------------------------------------------------------------------------------------------------------- Total investments in securities (identified cost $2,018,299,879) 2,000,060,606 Capital shares receivable 243,353 Accrued interest receivable 35,464,104 Receivable for investment securities sold 12,436,320 Other receivable 220,452 ----------------------------------------------------------------------------------------------------------------------- Total assets 2,048,424,835 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- LIABILITIES ----------------------------------------------------------------------------------------------------------------------- Disbursements in excess of cash on demand deposit 176,192 Dividends payable to shareholders 2,039,864 Capital shares payable 328,720 Payable for securities purchased on a forward commitment basis 20,362,354 Payable upon return of securities loaned (Note 5) 4,100,000 Accrued investment management services fee 31,985 Accrued distribution fee 480,619 Accrued service fee 2 Accrued transfer agency fee 3,134 Accrued administrative services fee 3,531 Other accrued expenses 253,721 ----------------------------------------------------------------------------------------------------------------------- Total liabilities 27,780,122 ----------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 2,020,644,713 =======================================================================================================================
-------------------------------------------------------------------------------- 20 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) RiverSource High Yield Bond Fund MAY 31, 2006 ----------------------------------------------------------------------------------------------------------------------- REPRESENTED BY ----------------------------------------------------------------------------------------------------------------------- Capital stock -- $.01 par value (Note 1) $ 6,989,401 Additional paid-in capital 3,404,840,887 Undistributed net investment income 21,606,050 Accumulated net realized gain (loss) (Note 7) (1,394,772,804) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (18,018,821) ----------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 2,020,644,713 ======================================================================================================================= Net assets applicable to outstanding shares: Class A $ 1,535,483,470 Class B $ 432,579,549 Class C $ 27,857,618 Class I $ 24,008,981 Class Y $ 715,095 Net asset value per share of outstanding capital stock: Class A shares 530,995,227 $ 2.89 Class B shares 149,692,333 $ 2.89 Class C shares 9,696,262 $ 2.87 Class I shares 8,308,786 $ 2.89 Class Y shares 247,523 $ 2.89 ----------------------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 5) $ 3,880,000 -----------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 21 -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS RiverSource High Yield Bond Fund
PERIOD FROM PERIOD FROM TOTAL JUNE 1, 2005 TO OCT. 18, 2005 TO JUNE 1, 2005 TO OCT. 17, 2005 (NOTE 1) MAY 31, 2006 MAY 31, 2006 -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME -------------------------------------------------------------------------------------------------------------------------------- Income: Interest $ 68,599,087 $ 104,733,358 $ 173,332,445 Fee income from securities lending (Note 5) 7,740 183,685 191,425 Less foreign taxes withheld (6,626) (193) (6,819) -------------------------------------------------------------------------------------------------------------------------------- Total income 68,600,201 104,916,850 173,517,051 -------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 5,141,434 7,571,887 12,713,321 Distribution fee Class A 1,650,829 2,500,915 4,151,744 Class B 2,227,077 2,945,724 5,172,801 Class C 132,290 187,183 319,473 Transfer agency fee 1,222,974 1,845,050 3,068,024 Incremental transfer agency fee Class A 87,573 134,298 221,871 Class B 50,675 70,064 120,739 Class C 2,956 4,275 7,231 Service fee -- Class Y 190 386 576 Administrative services fees and expenses 444,427 883,868 1,328,295 Compensation of board members 6,657 9,320 15,977 Custodian fees 66,021 87,080 153,101 Printing and postage 120,150 264,350 384,500 Registration fees 69,135 31,624 100,759 Audit fees 11,815 42,185 54,000 Other 44,345 89,470 133,815 -------------------------------------------------------------------------------------------------------------------------------- Total expenses 11,278,548 16,667,679 27,946,227 Earnings credits on cash balances (Note 2) (43,187) (110,591) (153,778) -------------------------------------------------------------------------------------------------------------------------------- Total net expenses 11,235,361 16,557,088 27,792,449 -------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 57,364,840 88,359,762 145,724,602 -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET -------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on: Security transactions (Note 3) (21,451,949) 8,308,418 (13,143,531) Security transactions - affiliated issuers (Note 3) -- (333,350) (333,350) -------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on security transactions (21,451,949) 7,975,068 (13,476,881) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 15,605,908 27,154,905 42,760,813 -------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (5,846,041) 35,129,973 29,283,932 -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 51,518,799 $ 123,489,735 $ 175,008,534 ================================================================================================================================
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 22 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS RiverSource High Yield Bond Fund
