-----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, SFd/vPqoDKwwW2uZ6/EC0OzrcFVfd52RtI7DZLLLHSvpG7vpoDR3ovvEB5FqGJK5 Wtw6ZKqK1MtgVmzVdqpU9A== 0000950137-08-006563.txt : 20080502 0000950137-08-006563.hdr.sgml : 20080502 20080502102241 ACCESSION NUMBER: 0000950137-08-006563 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080229 FILED AS OF DATE: 20080502 DATE AS OF CHANGE: 20080502 EFFECTIVENESS DATE: 20080502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE DIVERSIFIED INCOME SERIES INC CENTRAL INDEX KEY: 0000049697 IRS NUMBER: 411237361 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-02503 FILM NUMBER: 08797061 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP FIXED INCOME SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP BOND FUND INC DATE OF NAME CHANGE: 20000829 0000049697 S000003362 RiverSource Diversified Bond Fund C000009231 RiverSource Diversified Bond Fund Class I RDBIX C000009232 RiverSource Diversified Bond Fund Class A INBNX C000009233 RiverSource Diversified Bond Fund Class B ININX C000009234 RiverSource Diversified Bond Fund Class C AXBCX C000038360 RiverSource Diversified Bond Fund Class R2 C000038361 RiverSource Diversified Bond Fund Class R3 RSDBX C000038362 RiverSource Diversified Bond Fund Class R5 RSVBX C000038363 RiverSource Diversified Bond Fund Class W RVBWX C000039562 RiverSource Diversified Bond Fund Class R4 IDBYX N-CSRS 1 c25179nvcsrs.txt CERTIFIED SHAREHOLDER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File Number 811-2503 RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (Address of principal executive offices) (Zip code) Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474 (Name and address of agent for service) Registrant's telephone number, including area code: (612) 671-1947 Date of fiscal year end: 8/31 Date of reporting period: 2/29 Semiannual Report (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE DIVERSIFIED BOND FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED FEBRUARY 29, 2008 RIVERSOURCE 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. (SINGLE STRATEGY FUNDS ICON) TABLE OF CONTENTS - ---------------------------------------------------- Your Fund at a Glance............... 2 Manager Commentary.................. 6 Fund Expenses Example............... 11 Portfolio of Investments............ 14 Financial Statements................ 35 Notes to Financial Statements....... 41 Proxy Voting........................ 64
(DALBAR LOGO) The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 1 YOUR FUND AT A GLANCE - -------------------------------------------- (UNAUDITED) FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource Diversified Bond Fund's Class A shares (excluding sales charge) returned 3.34% for the six months ended Feb. 29, 2008. > The Fund underperformed its benchmark, the unmanaged Lehman Brothers Aggregate Bond Index (Lehman Index), which gained 5.67%. > The Fund underperformed its peer group, as represented by the Lipper Intermediate Investment Grade Index, which returned 4.37% during the same period. ANNUALIZED TOTAL RETURNS (for period ended Feb. 29, 2008) - --------------------------------------------------------------------------------
6 months* 1 year 3 years 5 years 10 years - --------------------------------------------------------------------------------- RiverSource Diversified Bond Fund Class A (excluding sales charge) +3.34% +4.14% +4.25% +4.08% +4.58% - --------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index(1) +5.67% +7.30% +5.18% +4.50% +6.04% - --------------------------------------------------------------------------------- Lipper Intermediate Investment Grade Index(2) +4.37% +5.06% +4.41% +4.25% +5.54%
* Not annualized. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (1) The 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. (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. - -------------------------------------------------------------------------------- 2 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- STYLE MATRIX - ----------------------------------------
STYLE SHORT INT. LONG X HIGH X MEDIUM SIZE LOW
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO STATISTICS - ---------------------------------------- Weighted average life(1) 6.0 years - -------------------------------------------- Effective duration(2) 4.03 years - -------------------------------------------- Weighted average bond rating(3) AA - --------------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - ----------------------------------------
Total Net Expenses(a) - ------------------------------------------------------- Class A 0.97% 0.89% - ------------------------------------------------------- Class B 1.73% 1.65% - ------------------------------------------------------- Class C 1.73% 1.65% - ------------------------------------------------------- Class I 0.56% 0.53% - ------------------------------------------------------- Class R2 1.36% 1.33% - ------------------------------------------------------- Class R3 1.11% 1.08% - ------------------------------------------------------- Class R4 0.86% 0.77% - ------------------------------------------------------- Class R5 0.61% 0.58% - ------------------------------------------------------- Class W 1.01% 0.98% - -------------------------------------------------------
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds) will not exceed 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.53% for Class I, 1.33% for Class R2, 1.08% for Class R3, 0.77% for Class R4, 0.58% for Class R5 and 0.98% for Class W. (1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 3 YOUR FUND AT A GLANCE (continued) - ----------------------------- AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT FEB. 29, 2008 SINCE WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION - ------------------------------------------------------------------------------------------------------ Class A (inception 10/3/74) +3.34% +4.14% +4.25% +4.08% +4.58% N/A - ------------------------------------------------------------------------------------------------------ Class B (inception 3/20/95) +2.95% +3.35% +3.47% +3.29% +3.79% N/A - ------------------------------------------------------------------------------------------------------ Class C (inception 6/26/00) +2.95% +3.35% +3.39% +3.25% N/A +4.59% - ------------------------------------------------------------------------------------------------------ Class I (inception 3/4/04) +3.52% +4.72% +4.68% N/A N/A +4.41% - ------------------------------------------------------------------------------------------------------ Class R2 (inception 12/11/06) +3.33% +3.89% N/A N/A N/A +5.00% - ------------------------------------------------------------------------------------------------------ Class R3 (inception 12/11/06) +3.47% +4.19% N/A N/A N/A +5.30% - ------------------------------------------------------------------------------------------------------ Class R4 (inception 3/20/95) +3.40% +4.28% +4.34% +4.20% +4.71% N/A - ------------------------------------------------------------------------------------------------------ Class R5 (inception 12/11/06) +3.49% +4.44% N/A N/A N/A +5.60% - ------------------------------------------------------------------------------------------------------ Class W (inception 12/1/06) +3.29% +4.01% N/A N/A N/A +4.86% - ------------------------------------------------------------------------------------------------------ With sales charge - ------------------------------------------------------------------------------------------------------ Class A (inception 10/3/74) -1.57% -0.74% +2.60% +3.08% +4.05% N/A - ------------------------------------------------------------------------------------------------------ Class B (inception 3/20/95) -2.05% -1.63% +2.21% +2.94% +3.79% N/A - ------------------------------------------------------------------------------------------------------ Class C (inception 6/26/00) +1.95% +2.35% +3.39% +3.25% N/A +4.59% - ------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 4 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT MARCH 31, 2008 SINCE WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION - ------------------------------------------------------------------------------------------------------ Class A (inception 10/3/74) +1.01% +2.87% +4.05% +3.78% +4.38% N/A - ------------------------------------------------------------------------------------------------------ Class B (inception 3/20/95) +0.63% +2.09% +3.27% +3.00% +3.59% N/A - ------------------------------------------------------------------------------------------------------ Class C (inception 6/26/00) +0.83% +2.29% +3.33% +2.99% N/A +4.38% - ------------------------------------------------------------------------------------------------------ Class I (inception 3/4/04) +1.20% +3.23% +4.48% N/A N/A +3.99% - ------------------------------------------------------------------------------------------------------ Class R2 (inception 12/11/06) +1.21% +2.84% N/A N/A N/A +3.76% - ------------------------------------------------------------------------------------------------------ Class R3 (inception 12/11/06) +1.35% +3.13% N/A N/A N/A +4.05% - ------------------------------------------------------------------------------------------------------ Class R4 (inception 3/20/95) +1.28% +3.22% +4.21% +3.94% +4.53% N/A - ------------------------------------------------------------------------------------------------------ Class R5 (inception 12/11/06) +1.37% +3.38% N/A N/A N/A +4.36% - ------------------------------------------------------------------------------------------------------ Class W (inception 12/1/06) +1.17% +2.97% N/A N/A N/A +3.68% - ------------------------------------------------------------------------------------------------------ With sales charge - ------------------------------------------------------------------------------------------------------ Class A (inception 10/3/74) -3.76% -1.97% +2.39% +2.78% +3.85% N/A - ------------------------------------------------------------------------------------------------------ Class B (inception 3/20/95) -4.31% -2.83% +2.02% +2.64% +3.59% N/A - ------------------------------------------------------------------------------------------------------ Class C (inception 6/26/00) -0.16% +1.31% +3.33% +2.99% N/A +4.38% - ------------------------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R2, Class R3, Class R4, Class R5 and Class W shares. Class I, Class R2, Class R3, Class R4 and Class R5 are available to institutional investors only. Class W shares are offered through qualifying discretionary accounts. * Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 5 MANAGER COMMENTARY - -------------------------------------------- (UNAUDITED) Dear Shareholders, RiverSource Diversified Bond Fund's Class A shares (excluding sales charge) returned 3.34% for the six months ended Feb. 29, 2008. The Fund underperformed its benchmark, the unmanaged Lehman Brothers Aggregate Bond Index (Lehman Index), which gained 5.67%. The Fund also underperformed its peer group, as represented by the Lipper Intermediate Investment Grade Index, which returned 4.37% during the same period. SIGNIFICANT PERFORMANCE FACTORS Impacting the Fund's performance most was the strong rally of bonds in general during the six-month period, as credit and liquidity concerns dominated sentiment across the investment markets. The intensifying liquidity crunch and heightened fears over the subprime mortgage crisis spreading into a broader economic recession led investors to increasingly SECTOR DIVERSIFICATION (at Feb. 29, 2008; % of portfolio assets) - ----------------------------------------------------------------- Asset-Backed 2.2% - --------------------------------------------------------- Cash & Cash Equivalents(1) 5.5% - --------------------------------------------------------- Commercial Mortgage-Backed 12.8% - --------------------------------------------------------- Consumer Discretionary 2.3% - --------------------------------------------------------- Consumer Staples 2.4% - --------------------------------------------------------- Energy 1.4% - --------------------------------------------------------- Financials 4.4% - --------------------------------------------------------- Foreign Government 0.8% - --------------------------------------------------------- Health Care 1.1% - --------------------------------------------------------- Industrials 1.7% - --------------------------------------------------------- Materials 0.3% - --------------------------------------------------------- Mortgage-Backed 43.2% - --------------------------------------------------------- Telecommunication 7.1% - --------------------------------------------------------- U.S. Government Obligations & Agencies 10.5% - --------------------------------------------------------- Utilities 4.3% - ---------------------------------------------------------
