-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AlZfREhlYlnmioO8X9ij7yRMLZ7g6jFisU2ofjmSPXiBVWZzHPfkelxADzauL2Vm O9q0bcokjjd4fKh6AsdHbQ== 0000820027-05-001015.txt : 20051031 0000820027-05-001015.hdr.sgml : 20051031 20051031133937 ACCESSION NUMBER: 0000820027-05-001015 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050831 FILED AS OF DATE: 20051031 DATE AS OF CHANGE: 20051031 EFFECTIVENESS DATE: 20051031 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP FIXED INCOME SERIES INC CENTRAL INDEX KEY: 0000049697 IRS NUMBER: 411237361 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02503 FILM NUMBER: 051165753 BUSINESS ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126712772 MAIL ADDRESS: STREET 1: 50606 AXP FINANCIAL CENTER STREET 2: H27/52 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP BOND FUND INC DATE OF NAME CHANGE: 20000829 FORMER COMPANY: FORMER CONFORMED NAME: IDS BOND FUND INC DATE OF NAME CHANGE: 19920703 N-CSR 1 fixedincome-ncsr.txt AXP FIXED 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 811-2503 ------------ AXP FIXED INCOME SERIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 AXP 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: 8/31 -------------- Date of reporting period: 8/31 -------------- Annual Report (logo) RiverSource(SM) Investments RiverSource(SM) Diversified Bond Fund Annual Report for the Period Ended Aug. 31, 2005 > RiverSource Diversified Bond Fund (formerly AXP(R) Diversified Bond Fund) seeks to provide shareholders with a high level of current income while conserving the value of the investment for the longest period of time. Table of Contents Fund Snapshot 3 Performance Summary 4 Questions & Answers with Portfolio Management 5 The Fund's Long-term Performance 10 Investments in Securities 12 Financial Statements 25 Notes to Financial Statements 28 Report of Independent Registered Public Accounting Firm 41 Federal Income Tax Information 42 Fund Expenses Example 45 Board Members and Officers 47 Approval of Investment Management Services Agreement 50 Proxy Voting 52 [DALBAR LOGO] American Express(R) Funds'* reports to shareholders 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. * As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the name of the American Express Funds. - -------------------------------------------------------------------------------- 2 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Fund Snapshot AT AUG. 31, 2005 PORTFOLIO MANAGERS Portfolio managers Since Years in industry Jamie Jackson, CFA 6/03 17 Scott Kirby 2/03 19 Tom Murphy, CFA 2/03 19 Nicholas Pifer, CFA 2/03 15 Jennifer Ponce de Leon 2/03 16 FUND OBJECTIVE For investors seeking a high level of current income while conserving the value of the investment for the longest period of time. Inception dates by class A: 10/3/74 B: 3/20/95 C: 6/26/00 I: 3/4/04 Y: 3/20/95 Ticker symbols by class A: INBNX B: ININX C: AXBCX I: -- Y: IDBYX Total net assets $2.479 billion Number of holdings 399 Weighted average life(1) 6.10 years Effective duration(2) 3.8 years Weighted average bond rating(3) AA+ STYLE MATRIX Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X HIGH X MEDIUM QUALITY X LOW SECTOR COMPOSITION Percentage of portfolio assets (PIE CHART) Mortgage-Backed 36.9% Corporate Bonds* 21.6% U.S. Government Obligations & Agencies 20.6% Commercial Mortgage-Backed 11.0% Short-Term Securities** 4.2% Asset-Backed 3.8% Foreign Government 1.8% Other 0.1% * Includes 7.8% Financials, 5.2% Telecommunication, 3.2% Utilities, 2.0% Consumer Discretionary, 1.4% Industrials, 0.7% Health Care, 0.5% Energy, 0.5% Materials and 0.3% Consumer Staples. ** Of the 4.2%, 0.7% is due to security lending activity and 3.5% is the Fund's cash equivalent position. CREDIT QUALITY SUMMARY Percentage of bond portfolio assets AAA bonds 76.2% AA bonds 6.4 A bonds 5.8 BBB bonds 7.8 Non-investment grade bonds 3.8 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. 0.3% of the portfolio rating above was determined through internal analysis. (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. 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 the impact of interest rates and credit. These and other risk considerations are discussed in the fund's prospectus. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Lower-rated bonds generally have more volatile prices and carry more risk to principal and income than investment grade securities. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 3 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Performance Summary [BAR CHART] PERFORMANCE COMPARISON For the year ended Aug. 31, 2005 +4.38% +4.15% +4.38% +4.38% = RiverSource Diversified Bond Fund Class A (excluding sales charge) +4.15% = Lehman Brothers Aggregate Bond Index (unmanaged) +4.38% = Lipper Intermediate Investment Grade Index (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 calling (800) 862-7919 or visiting www.riversource.com/investments. 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) (10/3/74) (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(6) at Aug. 31, 2005 1 year +4.38% -0.58% +3.39% -1.61% +3.60% +2.60% +4.53% +4.34% 3 years +4.94% +3.25% +4.15% +2.91% +4.22% +4.22% N/A +5.11% 5 years +5.66% +4.64% +4.86% +4.53% +4.86% +4.86% N/A +5.83% 10 years +5.86% +5.34% +5.06% +5.06% N/A N/A N/A +6.01% Since inception +9.41% +9.24% +5.74% +5.74% +5.20% +5.20% +4.00% +6.70% at Sept. 30, 2005 1 year +2.88% -2.00% +2.11% -2.84% +2.12% +1.13% +3.24% +3.05% 3 years +4.32% +2.64% +3.53% +2.27% +3.60% +3.60% N/A +4.48% 5 years +5.39% +4.37% +4.60% +4.26% +4.60% +4.60% N/A +5.52% 10 years +5.61% +5.10% +4.81% +4.81% N/A N/A N/A +5.76% Since inception +9.35% +9.18% +5.59% +5.59% +4.92% +4.92% +3.19% +6.55%
(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 eligible investors only, currently limited to RiverSource Portfolio Builder Funds, six affiliated funds-of-funds. (6) Sales charge is not applicable to these shares. Shares available to institutional investors only. - -------------------------------------------------------------------------------- 4 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Questions & Answers WITH PORTFOLIO MANAGEMENT Below, the portfolio management team for RiverSource Diversified Bond Fund (formerly AXP Diversified Bond Fund) discusses the Fund's results and positioning for the annual period ended Aug. 31, 2005. Q: How did RiverSource Diversified Bond Fund perform for the fiscal year? A: RiverSource Diversified Bond Fund's Class A shares gained 4.38%, excluding sales charge, for the 12 months ended Aug. 31, 2005. The Fund outperformed its benchmark, the Lehman Brothers Aggregate Bond Index (Lehman Index), which rose 4.15%, and performed in line with the Lipper Intermediate Investment Grade Index, representing the Fund's peer group, which advanced 4.38%. Q: What market conditions were present during the annual period? A: Overall, the fixed income yield curve flattened significantly during the fiscal year, with long-term rates falling while short-term rates rose. This dramatic reshaping of the yield curve was driven by the Federal Reserve Board's (the Fed) decision to tighten monetary policy a total of eight times during the period. This put upward pressure on short-term bond yields, and moderate economic growth put downward pressure on intermediate/long-term bond yields. Strong global demand for U.S. financial assets -- notably from foreign central banks -- also contributed to keeping intermediate bond yields low. High yield and emerging market debt outperformed other fixed income assets during the period, as these sectors benefited from both solid fundamentals and a strong demand for the extra yield these sectors historically can provide. Investment grade corporate bonds also performed well for the fiscal year, but stumbled significantly in March and April. SEC YIELDS At Aug. 31, 2005 by class A: 3.61% B: 3.03% C: 3.04% I: 4.12% Y: 3.95% At Sept. 30, 2005 by class A: 3.65% B: 3.08% C: 3.08% I: 4.18% Y: 3.97% 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. - -------------------------------------------------------------------------------- 5 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE]> The Fund's returns were also helped by a modest position in non-U.S. dollar bonds. [END CALLOUT QUOTE] Mortgages performed well during the period because the environment was generally positive for mortgages, as volatility declined significantly and prepayments were fairly predictable. Somewhat offsetting these positives were important changes in the agencies, such as Fannie Mae and Freddie Mac, which began to shrink their portfolio of mortgage-backed securities in response to increased oversight from Congress. Also, the dramatic flattening of the yield curve lessened the incentive for banks and other financers to borrow via short rates and invest in longer maturities. Q: What factors most significantly affected Fund performance? A: On the positive side, the Fund maintained a shorter duration than the Lehman Index throughout the period, since we believed interest rates were headed higher as the economy gained traction and the Fed continued to tighten monetary policy as a result. The Fund's duration was 3.8 years as of Aug. 31, 2005. In addition, for the first half of the fiscal year, we emphasized longer maturity bonds and cash over short- to intermediate-term maturities. As the yield curve flattened through the second half of the period, with short-term rates rising more than long-term rates, the portfolio benefited from this strategy. The Fund benefited from its exposure to high quality commercial mortgage-backed securities, which are securities based on pools of commercial mortgages, and asset-backed securities. The Fund had a sizable exposure to investment grade corporate bonds for most of the fiscal year, and strong issue selection helped the Fund's results. A modest allocation to high yield bonds further boosted the Fund's performance, as this sector as a whole performed well during the period. The Fund's returns were also helped by a modest position in non-U.S. dollar bonds. We successfully were able to add value when the U.S. dollar weakened in the latter months of 2004. Although the dollar fully regained its ground in the first seven months of 2005, it weakened again in August. As the value of the U.S. dollar decreases, the dollar value of foreign investments typically increases and vice versa. - -------------------------------------------------------------------------------- 6 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Questions & Answers Detracting somewhat from Fund returns were the Fund's holdings within the mortgage sector. The Fund maintained a defensive profile within this sector of higher coupon securities and bonds that we believed would hold their values as rates migrated higher. However, the path to higher rates was quite gradual during the fiscal period. This defensive positioning did not provide a significant performance advantage. Q: What changes did you make to the Fund and how is it currently positioned? A: We kept the Fund's duration shorter than the Lehman Index throughout the period, but we made minor adjustments to portfolio duration based on changing market conditions. As the yield curve flattened dramatically, we reduced the portfolio's sensitivity to changes in interest rates. We did this by seeking exposure to securities with maturities more evenly distributed across the yield curve. In our view, the yield curve flattening had largely run its course. The Fund's sector positioning remained generally unchanged. Through the year, we did adjust the Fund's exposure to high yield securities in response to shifts in the