YEAR ENDED MAY 31, 2006 2005 ---------------------------------------------------------------------------------------------------------- OPERATIONS AND DISTRIBUTIONS ---------------------------------------------------------------------------------------------------------- Investment income (loss) -- net $ 145,724,602 $ 169,723,289 Net realized gain (loss) on investments (13,476,881) 99,786,166 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 42,760,813 10,339,940 ---------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 175,008,534 279,849,395 ---------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (114,785,535) (124,296,625) Class B (31,669,446) (41,852,127) Class C (1,962,972) (2,328,121) Class I (154,455) (714) Class Y (40,907) (37,185) ---------------------------------------------------------------------------------------------------------- Total distributions (148,613,315) (168,514,772) ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (NOTE 4) ---------------------------------------------------------------------------------------------------------- Proceeds from sales Class A shares (Note 2) 257,237,436 312,217,159 Class B shares 52,084,596 83,510,353 Class C shares 4,082,194 6,988,226 Class I shares 24,019,744 -- Class Y shares 304,037 142,851 Reinvestment of distributions at net asset value Class A shares 84,850,899 92,086,192 Class B shares 24,780,868 33,185,884 Class C shares 1,547,960 1,862,449 Class I shares 127,612 -- Class Y shares 40,589 36,976 Payments for redemptions Class A shares (559,836,065) (557,552,614) Class B shares (Note 2) (280,797,049) (300,940,930) Class C shares (Note 2) (14,285,936) (13,741,400) Class I shares (4,870) -- Class Y shares (147,789) (252,914) ---------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (405,995,774) (342,457,768) ---------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (379,600,555) (231,123,145) Net assets at beginning of year 2,400,245,268 2,631,368,413 ---------------------------------------------------------------------------------------------------------- Net assets at end of year $ 2,020,644,713 $ 2,400,245,268 ========================================================================================================== Undistributed net investment income $ 21,606,050 $ 24,365,203 ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 23 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS RiverSource High Yield Bond Fund 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of RiverSource High Yield Income Series, Inc. (formerly AXP 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. 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 and Class Y shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. o Class C shares may be subject to a CDSC. o Class Y shares have no sales charge and are offered only to qualifying institutional investors. The Fund offers an additional class of shares, Class I, exclusively to certain institutional investors. Class I shares have no sales charge and are made available through a separate prospectus supplement provided to investors eligible to purchase the shares. At May 31, 2006, Ameriprise Financial, Inc. (Ameriprise Financial) and the affiliated funds-of-funds owned 100% of Class I shares, which represents 1.19% of the Fund's net assets. All classes of shares have identical voting, dividend and liquidation rights. The distribution fee, transfer agency fees and service fee (class specific expenses) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. Prior to Oct. 18, 2005, the Fund invested all of its assets in the High Yield Portfolio (the Portfolio). The Fund recorded its daily share of the Portfolio's income, expenses and realized and unrealized gains and losses. -------------------------------------------------------------------------------- 24 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- Effective at the close of business on Oct. 17, 2005, the Portfolio was liquidated and the Fund exchanged its interest in the Portfolio for its proportionate share (99.99%) of the Portfolio's assets and liabilities. Within the statement of operations for the period from June 1, 2005 to Oct. 17, 2005, income and expense amounts include all allocations from the Portfolio in the following amounts: Interest income $ 68,598,695 -------------------------------------------------------------------------------- Fee income from securities lending $ 7,740 -------------------------------------------------------------------------------- Foreign taxes withheld $ (6,626) -------------------------------------------------------------------------------- Investment management services fee $ 5,141,434 -------------------------------------------------------------------------------- Custodian fees $ 66,021 -------------------------------------------------------------------------------- Audit fees $ 11,815 -------------------------------------------------------------------------------- Other $ 40,595 -------------------------------------------------------------------------------- Earnings credits on cash balances $ (70) --------------------------------------------------------------------------------
All realized and unrealized gains (losses) presented for the period from June 1, 2005 to Oct. 17, 2005 were as a result of allocations from the Portfolio. 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. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the Board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. ILLIQUID SECURITIES At May 31, 2006, investments in securities included issues that are illiquid which the Fund currently limits to 10% of net assets, at market value, at the time of purchase. The aggregate value of such securities at May 31, 2006 was $34,693,764 representing 1.72% of net assets. These securities are valued at fair value according to methods selected in good faith by the Board. According to board guidelines, certain unregistered securities are determined to be liquid and are not included within the 10% 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. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 25 -------------------------------------------------------------------------------- SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward-commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward-commitments. At May 31, 2006, the Fund has entered into outstanding when-issued securities of $14,325,000 and other forward-commitments of $6,037,354. 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. 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. 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. 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. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. -------------------------------------------------------------------------------- 26 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATIONS AND 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 exchange 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 other party will not complete its contract obligations. 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. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income has been increased by $129,560 and accumulated net realized loss has been increased by $93 resulting in a net reclassification adjustment to decrease paid-in capital by $129,467. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 27 -------------------------------------------------------------------------------- The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED MAY 31, 2006 2005 ---------------------------------------------------------------------------------------------------------------------- CLASS A Distributions paid from: Ordinary income ............................................................ $ 114,785,535 $ 124,296,625 Long-term capital gain ..................................................... -- -- CLASS B Distributions paid from: Ordinary income ............................................................ 31,669,446 41,852,127 Long-term capital gain ..................................................... -- -- CLASS C Distributions paid from: Ordinary income ............................................................ 1,962,972 2,328,121 Long-term capital gain ..................................................... -- -- CLASS I Distributions paid from: Ordinary income ............................................................ 154,455 714 Long-term capital gain ..................................................... -- -- CLASS Y Distributions paid from: Ordinary income ............................................................ 40,907 37,185 Long-term capital gain ..................................................... -- --
At May 31, 2006, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income .................................................................... $ 17,485,230 Accumulated long-term gain (loss) ................................................................ $ (1,406,515,123) Unrealized appreciation (depreciation) ........................................................... $ (115,818)
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 is recognized on the ex-dividend date. Non-cash dividends or interest included in investment income, if any, are recorded at the fair market value of the security received. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. The Fund may place a debt security on non-accrual status and reduce related interest income when it becomes probable that the interest will not be collected and the amount of uncollectible interest can be reasonably estimated. A defaulted debt security is removed from non-accrual status when the issuer resumes interest payments or when collectibility of interest is reasonably assured. -------------------------------------------------------------------------------- 28 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- 2. EXPENSES AND SALES CHARGES Effective Oct. 18, 2005, the Fund entered into an Investment Management Services Agreement with RiverSource Investments, LLC (the Investment Manager) to determine which securities will be purchased, held or sold. Prior to the withdrawal of the Fund's assets from the Portfolio, Income Trust, on behalf of the Portfolio, had an Investment Management Services Agreement with Ameriprise Financial. Prior to Oct. 18, 2005, the investment management fee was assessed at the Portfolio level. 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. Prior to March 1, 2006, the management fee percentage of the Fund's average daily net assets declined from 0.59% to 0.465% annually as the Fund's average daily net assets increased. Under the current 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. Prior to Oct. 1, 2005, the fee percentage of the Fund's average daily net assets declined from 0.05% to 0.025% annually as the Fund's assets increased. A minor portion of additional administrative service expenses paid by the Fund are consultants' fees and fund office expenses. Under this agreement, the Fund also pays taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Fund and approved by the Board. 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. Under a separate Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: o Class A $20.50 o Class B $21.50 o Class C $21.00 o Class Y $18.50 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the fee for Class Y. Class I pays a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. Beginning May 20, 2005, the Transfer Agent implemented an annual closed account fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the statement of operations. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 29 -------------------------------------------------------------------------------- The Fund has agreements with Ameriprise Financial Services, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate up to 0.25% of the Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for service provided to shareholders by financial advisors and other servicing agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Sales charges received by the Distributor for distributing Fund shares were $1,701,055 for Class A, $773,659 for Class B and $4,605 for Class C for the year ended May 31, 2006. During the period from June 1, 2005 to Oct. 17, 2005, the Fund's custodian and transfer agency fees were reduced by $43,187 as a result of earnings credits from overnight cash balances. During the period from Oct. 18, 2005 to May 31, 2006, the Fund's custodian and transfer agency fees were reduced by $110,591 as a result of earnings credits from overnight cash balances. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $675,316,574 and $815,544,549, respectively, for the period from June 1, 2005 to Oct. 17, 2005 and $1,283,624,391 and $1,576,499,308, respectively, for the period from Oct. 18, 2005 to May 31, 2006. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the years indicated are as follows:
YEAR ENDED MAY 31, 2006 CLASS A CLASS B CLASS C CLASS I CLASS Y ----------------------------------------------------------------------------------------------------- Sold 88,830,335 18,048,055 1,422,807 8,262,850 105,840 Issued for reinvested distributions 29,385,523 8,584,352 539,531 44,099 14,060 Redeemed (193,986,747) (97,132,059) (4,983,626) (1,684) (51,172) ----------------------------------------------------------------------------------------------------- Net increase (decrease) (75,770,889) (70,499,652) (3,021,288) 8,305,265 68,728 -----------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2005 CLASS A CLASS B CLASS C CLASS I CLASS Y ----------------------------------------------------------------------------------------------------- Sold 109,138,119 29,051,154 2,446,050 -- 49,400 Issued for reinvested distributions 32,037,784 11,569,033 652,218 -- 12,883 Redeemed (194,275,869) (105,528,720) (4,819,023) -- (88,370) ----------------------------------------------------------------------------------------------------- Net increase (decrease) (53,099,966) (64,908,533) (1,720,755) -- (26,087) -----------------------------------------------------------------------------------------------------