(1) Of the 5.5%, 0.5% is due to security lending activity and 5.0% is the Fund's cash equivalent position. - -------------------------------------------------------------------------------- 6 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- seek the relative safety of Treasuries, driving Treasury prices up and yields down in dramatic fashion. Bond yields and prices typically move in opposite directions. At the same time, investors fled the riskier sectors of the fixed income market, particularly in August and again in November following a short-lived recovery in October. Lower quality securities performed worst during the period, while Treasuries and Treasury inflation-protected securities (TIPS) performed best. Foreign bonds also performed well, boosted by the dollar's continued slide. Strong performance of higher quality fixed income securities was supported by falling interest rates. During the six-month period, the Federal Reserve Board (the Fed) lowered the targeted federal funds rate by a significant 225 basis points, or 2.25%, including an emergency inter-meeting cut of 0.75% on Jan. 22, 2008. At the end of the period, the targeted federal funds rate stood at 3.00%. In addition, the Fed announced several new policies designed to ensure adequate liquidity in the financial system, including coordinated action with other central banks and a new lending facility, the Term Auction Facility or TAF, created to provide enhanced term financing for financial institutions. QUALITY BREAKDOWN (at Feb. 29, 2008; % of portfolio assets excluding cash equivalents and equities) - --------------------------------------------------------------------- AAA bonds 71.3% - --------------------------------------------------------- AA bonds 2.2% - --------------------------------------------------------- A bonds 6.8% - --------------------------------------------------------- BBB bonds 15.8% - --------------------------------------------------------- Non-investment grade bonds 3.9% - ---------------------------------------------------------
Bond ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 0.2% of the bond portfolio assets were determined through internal analysis. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 7 MANAGER COMMENTARY (continued) - ------------------------------ The Fund's exposure to TIPS helped its performance, as interest rates fell while inflation expectations remained somewhat elevated. Effective issue selection within the investment grade corporate bond sector also contributed positively to Fund results. Having only a modest allocation to agency securities further helped Fund performance, as this fixed income sector underperformed Treasuries during the period. Conversely, the Fund's significant exposure to non-Treasury sectors hurt performance, as Treasuries dramatically outperformed other bond sectors during the period. In particular, the Fund's exposure to commercial mortgage-backed securities (CMBS) and residential mortgage securities detracted from Fund performance, as these sectors came under increased pressure during the period and lagged the Lehman Index for the six months. Issue selection within the residential mortgage sector hurt as well. The Fund's position, though modest, in high yield corporate bonds also detracted from results. As mentioned, lower quality sectors overall lagged with investors' aversion to risk, and high yield corporate bonds actually lost ground during this semiannual period. Finally, the Fund's short duration positioning relative to the Lehman Index hurt performance, as interest rates declined substantially over the period. Duration is a measure of the Fund's sensitivity to changes in interest rates. CHANGES TO THE FUND'S PORTFOLIO We increased the Fund's exposure to non-agency mortgage-backed securities, given our view that the weakness seen in this sector during the period will be temporary. We also increased the Fund's position in TIPS, as actual and anticipated inflation pressures rose. We reduced the Fund's allocation to high yield corporate bonds, favoring a modest increase in exposure to emerging market debt and to investment grade corporate bonds. The Fund's portfolio turnover rate for the six-month period was 110%.* * A significant portion of the turnover was the result of "roll" transactions in the liquid derivatives and Treasury securities. In the derivative transactions, positions in expiring contracts are liquidated and simultaneously replaced with positions in new contracts with equivalent characteristics. In the Treasury transactions, existing holdings are sold to purchase newly issued securities with slightly longer maturity dates. Although these transactions affect the turnover rate of the portfolio, they do not change the risk exposure or result in material transactions costs. The remaining turnover resulted from strategic reallocations and relative value trading. After transaction costs, we expect this activity to enhance the returns on the overall Fund. - -------------------------------------------------------------------------------- 8 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT - -------------------------------------------------------------------------------- Most agree that the view ahead for economic growth has deteriorated, but we believe the U.S. economy will avoid recession and growth will be greater than the markets are pricing in currently. OUR FUTURE STRATEGY Most agree that the view ahead for economic growth has deteriorated, but we believe the U.S. economy will avoid recession and growth will be greater than the markets are pricing in currently. We expect both the fiscal stimulus package and the Fed's significant interest rate cuts to boost economic activity in the second half of 2008. Moreover, the inflation picture still seems to us to be dominated by factors pointing to higher, not lower, inflation. These factors include the decline in the value of the U.S. dollar and rising commodity prices. In the near term, we expect the Fed to lower rates more in an effort to help limit the risk of recession. However, should there be a gradual recovery from the liquidity crunch and should the economy recover to near trend-like growth and inflation pressures remain, we expect the Fed ultimately to disappoint the market with less easing than anticipated. Indeed, we believe there is a real possibility that the Fed will want to take back some of its easing moves later in 2008, once recession risks recede, to help combat rising inflationary pressures. In a modest economic growth environment accompanied by higher inflation, we believe rates should be materially higher. Given this view, we currently intend to maintain the Fund's shorter-than-Lehman Index duration positioning for the near term. We further intend to maintain the Fund's emphasis on higher quality spread sectors, or non-Treasury sectors of the fixed income market, over U.S. Treasuries. We especially expect to focus on CMBS and non-agency mortgage-backed securities, which we believe continue to offer compelling value, with less of an exposure to agency securities. In addition, we intend to maintain the Fund's slightly greater-than- Lehman Index position in investment grade corporate bonds. As always, we will maintain a disciplined focus on individual security selection. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 9 MANAGER COMMENTARY (continued) - ------------------------------ As we still expect volatility within the fixed income markets to continue through much of 2008, we will continue to closely monitor Fed policy shifts, economic data releases, supply/demand factors and interest rate movements and adjust the portfolio's holdings and duration stance if necessary. (PHOTO - JAMIE (PHOTO - SCOTT (PHOTO - TOM JACKSON) KIRBY) MURPHY) Jamie Jackson, CFA(R) Scott Kirby Tom Murphy, CFA(R) Portfolio Manager Portfolio Manager Portfolio Manager
(PHOTO - NICOLAS (PHOTO - JENNIFER PIFER) PONCE DE LEON) Nicolas Pifer, CFA(R) Jennifer Ponce de Portfolio Manager Leon Portfolio Manager
Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource fund. - -------------------------------------------------------------------------------- 10 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL 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, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds expense ratio as of the most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Feb. 29, 2008. ACTUAL EXPENSES The first line of the table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 11 FUND EXPENSES EXAMPLE (continued) - ---------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2007 FEB. 29, 2008 THE PERIOD(A) EXPENSE RATIO - ------------------------------------------------------------------------------------------- Class A - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,033.40 $4.50 .89% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.44 $4.47 .89% - ------------------------------------------------------------------------------------------- Class B - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,029.50 $8.33 1.65% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.27 1.65% - ------------------------------------------------------------------------------------------- Class C - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,029.50 $8.33 1.65% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.66 $8.27 1.65% - ------------------------------------------------------------------------------------------- Class I - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,035.20 $2.68 .53% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,022.23 $2.66 .53% - ------------------------------------------------------------------------------------------- Class R2 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,033.30 $6.62 1.31% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.35 $6.57 1.31% - ------------------------------------------------------------------------------------------- Class R3 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,034.70 $5.26 1.04% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,019.69 $5.22 1.04% - ------------------------------------------------------------------------------------------- Class R4 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,034.00 $3.89 .77% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,021.03 $3.87 .77% - ------------------------------------------------------------------------------------------- Class R5 - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,034.90 $2.93 .58% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,021.98 $2.92 .58% - -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 12 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT - --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2007 FEB. 29, 2008 THE PERIOD(A) EXPENSE RATIO - ------------------------------------------------------------------------------------------- Class W - ------------------------------------------------------------------------------------------- Actual(b) $1,000 $1,032.90 $4.95 .98% - ------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,019.99 $4.92 .98% - -------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 29, 2008: +3.34% for Class A, +2.95% for Class B, +2.95% for Class C, +3.52% for Class I, +3.33% for Class R2, +3.47% for Class R3, +3.40% for Class R4, +3.49% for Class R5 and +3.29% for Class W. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 13 PORTFOLIO OF INVESTMENTS - ----------------------------------------- FEB. 29, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (100.4%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) FOREIGN AGENCIES (0.2%)(c) Pemex Project Funding Master Trust 03-01-18 5.75% $1,155,000(d) $1,176,945 06-15-35 6.63 1,693,000 1,770,622 Petroleos de Venezuela 04-12-17 5.25 3,534,000 2,456,130 --------------- Total 5,403,697 - ----------------------------------------------------------------------------------- FOREIGN LOCAL GOVERNMENT (--%)(c) Russian Federation 03-31-30 7.50 978,120(d) 1,115,057 - ----------------------------------------------------------------------------------- SOVEREIGN (0.6%)(c) Govt of Ukraine 11-14-17 6.75 1,670,000(d) 1,650,528 Republic of Argentina 09-12-13 7.00 2,762,000 2,496,157 12-15-35 0.00 3,350,000(w) 441,195 Republic of Colombia 01-27-17 7.38 1,495,000 1,644,500 09-18-37 7.38 895,000 951,833 Republic of El Salvador 06-15-35 7.65 633,000(d) 677,310 Republic of Indonesia 01-17-18 6.88 742,000(d) 774,463 10-12-35 8.50 987,000(d) 1,111,609 Republic of Indonesia (Indonesian Rupiah) 07-15-22 10.25 15,000,000,000 1,576,281 Republic of Philippines 01-14-31 7.75 1,979,000 2,189,269 Republic of Turkey 09-26-16 7.00 450,000 468,585 04-03-18 6.75 1,429,000 1,445,076 03-17-36 6.88 2,656,000 2,450,159 Republic of Uruguay 05-17-17 9.25 678,000 806,820 Republic of Venezuela 10-08-14 8.50 715,000 689,975 02-26-16 5.75 714,000 587,265 Republica Orient Uruguay 03-21-36 7.63 742,000 762,405 --------------- Total 20,723,430 - -----------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) U.S. GOVERNMENT OBLIGATIONS & AGENCIES (11.3%) Federal Home Loan Bank 06-18-08 5.13% $250,000 $251,682 10-22-10 4.38 13,405,000 14,027,727 Federal Home Loan Mtge Corp 03-15-31 6.75 11,620,000 14,382,748 04-16-37 6.00 43,260,000 45,022,888 Federal Natl Mtge Assn 08-15-08 3.25 61,170,000 61,331,489 02-10-10 3.25 11,730,000 11,922,372 07-15-37 5.63 14,730,000 16,065,569 Overseas Private Investment U.S. Govt Guaranty Series 1996A 09-15-08 6.99 1,111,111 1,138,977 U.S. Treasury 01-31-13 2.88 28,710,000(q) 29,214,664 02-15-18 3.50 12,245,000 12,214,388 02-15-26 6.00 16,675,000 20,132,461 05-15-37 5.00 8,075,000 8,851,589 U.S. Treasury Inflation-Indexed Bond 01-15-14 2.00 58,257,925(s) 63,236,059 01-15-15 1.63 60,500,550(s) 64,048,492 --------------- Total 361,841,105 - ----------------------------------------------------------------------------------- ASSET-BACKED (2.3%) AmeriCredit Automobile Receivables Trust Series 2007-DF Cl A3A (FSA) 07-06-12 5.49 6,250,000(e) 6,247,069 Capital Auto Receivables Asset Trust Series 2006-SN1A Cl D 04-20-11 6.15 4,375,000(d) 4,332,434 Capital One Multi-Asset Execution Trust Series 2007-A7 Cl A7 07-15-20 5.75 2,550,000 2,620,304 College Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-1 Cl AIO 07-25-08 5.62 14,700,000(g) 592,594 Countrywide Asset-backed Ctfs Series 2005-10 Cl AF6 02-25-36 4.92 1,865,000 1,828,986