difference between the yields of these securities and U.S. Treasuries. We ended the fiscal year with the Fund near its lowest allocation to high yield bonds held during the 12 months. Generally, though, we continued to favor more conservative alternatives, such as AAA-rated commercial mortgage-backed securities, asset-backed securities and certain mortgage products, which, in our view, offer attractive yield as well as the kind of defensive characteristics we want in the current market environment. In all, the Fund's portfolio turnover was high but added value to the portfolio. A significant portion of the Fund's 300% turnover rate this past fiscal year was the result of "roll" transactions in liquid derivatives and U.S. Treasury notes. In the derivative securities, positions in expiring contracts are liquidated and simultaneously replaced with positions in new contracts with equivalent characteristics. For U.S. Treasury notes, existing holdings are sold and newly minted securities with better liquidity are purchased. These transactions affect the Fund's turnover rate but do not change the risk exposure or result in material transaction costs. Q: How do you intend to manage the Fund in the coming months? A: We intend to maintain the Fund's duration shorter than that of the benchmark, the Lehman Index, for the near term. Our best assessment at this time leads us to believe that the devastation caused by Hurricane Katrina will have only a transitory impact on the - -------------------------------------------------------------------------------- 7 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Questions & Answers [BEGIN CALLOUT QUOTE]> We will continue to monitor job creation and inflation numbers, as they remain key indicators for the economy in the coming months -- especially so in the aftermath of Hurricane Katrina. [END CALLOUT QUOTE] U.S. economy overall. We expect energy shortages to be temporary and oil prices to recede as refining and production capacities come back in line. We expect the Fed to focus on the risks to higher inflation caused by higher energy prices, supply-chain disruptions and the strain on resources resulting from the massive rescue, relief and rebuilding efforts now underway. As a result, we expect the Fed to continue to raise the targeted federal funds rate through the balance of 2005. We believe fixed income yields will move higher in the months ahead. From a sector perspective, we intend to cautiously increase the Fund's allocation to investment grade corporate bonds, though, importantly, we continue to be very selective in adding names to the portfolio. We intend to maintain our position in commercial mortgage-backed securities and asset-backed securities because they offer higher yields. In mortgages, we plan to remain defensively positioned, emphasizing premium coupons, 15-year mortgages and attractive structural attributes. We intend to maintain the Fund's modest position in high yield bonds and may increase it if the market offers opportunities. Finally, we intend to maintain the Fund's moderate exposure to non-U.S. dollar bonds. The U.S. dollar's pressured path may experience fits and starts with short-lived periods of currency strength. However, we believe the U.S. dollar will likely remain at relatively weak levels going forward, as we expect the currency's structural problems to continue. - -------------------------------------------------------------------------------- 8 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Questions & Answers We will continue to monitor job creation and inflation numbers, as they remain key indicators for the economy in the coming months -- especially so in the aftermath of Hurricane Katrina. As always, we will maintain a disciplined focus on individual security selection with a goal of having larger positions than the Lehman Index in bonds that offer the greatest potential for outperforming the Lehman Index. - -------------------------------------------------------------------------------- 9 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT The Fund's Long-term Performance The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Diversified Bond Fund Class A shares (from 9/1/95 to 8/31/05) as compared to the performance of two widely cited performance indices, the Lehman Brothers Aggregate Bond Index and the Lipper Intermediate Investment Grade 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 calling (800) 862-7919 or visiting www.riversource.com/investments. 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 Aug. 31, 2005 $0.19 $-- $-- $0.19 Aug. 31, 2004 0.17 -- -- 0.17 Aug. 31, 2003 0.20 -- -- 0.20 Aug. 31, 2002 0.26 -- -- 0.26 Aug. 31, 2001 0.32 -- -- 0.32 - -------------------------------------------------------------------------------- 10 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT [LINE CHART]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE DIVERSIFIED BOND FUND RiverSource Diversified Bond Fund Class A (includes sales charge) $9,525 $10,074 $11,289 $12,011 $12,210 $12,781 $14,120 $14,562 $15,277 $16,123 $16,830 Lehman Brothers Aggregate Bond Index(1) $10,000 $10,411 $11,452 $12,663 $12,764 $13,729 $15,424 $16,675 $17,402 $18,469 $19,236 Lipper Intermediate Investment Grade Index(2) $10,000 $10,394 $11,391 $12,473 $12,528 $13,352 $14,996 $15,873 $16,727 $17,754 $18,532 `95 `96 `97 `98 `99 `00 `01 `02 `03 `04 `05
COMPARATIVE RESULTS Results at Aug. 31, 2005 Since 1 year 3 years 5 years 10 years inception(3) RiverSource Diversified Bond Fund (includes sales charge) Class A Cumulative value of $10,000 $9,942 $11,007 $12,546 $16,829 $140,598 Average annual total return -0.58% +3.25% +4.64% +5.34% +9.24% Lehman Brothers Aggregate Bond Index(1) Cumulative value of $10,000 $10,415 $11,537 $14,012 $19,236 N/A Average annual total return +4.15% +4.88% +6.98% +6.76% N/A Lipper Intermediate Investment Grade Index(2) Cumulative value of $10,000 $10,438 $11,676 $13,875 $18,532 N/A Average annual total return +4.38% +5.30% +6.77% +6.36% N/A
Results for other share classes can be found on page 4. (1) The Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (2) The Lipper Intermediate Investment Grade Index includes the 30 largest investment grade funds tracked by Lipper Inc. The index's returns include net reinvested dividends. (3) Fund data is from Oct. 3, 1974. The Fund began operating before the inception of the Lehman Brothers Aggregate Bond Index and its Lipper peer group. - -------------------------------------------------------------------------------- 11 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Investments in Securities RiverSource Diversified Bond Fund Aug. 31, 2005 (Percentages represent value of investments compared to net assets) Bonds (98.7%) Issuer Coupon Principal Value(a) Rate Amount Sovereign (1.9%) Bundesrepublik Deutschland (European Monetary Unit) 01-04-07 6.00% 18,818,000(c) $24,359,708 United Kingdom Treasury (British Pound) 12-07-06 7.50 8,906,000(c) 16,710,308 United Mexican States 09-27-34 6.75 4,880,000(c) 5,289,920 Total 46,359,936 U.S. Government Obligations & Agencies (21.2%) Federal Farm Credit Bank 10-10-08 4.25 9,800,000 9,856,046 Federal Home Loan Bank 04-18-08 4.13 5,615,000 5,626,926 Federal Home Loan Mtge Corp 06-15-08 3.88 51,935,000 51,671,170 10-15-08 5.13 33,750,000 34,775,089 03-18-09 3.76 6,890,000 6,807,065 07-12-10 4.13 42,370,000 42,293,692 Federal Natl Mtge Assn 04-13-06 2.15 33,200,000 32,835,265 08-15-08 3.25 86,170,000 84,227,728 U.S. Treasury 05-15-15 4.13 18,590,000(r) 18,709,813 08-15-15 4.25 32,765,000 33,384,455 08-15-23 6.25 90,504,000(p) 112,147,217 02-15-26 6.00 56,232,000 68,958,876 U.S. Treasury Inflation-Indexed Bond 01-15-15 1.63 25,602,511(h) 25,572,008 Total 526,865,350 Asset-Backed (4.0%) Aesop Funding II LLC Series 2002-1A Cl A1 (AMBAC) 10-20-06 3.85 2,363,333(d,l) 2,363,187 Series 2004-2A Cl A1 (FGIC) 04-20-08 2.76 2,000,000(d,l) 1,959,323 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Asset-Backed (cont.) AmeriCredit Automobile Receivables Trust Series 2002-C Cl A4 (FSA) 02-12-09 3.55% $2,660,000(l) $2,647,671 Series 2004-CA Cl A3 (AMBAC) 03-06-09 3.00 5,500,000(l) 5,438,983 Series 2005-BM Cl A3 (MBIA) 02-06-10 4.05 8,750,000(l) 8,710,354 ARG Funding Series 2005-1A Cl A3 (MBIA) 04-20-10 4.29 6,300,000(d,l) 6,257,918 Capital Auto Receivables Asset Trust Series 2004-1 09-15-10 2.84 3,000,000 2,924,645 Series 2005-1 Cl A4 07-15-09 4.05 7,100,000 7,110,792 Capital One Auto Finance Trust Series 2005-BSS Cl A3 11-15-09 4.08 4,700,000 4,668,510 Carmax Auto Owner Trust Series 2005-1 Cl A4 03-15-10 4.35 2,400,000 2,406,635 Honda Auto Receivables Owner Trust Series 2005-1 Cl A3 10-21-08 3.53 4,500,000 4,453,740 Long Beach Auto Receivables Trust Series 2004-C Cl A3 (FSA) 09-15-09 3.40 4,000,000(l) 3,958,280 Metris Master Trust Series 2001-2 Cl C 11-20-09 5.51 3,425,000(d,m) 3,425,000 Series 2004-2 Cl D 10-20-10 6.86 1,200,000(d,m) 1,218,000 Series 2004-2 Cl M 10-20-10 4.00 2,700,000(m) 2,702,565 Series 2005-1A Cl D 03-21-11 5.51 1,375,000(d,m) 1,374,995 Morgan Stanley Auto Loan Trust Series 2004-HB2 Cl A3 03-16-09 2.94 4,300,000 4,236,506 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 12 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Asset-Backed (cont.) Nissan Auto Lease Trust Series 2004-A Cl A3 08-15-07 2.90% $3,000,000 $2,968,921 Nissan Auto Receivables Owner Trust Series 2005-A Cl A3 10-15-08 3.54 5,475,000 5,418,443 Popular ABS Mtge Pass-Through Trust Series 2005-A Cl AF2 06-25-35 4.49 2,660,000 2,647,942 Residential Asset Securities Series 2002-KS1 Cl AI4 (AMBAC) 11-25-29 5.86 1,178,876(l) 1,176,306 Triad Auto Receivables Owner Trust Series 2005-A Cl A3 (AMBAC) 03-12-10 4.05 7,600,000(l) 7,561,696 WFS Financial Owner Trust Series 2004-3 Cl A3 03-17-09 3.30 5,000,000 4,952,182 World Omni Auto Receivables Trust Series 2005-A Cl A3 06-12-09 3.54 7,500,000 7,423,950 Total 98,006,544 Commercial Mortgage-Backed(f) (11.2%) Banc of America Commercial Mtge Series 2005-1 Cl A4 11-10-42 5.03 3,600,000 3,699,823 Bank of America-First Union NB Commercial Mtge Series 2001-3 Cl A1 04-11-37 4.89 3,308,970 3,344,098 Bear Stearns Commercial Mtge Securities Series 2004-T16 Cl A3 02-13-46 4.03 3,240,000 3,194,726 Series 2005-PWR8 Cl A1 06-11-41 4.21 7,410,978 7,392,006 California State Teachers' Retirement System Trust Series 2002-C6 Cl A3 11-20-14 4.46 6,645,827(d) 6,660,137 CDC Commercial Mtge Trust Series 2002-FX1 Cl A2 11-15-30 5.68 4,500,000 4,747,593 Citigroup Commercial Mtge Trust Series 2005-EMG Cl A1 09-20-51 4.15 12,141,109(d) 12,098,072 Commercial Mtge Pass-Through Ctfs Series 2004-CNL Cl A1 09-15-14 3.79 6,000,000(d,m) 5,973,120 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Commercial Mortgage-Backed(f) (cont.) CS First Boston Mtge Securities Series 2002-CKS4 Cl A1 11-15-36 4.49% $4,931,045 $4,938,080 Series 2004-C1 Cl A2 01-15-37 3.52 3,000,000 2,933,706 Federal Natl Mtge Assn #385683 02-01-13 4.83 6,321,619 6,438,261 Federal Natl Mtge Assn #385717 11-01-12 4.84 1,172,908 1,192,226 Federal Natl Mtge Assn #386599 11-01-10 4.47 1,645,633 1,638,888 Federal Natl Mtge Assn #555264 02-01-13 5.02 5,743,751 5,915,413 Federal Natl Mtge Assn #555806 10-01-13 5.11 537,301 557,756 GE Capital Commercial Mtge Series 2004-C2 Cl A2 03-10-40 4.12 3,000,000 2,958,600 Series 2005-C3 Cl A1 07-10-45 4.59 4,590,000 4,624,331 Series 2005-C3 Cl A2 07-10-45 4.85 3,460,000 3,517,649 General Electric Capital Assurance Series 2003-1 Cl A3 05-12-35 4.77 7,650,000(d) 7,725,504 General Electric Capital Commercial Mtge Series 2001-3 Cl A1 06-10-38 5.56 3,516,761 3,612,410 GMAC Commercial Mtge Securities Series 1999-C1 Cl B 05-15-33 6.30 5,800,000 6,143,449 Series 2004-C3 Cl