5. LENDING OF PORTFOLIO SECURITIES At May 31, 2006, securities valued at $3,880,000 were on loan to brokers. For collateral, the Fund received $4,100,000 in cash. Cash collateral received is invested in short-term securities, which are included in the short-term section of the "Investments in securities." Income from securities lending amounted to $191,425 for the year ended May 31, 2006. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. -------------------------------------------------------------------------------- 30 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- 6. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 20, 2005. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with The Bank of New York. The Fund had no borrowings outstanding during the year ended May 31, 2006. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $1,406,515,123 at May 31, 2006, that if not offset by capital gains will expire as follows:
2008 2009 2010 2011 2014 2015 $80,574,095 $226,001,198 $517,121,802 $552,664,309 $19,048,600 $11,105,119
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 December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), the parent company of RiverSource Investments, LLC (RiverSource Investments), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. In connection with these matters, the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain provisions of the federal and Minnesota securities laws by failing to adequately disclose market timing activities by allowing certain identified market timers to continue to market time contrary to disclosures in mutual fund and variable annuity product prospectuses. The Orders also alleged that AEFC failed to implement procedures to detect and prevent market timing in 401(k) plans for employees of AEFC and related companies and failed to adequately disclose that there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged that AEFC allowed inappropriate market timing to occur by failing to have written policies and procedures and failing to properly supervise its employees. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 31 -------------------------------------------------------------------------------- As a result of the Orders, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to make presentations at least annually to its board of directors and the relevant mutual funds' board that include an overview of policies and procedures to prevent market timing, material changes to these policies and procedures and whether disclosures related to market timing are consistent with the SEC order and federal securities laws. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In addition, AEFC agreed to complete and submit to the MDOC a compliance review of its procedures regarding market timing within one year of the MDOC Order, including a summary of actions taken to ensure compliance with applicable laws and regulations and certification by a senior officer regarding compliance and supervisory procedures. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. -------------------------------------------------------------------------------- 32 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- 9. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results.
CLASS A ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) ------------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended May 31, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 2.86 $ 2.74 $ 2.62 $ 2.65 $ 3.07 ------------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .20 .19 .21 .21 .25 Net gains (losses) (both realized and unrealized) .03 .12 .11 (.03) (.38) ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .23 .31 .32 .18 (.13) ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.19) (.20) (.20) (.24) Tax return of capital -- -- -- (.01) (.05) ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.20) (.19) (.20) (.21) (.29) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 2.89 $ 2.86 $ 2.74 $ 2.62 $ 2.65 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 1,535 $ 1,735 $ 1,810 $ 1,662 $ 1,681 ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) 1.08% 1.04% 1.04% 1.07% 1.03% ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 6.78% 6.67% 7.47% 8.35% 8.73% ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 93% 105% 140% 139% 125% ------------------------------------------------------------------------------------------------------------------------------------ Total return(c) 8.27% 11.56% 12.51% 7.53% (4.31%) ------------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 33 --------------------------------------------------------------------------------
CLASS B ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) ------------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended May 31, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 2.86 $ 2.74 $ 2.62 $ 2.65 $ 3.07 ------------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18 .17 .19 .19 .23 Net gains (losses) (both realized and unrealized) .03 .12 .11 (.03) (.38) ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .21 .29 .30 .16 (.15) ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.17) (.18) (.18) (.22) Tax return of capital -- -- -- (.01) (.05) ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.18) (.17) (.18) (.19) (.27) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 2.89 $ 2.86 $ 2.74 $ 2.62 $ 2.65 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 433 $ 629 $ 781 $ 748 $ 748 ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) 1.83% 1.79% 1.80% 1.83% 1.79% ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 6.00% 5.92% 6.70% 7.59% 7.94% ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 93% 105% 140% 139% 125% ------------------------------------------------------------------------------------------------------------------------------------ Total return(c) 7.45% 10.72% 11.66% 6.73% (5.05%) ------------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- 34 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT --------------------------------------------------------------------------------
CLASS C ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) ------------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended May 31, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 2.84 $ 2.73 $ 2.61 $ 2.64 $ 3.05 ------------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18 .17 .19 .19 .23 Net gains (losses) (both realized and unrealized) .03 .11 .11 (.03) (.37) ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .21 .28 .30 .16 (.14) ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.17) (.18) (.18) (.22) Tax return of capital -- -- -- (.01) (.05) ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.18) (.17) (.18) (.19) (.27) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 2.87 $ 2.84 $ 2.73 $ 2.61 $ 2.64 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 28 $ 36 $ 39 $ 31 $ 21 ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) 1.83% 1.79% 1.80% 1.83% 1.79% ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 6.02% 5.92% 6.71% 7.52% 7.39% ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 93% 105% 140% 139% 125% ------------------------------------------------------------------------------------------------------------------------------------ Total return(c) 7.47% 10.35% 11.71% 6.78% (4.76%) ------------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 35 --------------------------------------------------------------------------------