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 14 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) ASSET-BACKED (CONT.) Countrywide Asset-backed Ctfs Series 2006-15 Cl A3 10-25-46 5.69% $5,175,000 $4,948,969 Countrywide Asset-backed Ctfs Series 2006-4 Cl 1A1M 07-25-36 3.39 1,982,129(i) 1,804,325 Countrywide Asset-backed Ctfs Series 2007-7 Cl 2A2 10-25-37 3.30 8,500,000(i) 7,907,660 CPS Auto Trust Series 2007-A Cl A3 (MBIA) 09-15-11 5.04 4,149,997(d,e) 4,129,518 Dunkin Securitization Series 2006-1 Cl A2 (AMBAC) 06-20-31 5.78 8,900,000(d,e) 8,174,204 Hertz Vehicle Financing LLC Series 2004-1A Cl A3 (MBIA) 05-25-09 2.85 1,300,000(d,e) 1,299,718 Keycorp Student Loan Trust Series 2003-A Cl 2A2 (MBIA) 10-25-25 3.64 813,899(e,i) 805,760 MASTR Asset Backed Securities Trust Series 2006-HE1 Cl A2 01-25-36 3.28 5,129,356(i) 5,101,304 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-2 Cl AIO 08-25-11 5.89 8,875,000(g) 1,523,944 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-3 Cl AIO 01-25-12 5.88 13,900,000(g) 3,328,633 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-4 Cl AIO 02-27-12 6.35 11,700,000(g) 2,501,343 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2007-2 Cl AIO 07-25-12 5.90 6,250,000(g) 1,720,000 Renaissance Home Equity Loan Trust Series 2005-4 Cl A3 02-25-36 5.57 4,543,491 4,600,284 Renaissance Home Equity Loan Trust Series 2007-2 Cl M4 06-25-37 6.31 1,380,000 235,158
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) ASSET-BACKED (CONT.) Renaissance Home Equity Loan Trust Series 2007-2 Cl M5 06-25-37 6.66% $900,000 $159,444 Renaissance Home Equity Loan Trust Series 2007-2 Cl M6 06-25-37 7.01 1,320,000 240,224 Residential Asset Securities Series 2006-KS1 Cl A2 02-25-36 3.28 4,107,380(i) 4,076,575 SBA CMBS Trust Series 2006-1A Cl B 11-15-36 5.45 4,075,000(d) 4,073,574 Triad Auto Receivables Owner Trust Series 2007-B Cl A3A (FSA) 10-12-12 5.24 1,930,000(e) 1,971,013 --------------- Total 74,223,037 - ----------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED (13.8%)(f) Banc of America Commercial Mtge Series 2005-1 Cl A4 11-10-42 4.99 4,850,000 4,757,721 Banc of America Commercial Mtge Series 2007-1 Cl A3 01-15-49 5.45 12,275,000 11,528,103 Bear Stearns Commercial Mtge Securities Series 2003-T10 Cl A1 03-13-40 4.00 1,771,959 1,708,700 Bear Stearns Commercial Mtge Securities Series 2007-T26 Cl A4 01-12-45 5.47 5,950,000 5,618,347 CDC Commercial Mtge Trust Series 2002-FX1 Cl A2 11-15-30 5.68 11,775,000 11,805,888 Citigroup Commercial Mtge Trust Series 2005-EMG Cl A1 09-20-51 4.15 1,411,627(d) 1,400,649 Citigroup Commercial Mtge Trust Series 2006-C5 Cl A4 10-15-49 5.43 2,850,000 2,709,391 Citigroup Commercial Mtge Trust Series 2007-C6 Cl A4 12-10-49 5.58 11,550,000 11,128,291 Citigroup/Deutsche Bank Commercial Mtge Trust Series 2005-CD1 Cl ASB 07-15-44 5.40 3,050,000 2,956,880 Commercial Mtge Acceptance Series 1999-C1 Cl A2 06-15-31 7.03 7,972,131 8,079,885 Commercial Mtge Pass-Through Ctfs Series 2006-CN2A Cl BFL 02-05-19 3.45 2,550,000(d,i) 2,519,056
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT 15
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) COMMERCIAL MORTGAGE-BACKED (CONT.) Commercial Mtge Pass-Through Ctfs Series 2007-C9 Cl A4 12-10-49 5.82% $12,600,000 $12,187,068 Commercial Mtge Pass-Through Ctfs Series 2007-FL14 Cl MKL1 06-15-22 3.93 9,850,000(d,i) 9,554,500 Credit Suisse Mtge Capital Ctfs Series 2006-C2 Cl A3 03-15-39 5.66 5,025,000 4,900,350 Credit Suisse Mtge Capital Ctfs Series 2007-C3 Cl A4 06-15-39 5.91 5,750,000 5,526,301 CS First Boston Mtge Securities Series 2001-CP4 Cl A4 12-15-35 6.18 7,400,000 7,522,230 CS First Boston Mtge Securities Series 2003-CPN1 Cl A2 03-15-35 4.60 3,525,000 3,391,753 Federal Natl Mtge Assn #385683 02-01-13 4.83 6,062,781 6,196,293 Federal Natl Mtge Assn #385815 01-01-13 4.77 6,870,963 6,981,826 Federal Natl Mtge Assn #555806 10-01-13 5.10 445,026 455,952 General Electric Capital Assurance Series 2003-1 Cl A3 05-12-35 4.77 4,419,010(d) 4,394,447 General Electric Capital Assurance Series 2003-1 Cl A4 05-12-35 5.25 2,800,000(d) 2,773,394 GMAC Commercial Mtge Securities Series 1999-C1 Cl B 05-15-33 6.30 8,000,000 8,048,404 Greenwich Capital Commercial Funding Series 2004-GG1 Cl A5 06-10-36 4.88 3,400,000 3,333,410 Greenwich Capital Commercial Funding Series 2007-GG9 Cl A4 03-10-39 5.44 16,350,000 15,404,698 Greenwich Capital Commercial Funding Series 2007-GG9 Cl AM 03-10-39 5.48 4,000,000 3,427,965 GS Mtge Securities II Series 2004-GG2 Cl A4 08-10-38 4.96 5,900,000 5,804,375 GS Mtge Securities II Series 2007-EOP Cl J 03-06-20 4.03 8,400,000(d,i) 7,733,245 GS Mtge Securities II Series 2007-GG10 Cl F 08-10-45 5.99 9,425,000 5,711,362
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) COMMERCIAL MORTGAGE-BACKED (CONT.) JPMorgan Chase Commercial Mtge Securities Series 2003-LN1 Cl A1 10-15-37 4.13% $3,601,692 $3,496,113 JPMorgan Chase Commercial Mtge Securities Series 2003-ML1A Cl A1 03-12-39 3.97 2,873,051 2,810,101 JPMorgan Chase Commercial Mtge Securities Series 2003-ML1A Cl A2 03-12-39 4.77 6,894,000 6,667,883 JPMorgan Chase Commercial Mtge Securities Series 2004-CBX Cl A3 01-12-37 4.18 4,000,000 3,930,000 JPMorgan Chase Commercial Mtge Securities Series 2004-LN2 Cl A1 07-15-41 4.48 8,293,590 8,052,018 JPMorgan Chase Commercial Mtge Securities Series 2005-LDP4 Cl AM 10-15-42 5.00 13,725,000 11,908,445 JPMorgan Chase Commercial Mtge Securities Series 2005-LDP5 Cl A4 12-15-44 5.34 13,250,000 12,240,679 JPMorgan Chase Commercial Mtge Securities Series 2006-LDP6 Cl A4 04-15-43 5.48 4,275,000 4,103,416 JPMorgan Chase Commercial Mtge Securities Series 2006-LDP6 Cl ASB 04-15-43 5.49 6,475,000 6,264,859 JPMorgan Chase Commercial Mtge Securities Series 2007-CB20 Cl A4 02-12-51 5.79 5,400,000 5,174,016 JPMorgan Chase Commercial Mtge Securities Series 2007-CB20 Cl AM 02-12-51 6.11 10,150,000 9,064,560 JPMorgan Chase Commercial Mtge Securities Series 2007-CB20 Cl E 02-12-51 6.20 4,250,000(d) 2,938,992 JPMorgan Chase Commercial Mtge Securities Series 2007-LDPX Cl A3 01-15-49 5.42 16,000,000 15,057,250 LB-UBS Commercial Mtge Trust Series 2002-C4 Cl A4 09-15-26 4.56 7,000,000 6,856,595 LB-UBS Commercial Mtge Trust Series 2002-C4 Cl A5 09-15-31 4.85 6,000,000 5,785,591 LB-UBS Commercial Mtge Trust Series 2004-C2 Cl A3 03-15-29 3.97 4,475,000 4,200,548 LB-UBS Commercial Mtge Trust Series 2005-C5 Cl AAB 09-15-30 4.93 7,325,000 7,109,279
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) COMMERCIAL MORTGAGE-BACKED (CONT.) LB-UBS Commercial Mtge Trust Series 2006-C4 Cl AAB 06-15-32 6.06% $4,125,000 $4,099,569 LB-UBS Commercial Mtge Trust Series 2006-C6 Cl A4 09-15-39 5.37 4,900,000 4,634,870 LB-UBS Commercial Mtge Trust Series 2007-C1 Cl A4 02-15-40 5.42 4,875,000 4,599,560 LB-UBS Commercial Mtge Trust Series 2007-C6 Cl A4 07-15-40 5.86 6,350,000 6,125,280 LB-UBS Commercial Mtge Trust Series 2007-C7 Cl A3 09-15-45 5.87 6,300,000 6,087,202 Morgan Stanley Capital I Series 2003-T11 Cl A2 06-13-41 4.34 2,471,167 2,450,416 Morgan Stanley Capital I Series 2004-HQ4 Cl A5 04-14-40 4.59 4,950,000 4,710,420 Morgan Stanley Capital I Series 2006-T23 Cl AAB 08-12-41 5.97 3,425,000 3,387,086 Morgan Stanley Capital I Series 2007-IQ15 Cl A4 06-11-49 6.08 5,600,000 5,462,856 TIAA Seasoned Commercial Mtge Trust Series 2007-C4 Cl A3 08-15-39 6.10 8,500,000 8,527,008 Wachovia Bank Commercial Mtge Trust Series 2003-C7 Cl A2 10-15-35 5.08 14,550,000(d) 14,140,043 Wachovia Bank Commercial Mtge Trust Series 2005-C18 Cl A4 04-15-42 4.94 19,402,000 18,328,863 Wachovia Bank Commercial Mtge Trust Series 2005-C20 Cl A5 07-15-42 5.09 4,667,000 4,508,149 Wachovia Bank Commercial Mtge Trust Series 2006-C24 Cl A3 03-15-45 5.56 26,675,000 25,432,336 Wachovia Bank Commercial Mtge Trust Series 2006-C24 Cl APB 03-15-45 5.58 2,900,000 2,761,330 Wachovia Bank Commercial Mtge Trust Series 2006-C27 Cl A3 07-15-45 5.77 11,950,372 11,603,939 Wachovia Bank Commercial Mtge Trust Series 2006-C27 Cl APB 07-15-45 5.73 5,075,000 4,834,930
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) COMMERCIAL MORTGAGE-BACKED (CONT.) Wachovia Bank Commercial Mtge Trust Series 2006-C29 Cl A4 11-15-48 5.31% $8,900,000 $8,357,601 Wachovia Bank Commercial Mtge Trust Series 2006-C29 Cl AM 11-15-48 5.34 4,700,000 4,420,073 Wachovia Bank Commercial Mtge Trust Series 2007-C31 Cl A4 04-15-47 5.51 2,500,000 2,364,375 --------------- Total 440,056,735 - ----------------------------------------------------------------------------------- MORTGAGE-BACKED (46.6%)(f,v) Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2005-12 Cl 2A1 03-25-36 5.69 7,205,187(k) 6,710,065 Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2006-1 Cl 2A1 03-25-36 5.92 8,046,986(k) 7,376,914 Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-1 Cl 3A21 03-25-37 6.19 6,302,128(k) 6,228,864 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11 Cl 1A1 01-25-34 6.00 6,552,373 6,520,790 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11 Cl 4A1 01-25-19 4.75 3,513,624 3,497,155 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2004-3 Cl 1A1 04-25-34 6.00 8,271,028 8,397,683 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2006-9 Cl 1CB1 01-25-37 6.00 15,868,457 15,751,922 Banc of America Funding Collateralized Mtge Obligation Series 2006-2 Cl N1 11-25-46 7.25 411,760(d,p) 238,049 Banc of America Funding Collateralized Mtge Obligation Series 2006-A Cl 3A2 02-20-36 5.88 5,750,509(k) 5,811,120
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT 17
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Banc of America Mtge Securities Collateralized Mtge Obligation Series 2005-9 Cl 3A3 10-25-20 5.00% $25,767,557 $25,674,954 Banc of America Mtge Securities Collateralized Mtge Obligation Series 2007-3 Cl 1A2 09-25-37 6.00 4,871,737 4,958,897 Barclays Capital LLC Trust Collateralized Mtge Obligation Series 2007-AA4 Cl 11A1 06-25-47 6.24 5,156,908(k) 5,220,338 Bear Stearns Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2005-8 Cl A4 08-25-35 5.10 6,025,000(d,k) 5,987,267 Bear Stearns Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-5 Cl 3A1 08-25-47 5.98 12,934,963(k) 12,733,076 ChaseFlex Trust Collateralized Mtge Obligation Series 2005-2 Cl 2A2 06-25-35 6.50 1,871,404 1,931,641 Citicorp Mtge Securities Collateralized Mtge Obligation Series 2005-5 Cl 3A1 08-25-35 5.00 6,682,603 6,416,865 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Interest Only Series 2007-8CB Cl A13 05-25-37 7.73 5,797,870(g) 922,615 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11T1 Cl A1 07-25-18 4.75 3,489,918 3,473,561 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2003-20CB Cl 1A1 10-25-33 5.50 13,974,487 13,387,668 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-50CB Cl 2A1 11-25-35 6.00 11,021,935 10,720,554 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-54CB Cl 2A3 11-25-35 5.50 5,401,486 5,221,867
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-54CB Cl 3A7 11-25-35 5.50% $5,400,709 $5,224,687 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-64CB Cl 1A1 12-25-35 5.50 9,089,608 9,270,134 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50 4,928,073 5,121,566 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-85CB Cl 2A2 02-25-36 5.50 2,462,946 2,364,338 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-22R Cl 1A2 05-25-36 6.00 7,165,103 7,153,253 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-2CB Cl A11 03-25-36 6.00 7,961,423 7,668,755 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-31CB Cl A16 11-25-36 6.00 9,375,000 9,447,938 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-43CB Cl 1A4 02-25-37 6.00 11,334,982 11,455,360 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-45T1 Cl 2A5 02-25-37 6.00 13,867,647 13,871,988 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-22 Cl 2A16 09-25-37 6.50 15,135,490 14,430,752 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-25 Cl 1A1 11-25-37 6.50 17,407,516 17,506,114 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09-25-47 3.63 15,103,944(i) 8,599,603