A4 12-10-41 4.55 4,700,000 4,690,168 Series 2005-C1 Cl A1 05-10-43 4.21 3,632,143 3,620,863 Greenwich Capital Commercial Funding Series 2004-GG1 Cl A5 06-10-36 4.88 2,400,000 2,443,639 Series 2005-GG3 Cl A1 08-10-42 3.92 3,387,067 3,363,019 Series 2005-GG3 Cl A3 08-10-42 4.57 7,225,000 7,229,214 GS Mtge Securities II Series 2004-GG2 Cl A4 08-10-38 4.96 4,300,000 4,383,521 Series 2005-GG4 Cl A1 07-10-39 4.37 5,797,892 5,801,369 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 13 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Commercial Mortgage-Backed(f) (cont.) JPMorgan Chase Commercial Mtge Securities Series 2002-CIB5 Cl A1 10-12-37 4.37% $3,784,852 $3,786,302 Series 2003-CB6 Cl A1 07-12-37 4.39 7,651,905 7,613,646 Series 2003-CB6 Cl A2 07-12-37 5.26 4,200,000 4,376,803 Series 2003-LN1 Cl A1 10-15-37 4.13 3,457,029 3,406,364 Series 2003-ML1A Cl A1 03-12-39 3.97 3,029,203 2,979,707 Series 2004-CBX Cl A3 01-12-37 4.18 3,000,000 2,967,024 Series 2004-CBX Cl A5 01-12-37 4.65 5,000,000 5,021,358 Series 2005-CB11 Cl A3 08-12-37 5.20 4,700,000 4,863,327 Series 2005-LDP2 Cl A1 07-15-42 4.33 5,721,867 5,737,144 LB-UBS Commercial Mtge Trust Series 2002-C2 Cl A3 06-15-26 5.39 7,360,000 7,640,829 Series 2002-C4 Cl A4 09-15-26 4.56 5,200,000 5,206,430 Series 2002-C4 Cl A5 09-15-31 4.85 6,000,000 6,100,501 Series 2003-C8 Cl A2 11-15-27 4.21 7,500,000 7,452,300 Series 2003-C8 Cl A3 11-15-27 4.83 5,250,000 5,322,765 Series 2004-C2 Cl A3 03-15-29 3.97 3,275,000 3,165,026 Series 2004-C4 Cl A3 06-15-29 5.16 3,000,000(m) 3,099,411 Series 2004-C6 Cl A2 08-15-29 4.19 5,250,000 5,208,945 Series 2004-C6 Cl A4 08-15-29 4.58 4,425,000 4,440,719 Series 2004-C7 Cl A2 10-15-29 3.99 5,400,000 5,304,420 Series 2004-C8 Cl A2 12-15-29 4.20 5,800,000 5,748,496 Series 2005-C3 Cl A1 07-15-30 4.39 3,902,242 3,910,475 Series 2005-C5 Cl A2 09-15-40 4.89 4,600,000 4,667,988 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Commercial Mortgage-Backed(f) (cont.) Merrill Lynch Mtge Trust Series 2005-MCP1 Cl A1 06-12-43 4.22% $4,569,849 $4,557,707 Morgan Stanley Capital I Series 2003-IQ4 Cl A1 05-15-40 3.27 5,400,919 5,165,854 Series 2004-HQ4 Cl A5 04-14-40 4.59 3,600,000 3,597,948 Series 2004-IQ8 Cl A2 06-15-40 3.96 4,884,318 4,840,891 Morgan Stanley, Dean Witter Capital I Series 2002-TOP7 Cl A2 01-15-39 5.98 10,900,000 11,768,644 Prudential Commercial Mtge Trust Series 2003-PWR1 Cl A1 02-11-36 3.67 4,340,476 4,241,613 Wachovia Bank Commercial Mtge Trust Series 2005-C16 Cl A2 10-15-41 4.38 2,000,000 1,992,985 Series 2005-C16 Cl A3 10-15-41 4.62 5,500,000 5,515,590 Total 280,538,853 Mortgage-Backed(f,n) (38.0%) Adjustable Rate Mtge Trust Series 2004-2 Cl 6A1 02-25-35 5.27 5,603,629(k) 5,666,421 Series 2005-3 Cl 7A1 07-25-35 5.10 6,139,038(k) 6,178,417 Banc of America Mtge Securities Series 2004-E Cl B1 06-25-34 4.04 2,942,734(k) 2,902,977 Series 2004-F Cl B1 07-25-34 4.14 5,294,199(k) 5,252,851 Bank of America Alternative Loan Trust Series 2003-11 Cl 1A1 01-25-34 6.00 7,291,347 7,393,134 Series 2003-11 Cl 4A1 01-25-19 4.75 3,708,501 3,698,494 Series 2004-3 Cl 1A1 04-25-34 6.00 11,556,909 11,845,831 Bear Stearns Adjustable Rate Mtge Trust Series 2004-10 Cl 13A1 01-25-35 5.03 7,520,943(k) 7,536,103 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 14 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Mortgage-Backed(f,n) (cont.) Countrywide Alternative Loan Trust Series 2003-11T1 Cl A1 07-25-18 4.75% $4,435,623 $4,410,359 Series 2005-6CB Cl 1A1 04-25-35 7.50 5,997,930 6,286,825 Countrywide Home Loans Series 2004-12 Cl 1M 08-25-34 4.63 3,544,824(k) 3,485,568 Series 2005-R2 Cl 2A1 06-25-35 7.00 8,176,043(d) 8,669,161 CS First Boston Mtge Securities Series 2003-29 Cl 8A1 11-25-18 6.00 3,715,185 3,786,886 Series 2004-AR5 Cl CB1 06-25-34 4.42 3,367,444(k) 3,314,749 Federal Home Loan Mtge Corp Collateralized Mtge Obligation 01-15-18 6.50 3,873,181 4,125,454 03-15-22 7.00 1,660,835 1,658,043 02-15-27 5.00 10,070,000 10,191,724 10-15-27 5.00 21,553,000 21,792,004 06-15-28 5.00 13,925,000 14,095,999 12-15-28 5.50 6,005,000 6,166,619 02-15-33 5.50 9,099,150 9,433,938 Collateralized Mtge Obligation Interest Only 02-15-14 7.40 3,690,563(i) 229,036 08-01-20 8.00 10,223,903(i) 1,763,521 10-15-22 14.56 10,672,675(i) 610,196 Collateralized Mtge Obligation Principal Only 08-01-20 4.60 10,223,903(j) 8,399,754 Federal Home Loan Mtge Corp #290970 04-01-17 8.00 15,808 16,875 Federal Home Loan Mtge Corp #C00356 08-01-24 8.00 624,134 669,664 Federal Home Loan Mtge Corp #C00666 10-01-28 7.00 80,935 84,827 Federal Home Loan Mtge Corp #C53878 12-01-30 5.50 2,337,257 2,366,188 Federal Home Loan Mtge Corp #C78031 04-01-33 5.50 11,745,658 11,922,489 Federal Home Loan Mtge Corp #C79930 06-01-33 5.50 8,300,923 8,400,785 Federal Home Loan Mtge Corp #C90767 12-01-23 6.00 11,556,730 11,904,523 Federal Home Loan Mtge Corp #D96300 10-01-23 5.50 6,534,781 6,651,761 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Mortgage-Backed(f,n) (cont.) Federal Home Loan Mtge Corp #E01127 02-01-17 6.50% $1,941,898 $2,010,138 Federal Home Loan Mtge Corp #E01419 05-01-18 5.50 4,549,999 4,651,301 Federal Home Loan Mtge Corp #E90216 05-01-17 6.00 2,069,339 2,135,147 Federal Home Loan Mtge Corp #E96516 05-01-13 4.50 3,126,398 3,122,161 Federal Home Loan Mtge Corp #E98725 08-01-18 5.00 14,419,765 14,549,256 Federal Home Loan Mtge Corp #E99684 10-01-18 5.00 9,250,763 9,335,142 Federal Home Loan Mtge Corp #G01108 04-01-30 7.00 5,093,691(g) 5,332,408 Federal Home Loan Mtge Corp #G01535 04-01-33 6.00 8,624,579 8,916,929 Federal Home Loan Mtge Corp #G30225 02-01-23 6.00 15,199,368 15,661,912 Federal Natl Mtge Assn 09-01-20 4.50 4,550,000(g) 4,511,607 09-01-20 6.00 24,000,000(g) 24,765,000 12-01-33 5.50 5,958,396 6,025,189 12-01-33 6.50 16,903,129 17,491,196 07-01-34 6.50 9,483,434 9,801,139 Collateralized Mtge Obligation 12-25-26 8.00 4,115,274 4,372,293 Collateralized Mtge Obligation Interest Only 12-25-12 13.29 3,083,805(i) 128,336 12-25-31 1.19 2,997,188(i) 490,517 Federal Natl Mtge Assn #190899 04-01-23 8.50 691,252 745,517 Federal Natl Mtge Assn #190944 05-01-24 6.00 8,425,530 8,659,748 Federal Natl Mtge Assn #190988 06-01-24 9.00 592,157 640,068 Federal Natl Mtge Assn #231309 09-01-23 6.50 167,530 174,136 Federal Natl Mtge Assn #231310 09-01-23 6.50 530,658 551,582 Federal Natl Mtge Assn #250330 09-01-25 8.00 445,666 477,876 Federal Natl Mtge Assn #250495 03-01-26 7.00 1,019,300 1,072,872 Federal Natl Mtge Assn #252498 06-01-29 7.00 8,820 9,257 Federal Natl Mtge Assn #253883 08-01-16 6.00 4,640,029 4,792,353 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 15 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Mortgage-Backed(f,n) (cont.) Federal Natl Mtge Assn #254608 12-01-17 6.50% $1,339,393 $1,388,487 Federal Natl Mtge Assn #254802 07-01-18 4.50 3,971,772 3,944,369 Federal Natl Mtge Assn #254916 09-01-23 5.50 10,454,827 10,639,996 Federal Natl Mtge Assn #268071 01-01-24 6.50 163,729 170,185 Federal Natl Mtge Assn #303226 02-01-25 8.00 201,866 216,503 Federal Natl Mtge Assn #313049 08-01-11 8.50 1,847,533 1,953,848 Federal Natl Mtge Assn #323654 04-01-14 6.50 1,105,313 1,146,548 Federal Natl Mtge Assn #323933 09-01-29 7.00 6,009,746 6,307,656 Federal Natl Mtge Assn #455791 01-01-29 6.50 674,373 700,032 Federal Natl Mtge Assn #489888 05-01-29 6.50 3,487,023 3,617,671 Federal Natl Mtge Assn #496029 01-01-29 6.50 4,246,764 4,408,597 Federal Natl Mtge Assn #50700 03-01-08 7.00 1,499,358 1,546,308 Federal Natl Mtge Assn #545342 04-01-13 7.00 4,627,493 4,772,395 Federal Natl Mtge Assn #545869 07-01-32 6.50 2,312,018 2,403,683 Federal Natl Mtge Assn #545910 08-01-17 6.00 7,295,950 7,554,568 Federal Natl Mtge Assn #555343 08-01-17 6.00 1,825,352 1,885,417 Federal Natl Mtge Assn #555375 04-01-33 6.00 25,228,537 26,013,313 Federal Natl Mtge Assn #555458 05-01-33 5.50 22,096,938 22,366,300 Federal Natl Mtge Assn #555734 07-01-23 5.00 7,351,062 7,363,536 Federal Natl Mtge Assn #555740 08-01-18 4.50 8,178,587 8,119,484 Federal Natl Mtge Assn #555794 09-01-28 7.50 1,301,201 1,383,293 Federal Natl Mtge Assn #567840 10-01-30 7.00 2,157,244 2,264,181 Federal Natl Mtge Assn #587859 12-01-16 5.50 7,033,699 7,189,301 Federal Natl Mtge Assn #597374 09-01-31 7.00 1,003,150 1,061,237 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Mortgage-Backed(f,n) (cont.) Federal Natl Mtge Assn #638969 03-01-32 5.50% $1,951,630 $1,975,290 Federal Natl Mtge Assn #646147 06-01-32 7.00 3,519,163 3,704,808 Federal Natl Mtge Assn #646446 06-01-17 6.50 1,556,345 1,613,391 Federal Natl Mtge Assn #649068 06-01-17 6.50 2,780,638 2,892,464 Federal Natl Mtge Assn #649263 08-01-17 6.50 2,834,879 2,948,868 Federal Natl Mtge Assn #654208 10-01-32 6.50 2,862,683 2,964,719 Federal Natl Mtge Assn #654682 10-01-32 6.00 1,981,337 2,036,797 Federal Natl Mtge Assn #654689 11-01-32 6.00 1,966,180 2,021,184 Federal Natl Mtge Assn #656908 09-01-32 6.50 2,800,382 2,917,397 Federal Natl Mtge Assn #662809 09-01-17 6.50 3,244,057 3,362,963 Federal Natl Mtge Assn #667787 02-01-18 5.50 2,591,140 2,648,678 Federal Natl Mtge Assn #670382 09-01-32 6.00 15,960,099 16,351,933 Federal Natl Mtge Assn #670387 08-01-32 7.00 1,554,656 1,631,151 Federal Natl Mtge Assn #678028 09-01-17 6.00 1,359,078 1,403,800 Federal Natl Mtge Assn #678065 02-01-33 6.50 664,741 693,492 Federal Natl Mtge Assn #678937 01-01-18 5.50 4,146,084 4,245,988 Federal Natl Mtge Assn #678941 02-01-18 5.50 5,003,683 5,124,238 Federal Natl Mtge Assn #678944 01-01-18 5.50 2,401,887 2,459,769 Federal Natl Mtge Assn #679095 04-01-18 5.00 7,305,388 7,362,964 Federal Natl Mtge Assn #681400 03-01-18 5.50 7,352,297 7,522,689 Federal Natl Mtge Assn #683274 02-01-18 5.50 3,212,613 3,287,078 Federal Natl Mtge Assn #684586 03-01-33 6.00 5,096,687 5,235,207 Federal Natl Mtge Assn #687051 01-01-33 6.00 13,160,407 13,473,208 Federal Natl Mtge Assn #687302 11-01-32 7.00 1,455,078 1,526,178 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 16 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Mortgage-Backed(f,n) (cont.) Federal Natl Mtge Assn #689093 07-01-28 5.50% $2,839,252 $2,873,672 Federal Natl Mtge Assn #694628 04-01-33 5.50 5,834,454 5,917,620 Federal Natl Mtge Assn #694795 04-01-33 5.50 7,515,706 7,629,798 Federal Natl Mtge Assn #694988 03-01-33 5.50 15,430,151 15,620,402 Federal Natl Mtge Assn #695202 03-01-33 6.50 6,246,202 6,463,510 Federal Natl Mtge Assn #695385 03-01-18 5.50 9,243,583 9,488,435 Federal Natl Mtge Assn #695909 05-01-18 5.50 3,288,547 3,367,835 Federal Natl Mtge Assn #709901 06-01-18 5.00 7,588,174 7,653,818 Federal Natl Mtge Assn #710823 05-01-33 5.50 879,427 891,965 Federal Natl Mtge Assn #720006 07-01-33 5.50 8,817,572 8,916,417 Federal Natl Mtge Assn #720378 06-01-18 4.50 6,275,690 6,232,392 Federal Natl Mtge Assn #723687 08-01-28 5.50 5,180,382 5,243,184 Federal Natl Mtge Assn #725232 03-01-34 5.00 21,324,820 21,240,157 Federal Natl Mtge Assn #725684 05-01-18 6.00 10,990,068 11,351,538 Federal Natl Mtge Assn #725719 07-01-33 4.85 6,242,791(k) 6,207,707 Federal Natl Mtge Assn #725737 08-01-34 4.53 6,327,018(k) 6,330,940 Federal Natl Mtge Assn #730153 08-01-33 5.50 875,217 885,029 Federal Natl Mtge Assn #735160 12-01-34 4.40 2,586,904(k) 2,581,575 Federal Natl Mtge Assn #743262 10-01-18 5.00 4,693,966 4,730,506 Federal Natl Mtge Assn #747786 10-01-18 6.00 2,452,852 2,533,798 Federal Natl Mtge Assn #753074 12-01-28 5.50 9,902,895 10,022,948 Federal Natl Mtge Assn #753919 12-01-33 4.95 7,758,768(k) 7,789,310 Federal Natl Mtge Assn #759342 01-01-34 6.50 1,248,772 1,297,598 Federal Natl Mtge Assn #765759 12-01-18 5.00 6,108,349 6,156,491 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Mortgage-Backed(f,n) (cont.) Federal Natl Mtge Assn #766641 03-01-34 5.00% $5,900,296(g) $5,868,236 