CLASS I -------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) -------------------------------------------------------------------------------------------------------------- Fiscal period ended May 31, 2006 2005 2004(b) Net asset value, beginning of period $ 2.86 $ 2.74 $ 2.83 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21 .21 .08 Net gains (losses) (both realized and unrealized) .03 .11 (.11) -------------------------------------------------------------------------------------------------------------- Total from investment operations .24 .32 (.03) -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.20) (.06) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 2.89 $ 2.86 $ 2.74 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA -------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 24 $ -- $ -- -------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .69% .64% .65%(d) -------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 7.49% 7.06% 7.30%(d) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 93% 105% 140% -------------------------------------------------------------------------------------------------------------- Total return(e) 8.69% 11.97% (1.39%)(f) --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is March 4, 2004. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. -------------------------------------------------------------------------------- 36 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT --------------------------------------------------------------------------------
CLASS Y ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) ------------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended May 31, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 2.86 $ 2.74 $ 2.62 $ 2.65 $ 3.07 ------------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21 .20 .21 .21 .26 Net gains (losses) (both realized and unrealized) .02 .12 .12 (.03) (.38) ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .23 .32 .33 .18 (.12) ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.20) (.21) (.20) (.25) Tax return of capital -- -- -- (.01) (.05) ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.20) (.20) (.21) (.21) (.30) ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 2.89 $ 2.86 $ 2.74 $ 2.62 $ 2.65 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 1 $ 1 $ 1 $ 1 $ 1 ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) .90% .87% .88% .91% .87% ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 6.96% 6.84% 7.60% 8.52% 8.80% ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 93% 105% 140% 139% 125% ------------------------------------------------------------------------------------------------------------------------------------ Total return(c) 8.45% 11.75% 12.67% 7.70% (4.17%) ------------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) Total return does not reflect payment of a sales charge. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 37 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD AND SHAREHOLDERS RIVERSOURCE HIGH YIELD INCOME SERIES, INC. We have audited the accompanying statement of assets and liabilities of RiverSource High Yield Bond Fund (a series of RiverSource High Yield Income Series, Inc.) as of May 31, 2006, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended May 31, 2006, and the financial highlights for each of the years in the five-year period ended May 31, 2006. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of RiverSource High Yield Bond Fund as of May 31, 2006, and the results of its operations, changes in its net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with U.S. generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota July 20, 2006 -------------------------------------------------------------------------------- 38 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- FEDERAL INCOME TAX INFORMATION (UNAUDITED) The Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on Form 1099-DIV, Dividends and Distributions. Shareholders should consult a tax advisor on how to report distributions for state and local tax purposes. RiverSource High Yield Bond Fund Fiscal year ended May 31, 2006 CLASS A INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 0.03% Dividends Received Deduction for corporations ............... 0.03%
PAYABLE DATE PER SHARE June 29, 2005 ....................................................... $ 0.01600 July 28, 2005 ....................................................... 0.01600 Aug. 29, 2005 ....................................................... 0.01600 Sept. 29, 2005 ...................................................... 0.01600 Oct. 27, 2005 ....................................................... 0.01600 Nov. 29, 2005 ....................................................... 0.01700 Dec. 22, 2005 ....................................................... 0.01885 Jan. 26, 2006 ....................................................... 0.01657 Feb. 27, 2006 ....................................................... 0.01879 March 27, 2006 ...................................................... 0.01600 April 26, 2006 ...................................................... 0.01600 May 25, 2006 ........................................................ 0.01600 Total distributions ................................................. $ 0.19921
CLASS B INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 0.03% Dividends Received Deduction for corporations ............... 0.03%
PAYABLE DATE PER SHARE June 29, 2005 ....................................................... $ 0.01396 July 28, 2005 ....................................................... 0.01424 Aug. 29, 2005 ....................................................... 0.01401 Sept. 29, 2005 ...................................................... 0.01411 Oct. 27, 2005 ....................................................... 0.01438 Nov. 29, 2005 ....................................................... 0.01503 Dec. 22, 2005 ....................................................... 0.01746 Jan. 26, 2006 ....................................................... 0.01446 Feb. 27, 2006 ....................................................... 0.01685 March 27, 2006 ...................................................... 0.01430 April 26, 2006 ...................................................... 0.01417 May 25, 2006 ........................................................ 0.01423 Total distributions ................................................. $ 0.17720