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Countrywide Home Loans Collateralized Mtge Obligation Series 2005-27 Cl 2A1 12-25-35 5.50% $13,033,962 $12,779,901 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06-25-35 7.00 6,088,711(d) 6,813,361 Countrywide Home Loans Collateralized Mtge Obligation Series 2006-HYB1 Cl 1A1 03-20-36 5.35 3,494,315(k) 3,442,075 Countrywide Home Loans Collateralized Mtge Obligation Series 2006-HYB1 Cl 2A1 03-20-36 5.34 6,740,564(k) 6,706,899 Countrywide Home Loans Collateralized Mtge Obligation Series 2007-17 Cl 2A1 10-25-37 6.50 17,014,021 17,248,629 Countrywide Home Loans Collateralized Mtge Obligation Series 2007-HY3 Cl 4A1 06-25-47 6.00 10,143,251(k) 9,658,957 CS First Boston Mtge Securities Collateralized Mtge Obligation Series 2003-29 Cl 8A1 11-25-18 6.00 1,822,294 1,879,979 Downey Savings & Loan Assn Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR5 Cl X1 08-19-45 13.12 33,799,219(g) 216,526 Federal Home Loan Mtge Corp 03-01-38 6.00 30,000,000(j) 30,637,499 03-01-38 6.50 56,000,000(j) 58,152,527 Federal Home Loan Mtge Corp #170216 03-01-17 8.50 7,196 7,856 Federal Home Loan Mtge Corp #1J1445 01-01-37 5.90 12,696,375(k) 13,090,343 Federal Home Loan Mtge Corp #284190 01-01-17 8.00 330 355 Federal Home Loan Mtge Corp #290970 04-01-17 8.00 9,301 10,002 Federal Home Loan Mtge Corp #295114 06-01-17 8.50 3,574 3,902 Federal Home Loan Mtge Corp #540861 09-01-19 8.50 32,713 35,904 Federal Home Loan Mtge Corp #A00304 04-01-21 9.00 43,494 47,892
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp #C00103 03-01-22 8.50% $101,372 $111,908 Federal Home Loan Mtge Corp #C00144 08-01-22 8.50 93,806 103,632 Federal Home Loan Mtge Corp #C00356 08-01-24 8.00 337,797 367,521 Federal Home Loan Mtge Corp #C00666 10-01-28 7.00 44,040 46,852 Federal Home Loan Mtge Corp #C53878 12-01-30 5.50 1,546,514 1,564,061 Federal Home Loan Mtge Corp #C62993 01-01-32 6.50 993,653 1,041,443 Federal Home Loan Mtge Corp #C63552 01-01-32 6.50 1,557,607 1,650,003 Federal Home Loan Mtge Corp #C64703 03-01-32 6.50 874,490 923,960 Federal Home Loan Mtge Corp #C67723 06-01-32 7.00 711,889 762,962 Federal Home Loan Mtge Corp #C78031 04-01-33 5.50 8,431,591 8,543,967 Federal Home Loan Mtge Corp #C79930 06-01-33 5.50 7,260,278 7,331,400 Federal Home Loan Mtge Corp #C90767 12-01-23 6.00 6,628,504 6,840,886 Federal Home Loan Mtge Corp #D96300 10-01-23 5.50 4,778,309 4,873,409 Federal Home Loan Mtge Corp #E01127 02-01-17 6.50 1,028,526 1,076,142 Federal Home Loan Mtge Corp #E01419 05-01-18 5.50 3,876,637 3,978,758 Federal Home Loan Mtge Corp #E79810 11-01-14 7.50 834,816 879,946 Federal Home Loan Mtge Corp #E90216 05-01-17 6.00 1,234,264 1,276,290 Federal Home Loan Mtge Corp #E98725 08-01-18 5.00 8,730,641 8,870,458 Federal Home Loan Mtge Corp #E99684 10-01-18 5.00 9,118,337 9,266,267 Federal Home Loan Mtge Corp #G00286 02-01-25 8.00 140,825 153,216 Federal Home Loan Mtge Corp #G01108 04-01-30 7.00 2,710,308 2,883,401 Federal Home Loan Mtge Corp #G01441 07-01-32 7.00 2,536,529 2,689,067 Federal Home Loan Mtge Corp #G01535 04-01-33 6.00 9,622,518 9,960,663 Federal Home Loan Mtge Corp #G02757 06-01-36 5.00 25,402,750 25,066,413 Federal Home Loan Mtge Corp #G03419 07-01-37 6.00 7,764,657 7,934,582
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT 19
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp #G11302 07-01-17 7.00% $2,905,213 $3,044,895 Federal Home Loan Mtge Corp #G30225 02-01-23 6.00 9,208,754 9,504,523 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 237 Cl IO 05-15-36 3.19 4,054,658(g) 936,373 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2590 Cl BI 02-15-14 3.06 820,426(g) 9,217 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2718 Cl IA 10-15-22 45.31 1,818,542(g) 19,910 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only/Inverse Floater Series 2817 Cl SA 06-15-32 34.83 6,377,448(g,u) 571,917 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only/Inverse Floater Series 2882 Cl XS 11-15-19 15.41 9,215,146(g,u) 1,053,562 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 1241 Cl K 03-15-22 7.00 461,870 461,870 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2576 Cl KJ 02-15-33 5.50 9,590,093 9,887,663 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2641 Cl KC 01-15-18 6.50 3,276,705 3,483,970 Federal Natl Mtge Assn 03-01-38 5.00 10,500,000(j) 10,339,224 03-01-38 5.50 50,000,000(j) 50,281,249 03-01-38 6.00 67,250,000(j) 68,700,044 03-01-38 6.50 30,500,000(j) 31,605,624 03-01-38 7.00 30,000,000(j) 31,565,639 Federal Natl Mtge Assn #125479 04-01-27 7.50 220,169 238,634 Federal Natl Mtge Assn #190899 04-01-23 8.50 321,821 346,845
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #190944 05-01-24 6.00% $5,298,793 $5,433,677 Federal Natl Mtge Assn #190988 06-01-24 9.00 269,849 294,129 Federal Natl Mtge Assn #231309 09-01-23 6.50 147,168 154,331 Federal Natl Mtge Assn #231310 09-01-23 6.50 369,887 387,891 Federal Natl Mtge Assn #250330 09-01-25 8.00 227,352 248,153 Federal Natl Mtge Assn #250495 03-01-26 7.00 567,755 606,038 Federal Natl Mtge Assn #250765 12-01-26 8.00 201,131 219,304 Federal Natl Mtge Assn #251116 08-01-27 8.00 234,842 256,128 Federal Natl Mtge Assn #252498 06-01-29 7.00 5,284 5,642 Federal Natl Mtge Assn #253883 08-01-16 6.00 2,527,072 2,617,538 Federal Natl Mtge Assn #254236 03-01-17 6.50 1,469,956 1,541,869 Federal Natl Mtge Assn #254383 06-01-32 7.50 340,411 366,917 Federal Natl Mtge Assn #254802 07-01-18 4.50 2,635,701 2,652,563 Federal Natl Mtge Assn #254916 09-01-23 5.50 9,192,571 9,376,452 Federal Natl Mtge Assn #255788 06-01-15 5.50 2,561,006 2,676,231 Federal Natl Mtge Assn #268071 01-01-24 6.50 101,820 106,775 Federal Natl Mtge Assn #303226 02-01-25 8.00 97,475 106,319 Federal Natl Mtge Assn #313049 08-01-11 8.50 513,013 544,283 Federal Natl Mtge Assn #323933 09-01-29 7.00 3,642,369 3,889,142 Federal Natl Mtge Assn #408207 01-01-28 6.50 131,139 138,696 Federal Natl Mtge Assn #455791 01-01-29 6.50 412,690 432,058 Federal Natl Mtge Assn #489888 05-01-29 6.50 1,793,822 1,876,014 Federal Natl Mtge Assn #496029 01-01-29 6.50 2,063,281 2,164,008 Federal Natl Mtge Assn #50700 03-01-08 7.00 12,112 12,114 Federal Natl Mtge Assn #545008 06-01-31 7.00 2,234,221 2,401,657
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 20 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #545342 04-01-13 7.00% $610,585 $616,651 Federal Natl Mtge Assn #545684 05-01-32 7.50 270,367 292,269 Federal Natl Mtge Assn #545869 07-01-32 6.50 2,035,179 2,129,806 Federal Natl Mtge Assn #545885 08-01-32 6.50 3,544,176 3,742,437 Federal Natl Mtge Assn #545910 08-01-17 6.00 4,204,562 4,362,443 Federal Natl Mtge Assn #555343 08-01-17 6.00 4,208,637 4,360,680 Federal Natl Mtge Assn #555375 04-01-33 6.00 21,148,460 21,891,353 Federal Natl Mtge Assn #555458 05-01-33 5.50 19,123,417 19,278,890 Federal Natl Mtge Assn #555528 04-01-33 6.00 13,963,582 14,338,695 Federal Natl Mtge Assn #555734 07-01-23 5.00 7,598,571 7,632,454 Federal Natl Mtge Assn #555740 08-01-18 4.50 8,952,102 9,012,599 Federal Natl Mtge Assn #555794 09-01-28 7.50 729,733 791,279 Federal Natl Mtge Assn #567840 10-01-30 7.00 1,162,580 1,241,346 Federal Natl Mtge Assn #587859 12-01-16 5.50 3,890,405 3,997,897 Federal Natl Mtge Assn #597374 09-01-31 7.00 629,400 678,090 Federal Natl Mtge Assn #606882 10-01-31 7.00 875,108 933,590 Federal Natl Mtge Assn #634650 04-01-32 7.50 152,374 164,238 Federal Natl Mtge Assn #638969 03-01-32 5.50 1,439,863 1,456,768 Federal Natl Mtge Assn #643362 04-01-17 6.50 668,759 701,475 Federal Natl Mtge Assn #646147 06-01-32 7.00 2,217,471 2,387,341 Federal Natl Mtge Assn #646446 06-01-17 6.50 983,778 1,031,906 Federal Natl Mtge Assn #649068 06-01-17 6.50 1,648,799 1,736,314 Federal Natl Mtge Assn #649263 08-01-17 6.50 1,716,731 1,807,688 Federal Natl Mtge Assn #654208 10-01-32 6.50 1,761,946 1,839,438 Federal Natl Mtge Assn #654682 10-01-32 6.00 1,170,635 1,211,134
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #654689 11-01-32 6.00% $1,173,203 $1,205,130 Federal Natl Mtge Assn #656908 09-01-32 6.50 1,650,896 1,742,704 Federal Natl Mtge Assn #662061 09-01-32 6.50 1,506,587 1,572,848 Federal Natl Mtge Assn #667787 02-01-18 5.50 1,441,951 1,481,177 Federal Natl Mtge Assn #670382 09-01-32 6.00 9,900,376 10,166,336 Federal Natl Mtge Assn #670387 08-01-32 7.00 1,233,922 1,317,391 Federal Natl Mtge Assn #678028 09-01-17 6.00 4,823,360 4,997,611 Federal Natl Mtge Assn #678065 02-01-33 6.50 373,757 394,456 Federal Natl Mtge Assn #678937 01-01-18 5.50 2,452,795 2,523,127 Federal Natl Mtge Assn #678941 02-01-18 5.50 2,886,739 2,969,396 Federal Natl Mtge Assn #679095 04-01-18 5.00 4,837,095 4,912,396 Federal Natl Mtge Assn #680961 01-01-33 6.00 495,204 511,135 Federal Natl Mtge Assn #681400 03-01-18 5.50 4,489,493 4,613,262 Federal Natl Mtge Assn #682825 01-01-33 6.00 1,675,200 1,720,202 Federal Natl Mtge Assn #684586 03-01-33 6.00 3,059,699 3,158,420 Federal Natl Mtge Assn #686172 02-01-33 6.00 2,692,826 2,765,165 Federal Natl Mtge Assn #686528 02-01-33 6.00 3,221,272 3,325,265 Federal Natl Mtge Assn #687051 01-01-33 6.00 10,256,598 10,466,225 Federal Natl Mtge Assn #689093 07-01-28 5.50 3,117,891 3,154,498 Federal Natl Mtge Assn #694628 04-01-33 5.50 6,210,552 6,294,350 Federal Natl Mtge Assn #694795 04-01-33 5.50 7,495,518 7,595,487 Federal Natl Mtge Assn #694988 03-01-33 5.50 10,305,023 10,435,869 Federal Natl Mtge Assn #695202 03-01-33 6.50 3,643,378 3,796,942 Federal Natl Mtge Assn #695909 05-01-18 5.50 1,988,272 2,044,958 Federal Natl Mtge Assn #699424 04-01-33 5.50 4,189,538 4,245,557
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT 21
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #702427 04-01-33 5.50% $3,919,186 $3,971,673 Federal Natl Mtge Assn #710823 05-01-33 5.50 609,178 617,479 Federal Natl Mtge Assn #720070 07-01-23 5.50 2,381,325 2,428,959 Federal Natl Mtge Assn #720378 06-01-18 4.50 5,615,211 5,651,134 Federal Natl Mtge Assn #723687 08-01-28 5.50 3,959,497 4,005,985 Federal Natl Mtge Assn #725232 03-01-34 5.00 17,174,831 16,993,800 Federal Natl Mtge Assn #725425 04-01-34 5.50 23,034,966 23,265,754 Federal Natl Mtge Assn #725684 05-01-18 6.00 8,745,933 9,121,311 Federal Natl Mtge Assn #725719 07-01-33 4.85 6,689,860(k) 6,837,706 Federal Natl Mtge Assn #725813 12-01-33 6.50 9,143,282 9,528,662 Federal Natl Mtge Assn #730153 08-01-33 5.50 1,104,731 1,115,514 Federal Natl Mtge Assn #735212 12-01-34 5.00 19,129,004 18,907,559 Federal Natl Mtge Assn #735224 02-01-35 5.50 32,490,579 32,807,722 Federal Natl Mtge Assn #738921 11-01-32 6.50 780,500 819,895 Federal Natl Mtge Assn #743262 10-01-18 5.00 3,154,130 3,204,181 Federal Natl Mtge Assn #745355 03-01-36 5.00 13,579,033 13,405,767 Federal Natl Mtge Assn #747642 11-01-28 5.50 2,567,432 2,597,576 Federal Natl Mtge Assn #753074 12-01-28 5.50 6,841,908 6,922,238 Federal Natl Mtge Assn #753091 12-01-33 5.50 4,204,376 4,245,415 Federal Natl Mtge Assn #753919 12-01-33 4.94 5,357,706(k) 5,495,191 Federal Natl Mtge Assn #759342 01-01-34 6.50 1,465,701 1,535,789 Federal Natl Mtge Assn #765759 12-01-18 5.00 3,302,447 3,353,858 Federal Natl Mtge Assn #766641 03-01-34 5.00 6,367,559 6,293,845 Federal Natl Mtge Assn #776962 04-01-29 5.00 16,421,479 16,300,407 Federal Natl Mtge Assn #804442 12-01-34 6.50 1,191,580 1,238,855
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #837258 09-01-35 4.93% $2,557,238(k) $2,627,639 Federal Natl Mtge Assn #882063 06-01-36 6.50 3,551,690 3,722,752 Federal Natl Mtge Assn #886291 07-01-36 7.00 6,262,703 6,653,830 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-63 Cl IP 07-25-33 9.86 14,096,493(g) 3,178,521 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12-25-31 10.85 2,699,983(g) 429,435 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2004-84 Cl GI 12-25-22 6.11 715,671(g) 96,485 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 367 Cl 2 01-01-36 5.35 13,751,386(g) 3,231,576 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 379 Cl 2 05-25-37 5.07 21,504,250(g) 4,838,456 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only/Inverse Floater Series 2005-92 Cl SC 10-25-35 20.00 24,010,488(g,u) 2,633,230 Federal Natl Mtge Assn Collateralized Mtge Obligation Principal Only Series 43 Cl 1 09-01-18 5.77 18,632(h) 16,605 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-133 Cl GB 12-25-26 8.00 3,084,503 3,322,936 Govt Natl Mtge Assn #345538 02-15-24 8.00 118,552 130,085 Govt Natl Mtge Assn #398831 08-15-26 8.00 128,147 140,748 Govt Natl Mtge Assn #423782 05-15-26 7.50 396,389 428,332
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 22 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Govt Natl Mtge Assn #425004 10-15-33 5.50% $3,506,089 $3,592,091 Govt Natl Mtge Assn #426170 06-15-26 8.00 106,364 116,822 Govt Natl Mtge Assn #595256 12-15-32 6.00 5,673,606 5,889,411 Govt Natl Mtge Assn #604580 08-15-33 5.00 3,529,449 3,542,806 Govt Natl Mtge Assn #604708 10-15-33 5.50 9,284,457 9,512,199 Govt Natl Mtge Assn #606844 09-15-33 5.00 8,574,360 8,606,807 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-70 Cl IC 08-20-32 16.10 7,180,237(g) 1,071,268 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-80 Cl CI 01-20-32 53.88 1,157,118(g) 58,792 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR8 Cl AX1 04-25-35 4.50 81,001,432(g) 316,412 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Series 2005-AR25 Cl 1A21 12-25-35 5.84 5,938,095(k) 5,793,265 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Series 2007-AR5 Cl 1A1 05-25-37 6.35 11,627,258(k) 10,209,779 Lehman XS Net Interest Margin Nts Collateralized Mtge Obligation Series 2006-2N Cl A1 02-27-46 7.00 113,244(d) 113,049 Lehman XS Net Interest Margin Nts Collateralized Mtge Obligation Series 2006-GPM6 Cl A1 10-28-46 6.25 33,753(d) 33,521 Lehman XS Trust Collateralized Mtge Obligation Series 2007-5H Cl 1A1 05-25-37 6.50 18,587,723 19,614,438 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-2 Cl 4A1 02-25-19 5.00 5,282,993 5,306,122