Federal Natl Mtge Assn #776962 04-01-29 5.00 17,655,239 17,544,567 Federal Natl Mtge Assn #790759 09-01-34 4.84 1,759,706(k) 1,766,256 Federal Natl Mtge Assn #811925 04-01-35 4.92 6,121,823(k) 6,163,315 Federal Natl Mtge Assn #837258 09-01-35 4.92 3,360,503(g,k) 3,378,213 First Horizon Alternative Mtge Securities Series 2004-AA4 Cl A1 10-25-34 5.41 5,233,780(m) 5,338,613 Series 2005-AA2 Cl 2A1 04-25-35 5.43 6,015,205(m) 6,111,388 Series 2005-AA3 Cl 3A1 05-25-35 5.41 6,223,717(m) 6,291,244 Govt Natl Mtge Assn 09-01-35 5.00 13,650,000(g) 13,692,656 Collateralized Mtge Obligation Interest Only Series 2002-70 Cl IC 08-20-32 0.00 10,214,633(i) 1,337,623 Collateralized Mtge Obligation Interest Only Series 2002-80 Cl CI 01-20-32 0.00 2,303,524(i) 246,989 Govt Natl Mtge Assn #345538 02-15-24 8.00 217,162 233,213 Govt Natl Mtge Assn #398831 08-15-26 8.00 244,458 262,806 Govt Natl Mtge Assn #425004 10-15-33 5.50 4,552,190 4,644,658 Govt Natl Mtge Assn #426170 06-15-26 8.00 220,818 237,392 Govt Natl Mtge Assn #604708 10-15-33 5.50 9,918,654 10,120,131 Harborview Mtge Loan Trust Series 2004-3 Cl B1 05-19-34 4.39 4,328,576(k) 4,273,123 IndyMac Index Mtge Loan Trust Series 2005-AR3 Cl 3A1 04-25-35 5.34 3,671,672(k) 3,710,669 Series 2005-AR8 Cl AX1 Collateralized Mtge Obligation Interest Only 04-25-35 4.50 192,739,443(i,k) 2,379,128 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 17 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Mortgage-Backed(f,n) (cont.) Master Adjustable Rate Mtge Trust Series 2004-5 Cl B1 07-25-34 4.40% $4,154,484(k) $4,100,060 Master Alternative Loans Trust Series 2004-2 Cl 4A1 02-25-19 5.00 6,477,592 6,514,029 Series 2004-4 Cl 2A1 05-25-34 6.00 1,556,968 1,589,773 Series 2004-7 Cl 8A1 08-25-19 5.00 4,969,254 4,972,384 Series 2004-8 Cl 7A1 09-25-19 5.00 6,808,338 6,814,057 Structured Adjustable Rate Mtge Loan Trust Series 2004-3AC Cl B1 03-25-34 4.93 5,562,433(k) 5,545,078 Series 2004-5 Cl B1 05-25-34 4.61 4,235,971(k) 4,173,872 Structured Asset Securities Series 2003-33H Cl 1A1 10-25-33 5.50 14,679,726 14,763,922 Washington Mutual Series 2003-AR10 Cl A7 10-25-33 4.07 6,650,000(k) 6,666,218 Series 2004-CB2 Cl 6A 07-25-19 4.50 4,278,238 4,175,688 Series 2004-CB4 Cl 22A 12-25-19 6.00 5,135,060 5,296,976 Series 2005-AR11 Cl A1B1 08-25-45 3.93 12,675,000(k) 12,675,000 Wells Fargo Mtge Backed Securities Trust Series 2005 10-25-35 5.00 12,000,000(g) 12,061,875 Series 2005-5 Cl 2A1 05-25-35 5.50 10,678,903 10,828,805 Series 2005-AR1 Cl 1A1 02-25-35 4.56 9,806,695(k) 9,764,134 Total 944,124,154 Aerospace & Defense (0.1%) L-3 Communications 06-15-12 7.63 2,000,000 2,120,000 07-15-13 6.13 190,000 191,900 Moog Sr Sub Nts 01-15-15 6.25 165,000 165,000 Total 2,476,900 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Automotive (0.2%) DaimlerChrysler NA Holding 11-15-13 6.50% $2,125,000 $2,285,544 Ford Motor 02-01-29 6.38 2,300,000 1,681,261 Total 3,966,805 Banking (4.2%) Bank of America Sr Unsecured 08-01-10 4.50 11,120,000 11,157,819 Banknorth Group Sr Nts 05-01-08 3.75 3,960,000 3,916,876 Citigroup 08-03-10 4.63 32,600,000 32,873,285 Sr Nts 05-29-15 4.70 2,665,000 2,661,911 HSBC Bank USA Sub Nts 08-15-35 5.63 5,500,000 5,674,202 KFW Intl Finance 10-17-05 2.50 18,400,000(c) 18,370,852 M&I Marshall & Ilsley Bank Sub Nts 06-16-15 4.85 2,575,000 2,592,958 Wells Fargo Bank NA Sub Nts 02-01-11 6.45 24,007,000 26,369,865 Total 103,617,768 Building Materials (--%) Norcraft Companies LP/Finance Sr Sub Nts 11-01-11 9.00 570,000 598,500 Chemicals (0.2%) Airgas 10-01-11 9.13 1,500,000 1,612,500 Compass Minerals Group 08-15-11 10.00 1,000,000 1,095,000 Georgia Gulf Sr Nts 12-15-13 7.13 1,525,000 1,582,188 MacDermid 07-15-11 9.13 575,000 618,125 Total 4,907,813 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 18 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Diversified Manufacturing (0.7%) Tyco Intl Group 02-15-11 6.75% $15,205,000(c) $16,744,172 Electric (3.1%) CMS Energy Sr Nts 01-15-09 7.50 1,275,000 1,345,125 Consumers Energy 1st Mtge 09-15-35 5.80 5,340,000 5,566,800 Dayton Power & Light 1st Mtge 10-01-13 5.13 3,305,000 3,403,459 Dominion Resources 06-15-35 5.95 5,620,000 5,870,191 DPL Sr Nts 09-01-11 6.88 2,755,000 3,016,725 Exelon 06-15-35 5.63 4,320,000 4,348,287 IPALCO Enterprises Secured 11-14-08 8.38 400,000 429,000 11-14-11 8.63 3,680,000 4,140,000 NorthWestern Energy Secured 11-01-14 5.88 645,000(d) 666,045 Ohio Edison 06-15-09 5.65 4,005,000(d) 4,123,548 Sr Nts 05-01-15 5.45 1,195,000 1,235,972 Ohio Power Sr Nts Series H 01-15-14 4.85 7,395,000 7,451,498 Pacific Gas & Electric 03-01-34 6.05 4,580,000 5,018,718 Pacificorp 1st Mtge 06-15-35 5.25 2,825,000 2,842,190 Potomac Edison 1st Mtge 11-15-14 5.35 3,195,000(d) 3,310,308 08-15-15 5.13 2,275,000(d) 2,326,160 Southern California Edison 1st Mtge 07-15-35 5.35 5,710,000 5,830,875 Tenaska Alabama Partners LP Secured 06-30-21 7.00 360,000(d) 375,548 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Electric (cont.) Utilicorp Canada Finance 06-15-11 7.75% $1,915,000(c) $2,001,175 Westar Energy 1st Mtge 07-01-14 6.00 11,450,000 12,464,563 Total 75,766,187 Entertainment (0.5%) Time Warner 05-15-29 6.63 4,940,000 5,374,068 United Artists Theatre 07-01-15 9.30 7,739,913 7,662,514 Total 13,036,582 Food and Beverage (0.3%) Burns Philp Capital Property Sr Sub Nts 02-15-11 10.75 940,000(c) 1,048,100 Cott Beverages 12-15-11 8.00 1,135,000 1,197,425 Kraft Foods 06-01-12 6.25 4,991,000 5,477,343 Total 7,722,868 Gaming (0.5%) Boyd Gaming Sr Sub Nts 12-15-12 7.75 375,000 399,375 04-15-14 6.75 455,000 464,669 Caesars Entertainment Sr Nts 04-15-13 7.00 2,535,000 2,833,569 MGM MIRAGE 10-01-09 6.00 670,000 670,000 Sr Nts 02-27-14 5.88 720,000 694,800 07-15-15 6.63 2,165,000(d,g) 2,186,650 Mohegan Tribal Gaming Authority Sr Nts 02-15-13 6.13 540,000 546,750 Sr Sub Nts 04-01-12 8.00 750,000 798,750 Station Casinos Sr Nts 04-01-12 6.00 1,000,000 1,007,500 Sr Sub Nts 03-01-16 6.88 1,515,000(d,g) 1,556,663 Total 11,158,726 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 19 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Gas Pipelines (0.2%) ANR Pipeline 03-15-10 8.88% $875,000 $954,587 Colorado Interstate Gas Sr Nts 03-15-15 5.95 470,000(d) 466,475 El Paso Natural Gas Sr Nts Series A 08-01-10 7.63 735,000 786,823 Southern Natural Gas 03-15-10 8.88 875,000 954,587 Southern Star Central Secured 08-01-10 8.50 645,000 696,600 Transcontinental Gas Pipe Line Series B 08-15-11 7.00 1,915,000 2,058,624 Total 5,917,696 Health Care (0.7%) Cardinal Health 06-15-15 4.00 15,779,000 14,604,269 HCA Sr Nts 03-15-14 5.75 1,000,000 988,267 Triad Hospitals Sr Nts 05-15-12 7.00 1,000,000 1,035,000 Total 16,627,536 Home Construction (0.3%) DR Horton 12-01-07 7.50 1,000,000 1,054,672 01-15-09 5.00 990,000 986,494 Sr Nts 02-15-15 5.25 4,290,000 4,121,039 Meritage Homes 03-15-15 6.25 445,000 416,631 Standard-Pacific Sr Nts 08-15-15 7.00 930,000 916,050 Total 7,494,886 Independent Energy (0.3%) Chesapeake Energy 01-15-15 7.75 1,275,000 1,370,625 Sr Nts 06-15-14 7.50 152,000 164,160 Sr Unsecured 08-15-17 6.50 1,860,000(d) 1,897,200 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Independent Energy (cont.) Encore Acquisition Sr Sub Nts 04-15-14 6.25% $590,000 $587,050 Newfield Exploration Sr Nts 03-01-11 7.63 2,500,000 2,725,000 Sr Sub Nts 08-15-12 8.38 380,000 413,250 Plains Exploration & Production Sr Nts 06-15-14 7.13 790,000 841,350 Total 7,998,635 Life Insurance (2.1%) ASIF Global Financing XIX Secured 01-17-13 4.90 5,748,000(d) 5,826,575 ING Security Life Institutional Funding 01-15-10 4.25 11,475,000(d) 11,397,326 Metlife Sr Nts 06-15-35 5.70 9,600,000 9,974,506 Metropolitan Life Global Funding I Sr Nts 08-19-10 4.63 3,360,000(d) 3,386,154 Pricoa Global Funding I 06-25-12 4.63 16,125,000(d) 16,154,880 Prudential Financial 06-13-35 5.40 4,720,000 4,698,788 Total 51,438,229 Lodging (0.1%) Hilton Hotels 12-01-12 7.63 1,250,000 1,434,175 ITT 11-15-15 7.38 635,000 695,325 Total 2,129,500 Media Cable (0.2%) Comcast 03-15-11 5.50 3,635,000 3,758,408 DIRECTV Holdings LLC/Finance Sr Nts 03-15-13 8.38 406,000 445,585 Videotron Ltee 01-15-14 6.88 530,000(c) 544,575 Total 4,748,568 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 20 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Media Non Cable (0.7%) Corus Entertainment Sr Sub Nts 03-01-12 8.75% $395,000(c) $424,625 Dex Media West LLC/Finance Sr Nts Series B 08-15-10 8.50 1,340,000 1,448,875 Emmis Operating Sr Sub Nts 05-15-12 6.88 400,000 400,000 Lamar Media 01-01-13 7.25 375,000 394,688 Sr Sub Nts 08-15-15 6.63 805,000(d) 821,100 News America 12-15-34 6.20 9,392,000 9,731,812 Quebecor Media Sr Nts 07-15-11 11.13 640,000(c) 704,000 Radio One Series B 07-01-11 8.88 1,000,000 1,068,750 Sun Media 02-15-13 7.63 745,000(c) 786,906 Susquehanna Media Sr Sub Nts 04-15-13 7.38 900,000 943,875 Total 16,724,631 Metals (0.1%) Peabody Energy Series B 03-15-13 6.88 1,640,000 1,707,650 Oil Field Services (0.2%) Halliburton 10-15-10 5.50 3,450,000 3,608,327 Key Energy Services Series C 03-01-08 8.38 1,250,000 1,293,750 Offshore Logistics 06-15-13 6.13 195,000 190,125 Pride Intl Sr Nts 07-15-14 7.38 495,000 537,075 Total 5,629,277 Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Other Financial Institutions (0.9%) HSBC Finance 06-30-15 5.00% $15,705,000 $15,786,776 Residential Capital 06-30-10 6.38 6,745,000(d) 6,885,431 Total 22,672,207 Packaging (0.1%) Owens-Illinois Glass Container 05-15-11 7.75 1,100,000 1,166,000 Silgan Holdings Sr Sub Nts 11-15-13 6.75 615,000 628,069 Total 1,794,069 Paper (0.1%) Crown Paper Sr Sub Nts 09-01-05 11.00 6,950,000(b,o,q) ---- Louisiana-Pacific Sr Nts 08-15-10 8.88 2,260,000 2,554,354 Total 2,554,354 Pharmaceuticals (0.1%) Merck & Co 03-01-15 4.75 1,450,000 1,437,452 Property & Casualty (0.1%) Willis Group North America 07-15-15 5.63 3,370,000 3,421,831 Railroads (0.5%) Union Pacific 04-15-12 6.50 7,390,000 8,151,495 05-01-14 5.38 2,995,000 3,118,403 Total 11,269,898 REITS (0.6%) Archstone-Smith Operating Trust 05-01-15 5.25 7,660,000 7,781,533 ERP Operating LP 04-01-13 5.20 2,815,000 2,871,337 Simon Property Group LP 06-15-15 5.10 4,975,000(d) 4,956,543 Total 15,609,413 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 21 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Bonds (continued) Issuer Coupon Principal Value(a) Rate Amount Retailers (0.4%) United Auto Group 03-15-12 9.63% $455,000 $488,556 Wal-Mart Stores 09-01-35 5.25 1,395,000(g) 1,407,644 09-01-35 5.25 4,175,000 4,212,843 Series C 06-29-11 8.88 3,500,000 3,533,355 Total 9,642,398 Transportation Services (0.2%) ERAC USA Finance 05-01-15 5.60 5,075,000(d) 5,241,490 Greater Beijing First Expressways Sr Nts 06-15-07 9.50 3,640,000(b,c,o,q) ---- Total 5,241,490 Wireless (0.3%) Nextel Communications Sr Nts Series E 10-31-13 6.88 1,875,000 2,008,262 US Cellular Sr Nts 12-15-33 6.70 5,835,000 6,254,583 Total 8,262,845 Wirelines (4.4%) BellSouth Sr Unsecured 11-15-34 6.00 2,775,000 2,929,690 Qwest 03-15-12 8.88 1,075,000 1,174,438 Sprint Capital 01-30-11 7.63 26,465,000 30,247,456 11-15-28 6.88 892,000 1,022,183 Telecom Italia Capital 09-30-34 6.00 6,265,000(c,d) 6,431,687 TELUS 06-01-11 8.00 20,552,500(c) 23,906,730 Verizon Pennsylvania Series A 11-15-11 5.65 41,125,000 43,003,178 Total 108,715,362 Total Bonds (Cost: $2,434,999,571) $2,446,929,085 Other (0.1%) Issuer Shares Value(a) Wayland Investment LLC 6,000,000(b,e,o) $3,053,100 Total Other (Cost: $6,671,880) $3,053,100 Short-Term Securities (4.3%)(s) Issuer Effective Amount Value(a) Yield Payable at Maturity U.S. Government Agency (1.0%) Federal Home Loan Mtge Corp Disc Nt 09-20-05 3.43% $25,000,000 $24,952,500 Commercial Paper (3.3%) Jupiter Securitization 09-29-05 3.60 10,000,000(t) 