-------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 39 -------------------------------------------------------------------------------- CLASS C INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 0.03% Dividends Received Deduction for corporations ............... 0.03%
PAYABLE DATE PER SHARE June 29, 2005 ....................................................... $ 0.01388 July 28, 2005 ....................................................... 0.01415 Aug. 29, 2005 ....................................................... 0.01396 Sept. 29, 2005 ...................................................... 0.01403 Oct. 27, 2005 ....................................................... 0.01430 Nov. 29, 2005 ....................................................... 0.01495 Dec. 22, 2005 ....................................................... 0.01737 Jan. 26, 2006 ....................................................... 0.01438 Feb. 27, 2006 ....................................................... 0.01676 March 27, 2006 ...................................................... 0.01422 April 26, 2006 ...................................................... 0.01409 May 25, 2006 ........................................................ 0.01415 Total distributions ................................................. $ 0.17624
CLASS I INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 0.03% Dividends Received Deduction for corporations ............... 0.03%
PAYABLE DATE PER SHARE June 29, 2005 ....................................................... $ 0.01709 July 28, 2005 ....................................................... 0.01695 Aug. 29, 2005 ....................................................... 0.01701 Sept. 29, 2005 ...................................................... 0.01700 Oct. 27, 2005 ....................................................... 0.01688 Nov. 29, 2005 ....................................................... 0.01807 Dec. 22, 2005 ....................................................... 0.01959 Jan. 26, 2006 ....................................................... 0.01739 Feb. 27, 2006 ....................................................... 0.01983 March 27, 2006 ...................................................... 0.01689 April 26, 2006 ...................................................... 0.01695 May 25, 2006 ........................................................ 0.01692 Total distributions ................................................. $ 0.21057
-------------------------------------------------------------------------------- 40 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- CLASS Y INCOME DISTRIBUTIONS -- taxable as dividend income: Qualified Dividend Income for individuals ................... 0.03% Dividends Received Deduction for corporations ............... 0.03%
PAYABLE DATE PER SHARE June 29, 2005 ....................................................... $ 0.01645 July 28, 2005 ....................................................... 0.01639 Aug. 29, 2005 ....................................................... 0.01642 Sept. 29, 2005 ...................................................... 0.01641 Oct. 27, 2005 ....................................................... 0.01638 Nov. 29, 2005 ....................................................... 0.01743 Dec. 22, 2005 ....................................................... 0.01914 Jan. 26, 2006 ....................................................... 0.01704 Feb. 27, 2006 ....................................................... 0.01922 March 27, 2006 ...................................................... 0.01637 April 26, 2006 ...................................................... 0.01640 May 25, 2006 ........................................................ 0.01639 Total distributions ................................................. $ 0.20404
-------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 41 -------------------------------------------------------------------------------- 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, including management fees; distribution and service (12b-1) fees; and other Fund 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. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended May 31, 2006. 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. -------------------------------------------------------------------------------- 42 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED DEC. 1, 2005 MAY 31, 2006 THE PERIOD(a) EXPENSE RATIO -------------------------------------------------------------------------------------------------------------- Class A -------------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 1,047.50 $ 5.51 1.08% -------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,019.55 $ 5.44 1.08% -------------------------------------------------------------------------------------------------------------- Class B -------------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 1,043.50 $ 9.43 1.85% -------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,015.71 $ 9.30 1.85% -------------------------------------------------------------------------------------------------------------- Class C -------------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 1,043.70 $ 9.38 1.84% -------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,015.76 $ 9.25 1.84% -------------------------------------------------------------------------------------------------------------- Class I -------------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 1,049.50 $ 3.53 .69% -------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,021.49 $ 3.48 .69% -------------------------------------------------------------------------------------------------------------- Class Y -------------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 1,048.40 $ 4.65 .91% -------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,020.39 $ 4.58 .91% --------------------------------------------------------------------------------------------------------------