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-4 Cl 2A1 05-25-34 6.00% $3,140,037 $3,126,786 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-7 Cl 8A1 08-25-19 5.00 4,399,892 4,511,473 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-8 Cl 7A1 09-25-19 5.00 6,101,465 5,969,673 Morgan Stanley Mtge Loan Trust Collateralized Mtge Obligation Series 2007-12 Cl 3A22 08-25-37 6.00 16,577,193 16,753,616 Residential Accredit Loans Collateralized Mtge Obligation Series 2006-QS3 Cl 1A10 03-25-36 6.00 5,482,478 5,565,748 Residential Funding Mtge Securities I Collateralized Mtge Obligation Series 2005-S6 Cl A8 08-25-35 5.25 19,023,289 18,459,650 Structured Asset Securities Collateralized Mtge Obligation Series 2003-33H Cl 1A1 10-25-33 5.50 12,330,768 12,090,414 Washington Mutual Alternative Mtge Loan Trust Pass-Through Ctfs Collateralized Mtge Obligation Interest Only Series 2005-AR1 Cl X2 12-25-35 7.10 31,416,613(g) 137,448 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2004-CB2 Cl 6A 07-25-19 4.50 4,257,766 4,102,443 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2005-AR14 Cl 2A1 12-25-35 5.29 5,053,790(k) 5,040,181 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2006-AR10 Cl 1A1 09-25-36 5.94 4,792,248(k) 4,806,421 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2006-AR3 Cl A1A 02-25-46 5.66 7,017,016(k) 6,580,487
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT 23
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MORTGAGE-BACKED (CONT.) Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2003-16 Cl 1A1 12-25-18 4.75% $15,096,601 $14,879,882 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-10 Cl A1 10-25-35 5.00 24,845,875 23,657,745 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-5 Cl 2A1 05-25-35 5.50 10,947,764 10,790,390 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR12 Cl 1A1 09-25-36 6.02 4,602,230(k) 4,629,012 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR6 Cl 5A1 03-25-36 5.11 10,623,264(k) 10,425,812 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-11 Cl A68 08-25-37 6.00 15,602,697 15,575,081 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-14 Cl 1A2 10-25-37 6.00 6,840,757 6,516,890 --------------- Total 1,483,344,782 - ----------------------------------------------------------------------------------- AEROSPACE & DEFENSE (0.1%) DRS Technologies 11-01-13 6.88 1,535,000 1,504,300 L-3 Communications 01-15-15 5.88 1,565,000 1,521,963 L-3 Communications Series B 10-15-15 6.38 1,675,000 1,662,437 --------------- Total 4,688,700 - ----------------------------------------------------------------------------------- BANKING (2.7%) Citigroup Sr Unsecured 02-14-11 5.13 3,830,000 3,926,995 03-05-38 6.88 9,570,000(j) 9,646,656 Credit Suisse New York Sub Nts 02-15-18 6.00 9,545,000 9,760,049 JPMorgan Chase & Co Sr Nts 01-15-18 6.00 8,860,000 9,219,805
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) BANKING (CONT.) JPMorgan Chase Bank Sub Nts 10-01-17 6.00% $6,005,000(o) $6,227,683 Manufacturers & Traders Trust Sub Nts 12-01-21 5.63 17,095,000 16,188,661 Popular North America Sr Nts 10-01-08 3.88 29,222,000 29,047,661 Regions Bank Sub Nts 06-26-37 6.45 635,000 579,812 --------------- Total 84,597,322 - ----------------------------------------------------------------------------------- BROKERAGE (1.1%) Lehman Brothers Holdings Sr Unsecured 09-26-14 6.20 18,625,000 18,805,626 Merrill Lynch & Co 02-05-13 5.45 6,770,000 6,828,425 Morgan Stanley Sr Unsecured 12-28-17 5.95 9,760,000 9,712,771 --------------- Total 35,346,822 - ----------------------------------------------------------------------------------- CHEMICALS (--%) NALCO Sr Unsecured 11-15-11 7.75 1,415,000 1,429,150 - ----------------------------------------------------------------------------------- CONSUMER PRODUCTS (0.2%) Clorox Sr Unsecured 10-15-12 5.45 2,805,000 2,902,025 03-01-13 5.00 3,790,000(j) 3,837,148 --------------- Total 6,739,173 - ----------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING (0.2%) General Electric Sr Unsecured 12-06-17 5.25 5,300,000 5,331,800 Tyco Electronics Group 10-01-12 6.00 1,555,000(c,d) 1,641,033 --------------- Total 6,972,833 - ----------------------------------------------------------------------------------- ELECTRIC (3.2%) Consumers Energy 1st Mtge Series F 05-15-10 4.00 1,040,000 1,049,951
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 24 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) ELECTRIC (CONT.) Consumers Energy 1st Mtge Series H 02-17-09 4.80% $13,520,000 $13,664,758 Duke Energy Carolinas LLC Sr Unsecured Series D 03-01-10 7.38 8,905,000 9,626,412 Entergy Gulf States 1st Mtge 06-01-08 3.60 5,500,000 5,480,052 Exelon Sr Unsecured 06-15-10 4.45 10,760,000 10,889,334 FirstEnergy Sr Unsecured Series B 11-15-11 6.45 1,535,000 1,625,135 Florida Power 1st Mtge 03-01-13 4.80 2,595,000 2,712,242 Indiana Michigan Power Sr Unsecured 03-15-37 6.05 8,850,000 8,320,726 IPALCO Enterprises Sr Secured 11-14-08 8.38 400,000 403,000 11-14-11 8.63 3,680,000 3,864,000 Majapahit Holding 10-17-16 7.75 480,000(c,d) 474,000 Metropolitan Edison Sr Secured 03-15-10 4.45 1,810,000 1,854,387 Michigan Strategic Fund 04-01-35 7.45 1,850,000(i,p) 1,850,000 Midwest Generation LLC Pass-Through Ctfs Series B 01-02-16 8.56 163,621 174,256 Nevada Power Series M 03-15-16 5.95 2,585,000(o) 2,604,605 NiSource Finance Sr Nts 03-01-13 6.15 3,505,000 3,646,413 Northern States Power Sr Unsecured 08-01-09 6.88 5,730,000 6,001,516 NRG Energy 02-01-14 7.25 695,000 678,494 01-15-17 7.38 800,000 770,000 Ohio Air Quality Development Authority 11-01-40 7.81 6,750,000(i,p) 6,750,000 Portland General Electric 03-15-10 7.88 2,935,000 3,209,411
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) ELECTRIC (CONT.) Potomac Electric Power Secured 06-01-35 5.40% $3,040,000(o) $2,628,776 Public Service Company of Colorado Sr Unsecured Series A 07-15-09 6.88 2,005,000 2,094,311 Sierra Pacific Power Series M 05-15-16 6.00 8,145,000 8,207,000 Xcel Energy Sr Unsecured 07-01-08 3.40 3,315,000 3,308,469 --------------- Total 101,887,248 - ----------------------------------------------------------------------------------- ENTERTAINMENT (0.2%) United Artists Theatre Circuit Pass-Through Ctfs 07-01-15 9.30 5,463,794(p) 5,463,794 - ----------------------------------------------------------------------------------- FOOD AND BEVERAGE (1.9%) Cadbury Schweppes US Finance 10-01-08 3.88 31,950,000(d,o) 32,036,776 ConAgra Foods Sr Unsecured 09-15-11 6.75 3,510,000 3,788,522 Cott Beverages USA 12-15-11 8.00 2,650,000 2,173,000 Diageo Capital 01-30-13 5.20 3,400,000(c) 3,527,561 HJ Heinz Sr Unsecured 12-01-08 6.43 5,920,000(d) 6,072,144 Molson Coors Capital Finance 09-22-10 4.85 12,180,000(c,o) 12,597,287 --------------- Total 60,195,290 - ----------------------------------------------------------------------------------- GAMING (--%) Mohegan Tribal Gaming Authority Sr Sub Nts 04-01-12 8.00 750,000 727,500 - ----------------------------------------------------------------------------------- GAS DISTRIBUTORS (0.1%) Atmos Energy Sr Unsub 10-15-09 4.00 4,005,000 4,036,547 - ----------------------------------------------------------------------------------- GAS PIPELINES (1.3%) CenterPoint Energy Resources Sr Unsecured 02-15-11 7.75 3,685,000 4,044,505
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT 25
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) GAS PIPELINES (CONT.) Colorado Interstate Gas Sr Unsecured 11-15-15 6.80% $13,260,000 $13,962,952 Kinder Morgan Energy Partners LP Sr Unsecured 03-15-11 6.75 2,120,000 2,260,452 Northern Natural Gas Sr Unsecured 02-15-37 5.80 1,535,000(d) 1,490,758 Northwest Pipeline Sr Unsecured 04-15-17 5.95 3,515,000 3,435,913 Southern Natural Gas Sr Unsecured 04-01-17 5.90 5,925,000(d) 5,912,350 Southern Star Central Sr Nts 03-01-16 6.75 1,460,000 1,397,950 Transcontinental Gas Pipe Line Sr Unsecured 04-15-16 6.40 3,436,000 3,478,950 Transcontinental Gas Pipe Line Sr Unsecured Series B 08-15-11 7.00 4,880,000 5,160,600 --------------- Total 41,144,430 - ----------------------------------------------------------------------------------- HEALTH CARE (0.2%) Cardinal Health Sr Unsecured 06-15-12 5.65 3,495,000(d) 3,657,856 Omnicare 12-15-13 6.75 2,370,000 2,109,300 12-15-15 6.88 355,000 309,738 --------------- Total 6,076,894 - ----------------------------------------------------------------------------------- HEALTH CARE INSURANCE (0.6%) Aetna Sr Unsecured 12-15-37 6.75 4,460,000 4,424,142 Coventry Health Care Sr Unsecured 08-15-14 6.30 3,040,000 3,139,913 UnitedHealth Group 11-15-37 6.63 7,150,000 6,790,126 02-15-38 6.88 3,215,000 3,184,843 WellPoint Sr Unsecured 01-15-36 5.85 1,872,000 1,629,980 --------------- Total 19,169,004 - -----------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) INDEPENDENT ENERGY (1.3%) Anadarko Petroleum Sr Unsecured 09-15-16 5.95% $10,290,000 $10,665,389 Canadian Natural Resources 02-01-39 6.75 4,270,000(c) 4,336,911 Chesapeake Energy 01-15-16 6.63 2,452,000 2,387,635 Denbury Resources 04-01-13 7.50 250,000 252,500 Denbury Resources Sr Sub Nts 12-15-15 7.50 180,000 182,250 EnCana 11-01-11 6.30 7,025,000(c) 7,533,912 EnCana Sr Nts 10-15-13 4.75 1,265,000(c) 1,281,268 Range Resources 03-15-15 6.38 425,000 417,563 05-15-16 7.50 180,000 185,850 XTO Energy Sr Unsecured 02-01-14 4.90 11,175,000 11,039,447 01-31-15 5.00 1,695,000 1,715,916 06-30-15 5.30 1,395,000 1,423,485 --------------- Total 41,422,126 - ----------------------------------------------------------------------------------- INTEGRATED ENERGY (--%) TNK-BP Finance 03-13-18 7.88 545,000(c,d) 556,140 - ----------------------------------------------------------------------------------- LIFE INSURANCE (0.7%) Lincoln Natl Sr Unsecured 10-09-37 6.30 2,795,000 2,596,946 Pricoa Global Funding 1 Secured 10-18-12 5.40 5,250,000(d) 5,512,395 Principal Life Income Funding Secured 12-14-12 5.30 4,615,000 4,774,739 Prudential Financial Sr Unsecured 12-01-37 6.63 9,990,000 9,801,689 --------------- Total 22,685,769 - ----------------------------------------------------------------------------------- MEDIA CABLE (1.2%) Comcast 03-15-11 5.50 11,150,000 11,464,653 03-15-37 6.45 13,170,000 12,539,592
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 26 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) MEDIA CABLE (CONT.) Comcast MO of Delaware LLC 09-01-08 9.00% $9,500,000 $9,686,162 CSC Holdings Sr Unsecured Series B 07-15-09 8.13 1,970,000 2,004,475 Videotron Ltee 01-15-14 6.88 1,310,000(c) 1,270,700 --------------- Total 36,965,582 - ----------------------------------------------------------------------------------- MEDIA NON CABLE (2.3%) British Sky Broadcasting Group 02-23-09 6.88 14,665,000(c) 15,160,808 British Sky Broadcasting Group Sr Unsecured 02-15-18 6.10 6,870,000(c,d) 6,951,355 Dex Media West LLC/Finance Sr Unsecured Series B 08-15-10 8.50 560,000 524,300 EchoStar DBS 10-01-13 7.00 225,000 221,625 10-01-14 6.63 363,000 349,388 02-01-16 7.13 940,000 923,550 News America 12-15-35 6.40 8,575,000 8,397,343 News America Sr Unsecured 11-15-37 6.65 2,665,000(d) 2,689,198 Reed Elsevier Capital 08-01-11 6.75 6,950,000 7,393,758 RH Donnelley Sr Nts 10-15-17 8.88 1,140,000(d) 735,300 RR Donnelley & Sons Sr Unsecured 01-15-17 6.13 15,800,000 15,476,763 Thomson Sr Unsecured 08-15-09 4.25 5,825,000(c) 5,936,118 10-01-14 5.70 8,465,000(c) 8,773,922 --------------- Total 73,533,428 - ----------------------------------------------------------------------------------- METALS (0.1%) Freeport-McMoRan Copper & Gold Sr Unsecured 04-01-15 8.25 1,795,000 1,886,994 - ----------------------------------------------------------------------------------- OIL FIELD SERVICES (0.1%) Gaz Capital for Gazprom Sr Nts 11-22-16 6.21 450,000(c,d) 423,000
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) OIL FIELD SERVICES (CONT.) Transocean Sr Unsecured 03-15-38 6.80% $2,140,000(c) $2,233,304 --------------- Total 2,656,304 - ----------------------------------------------------------------------------------- PACKAGING (0.1%) Crown Americas LLC/Capital 11-15-13 7.63 680,000 688,500 11-15-15 7.75 530,000 541,925 Owens-Brockway Glass Container 05-15-13 8.25 3,345,000 3,462,075 --------------- Total 4,692,500 - ----------------------------------------------------------------------------------- PAPER (0.1%) Cascades 02-15-13 7.25 905,000(c) 819,025 Smurfit-Stone Container Enterprises Sr Unsecured 03-15-17 8.00 1,900,000 1,681,500 --------------- Total 2,500,525 - ----------------------------------------------------------------------------------- RAILROADS (0.7%) Canadian Pacific Railway 05-15-37 5.95 1,965,000(c) 1,664,571 CSX Sr Unsecured 10-15-08 6.25 4,490,000 4,556,582 11-01-09 4.88 1,710,000 1,744,901 03-15-12 6.30 3,965,000 4,174,479 03-15-13 5.75 9,665,000 10,048,595 --------------- Total 22,189,128 - ----------------------------------------------------------------------------------- REITS (0.3%) Brandywine Operating Partnership LP 05-01-17 5.70 4,635,000 3,782,091 ERP Operating LP Sr Unsecured 06-15-17 5.75 3,875,000 3,516,330 Simon Property Group LP Sr Unsecured 12-01-16 5.25 840,000 769,165 --------------- Total 8,067,586 - ----------------------------------------------------------------------------------- RETAILERS (0.9%) Home Depot Sr Unsecured 03-01-11 5.20 1,865,000 1,887,065 Kohl's Sr Unsecured 12-15-17 6.25 10,795,000 10,752,284