9,971,080 Kitty Hawk Funding 09-07-05 3.51 9,310,000(t) 9,303,646 Morgan Stanley & Co 09-01-05 3.57 2,900,000 2,899,712 Park Avenue Receivables 09-22-05 3.55 15,000,000(t) 14,967,550 Thames Asset Global Securitization 09-21-05 3.55 25,000,000(t) 24,948,374 Thunder Bay Funding LLC 10-07-05 3.61 20,000,000(t) 19,926,000 Total 82,016,362 Total Short-Term Securities (Cost: $106,979,365) $106,968,862 Total Investments in Securities (Cost: $2,548,650,816)(u) $2,556,951,047 See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 22 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT 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 Aug. 31, 2005, the value of foreign securities represented 4.7% 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 Aug. 31, 2005, the value of these securities amounted to $135,734,200 or 5.5% of net assets. (e) The share amount for Limited Liability Companies (LLC) or Limited Partnerships (LP) represents capital contributions. (f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) At Aug. 31, 2005, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $74,442,316. (h) U.S. Treasury inflation-indexed bonds are securities in which the principal amount is adjusted for inflation and the semiannual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (i) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. Interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at Aug. 31, 2005. (j) Principal only represents securities that entitle holders to receive only principal payments on the underlying mortgages. The yield to maturity of a principal only is sensitive to the rate of principal payments on the underlying mortgage assets. A slow (rapid) rate of principal repayments may have an adverse (positive) effect on yield to maturity. Interest rate disclosed represents yield based upon the estimated timing of future cash flows at Aug. 31, 2005. (k) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2005. (l) The following abbreviations are used in the portfolio security descriptions to identify the insurer of the issue: AMBAC -- Ambac Assurance Corporation FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance MBIA -- MBIA Insurance Corporation (m) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2005. (n) Comparable securities are held to satisfy future delivery requirements of the following open forward sale commitments at Aug. 31, 2005: Security Principal Settlement Proceeds Value amount date receivable Federal Natl Mtge Assn 09-01-20 5.00% $13,150,000 9-19-05 $13,139,726 $13,240,406 09-01-20 5.50 7,000,000 9-19-05 7,111,563 7,148,750 09-01-35 5.00 21,300,000 9-14-05 20,837,391 21,153,563 09-01-35 5.50 72,550,000 9-14-05 72,436,641 73,275,500 09-01-35 6.00 5,000,000 9-14-05 5,091,406 5,115,625 09-01-35 6.50 19,870,000 9-14-05 20,507,237 20,528,194 - -------------------------------------------------------------------------------- 23 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Notes to Investments in Securities (continued) (o) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities are valued at fair value according to methods selected in good faith by the Fund's Board of Directors. Information concerning such security holdings at Aug. 31, 2005, is as follows: Security Acquisition Cost dates Crown Paper 11.00% Sr Sub Nts 2005 02-10-00 thru 02-14-00 $4,216,724 Greater Beijing First Expressways 9.50% Sr Nts 2007 09-16-98 -- Wayland Investment LLC 05-19-00 6,671,880 (p) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 6 to the financial statements): Type of security Notional amount Purchase contracts U.S. Long Bond, Dec. 2005, 20-year $ 41,400,000 Sale contracts U.S. Treasury Note, Sept. 2005, 5-year 19,900,000 U.S. Treasury Note, Sept. 2005, 10-year 13,300,000 U.S. Treasury Note, Dec. 2005, 5-year 66,300,000 U.S. Treasury Note, Dec. 2005, 10-year 141,900,000 (q) Negligible market value. (r) At Aug. 31, 2005, security was partially or fully on loan. See Note 5 to the financial statements. (s) Cash collateral received from security lending activity is invested in short-term securities and represents 0.7% of net assets. See Note 5 to the financial statements. 3.6% of net assets is the Fund's cash equivalent position. (t) 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 Aug. 31, 2005, the value of these securities amounted to $79,116,650 or 3.2% of net assets. (u) At Aug. 31, 2005, the cost of securities for federal income tax purposes was $2,549,111,156 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 29,407,129 Unrealized depreciation (21,567,238) ----------- Net unrealized appreciation $ 7,839,891 ------------ 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/investments. - -------------------------------------------------------------------------------- 24 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Financial Statements Statement of assets and liabilities RiverSource Diversified Bond Fund Aug. 31, 2005 Assets Investments in securities, at value (Note 1)* (identified cost $2,548,650,816) $2,556,951,047 Capital shares receivable 479,976 Accrued interest receivable 15,852,024 Receivable for investment securities sold 206,792,872 Unrealized appreciation on swap transactions, at value (Note 7) 878,275 ------- Total assets 2,780,954,194 ------------- Liabilities Disbursements in excess of cash on demand deposit 887,631 Dividends payable to shareholders 451,716 Capital shares payable 164,578 Payable for investment securities purchased 140,630,243 Payable upon return of securities loaned (Note 5) 18,330,000 Accrued investment management services fee 33,907 Accrued distribution fee 538,031 Accrued service fee 553 Accrued transfer agency fee 2,626 Accrued administrative services fee 3,122 Other accrued expenses 324,785 Forward sale commitments, at value (proceeds receivable $139,123,964) (Note 1) 140,462,038 ----------- Total liabilities 301,829,230 ----------- Net assets applicable to outstanding capital stock $2,479,124,964 ============== Represented by Capital stock -- $.01 par value (Note 1) $ 5,068,498 Additional paid-in capital 2,579,293,685 Undistributed net investment income 5,270,078 Accumulated net realized gain (loss) (Note 9) (117,341,155) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 6) 6,833,858 --------- Total -- representing net assets applicable to outstanding capital stock $2,479,124,964 ============== Net assets applicable to outstanding shares: Class A $1,774,392,052 Class B $ 484,320,317 Class C $ 18,092,300 Class I $ 9,963 Class Y $ 202,310,332 Net asset value per share of outstanding capital stock: Class A shares 362,799,390 $ 4.89 Class B shares 99,003,330 $ 4.89 Class C shares 3,693,765 $ 4.90 Class I shares 2,037 $ 4.89 Class Y shares 41,351,259 $ 4.89 ---------- -------------- *Including securities on loan, at value (Note 5) $ 18,115,920 --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 25 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Statement of operations RiverSource Diversified Bond Fund Year ended Aug. 31, 2005 Investment income Income: Interest $120,064,422 Fee income from securities lending (Note 5) 361,192 ------- Total income 120,425,614 ----------- Expenses (Note 2): Investment management services fee 13,003,467 Distribution fee Class A 4,534,413 Class B 5,752,444 Class C 193,278 Transfer agency fee 4,365,376 Incremental transfer agency fee Class A 239,386 Class B 149,792 Class C 5,897 Service fee -- Class Y 198,919 Administrative services fees and expenses 1,259,427 Compensation of board members 22,793 Custodian fees 207,936 Printing and postage 619,638 Registration fees 109,340 Audit fees 45,000 Other 105,201 ------- Total expenses 30,812,307 Expenses waived/reimbursed by Ameriprise Financial (fomerly AEFC) (Note 2) (2,024,845) ---------- 28,787,462 Earnings credits on cash balances (Note 2) (117,177) -------- Total net expenses 28,670,285 ---------- Investment income (loss) -- net 91,755,329 ---------- Realized and unrealized gain (loss) -- net Net realized gain (loss) on: Security transactions (Note 3) 29,398,036 Foreign currency transactions (215,482) Futures contracts 208,446 Swap transactions (467,823) -------- Net realized gain (loss) on investments 28,923,177 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (14,927,428) ----------- Net gain (loss) on investments and foreign currencies 13,995,749 ---------- Net increase (decrease) in net assets resulting from operations $105,751,078 ============
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 26 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Statements of changes in net assets RiverSource Diversified Bond Fund Year ended Aug. 31, 2005 2004 Operations and distributions Investment income (loss) -- net $ 91,755,329 $ 105,192,832 Net realized gain (loss) on investments 28,923,177 (4,621,473) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (14,927,428) 68,359,517 ----------- ---------- Net increase (decrease) in net assets resulting from operations 105,751,078 168,930,876 ----------- ----------- Distributions to shareholders from: Net investment income Class A (70,478,732) (72,912,216) Class B (17,993,962) (21,667,704) Class C (605,297) (659,148) Class I (421) (1,353) Class Y (8,081,878) (8,189,423) ---------- ---------- Total distributions (97,160,290) (103,429,844) ----------- ------------ Capital share transactions (Note 4) Proceeds from sales Class A shares (Note 2) 259,770,664 251,088,529 Class B shares 84,427,800 89,582,880 Class C shares 4,052,182 5,454,766 Class I shares -- 821,608 Class Y shares 41,037,278 71,322,514 Reinvestment of distributions at net asset value Class A shares 56,221,455 56,831,525 Class B shares 15,935,666 18,955,456 Class C shares 543,915 580,863 Class I shares -- 1,139 Class Y shares 6,719,948 6,500,832 Payments for redemptions Class A shares (480,335,355) (699,205,028) Class B shares (Note 2) (245,851,411) (397,699,256) Class C shares (Note 2) (7,443,384) (12,180,164) Class I shares -- (814,281) Class Y shares (49,568,951) (147,874,937) ----------- ------------ Increase (decrease) in net assets from capital share transactions (314,490,193) (756,633,554) ------------ ------------ Total increase (decrease) in net assets (305,899,405) (691,132,522) Net assets at beginning of year 2,785,024,369 3,476,156,891 ------------- ------------- Net assets at end of year $2,479,124,964 $2,785,024,369 ============== ============== Undistributed net investment income $ 5,270,078 $ 6,413,116 -------------- --------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 27 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Notes to Financial Statements RiverSource Diversified Bond Fund (formerly AXP Diversified Bond Fund) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Fund is a series of AXP Fixed Income Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. AXP Fixed 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 bonds and other debt securities including securities issued by the U.S. government, corporate bonds and mortgage- and asset-backed securities. 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 Aug. 31, 2005, Ameriprise Financial, Inc. (Ameriprise Financial) (formerly American Express Financial Corporation) owned 100% of Class I shares. 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. 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. - -------------------------------------------------------------------------------- 28 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Illiquid securities At Aug. 31, 2005, 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 Aug. 31, 2005 was $3,053,100 representing 0.12% 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. 