(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 May 31, 2006: +4.75% for Class A, +4.35% for Class B, +4.37% for Class C, +4.95% for Class I and +4.84% for Class Y. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 43 -------------------------------------------------------------------------------- BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board members. Each member oversees 99 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. INDEPENDENT BOARD MEMBERS
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS ----------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota Supreme 901 S. Marquette Ave. since 2006 Court, 1998-2005 Minneapolis, MN 55402 Age 52 ----------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation 901 S. Marquette Ave. since 1999 (provides administrative services Minneapolis, MN 55402 to boards); former Governor of Age 71 Minnesota ----------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics and 901 S. Marquette Ave. since 2004 Management, Bentley College; Minneapolis, MN 55402 former Dean, McCallum Graduate Age 55 School of Business, Bentley College ----------------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 71 ----------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind Board member Former Managing Director, Shikiar American Progressive 901 S. Marquette Ave. since 2005 Asset Management Insurance Minneapolis, MN 55402 Age 70 ----------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor Valmont Industries, Inc. 901 S. Marquette Ave. since 2002 of Economics, Carleton College (manufactures irrigation Minneapolis, MN 55402 systems) Age 67 -----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 44 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- INDEPENDENT BOARD MEMBERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS ----------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member Director, Enterprise Asset Strategic Distribution, Inc. 901 S. Marquette Ave. since 2004 Management, Inc. (private (transportation, Minneapolis, MN 55402 real estate and asset distribution and logistics Age 53 management company) consultants) ----------------------------------------------------------------------------------------------------------------------- Vikki L. Pryor Board member President and Chief Executive 901 S. Marquette Ave. since 2006 Officer, SBLI USA Mutual Life Minneapolis, MN 55402 Insurance Company, Inc. since Age 52 1999 ----------------------------------------------------------------------------------------------------------------------- Alan K. Simpson Board member Former three-term United 1201 Sunshine Ave. since 1997 States Senator for Wyoming Cody, WY 82414 Age 74 ----------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member Chief Executive Officer, Hybridon, Inc. 901 S. Marquette Ave. since 2002 RiboNovix, Inc. since 2003 (biotechnology); American Minneapolis, MN 55402 (biotechnology); former Healthways, Inc. (health Age 62 President, Forester Biotech management programs) -----------------------------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS ----------------------------------------------------------------------------------------------------------------------- William F. Truscott Board member President - U.S. Asset 53600 Ameriprise since 2001, Management and Chief Financial Center Vice Investment Officer, Minneapolis, MN 55474 President Ameriprise Financial, Inc. Age 45 since 2002 and President, Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC since 2005; Senior Vice President - Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 -----------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 45 -------------------------------------------------------------------------------- The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the Fund's other officers are: FUND OFFICERS
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS ----------------------------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer Vice President - Investment Accounting, Ameriprise 105 Ameriprise Financial Center since 2002 Financial, Inc., since 2002; Vice President - Minneapolis, MN 55474 Finance, American Express Company, 2000-2002 Age 51 ----------------------------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed Income, 172 Ameriprise Financial Center since 2004 Ameriprise Financial, Inc. and RiverSource Minneapolis, MN 55474 Investments, LLC since 2006; Senior Vice President Age 42 - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006; Managing Director, Zurich Global Assets, 2001-2002 ----------------------------------------------------------------------------------------------------------------------- Paula R. Meyer President Senior Vice President - Mutual Funds, Ameriprise 596 Ameriprise Financial Center since 2002 Financial, Inc., since 2002 and Senior Vice Minneapolis, MN 55474 President, RiverSource Investments, LLC since 2004; Age 52 Vice President and Managing Director - American Express Funds, Ameriprise Financial, Inc., 2000-2002 ----------------------------------------------------------------------------------------------------------------------- Leslie L. Ogg Vice President, President of Board Services Corporation 901 S. Marquette Ave. General Counsel, Minneapolis, MN 55402 and Secretary Age 67 since 1978 ----------------------------------------------------------------------------------------------------------------------- Edward S. Dryden 1875 Acting Chief Vice President - Asset Management Compliance, Ameriprise Financial Center Compliance RiverSource Investments, LLC since 2006; Chief Minneapolis, MN 55474 Officer since Compliance Officer - Mason Street Advisors, LLC, Age 40 2006 2002-2006 ----------------------------------------------------------------------------------------------------------------------- Neysa M. Alecu 2934 Anti-Money Compliance Director and Anti-Money Laundering Ameriprise Financial Center Laundering Officer, Ameriprise Financial, Inc. since 2004; Minneapolis, MN 55474 Officer since Manager Anti-Money Laundering, Ameriprise Age 42 2004 Financial, Inc., 2003-2004; Compliance Director and Bank Secrecy Act Officer, American Express Centurion Bank, 2000-2003 -----------------------------------------------------------------------------------------------------------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting www.riversource.com/funds. -------------------------------------------------------------------------------- 46 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT During the period covered by this report, RiverSource Investments, LLC ("RiverSource Investments" or the "investment manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), served as the investment manager to RiverSource funds under an Investment Management Services Agreement ("IMS Agreement"). The Board of Directors (the "Board") annually determines whether to continue the IMS Agreement and subadvisory agreements, as applicable, by evaluating the quality and level of services received and the costs associated with those services. The Board did not make the specific determination this year as each fund's IMS Agreement was approved by the vote of a majority of the outstanding voting securities of the funds at a shareholder meeting held on Feb. 15, 2006. -------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 47 -------------------------------------------------------------------------------- PROXY VOTING The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are 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 www.