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 Aug. 31, 2005, the Fund has entered into outstanding when-issued securities of $57,643,652 and other forward-commitments of $16,798,664. The Fund also enters into transactions to sell purchase commitments to third parties at current market values and concurrently acquires other purchase commitments for similar securities at later dates. As an inducement for the Fund to "roll over" its purchase commitments, the Fund receives negotiated amounts in the form of reductions of the purchase price of the commitment. 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. - -------------------------------------------------------------------------------- 29 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT 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. 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. Forward sale commitments The Fund may enter into forward sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of forward sale commitments are not received until the contractual settlement date. During the time a forward sale commitment is outstanding, equivalent deliverable securities, or an offsetting forward purchase commitment deliverable on or before the sale commitment date, are used to satisfy the commitment. Unsettled forward sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Valuation of securities" above. The forward sale commitment is "marked-to-market" daily and the change in market value is recorded by the Fund as an unrealized gain or loss. If the forward sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss. If the Fund delivers securities under the commitment, the Fund realizes a gain or a loss from the sale of the securities based upon the market price established at the date the commitment was entered into. Forward sale commitments outstanding at period end are listed in the "Notes to investments in securities." - -------------------------------------------------------------------------------- 30 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Total return swap transactions The Fund may enter into swap agreements to earn the total return on a specified security or index of fixed income securities. Under the terms of the swaps, the Fund either receives or pays the total return on a reference security or index applied to a notional principal amount. In return, the Fund agrees to pay or receive from the counterparty a floating rate, which is reset periodically based on short-term interest rates, applied to the same notional amount. The notional amounts of swap contracts are not recorded in the financial statements. Swaps are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time realized gain (loss) is recorded. Payments received or made are recorded as realized gains (losses). Total return swaps are subject to the risk that the counterparty will default on its obligation to pay net amounts due to the Fund. 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 all sections of the Internal Revenue Code that apply to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of the 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 $4,261,923 and accumulated net realized loss has been increased by $4,261,923. - -------------------------------------------------------------------------------- 31 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT The tax character of distributions paid for the years indicated is as follows: Year ended Aug. 31, 2005 2004 Class A Distributions paid from: Ordinary income $70,478,732 $72,912,216 Long-term capital gain -- -- Class B Distributions paid from: Ordinary income 17,993,962 21,667,704 Long-term capital gain -- -- Class C Distributions paid from: Ordinary income 605,297 659,148 Long-term capital gain -- -- Class I* Distributions paid from: Ordinary income 421 1,353 Long-term capital gain -- -- Class Y Distributions paid from: Ordinary income 8,081,878 8,189,423 Long-term capital gain -- -- * Inception date is March 4, 2004. At Aug. 31, 2005, the components of distributable earnings on a tax basis are as follows: Undistributed ordinary income $ 1,823,333 Accumulated long-term gain (loss) $(104,817,787) Unrealized appreciation (depreciation) $ (1,791,049) 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 or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES Under an Investment Management Services Agreement, RiverSource Investments, LLC (the Investment Manager) determines which securities will be purchased, held or sold. Prior to Oct. 1, 2005, investment management services were provided by Ameriprise Financial. The management fee is a percentage of the Fund's average daily net assets that declines from 0.52% to 0.395% annually as the Fund's assets increase. - -------------------------------------------------------------------------------- 32 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT 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 0.05% to 0.025% annually as the Fund's assets increase. Effective Oct. 1, 2005, the fee percentage of the Fund's average daily net assets declines from 0.07% to 0.04% annually as the Fund's assets increase. 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 (formerly American Express Client 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 were insignificant for the year ended Aug. 31, 2005 and are included in the transfer agency fees on the statement of operations. The Fund has agreements with Ameriprise Financial Services, Inc. (formerly American Express Financial Advisors 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 $2,348,664 for Class A, $521,325 for Class B and $4,955 for Class C for the year ended Aug. 31, 2005. - -------------------------------------------------------------------------------- 33 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT For the year ended Aug. 31, 2005, Ameriprise Financial and its affiliates waived certain fees and expenses to 0.94% for Class A, 1.70% for Class B, 1.70% for Class C and 0.78% for Class Y. Of these waived fees and expenses, the transfer agency fees waived for Class A, Class B, Class C and Class Y were $1,354,764, $493,492, $17,606 and $158,983, respectively. In addition, Ameriprise Financial and its affiliates agreed to extend the current agreement to waive certain fees and expenses through Sept. 30, 2005. Beginning Oct. 1, 2005, a new agreement to waive certain fees and expenses is effective until Aug. 31, 2006, such that net expenses will not exceed 0.89% for Class A, 1.65% for Class B, 1.66% for Class C, 0.59% for Class I and 0.73% for Class Y of the Fund's average daily net assets. During the year ended Aug. 31, 2005, the Fund's custodian and transfer agency fees were reduced by $117,177 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 $7,427,796,615 and $7,752,415,139, respectively, for the year ended Aug. 31, 2005. 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 Aug. 31, 2005 Class A Class B Class C Class I Class Y Sold 53,307,133 17,309,061 829,459 -- 8,423,475 Issued for reinvested distributions 11,524,807 3,264,247 111,266 -- 1,376,611 Redeemed (98,492,883) (50,438,583) (1,524,135) -- (10,161,026) ------------ ----------- ---------- -------- ----------- Net increase (decrease) (33,660,943) (29,865,275) (583,410) -- (360,940) ------------ ----------- ---------- -------- ----------- Year ended Aug. 31, 2004 Class A Class B Class C Class I* Class Y Sold 51,888,177 18,469,701 1,122,760 166,209 14,733,853 Issued for reinvested distributions 11,728,875 3,911,848 119,675 231 1,341,478 Redeemed (144,542,248) (82,296,004) (2,511,111) (164,403) (30,501,584) ------------ ----------- ---------- -------- ----------- Net increase (decrease) (80,925,196) (59,914,455) (1,268,676) 2,037 (14,426,253) ------------ ----------- ---------- -------- -----------
* Inception date is March 4, 2004. 5. LENDING OF PORTFOLIO SECURITIES At Aug. 31, 2005, securities valued at $18,115,920 were on loan to brokers. For collateral, the Fund received $18,330,000 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 $361,192 for the year ended Aug. 31, 2005. 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. - -------------------------------------------------------------------------------- 34 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT 6. INTEREST RATE FUTURES CONTRACTS At Aug. 31, 2005, investments in securities included securities valued at $1,734,797 that were pledged as collateral to cover initial margin deposits on 414 open purchase contracts and 2,414 open sale contracts. The notional market value of the open purchase contracts at Aug. 31, 2005 was $48,864,938 with a net unrealized gain of $696,969. The notional market value of the open sale contracts at Aug. 31, 2005 was $267,507,820 with a net unrealized loss of $1,700,150. See "Summary of significant accounting policies" and "Notes to investments in securities." 7. SWAP CONTRACTS
At Aug. 31, 2005, the Fund had the following open total return swap contracts: Termination Notional Unrealized date principal appreciation (depreciation) Receive total return on Lehman Brothers Aaa 8.5+ Commercial Mortgage-Backed Securities Index and pay a floating rate based on 1-month LIBOR less 0.55%. Counterparty: Citigroup 09/01/05 $10,500,000 $228,249 Receive total return on Lehman Brothers AAA 8.5+ Commercial Mortgage-Backed Securities Index and pay a floating rate based on 1-month LIBOR less 0.20%. Counterparty: Citigroup 10/01/05 7,000,000 150,056 Receive total return on Lehman Brothers Aaa 8.5+ Commercial Mortgage-Backed Securities Index and pay a floating rate based on 1-month LIBOR less 0.40%. Counterparty: Citigroup 10/01/05 9,100,000 196,640 Receive total return on Lehman Brothers Aaa 8.5+ Commercial Mortgage-Backed Securities Index and pay a floating rate based on 1-month LIBOR less 0.30%. Counterparty: Citigroup 11/01/05 10,200,000 303,330 -------- ---------- ------- Total $878,275 --------
8. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by The Bank of New York, 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. 21, 2004. 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 0.50% or the Prime 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 0.09% per annum. Prior to this agreement, the Fund had a revolving credit agreement that permitted borrowings up to $500 million with Deutsche Bank. The Fund had no borrowings outstanding during the year ended Aug. 31, 2005. Effective Sept. 20, 2005, the Fund entered into a new revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A., whereby the Fund is permitted to have bank borrowings for temporary or emergency purposes, including funding shareholder redemptions. - -------------------------------------------------------------------------------- 35 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT 9. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $104,817,787 at Aug. 31, 2005, that if not offset by capital gains will expire as follows: 2009 2010 $78,698,873 $26,118,914 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. 10. 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 Aug. 31, 2005 2004 2003 2002 2001 Net asset value, beginning of period $4.87 $4.78 $4.75 $4.86 $4.70 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .18 .18 .20 .25 .31 Net gains (losses) (both realized and unrealized) .03 .08 .03 (.10) .17 ----- ----- ----- ----- ----- Total from investment operations .21 .26 .23 .15 .48 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.19) (.17) (.20) (.25) (.32) Tax return of capital -- -- -- (.01) -- ----- ----- ----- ----- ----- Total distributions (.19) (.17) (.20) (.26) (.32) ----- ----- ----- ----- ----- Net asset value, end of period $4.89 $4.87 $4.78 $4.75 $4.86 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $1,774 $1,933 $2,280 $2,438 $2,390 Ratio of expenses to average daily net assets(b) .94%(c) .98%(c) .97% .95% .94% Ratio of net investment income (loss) to average daily net assets 3.67% 3.55% 4.16% 5.17% 6.51% Portfolio turnover rate (excluding short-term securities) 300% 279% 256% 169% 115% Total return(d) 4.38% 5.54% 4.91% 3.13% 10.48%
(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) Ameriprise Financial and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 1.02% and 1.00% for the years ended Aug. 31, 2005 and 2004, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 36 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Class B Per share income and capital changes(a) Fiscal period ended Aug. 31, 2005 2004 2003 2002 2001 Net asset value, beginning of period $4.88 $4.78 $4.75 $4.86 $4.70 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .15 .14 .16 .21 .27 Net gains (losses) (both realized and unrealized) .01 .09 .03 (.10) .17 ----- ----- ----- ----- ----- Total from investment operations .16 .23 .19 .11 .44 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.15) (.13) (.16) (.21) (.28) Tax return of capital -- -- -- (.01) -- ----- ----- ----- ----- ----- Total distributions (.15) (.13) (.16) (.22) (.28) ----- ----- ----- ----- ----- Net asset value, end of period $4.89 $4.88 $4.78 $4.75 $4.86 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $484 $628 $902 $1,047 $954 Ratio of expenses to average daily net assets(b) 1.70%(c) 1.73%(c) 1.73% 1.71% 1.70% Ratio of net investment income (loss) to average daily net assets 2.92% 2.78% 3.40% 4.40% 5.74% Portfolio turnover rate (excluding short-term securities) 300% 279% 256% 169% 115% Total return(d) 3.39% 4.95% 4.12% 2.35% 9.65%
(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) Ameriprise Financial and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.78% and 1.75% for the years ended Aug. 31, 2005 and 2004, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 37 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Class C Per share income and capital changes(a) Fiscal period ended Aug. 31, 2005 2004 2003 2002 2001 Net asset value, beginning of period $4.88 $4.78 $4.75 $4.86 $4.71 Income from investment operations: Net investment income (loss) .15 .14 .16 .21 .27 Net gains (losses) (both realized and unrealized) .02 .09 .03 (.10) .16 Total from investment operations .17 .23 .19 .11 .43 Less distributions: Dividends from net investment income (.15) (.13) (.16) (.21) (.28) Tax return of capital -- -- -- (.01) -- Total distributions (.15) (.13) (.16) (.22) (.28) Net asset value, end of period $4.90 $4.88 $4.78 $4.75 $4.86 Ratios/supplemental data Net assets, end of period (in millions) $18 $21 $27 $24 $10 Ratio of expenses to average daily net assets(b) 1.70%(c) 1.73%(c) 1.74% 1.72% 1.70% Ratio of net investment income (loss) to average daily net assets 2.93% 2.79% 3.34% 4.33% 5.62% Portfolio turnover rate (excluding short-term securities) 300% 279% 256% 169% 115% Total return(d) 3.60% 4.95% 4.11% 2.35% 9.43%
(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) Ameriprise Financial and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.79% and 1.75% for the years ended Aug. 31, 2005 and 2004, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 38 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Class I Per share income and capital changes(a) Fiscal period ended Aug. 31, 2005 2004(b) Net asset value, beginning of period $4.88 $4.91 ----- ----- Income from investment operations: Net investment income (loss) .20 .11 Net gains (losses) (both realized and unrealized) .02 (.04) ----- ----- Total from investment operations .22 .07 ----- ----- Less distributions: Dividends from net investment income (.21) (.10) ----- ----- Net asset value, end of period $4.89 $4.88 ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $-- $-- Ratio of expenses to average daily net assets(c) .60% .59%(d) Ratio of net investment income (loss) to average daily net assets 4.01% 3.13%(d) Portfolio turnover rate (excluding short-term securities) 300% 279% Total return(e) 4.53% 1.43%(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. - -------------------------------------------------------------------------------- 39 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Class Y Per share income and capital changes(a) Fiscal period ended Aug. 31, 2005 2004 2003 2002 2001 Net asset value, beginning of period $4.88 $4.78 $4.75 $4.86 $4.70 ----- ----- ----- ----- ----- Income from investment operations: Net investment income (loss) .19 .18 .21 .25 .32 Net gains (losses) (both realized and unrealized) .02 .10 .03 (.10) .17 ----- ----- ----- ----- ----- Total from investment operations .21 .28 .24 .15 .49 ----- ----- ----- ----- ----- Less distributions: Dividends from net investment income (.20) (.18) (.21) (.25) (.33) Tax return of capital -- -- -- (.01) -- ----- ----- ----- ----- ----- Total distributions (.20) (.18) (.21) (.26) (.33) ----- ----- ----- ----- ----- Net asset value, end of period $4.89 $4.88 $4.78 $4.75 $4.86 ----- ----- ----- ----- ----- Ratios/supplemental data Net assets, end of period (in millions) $202 $203 $268 $297 $533 Ratio of expenses to average daily net assets(b) .78%(c) .81%(c) .81% .78% .78% Ratio of net investment income (loss) to average daily net assets 3.85% 3.70% 4.34% 5.30% 6.66% Portfolio turnover rate (excluding short-term securities) 300% 279% 256% 169% 115% Total return(d) 4.34% 5.92% 5.08% 3.29% 10.65%
(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) Ameriprise Financial and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class Y would have been 0.86% and 0.83% for the years ended Aug. 31, 2005 and 2004, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 40 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Report of Independent Registered Public Accounting Firm THE BOARD AND SHAREHOLDERS AXP FIXED INCOME SERIES, INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments in securities, of RiverSource Diversified Bond Fund (a series of AXP Fixed Income Series, Inc.) as of August 31, 2005, 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 August 31, 2005, and the financial highlights for each of the years in the five-year period ended August 31, 2005. 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 August 31, 2005, 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 Diversified Bond Fund as of August 31, 2005, 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 October 20, 2005 - -------------------------------------------------------------------------------- 41 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 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 Diversified Bond Fund Fiscal year ended Aug. 31, 2005 Class A Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 0.00% Dividends Received Deduction for corporations 0.00% Payable date Per share Sept. 24, 2004 $0.01500 Oct. 25, 2004 0.01511 Nov. 24, 2004 0.01499 Dec. 22, 2004 0.01775 Jan. 27, 2005 0.01500 Feb. 24, 2005 0.01600 March 30, 2005 0.01600 April 28, 2005 0.01700 May 26, 2005 0.01700 June 29, 2005 0.01600 July 28, 2005 0.01600 Aug. 29, 2005 0.01576 Total distributions $0.19161 Class B Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 0.00% Dividends Received Deduction for corporations 0.00% Payable date Per share Sept. 24, 2004 $0.01200 Oct. 25, 2004 0.01181 Nov. 24, 2004 0.01197 Dec. 22, 2004 0.01494 Jan. 27, 2005 0.01135 Feb. 24, 2005 0.01318 March 30, 2005 0.01260 April 28, 2005 0.01412 May 26, 2005 0.01430 June 29, 2005 0.01258 July 28, 2005 0.01310 Aug. 29, 2005 0.01249 Total distributions $0.15444 - -------------------------------------------------------------------------------- 42 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Class C Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 0.00% Dividends Received Deduction for corporations 0.00% Payable date Per share Sept. 24, 2004 $0.01201 Oct. 25, 2004 0.01183 Nov. 24, 2004 0.01199 Dec. 22, 2004 0.01496 Jan. 27, 2005 0.01137 Feb. 24, 2005 0.01319 March 30, 2005 0.01263 April 28, 2005 0.01414 May 26, 2005 0.01432 June 29, 2005 0.01260 July 28, 2005 0.01312 Aug. 29, 2005 0.01258 Total distributions $0.15474 Class I Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 0.00% Dividends Received Deduction for corporations 0.00% Payable date Per share Sept. 24, 2004 $0.01652 Oct. 25, 2004 0.01669 Nov. 24, 2004 0.01646 Dec. 22, 2004 0.01910 Jan. 27, 2005 0.01635 Feb. 24, 2005 0.01738 March 30, 2005 0.01766 April 28, 2005 0.01837 May 26, 2005 0.01832 June 29, 2005 0.01753 July 28, 2005 0.01729 Aug. 29, 2005 0.01729 Total distributions $0.20896 - -------------------------------------------------------------------------------- 43 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Class Y Income distributions -- taxable as dividend income: Qualified Dividend Income for individuals 0.00% Dividends Received Deduction for corporations 0.00% Payable date Per share Sept. 24, 2004 $0.01568 Oct. 25, 2004 0.01587 Nov. 24, 2004 0.01567 Dec. 22, 2004 0.01839 Jan. 27, 2005 0.01583 Feb. 24, 2005 0.01665 March 30, 2005 0.01678 April 28, 2005 0.01766 May 26, 2005 0.01761 June 29, 2005 0.01678 July 28, 2005 0.01667 Aug. 29, 2005 0.01649 Total distributions $0.20008 - -------------------------------------------------------------------------------- 44 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT 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 Aug. 31, 2005. 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. - -------------------------------------------------------------------------------- 45 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Beginning Ending Expenses account value account value paid during Annualized March 1, 2005 Aug. 31, 2005 the period(a) expense ratio Class A Actual(b) $1,000 $1,022.20 $4.79(c) .94% Hypothetical (5% return before expenses) $1,000 $1,020.47 $4.79(c) .94% Class B Actual(b) $1,000 $1,018.30 $8.65(c) 1.70% Hypothetical (5% return before expenses) $1,000 $1,016.64 $8.64(c) 1.70% Class C Actual(b) $1,000 $1,018.30 $8.65(c) 1.70% Hypothetical (5% return before expenses) $1,000 $1,016.64 $8.64(c) 1.70% Class I Actual(b) $1,000 $1,023.90 $3.06(c) .60% Hypothetical (5% return before expenses) $1,000 $1,022.18 $3.06(c) .60% Class Y Actual(b) $1,000 $1,023.00 $3.98(c) .78% Hypothetical (5% return before expenses) $1,000 $1,021.27 $3.97(c) .78%
(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 184/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Aug. 31, 2005: +2.22% for Class A, +1.83% for Class B, +1.83% for Class C, +2.39% for Class I and +2.30% for Class Y. (c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund. Ameriprise Financial and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.89% for Class A; 1.65% for Class B; 1.66% for Class C; 0.59% for Class I; and 0.73% for Class Y. If the revised fee schedule under the Administrative Services Agreement and the cap/fee waiver agreement had been in place for the entire six-month period ended Aug. 31, 2005, the actual expenses paid would have been $4.54 for Class A, $8.39 for Class B, $8.44 for Class C, $3.01 for Class I and $3.72 for Class Y; the hypothetical expenses paid would have been $4.53 for Class A, $8.39 for Class B, $8.44 for Class C, $3.01 for Class I and $3.72 for Class Y. - -------------------------------------------------------------------------------- 46 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Board Members and Officers Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board members. Each member oversees 14 Master Trust portfolios and 90 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 must retire after her 75th birthday.