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 during the most recent 12-month period ended June 30 is available without charge by visiting www.riversource.com/funds; or searching the website of the SEC at www.sec.gov. -------------------------------------------------------------------------------- 48 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE HIGH YIELD BOND FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD ----------------------------------------------------------------------------- Kathleen Blatz 1,518,097,434.64 39,375,906.13 ----------------------------------------------------------------------------- Arne H. Carlson 1,515,143,529.76 42,329,811.01 ----------------------------------------------------------------------------- Patricia M. Flynn 1,519,942,241.94 37,531,098.83 ----------------------------------------------------------------------------- Anne P. Jones 1,516,257,504.34 41,215,836.43 ----------------------------------------------------------------------------- Jeffrey Laikind 1,518,573,347.45 38,899,993.32 ----------------------------------------------------------------------------- Stephen R. Lewis, Jr. 1,519,399,160.04 38,074,180.73 ----------------------------------------------------------------------------- Catherine James Paglia 1,519,493,457.80 37,979,882.97 ----------------------------------------------------------------------------- Vikki L. Pryor 1,519,584,236.38 37,889,104.39 ----------------------------------------------------------------------------- Alan K. Simpson 1,513,617,640.18 43,855,700.59 ----------------------------------------------------------------------------- Alison Taunton-Rigby 1,519,949,504.64 37,523,836.13 ----------------------------------------------------------------------------- William F. Truscott 1,518,816,328.79 38,657,011.98 -----------------------------------------------------------------------------
AMEND THE ARTICLES OF INCORPORATION TO PERMIT THE BOARD TO ESTABLISH THE MINIMUM ACCOUNT VALUE AND TO CHANGE THE NAME OF THE CORPORATION
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES ----------------------------------------------------------------------------- 1,489,109,922.31 38,887,374.81 29,350,065.01 125,978.64 -----------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT - 49 -------------------------------------------------------------------------------- APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES ----------------------------------------------------------------------------- 1,495,903,256.64 30,109,215.26 31,334,890.23 125,978.64 -----------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES DIVERSIFICATION
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES ----------------------------------------------------------------------------- 1,491,598,042.98 34,586,654.74 31,162,664.41 125,978.64 -----------------------------------------------------------------------------
TEN PERCENT LIMITATION IN SINGLE ISSUER
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES ----------------------------------------------------------------------------- 1,488,575,753.33 36,540,829.61 32,230,779.19 125,978.64 -----------------------------------------------------------------------------
LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES ----------------------------------------------------------------------------- 1,479,960,877.15 44,150,090.95 33,236,394.03 125,978.64 -----------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES ----------------------------------------------------------------------------- 1,484,116,423.48 42,091,223.14 31,139,715.51 125,978.64 -----------------------------------------------------------------------------
-------------------------------------------------------------------------------- 50 - RIVERSOURCE HIGH YIELD BOND FUND - 2006 ANNUAL REPORT -------------------------------------------------------------------------------- RIVERSOURCE(SM) 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 Funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both companies are part of RIVERSOURCE [LOGO](SM) Ameriprise Financial, Inc. INVESTMENTS S-6370 AA (7/06) Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Livio D. DeSimone and Anne P. Jones, each qualify as audit committee financial experts. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fund - Related Fees* (a) Audit Fees. The fees paid for the years ended May 31, to KPMG LLP for professional services rendered for the audits of the annual financial statements for RiverSource High Yield Income Series, Inc. were as follows: 2006 - $13,000; 2005 - $13,000 (b) Audit - Related Fees. The fees paid for the years ended May 31, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for RiverSource High Yield Income Series, Inc. were as follows: 2006 - $502; 2005 - $563 (c) Tax Fees. The fees paid for the years ended May 31, to KPMG LLP for tax compliance related services for RiverSource High Yield Income Series, Inc. were as follows: 2006 - $31,350; 2005 - $2,639 (d) All Other Fees. The fees paid for the years ended May 31, to KPMG LLP for additional professional services rendered for RiverSource High Yield Income Series, Inc. were as follows: 2006 - $1,230; 2005 - $755 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by KPMG LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2006 and 2005 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended May 31, by the registrant for non-audit services to KPMG LLP were as follows: 2006 -$86,080; 2005 - $142,294 The fees paid for the years ended May 31, to KPMG LLP by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2006 - $53,500; 2005 - $138,900 (h) 100% of the services performed for item (g) above during 2006 and 2005 were pre-approved by the audit committee. *2005 represents bills paid 6/1/04 - 5/31/05 2006 represents bills paid 6/1/05 - 5/31/06 Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource High Yield Income Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date July 28, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date July 28, 2006 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date July 28, 2006