Independent Board Members Name, address, age Position held Principal occupation during Other directorships with Fund and past five years length of service - -------------------------------------- ------------------ ------------------------------ --------------------- Arne H. Carlson Board member Chair, Board Services 901 S. Marquette Ave. since 1999 Corporation (provides Minneapolis, MN 55402 administrative services to Age 71 boards); former Governor of Minnesota - -------------------------------------- ------------------ ------------------------------ --------------------- Philip J. Carroll, Jr. Board member Retired Chairman and CEO, Scottish Power PLC, 901 S. Marquette Ave. since 2002 Fluor Corporation Vulcan Materials Minneapolis, MN 55402 (engineering and Company, Inc. Age 67 construction) (construction materials/chemicals) - -------------------------------------- ------------------ ------------------------------ --------------------- Patricia M. Flynn Board member Trustee Professor of 901 S. Marquette Ave. since 2004 Economics and Management, Minneapolis, MN 55402 Bentley College; former Age 54 Dean, McCallum Graduate School of Business, Bentley College - -------------------------------------- ------------------ ------------------------------ --------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 70 - -------------------------------------- ------------------ ------------------------------ --------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Valmont Industries, 901 S. Marquette Ave. since 2002 Professor of Economics, Inc. (manufactures Minneapolis, MN 55402 Carleton College irrigation systems) Age 65 - -------------------------------------- ------------------ ------------------------------ --------------------- Catherine James Paglia Board member Director, Enterprise Asset Strategic 901 S. Marquette Ave. since 2004 Management, Inc. (private Distribution, Inc. Minneapolis, MN 55402 real estate and asset (transportation, Age 53 management company) distribution and logistics consultants) - -------------------------------------- ------------------ ------------------------------ --------------------- 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) Minneapolis, MN 55402 (biotechnology); former Age 61 President, Forester Biotech - -------------------------------------- ------------------ ------------------------------ ---------------------
- -------------------------------------------------------------------------------- 47 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT
Board Member Affiliated with Ameriprise Financial, Inc. (formerly AEFC)* Name, address, age Position held Principal occupation during Other directorships with Fund and past five years length of service - -------------------------------------- ------------------ ------------------------------ --------------------- William F. Truscott Board member President - U.S. Asset 53600 Ameriprise Financial Center since 2001, Management and Chief Minneapolis, MN 55474 Vice President Investment Officer of Age 45 since 2002 Ameriprise Financial, Inc. and President, Chairman of the Board and Chief Investment Officer of RiverSource Investments, LLC since 2005. Senior Vice President - Chief Investment Officer of Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer of RiverSource Investments, LLC, 2001-2005; former Chief Investment Officer and Managing Director, Zurich Scudder - -------------------------------------- ------------------ ------------------------------ ---------------------
* Interested person by reason of being an officer, director and/or employee of Ameriprise Financial, Inc. (formerly American Express Financial Corporation) or of RiverSource Investments, LLC, its wholly owned subsidiary. - -------------------------------------------------------------------------------- 48 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the Fund's other officers are:
Fund Officers Name, address, age Position held Principal occupation during Other directorships with Fund and past five years length of service - -------------------------------------- ------------------ ------------------------------ --------------------- Jeffrey P. Fox Treasurer Vice President - Investment 105 Ameriprise Financial Center since 2002 Accounting, Ameriprise Minneapolis, MN 55474 Financial, Inc., since 2002; Age 50 Vice President - Finance, American Express Company, 2000-2002; Vice President - Corporate Controller, Ameriprise Financial, Inc., 1996-2000 - -------------------------------------- ------------------ ------------------------------ --------------------- Paula R. Meyer President Senior Vice President - 596 Ameriprise Financial Center since 2002 Mutual Funds, Ameriprise Minneapolis, MN 55474 Financial, Inc., since 2002 Age 51 and Senior Vice President, RiverSource Investments, LLC since 2004; Vice President and Managing Director - American Express Funds, Ameriprise Financial, Inc., 2000-2002; Vice President, Ameriprise Financial, Inc., 1998-2000 - -------------------------------------- ------------------ ------------------------------ --------------------- Leslie L. Ogg Vice President, President of Board Services 901 S. Marquette Ave. General Counsel, Corporation Minneapolis, MN 55402 and Secretary Age 67 since 1978 - -------------------------------------- ------------------ ------------------------------ --------------------- Beth E. Weimer Chief Compliance Vice President and Chief 172 Ameriprise Financial Center Officer since Compliance Officer, Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., Age 52 since 2001 and Chief Compliance Officer, RiverSource Investments, LLC since 2005; Vice President and Chief Compliance Officer - Asset Management and Insurance, Ameriprise Financial Services, Inc., since 2001; Partner, Arthur Andersen Regulatory Risk Services, 1998-2001 - -------------------------------------- ------------------ ------------------------------ ---------------------
The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling (800) 862-7919. - -------------------------------------------------------------------------------- 49 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT Approval of Investment Management Services Agreement During the period covered by this report, Ameriprise Financial, Inc. (formerly American Express Financial Corporation or AEFC) (the investment manager), a wholly-owned subsidiary of American Express Company, served as the investment manager to the Fund. Under an Investment Management Services Agreement (the Agreement), the investment manager provides investment advice and other services to the Fund. Throughout the year, the Funds' Board of Directors and the Board's Investment Review Committee monitor these services. Each year the Board determines whether to continue the Agreement by evaluating the quality and level of service received and the costs associated with those services. The investment manager prepares detailed reports for the Board and its Contracts Committee in March and April and provides data prepared by independent organizations to assist the Board in making this determination. The Board gives considerable weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the Agreement. On February 1, 2005, American Express Company announced its intention to pursue a spin-off of AEFC by distributing shares of the common stock of AEFC to shareholders of American Express Company. At a meeting held in person on April 14, 2005, the Board, including a majority of the independent members, approved the continuation of the Agreement for an interim period, not to exceed one year, ending on the later of (i) the effective date of the spin-off or (ii) the approval by the Fund's shareholders of a new investment management services agreement with the investment manager (the Interim Period). The spin-off will not result in an "assignment" of the Agreement under the Investment Company Act of 1940 and, therefore, will not cause the termination of the Agreement according to its terms. In connection with the spin-off the investment manager has proposed that going forward, services under the Agreement be provided by an affiliate, RiverSource Investments, LLC (RiverSource Investments). Independent counsel advised the Board that it would be prudent, in connection with the spin-off, to consider a new agreement with RiverSource Investments and to seek shareholder approval of that agreement as soon as practical thereafter. Investment performance is a major factor in the evaluation process, and the Board reviewed the Fund's performance over a range of different periods by comparing its performance to relevant Lipper and broader market indices. The Board considered that over time the Fund's investment performance should be above median for a peer group of funds with similar investment goals and noted that the Fund's investment performance in 2004 exceeded the median. The Board noted that, in addition to portfolio management and investment research, the investment manager provides portfolio trading, daily net asset value calculation, management of cash flow, product development, administration of its compliance and legal departments, access to distribution, accounting and recordkeeping, and reporting to the Board and shareholders. To evaluate these services, the Board referred to surveys and benchmarks established by commercial providers, trade associations and the investment manager's internal processes. The Board concluded that the services provided were consistent with services provided by investment managers to comparable mutual funds. - -------------------------------------------------------------------------------- 50 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT The Board also evaluated the price paid for the services provided by the investment manager, noting the existence of a pricing philosophy, established by the Board and the investment manager, that seeks to maintain total Fund expenses within a range of the median expenses charged to comparable funds sold through financial advisors. The Board considered detailed information set forth in an annual report on fees and expenses, including, among other things, data showing a comparison of the Fund's expenses with median expenses paid by funds in its comparison group and data showing the Fund's contribution to the investment manager's profitability. The Board determined that while the Fund's expenses are higher than the median for its comparison group, the existing fee waiver has been increased to reduce further the expenses the Fund will pay. The Board considered the economies of scale that might be realized by the investment manager as the Fund grew and took note of the extent to which Fund shareholders also might benefit from such growth. The Board considered that the Agreement provided for lower fees as assets increase at pre-established breakpoints and concluded that the Agreement satisfactorily provided for sharing these economies of scale. The Board took into account the Contracts Committee's discussion comparing the fees the investment manager charges to the Fund with those it charges to institutional clients, noting that the relatively higher fees paid by the Fund were principally attributable to the additional services required to manage a regulated mutual fund, like the Fund, and the operation of a large mutual fund family. The Board also considered the profitability realized by the investment manager and its affiliates from its relationship with the Fund. The Board took into account the services acquired by the investment manager through the use of commission dollars paid by the Fund on portfolio transactions. The Board concluded that the investment manager's overall costs and profitability were appropriate, although profitability may be too low on an ongoing basis. The Board noted that the fees paid by the Fund should permit the investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. Based on the foregoing, the Board concluded that the fees paid to the investment manager under the Agreement were fair and reasonable and determined to approve renewal of the Agreement for the Interim Period. Following the period covered by this report, on September 8, 2005, the Board approved a new investment management agreement with RiverSource Investments and recommended its approval by shareholders. The agreement will be considered by shareholders at a meeting scheduled to be held on February 15, 2006. If approved, the new agreement would take effect shortly after such approval. The Board based its approval on, among other factors, its determination that RiverSource Investments, following the spin-off, would be in a position to continue to provide the Fund with a level and quality of services that would meet expectations. The Board also determined that fees to be paid under the new agreement were fair and reasonable in light of the services to be provided. - -------------------------------------------------------------------------------- 51 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT 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 (800) 862-7919; by looking at the website www.riversource.com/investments; or by 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 calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283; by looking at the website www.riversource.com/investments; or by searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- 52 -- RIVERSOURCE DIVERSIFIED BOND FUND -- 2005 ANNUAL REPORT (logo) RiverSource(SM) Investments RiverSource Investments 200 Ameriprise Financial Center Minneapolis, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. Distributed by Ameriprise Financial Services, Inc. (formerly known as American Express Financial Advisors Inc.). Member NASD. 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 Aug. 31, to KPMG LLP for professional services rendered for the audits of the annual financial statements for AXP Fixed Income Series, Inc. were as follows: 2005 - $43,500; 2004 - $43,383 (b) Audit - Related Fees. The fees paid for the years ended Aug. 31, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for AXP Fixed Income Series, Inc. were as follows: 2005 - $589; 2004 - $639 (c) Tax Fees. The fees paid for the years ended Aug. 31, to KPMG LLP for tax compliance related services for AXP Fixed Income Series, Inc. were as follows: 2005 - $2,575; 2004 - $1,994 (d) All Other Fees. The fees paid for the years ended Aug. 31, to KPMG LLP for additional professional services rendered in connection to proxy filing for AXP Fixed Income Series, Inc. were as follows: 2005 - $776; 2004 - None (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 2005 and 2004 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended Aug. 31, by the registrant for non-audit services to KPMG LLP were as follows: 2005 - None; 2004 - None The fees paid for the years ended Aug. 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: 2005 - $87,000; 2004 - $126,900 (h) 100% of the services performed in item (g) above during 2005 and 2004 were pre-approved by the audit committee. *2004 represents bills paid 9/1/03 - 8/31/04 2005 represents bills paid 9/1/04 - 8/31/05 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) AXP Fixed Income Series, Inc. By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date October 31, 2005 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 October 31, 2005 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date October 31, 2005 EX-99.CODE ETH 2 code-ethics.txt CODE OF ETHICS AMERICAN EXPRESS FUNDS PREFERRED MASTER TRUST GROUP (THE AXP FUNDS) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Purpose of the Code; Covered Officers This code of ethics ("Code") for the AXP Funds (collectively, "Funds," and each, "Fund") applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers," each of whom is identified in Exhibit A) for the purpose of promoting, in connection with his or her duties: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; o compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions, such as the purchase or sale of securities or other property, with the Funds because of their status as "affiliated persons" of the Funds. The compliance programs and -1- procedures of the Funds and of American Express Financial Corporation ("AEFC"), the investment adviser to the Funds, are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and AEFC, of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Funds or for AEFC, or for both, be involved in establishing policies and implementing decisions that will have different effects on AEFC and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and AEFC and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. Each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; o not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; o not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; III. Disclosure and Compliance o Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including to the Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and AEFC with the goal of promoting full, fair, accurate, timely, and understandable disclosure in the reports -2- and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, and regulations. IV. Reporting and Accountability Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he or she has received, read, and understands the Code; o annually thereafter affirm to the Board that he or she has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of AEFC or its affiliated persons for reports of potential violations that are made in good faith; and o notify the general counsel of the Funds ("Funds General Counsel") promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. The Funds General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by a Covered Officers will be considered by the Board Effectiveness Committees (the "Committees"). The Funds will follow these procedures in investigating and enforcing this Code: o The Funds General Counsel will take all appropriate action to investigate any potential violations reported to him; o If, after such investigation, the Funds General Counsel believes that no violation has occurred, he or she is not required to take any further action; o Any matter that the Funds General Counsel believes is a violation will be reported to the Committees; o If the Committees concur that a violation has occurred, they will inform the Board, and the Board will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Committees will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, AEFC, or any -3- affiliate of AEFC govern or purport to govern the activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. AEFC's code of ethics under Rule 17j-1 under the Investment Company Act is a separate requirement applying to the Covered Officers and others, and is not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Fund's Board, including a majority of its independent directors. Date: July, 2003 -4- Exhibit A Persons Covered by this Code of Ethics Paula R. Meyer President Jeffrey P. Fox Treasurer -5- EX-99.CERT 3 ex99-cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Paula Meyer, certify that: 1. I have reviewed this report on Form N-CSR of AXP Fixed Income Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 26, 2005 /s/ Paula R. Meyer ---------------------- Name: Paula R. Meyer Title: President and Chief Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey Fox, certify that: 1. I have reviewed this report on Form N-CSR of AXP Fixed Income Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 26, 2005 /s/ Jeffrey P. Fox -------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 4 ex99-906cert.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION AXP Fixed Income Series, Inc. (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: October 26, 2005 /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Chief Executive Officer Date: October 26, 2005 /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----