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT 27
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(A) RETAILERS (CONT.) Macys Retail Holdings 07-15-09 4.80% $16,219,000 $16,226,250 --------------- Total 28,865,599 - ----------------------------------------------------------------------------------- SUPERMARKETS (0.1%) Kroger 04-15-12 6.75 3,455,000 3,746,637 - ----------------------------------------------------------------------------------- TECHNOLOGY (--%) Communications & Power Inds 02-01-12 8.00 110,000 107,938 - ----------------------------------------------------------------------------------- TRANSPORTATION SERVICES (0.8%) Erac USA Finance 10-15-17 6.38 19,885,000(d) 18,331,981 FedEx 04-01-09 3.50 7,705,000 7,701,772 --------------- Total 26,033,753 - ----------------------------------------------------------------------------------- WIRELINES (5.1%) AT&T Sr Unsecured 09-15-09 4.13 1,390,000 1,408,160 03-15-11 6.25 13,411,000(o) 14,345,371 02-01-18 5.50 4,680,000 4,704,617 01-15-38 6.30 16,675,000 16,401,864 Sprint Capital 03-15-32 8.75 2,665,000 2,078,700 Telecom Italia Capital 11-15-13 5.25 22,720,000(c) 22,506,932 Telefonica Europe 09-15-10 7.75 17,311,000(c) 18,817,178 TELUS 06-01-11 8.00 39,688,500(c) 44,090,430 Verizon New York Sr Unsecured Series A 04-01-12 6.88 25,808,000 27,774,234 Verizon Pennsylvania Sr Unsecured Series A 11-15-11 5.65 6,470,000 6,772,343 Windstream 08-01-16 8.63 2,025,000 2,060,438 03-15-19 7.00 420,000 382,200 --------------- Total 161,342,467 - ----------------------------------------------------------------------------------- TOTAL BONDS (Cost: $3,198,969,120) $3,202,435,026 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS (0.3%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE RATE AMOUNT VALUE(A) TOBACCO Tobacco Settlement Financing Corporation Revenue Bonds Series 2007A-1 06-01-46 6.71% $10,835,000 $10,023,567 - ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $10,833,917) $10,023,567 - -----------------------------------------------------------------------------------
SENIOR LOANS (1.0%)(l) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(A) CONSUMER CYCLICAL SERVICES (0.1%) West Corp Tranche B2 Term Loan 03-31-08 5.47-6.09% $2,681,130 $2,274,483 - ----------------------------------------------------------------------------------- HEALTH CARE (0.5%) Community Health Systems Delayed Draw Term Loan TBD TBD 253,243(j,m,n) 231,571 Community Health Systems Tranche B Term Loan 05-30-08 5.34 5,035,317 4,600,115 HCA Tranche B Term Loan 03-31-08 7.08 7,265,253 6,653,155 Vanguard Health Systems Term Loan 03-31-08 5.37 1,470,169 1,341,529 --------------- Total 12,826,370 - ----------------------------------------------------------------------------------- MEDIA CABLE (0.1%) Charter Communications Term Loan 04-30-08 5.26 4,259,000 3,732,332 - ----------------------------------------------------------------------------------- MEDIA NON CABLE (0.2%) Idearc Tranche B Term Loan 03-31-08 6.83 3,563,700 2,906,661 Nielsen Finance Term Loan 05-09-08 5.35 2,958,167(c) 2,599,489 Univision Communications Delayed Draw Term Loan TBD TBD 45,914(j,m,n) 38,542
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 28 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT
SENIOR LOANS (CONTINUED) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(A) MEDIA NON CABLE (CONT.) Univision Communications Term Loan B 04-30-08 5.38-5.49% $1,322,321 $1,110,300 --------------- Total 6,654,992 - ----------------------------------------------------------------------------------- OIL FIELD SERVICES (--%) Dresser Tranche B 1st Lien Term Loan 05-19-08 5.57-5.62 1,598,176 1,479,319 - ----------------------------------------------------------------------------------- OTHER FINANCIAL INSTITUTIONS (0.1%) Asurion Tranche B Term Loan 05-06-08 6.10 2,158,000 1,833,761 - ----------------------------------------------------------------------------------- TECHNOLOGY (--%) Flextronics Intl Term Loan 04-03-08 7.39-7.40 1,210,302 1,134,657 Flextronics Intl Tranche A1A Delayed Draw Term Loan 04-15-08 7.46 347,788 326,921 --------------- Total 1,461,578 - ----------------------------------------------------------------------------------- WIRELINES (--%) Level 3 Communications Tranche B Term Loan 04-14-08 5.39-6.63 1,690,000 1,474,052 - ----------------------------------------------------------------------------------- TOTAL SENIOR LOANS (Cost: $35,712,565) $31,736,887 - -----------------------------------------------------------------------------------
COMMON STOCKS (--%) ISSUER SHARES VALUE(A) PAPER & FOREST PRODUCTS (--%) Crown Paper Escrow 6,950,000(b) $7 - ----------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost: $--) $7 - -----------------------------------------------------------------------------------
MONEY MARKET FUND (6.0%)(r) SHARES VALUE(A) RiverSource Short-Term Cash Fund 189,787,738(t) $189,787,738 - ----------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $189,787,738) $189,787,738 - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $3,435,303,340)(x) $3,433,983,225 ===================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT FEB. 29, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG/(SHORT) MARKET VALUE DATE (DEPRECIATION) - ------------------------------------------------------------------------------------------------- U.S. Long Bond, 20-year 903 $107,118,375 June 2008 $2,972,098 U.S. Treasury Note, 2-year 166 35,677,032 June 2008 231,662 U.S. Treasury Note, 5-year (429) (49,261,268) March 2008 (1,927,314) U.S. Treasury Note, 5-year (1,102) (125,903,500) June 2008 (1,785,698) U.S. Treasury Note, 10-year (697) (82,725,187) March 2008 (1,732,999) U.S. Treasury Note, 10-year (320) (37,530,000) June 2008 (833,180) - ------------------------------------------------------------------------------------------------- Total $(3,075,431) - -------------------------------------------------------------------------------------------------
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT 29 CREDIT DEFAULT SWAP CONTRACTS OUTSTANDING AT FEB. 29, 2008
NOTIONAL REFERENCED BUY/SELL PAY/RECEIVE EXPIRATION PRINCIPAL UNREALIZED UNREALIZED COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE AMOUNT APPRECIATION DEPRECIATION - -------------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Kinder Morgan Financing Energy Partners Buy .41% March 20, 2011 $2,120,000 $24,220 $-- - -------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs Group Home Depot Buy .50 March 20, 2011 1,740,000 61,197 -- - -------------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Reed Elsevier Financing Capital Buy .18 Sept. 20, 2011 5,215,000 128,081 -- - -------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs Group ConAgra Foods Buy .18 Sept. 20, 2011 3,510,000 50,617 -- - -------------------------------------------------------------------------------------------------------------------------------- Citibank Reed Elsevier Buy .26 Sept. 20, 2011 1,735,000 37,680 -- Capital - -------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs Group FirstEnergy Buy .60 Dec. 20, 2011 1,535,000 20,274 -- - -------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs Group Kroger Buy .36 March 20, 2012 3,455,000 58,361 -- - -------------------------------------------------------------------------------------------------------------------------------- JP Morgan Chase Bank Cardinal Health Buy .225 June 20, 2012 3,495,000 76,704 -- - -------------------------------------------------------------------------------------------------------------------------------- Citibank Clorox Buy .31 Dec. 20, 2012 2,805,000 76,496 -- - -------------------------------------------------------------------------------------------------------------------------------- JP Morgan Chase Bank NiSource Buy .55 Dec. 20, 2012 3,505,000 151,998 -- Finance - -------------------------------------------------------------------------------------------------------------------------------- Deutsche Bank Lehman Brothers Sell 1.23 Dec. 20, 2012 3,440,000 -- (134,665) Holdings - -------------------------------------------------------------------------------------------------------------------------------- Total $685,628 $(134,665) - --------------------------------------------------------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT FEB. 29, 2008
CURRENCY TO BE CURRENCY TO BE UNREALIZED UNREALIZED EXCHANGE DATE DELIVERED RECEIVED APPRECIATION DEPRECIATION - -------------------------------------------------------------------------------------------------------------- March 5, 2008 6,147,255 6,776,000 $162,465 $-- U.S. Dollar Australian Dollar - -------------------------------------------------------------------------------------------------------------- March 5, 2008 4,230,000 European 6,195,004 U.S. -- (225,515) Monetary Unit Dollar - -------------------------------------------------------------------------------------------------------------- March 5, 2008 15,492,408 7,854,000 British 108,619 -- U.S. Dollar Pound - -------------------------------------------------------------------------------------------------------------- March 5, 2008 204,240 105,000 British 4,330 -- U.S. Dollar Pound - -------------------------------------------------------------------------------------------------------------- March 5, 2008 1,001,811,000 Japanese 9,404,204 U.S. -- (237,602) Yen Dollar - -------------------------------------------------------------------------------------------------------------- March 5, 2008 11,517,000 Japanese 106,547 U.S. -- (4,297) Yen Dollar - -------------------------------------------------------------------------------------------------------------- March 5, 2008 9,120,627 11,595,000 New 144,669 -- U.S. Dollar Zeland Dollar - -------------------------------------------------------------------------------------------------------------- March 5, 2008 39,771,000 Swedish 6,269,419 U.S. -- (181,463) Krona Dollar - -------------------------------------------------------------------------------------------------------------- March 5, 2008 58,748,000 Swedish 9,344,882 U.S. -- (184,083) Krona Dollar - -------------------------------------------------------------------------------------------------------------- Total $420,083 $(832,960) - --------------------------------------------------------------------------------------------------------------
See accompanying notes to portfolio of investments. - -------------------------------------------------------------------------------- 30 RIVERSOURCE DIVERSIFIED BOND FUND - 2008 SEMIANNUAL REPORT NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (c) Foreign security values are stated in U.S. dollars. For debt securities, principal amounts are denominated in U.S. dollar currency unless otherwise noted. At Feb. 29, 2008, the value of foreign securities represented 6.0% of net assets. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Feb. 29, 2008, the value of these securities amounted to $173,639,219 or 5.4% of net assets. (e) The following abbreviations are used in the portfolio security descriptions to identify the insurer of the issue: AMBAC -- Ambac Assurance Corporation FSA -- Financial Security Assurance MBIA -- MBIA Insurance Corporation
(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) 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 Feb. 29, 2008. (h) 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 Feb. 29, 2008. (i) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (j) At Feb. 29, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $294,490,497. See Note 1 to the financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 31 NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (k) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (l) Senior loans have rates of interest that float periodically based primarily on the London Interbank Offered Rate ("LIBOR") and other short-term rates. Remaining maturities of senior loans may be less than the stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. (m) At Feb. 29, 2008, the Fund had unfunded senior loan commitments pursuant to the terms of the loan agreement. The Fund receives a stated coupon rate until the borrower draws on the loan commitment, at which time the rate will become the stated rate in the loan agreement.
UNFUNDED BORROWER COMMITMENT - ----------------------------------------------------------------------------- Community Health Systems $253,243 Univision Communications 45,914 - ----------------------------------------------------------------------------- Total $299,157 - -----------------------------------------------------------------------------
(n) Represents a senior loan purchased on a when-issued or delayed-delivery basis. Certain details associated with this purchase are not known prior to the settlement date of the transaction. In addition, senior loans typically trade without accrued interest and therefore a weighted average coupon rate is not available prior to settlement. At settlement, if still unknown, the borrower or counterparty will provide the Fund with the final weighted average coupon rate and maturity date. (o) At Feb. 29, 2008, investments in securities included securities valued at $3,254,711 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (p) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities may be valued at fair value according to procedures approved, in good faith, by the Fund's Board of Directors. Information concerning such security holdings at Feb. 29, 2008, is as follows:
ACQUISITION SECURITY DATES COST - ---------------------------------------------------------------------------------- Banc of America Funding* Collateralized Mtge Obligation Series 2006-2 Cl N1 7.25% 2046 11-14-06 $408,171 Michigan Strategic Fund 7.45% 2035 02-27-08 1,850,000 Ohio Air Quality Development Authority 7.81% 2040 02-28-08 6,750,000 United Artists Theatre Circuit 9.30% Pass-Through Ctfs 2015 02-23-96 thru 08-12-96 5,286,255
* Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. (q) At Feb. 29, 2008, security was partially or fully on loan. See Note 5 to the financial statements. - -------------------------------------------------------------------------------- 32 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (r) Cash collateral received from security lending activity is invested in an affiliated money market fund and represents 0.5% of net assets. See Note 5 to the financial statements. The Fund's cash equivalent position is 5.5% of net assets. (s) 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. (t) Affiliated Money Market Fund - The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. (u) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate disclosed is the rate in effect on Feb. 29, 2008. At Feb. 29, 2008, the value of inverse floaters represented 0.1% of net assets. (v) Comparable securities are held to satisfy future delivery requirements of the following open forward sale commitments at Feb. 29, 2008:
PRINCIPAL SETTLEMENT PROCEEDS SECURITY AMOUNT DATE RECEIVABLE VALUE - -------------------------------------------------------------------------------------- Federal Natl Mtge Assn 03-01-23 5.50% $9,700,000 03-18-08 $9,901,578 $9,912,188
(w) This is a variable rate security that entitles holders to receive only interest payments. Interest is paid annually. The interest payment is based on the GDP level of the previous year. To the extent that the previous year's GDP exceeds the 'base case GDP' an interest payment is made equal to 0.012225 of the difference. (x) At Feb. 29, 2008, the cost of securities for federal income tax purposes was approximately $3,435,303,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $50,161,000 Unrealized depreciation (51,481,000) - ------------------------------------------------------------------------------ Net unrealized depreciation $(1,320,000) - ------------------------------------------------------------------------------
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 33 (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- 34 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT FINANCIAL STATEMENTS - --------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES FEB. 29, 2008 (UNAUDITED) ASSETS Investments in securities, at value Unaffiliated issuers* (identified cost $3,245,515,602) $3,244,195,487 Affiliated money market fund (identified cost $189,787,738) 189,787,738 - ------------------------------------------------------------------------------ Total investments in securities (identified cost $3,435,303,340) 3,433,983,225 Cash 1,443,404 Foreign currency holdings (identified cost $1,022) 1,039 Capital shares receivable 18,304,599 Accrued interest receivable 26,615,542 Receivable for investment securities sold 173,310,481 Unrealized appreciation on forward foreign currency contracts 420,083 Unrealized appreciation on swap contracts 685,628 - ------------------------------------------------------------------------------ Total assets 3,654,764,001 - ------------------------------------------------------------------------------ LIABILITIES Forward sale commitments, at value (proceeds receivable $9,901,578) 9,912,188 Dividends payable to shareholders 734,890 Capital shares payable 4,781,590 Payable for investment securities purchased 134,873,707 Payable for securities purchased on a forward-commitment basis 294,490,497 Payable upon return of securities loaned 17,488,750 Variation margin payable 1,734,996 Unrealized depreciation on forward foreign currency contracts 832,960 Unrealized depreciation on swap contracts 134,665 Accrued investment management services fee 39,141 Accrued distribution fee 567,385 Accrued transfer agency fee 2,008 Accrued administrative services fee 5,351 Accrued plan administration services fee 16,729 Other accrued expenses 248,709 Collateral and deposits payable 271,000 - ------------------------------------------------------------------------------ Total liabilities 466,134,566 - ------------------------------------------------------------------------------ Net assets applicable to outstanding capital stock $3,188,629,435 ==============================================================================
- -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 35 STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) FEB. 29, 2008 (UNAUDITED) REPRESENTED BY Capital stock - $.01 par value $ 6,561,139 Additional paid-in capital 3,340,228,720 Undistributed net investment income 263,274 Accumulated net realized gain (loss) (154,155,942) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (4,267,756) - ------------------------------------------------------------------------------ Total - representing net assets applicable to outstanding capital stock $3,188,629,435 ==============================================================================
Net assets applicable to outstanding shares: Class A $1,992,441,163 Class B $ 315,423,798 Class C $ 22,154,418 Class I $ 335,123,369 Class R2 $ 5,055 Class R3 $ 5,055 Class R4 $ 83,163,433 Class R5 $ 5,044 Class W $ 440,308,100 Net asset value per share of outstanding Class A capital stock: shares(1) 410,033,739 $ 4.86 Class B shares 64,916,992 $ 4.86 Class C shares 4,558,372 $ 4.86 Class I shares 68,881,896 $ 4.87 Class R2 shares 1,040 $ 4.86 Class R3 shares 1,040 $ 4.86 Class R4 shares 17,135,361 $ 4.85 Class R5 shares 1,040 $ 4.85 Class W shares 90,584,459 $ 4.86 - ------------------------------------------------------------------------------------------ *Including securities on loan, at value $ 17,298,690 - ------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $5.10. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 36 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT STATEMENT OF OPERATIONS SIX MONTHS ENDED FEB. 29, 2008 (UNAUDITED) INVESTMENT INCOME Income: Interest $ 82,351,729 Income distributions from affiliated money market fund 1,345,182 Fee income from securities lending 24,414 Less foreign taxes withheld (21,379) - ---------------------------------------------------------------------------- Total income 83,699,946 - ---------------------------------------------------------------------------- Expenses: Investment management services fee 6,901,241 Distribution fee Class A 2,441,982 Class B 1,534,340 Class C 90,701 Class R2 13 Class R3 6 Class W 415,227 Transfer agency fee Class A 1,452,863 Class B 243,168 Class C 13,985 Class R2 2 Class R3 2 Class R4 19,561 Class R5 2 Class W 332,181 Administrative services fee 946,353 Plan administration services fee Class R2 6 Class R3 6 Class R4 97,806 Compensation of board members 29,826 Custodian fees 132,550 Printing and postage 227,710 Registration fees 103,750 Professional fees 35,393 Other 41,279 - ---------------------------------------------------------------------------- Total expenses 15,059,953 Expenses waived/reimbursed by the Investment Manager and its affiliates (856,679) - ---------------------------------------------------------------------------- 14,203,274 Earnings and bank fee credits on cash balances (77,159) - ---------------------------------------------------------------------------- Total net expenses 14,126,115 - ---------------------------------------------------------------------------- Investment income (loss) -- net 69,573,831 - ----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 37 STATEMENT OF OPERATIONS (CONTINUED) SIX MONTHS ENDED FEB. 29, 2008 (UNAUDITED) REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions $ 30,172,439 Foreign currency transactions (947,637) Futures contracts (12,082,613) Swap transactions (6,400,486) - ---------------------------------------------------------------------------- Net realized gain (loss) on investments 10,741,703 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 16,749,751 - ---------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 27,491,454 - ---------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 97,065,285 ============================================================================
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 38 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED FEB. 29, 2008 AUG. 31, 2007 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) - net $ 69,573,831 $ 122,100,738 Net realized gain (loss) on investments 10,741,703 20,868,248 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 16,749,751 6,273,301 - ----------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 97,065,285 149,242,287 - ----------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (44,152,519) (86,827,158) Class B (5,772,536) (13,755,846) Class C (340,014) (626,596) Class I (8,592,514) (15,257,999) Class R2 (103) (141) Class R3 (110) (151) Class R4 (1,816,932) (4,383,933) Class R5 (121) (167) Class W (7,203,076) (2,150,062) Tax return of capital Class A -- (1,969,457) Class B -- (312,017) Class C -- (14,213) Class I -- (346,089) Class R2 -- (3) Class R3 -- (3) Class R4 -- (99,439) Class R5 -- (4) Class W -- (48,769) - ----------------------------------------------------------------------------------------- Total distributions (67,877,925) (125,792,047) - -----------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 39 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED FEB. 29, 2008 AUG. 31, 2007 (UNAUDITED) CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 209,154,216 $ 341,978,156 Class B shares 51,541,986 73,778,423 Class C shares 7,263,822 4,309,754 Class I shares 37,439,890 162,095,736 Class R2 shares -- 5,000 Class R3 shares -- 5,000 Class R4 shares 18,644,738 29,755,649 Class R5 shares -- 5,000 Class W shares 251,590,639 267,590,689 Reinvestment of distributions at net asset value Class A shares 37,471,139 71,340,780 Class B shares 5,421,231 12,481,391 Class C shares 313,462 558,059 Class I shares 8,880,456 15,346,042 Class R4 shares 1,867,962 4,481,258 Class W shares 7,296,951 2,006,618 Payments for redemptions Class A shares (210,321,455) (507,058,109) Class B shares (47,987,201) (187,649,959) Class C shares (2,426,343) (5,462,345) Class I shares (101,031,958) (69,529,553) Class R4 shares (15,909,718) (129,682,278) Class W shares (44,068,765) (46,272,210) - ----------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions 215,141,052 40,083,101 - ----------------------------------------------------------------------------------------- Total increase (decrease) in net assets 244,328,412 63,533,341 Net assets at beginning of period 2,944,301,023 2,880,767,682 - ----------------------------------------------------------------------------------------- Net assets at end of period $3,188,629,435 $2,944,301,023 ========================================================================================= Undistributed (excess of distributions over) net investment income $ 263,274 $ (1,432,632) - -----------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 40 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS - ----------------------------- (Unaudited as to Feb. 29, 2008) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Diversified Bond Fund (the Fund) is a series of RiverSource Diversified Income Series, Inc. and is registered under the Investment Company Act of 1940 (as amended) as a diversified, open-end management investment company. RiverSource Diversified Income Series, Inc. has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Board of Directors (the Board). The Fund invests primarily in 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, Class I, Class R2, Class R3, Class R4, Class R5 and Class W shares. - - Class A shares are sold with a front-end sales charge. - - Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. - - Class C shares may be subject to a CDSC. - - Class I, Class R2, Class R3, Class R4 and Class R5 shares are sold without a front-end sales charge or CDSC and are offered to qualifying institutional investors. - - Class W shares are sold without a front-end sales charge or CDSC and are offered through qualifying discretionary accounts. At Feb. 29, 2008, RiverSource Investments, LLC (the Investment Manager) and the affiliated funds-of-funds owned 100% of Class I shares and the Investment Manager owned 100% of Class R2, Class R3 and Class R5 shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 41 VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock Exchange. Swap transactions are valued through an authorized pricing service, broker, or an internal model. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. ILLIQUID SECURITIES At Feb. 29, 2008, investments in securities included issues that are illiquid which the Fund currently limits to 15% of net assets, at market value, at the time of purchase. The aggregate value of such securities at Feb. 29, 2008 was $14,301,843 representing 0.45% of net assets. These securities may be valued at fair value according to procedures approved, in good faith, by the Board. According to Board guidelines, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. Assets are liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. - -------------------------------------------------------------------------------- 42 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS AND UNFUNDED LOAN COMMITMENTS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward- commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward-commitments. At Feb. 29, 2008, the Fund has entered into outstanding when-issued securities of $294,490,497. The fund may enter into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrower's discretion. These commitments are disclosed in the "Portfolio of Investments." At Feb. 29, 2008, the Fund has entered into unfunded loan commitments of $299,157. 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. The Fund records the incremental difference between the forward purchase and sale of each forward roll as realized gain or loss. Losses may arise due to changes in the value of the securities or if a counterparty does not perform under the terms of the agreement. If a counterparty files for bankruptcy or becomes insolvent, the Fund's right to repurchase or sell securities may be limited. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option 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. - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 43 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. During the six months ended Feb. 29, 2008, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the Statement of Operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Feb. 29, 2008, foreign currency holdings consisted of European monetary units and British pounds. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The - -------------------------------------------------------------------------------- 44 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 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 Portfolio of Investments." CREDIT DEFAULT SWAP TRANSACTIONS The Fund may enter into credit default swap contracts to increase or decrease its credit exposure to an issuer, obligation, portfolio, or index of issuers or obligations, to hedge its exposure on an obligation that it owns or in lieu of selling such obligations. As the purchaser of a credit default swap contract, the Fund purchases protection by paying a periodic interest rate on the notional amount to the counterparty. The interest amount is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as a realized loss upon payment. If the credit event specified in the contract occurs, the Fund will be required to deliver either the referenced obligation or an equivalent cash amount to the protection seller and in exchange the Fund will receive the notional amount from the seller. The difference between the value of the obligation delivered and the notional amount received will be recorded as a realized gain (loss). As the seller of a credit default swap contract, the Fund sells protection to a buyer and will generally receive a periodic interest rate on the notional amount. The interest amount is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as a realized gain upon receipt of the payment. If the credit event specified in the contract occurs, the Fund will receive the referenced obligation or an equivalent cash amount in exchange for the payment of the notional amount to the protection buyer. The difference between the value of the obligation received and the notional amount paid will be recorded as a realized gain (loss). As a protection seller, the maximum amount of the payment made by the Fund may - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 45 equal the notional amount, at par, of the underlying index or security as a result of the related credit event. The notional amounts of credit default swap contracts are not recorded in the financial statements. Any premium paid or received by the Fund upon entering into a credit default swap contract is recorded as an asset or liability and amortized daily as a component of realized gain (loss) on the Statement of Operations. At Feb. 29, 2008, there were no credit default swap contracts outstanding which had a premium paid or received by the Fund. Credit default swap contracts are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time a realized gain (loss) is recorded. Credit default swap contracts can involve greater risks than if a fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to counterparty credit risk, leverage risk, hedging risk, correlation risk and liquidity risk. The Fund will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness. CMBS TOTAL RETURN SWAP TRANSACTIONS The Fund may enter into swap agreements to earn the total return on a specified security or index of fixed income securities. CMBS total return swaps are bilateral financial contracts designed to replicate synthetically the total returns of commercial mortgage-backed securities. Under the terms of the swaps, the Fund either receives or pays the total return on a reference security or index applied to a notional principal amount. In return, the Fund agrees to pay or receive from the counterparty a floating rate, which is reset periodically based on short-term interest rates, applied to the same notional amount. The notional amounts of swap contracts are not recorded in the financial statements. Swaps are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time realized gain (loss) is recorded. Payments received or made are recorded as realized gains (losses). Swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. It may not be possible for the Fund to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. Total return swaps are subject to the risk that the counterparty will default on its obligation to pay net amounts due to the Fund. At Feb. 29, 2008, the Fund had no outstanding CMBS total return swap contracts. 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 - -------------------------------------------------------------------------------- 46 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. The Fund has adopted Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," which is effective for fiscal periods beginning after Dec. 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of 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. RECENT ACCOUNTING PRONOUNCEMENT On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarachy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Sept. 1, 2008. The adoption of - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 47 SFAS 157 is not anticipated to have a material impact on the Fund's financial statements. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income, if any, is recognized on the ex-dividend date 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, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.48% to 0.29% annually as the Fund's assets increase. The management fee for the six months ended Feb. 29, 2008 was 0.46% of the Fund's average daily net assets. Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.07% to 0.04% annually as the Fund's assets increase. The fee for the six months ended Feb. 29, 2008 was 0.06% of the Fund's average daily net assets. Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the six months ended Feb. 29, 2008, other expenses paid to this company were $7,762. Compensation of Board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market - -------------------------------------------------------------------------------- 48 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT value changes and remains in the Fund until distributed in accordance with the Plan. Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R2, Class R3, Class R4 and Class R5 shares and an annual asset-based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statement of Operations. Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise Financial Services, Inc. also served as a principal underwriter and distributor to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A, Class R3 and Class W shares, a fee at an annual rate of up to 0.50% of the Fund's average daily net assets attributable to Class R2 shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. Sales charges received by the Distributor for distributing Fund shares were $966,536 for Class A, $92,873 for Class B and $1,706 for Class C for the six months ended Feb. 29, 2008. In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non- affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. For the six months ended Feb. 29, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds) were 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.53% for Class I, 1.08% for Class R2, 0.81% for Class R3, - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 49 0.76% for Class R4, 0.58% for Class R5 and 0.98% for Class W. Of these waived/reimbursed fees and expenses, the transfer agency fees at the class level were $384,803, $62,169, $3,564, $19,561 and $1,237 for Class A, Class B, Class C, Class R4 and Class W, respectively, the plan administration services fees at the class level were $6, $6, and $6,973 for Class R2, Class R3 and Class R4, respectively, and the management fees at the Fund level were $378,360. In addition, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds) will not exceed 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.53% for Class I, 1.33% for Class R2, 1.08% for Class R3, 0.77% for Class R4, 0.58% for Class R5 and 0.98% for Class W of the Fund's average daily net assets until Aug. 31, 2008, unless sooner terminated at the discretion of the Board. During the six months ended Feb. 29, 2008, the Fund's custodian and transfer agency fees were reduced by $77,159 as a result of earnings and bank fee credits from overnight cash balances. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $3,505,010,371 and $3,497,399,034, respectively, for the six months ended Feb. 29, 2008. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED FEB. 29, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 42,978,137 7,717,441 (43,300,034) 7,395,544 Class B 10,587,346 1,117,144 (9,881,141) 1,823,349 Class C 1,492,755 64,563 (498,807) 1,058,511 Class I 7,692,803 1,827,001 (20,772,005) (11,252,201) Class R2 -- -- -- -- Class R3 -- -- -- -- Class R4 3,830,768 385,277 (3,281,343) 934,702 Class R5 -- -- -- -- Class W 51,780,315 1,502,669 (9,057,553) 44,225,431 - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 50 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 71,107,119 14,806,791 (105,297,428) (19,383,518) Class B 15,312,266 2,590,288 (39,059,052) (21,156,498) Class C 893,514 115,836 (1,134,124) (124,774) Class I 33,643,276 3,181,732 (14,430,925) 22,394,083 Class R2(a) 1,040 -- -- 1,040 Class R3(a) 1,040 -- -- 1,040 Class R4 6,169,567 931,416 (27,102,344) (20,001,361) Class R5(a) 1,040 -- -- 1,040 Class W(b) 55,562,189 417,986 (9,621,147) 46,359,028 - ----------------------------------------------------------------------------------------------
(a) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007. (b) For the period from Dec. 1, 2006 (inception date) to Aug. 31, 2007. 5. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets (which includes collateral for securities on loan) to broker-dealers, banks, or other institutional borrowers of securities. The Fund receives collateral in the form of cash and U.S. government securities, equal to at least 100% of the value of securities loaned, which is marked to the market value of the loaned securities daily until the securities are returned, e.g., if the value of the securities on loan increases, additional cash collateral is provided by the borrower. The Investment Manager serves as securities lending agent for the Fund under the Investment Management Services Agreement pursuant to which the Fund has agreed to reimburse the Investment Manager for expenses incurred by it in connection with the lending program, and pursuant to guidelines adopted by and under the oversight of the Board. At Feb. 29, 2008, securities valued at $17,298,690 were on loan to brokers. For collateral, the Fund received $17,488,750 in cash. Cash collateral received is invested in an affiliated money market fund and short-term securities, including U.S. government securities or other high-grade debt obligations, which are included in the "Porfolio of Investments." Income from securities lending amounted to $24,414 for the six months ended Feb. 29, 2008. Expenses paid to the Investment Manager were $4,734 for the six months ended Feb. 29, 2008, which are included in other expenses on the Statement of Operations. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 6. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 51 and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term Cash Fund aggregated $670,031,396 and $526,129,387, respectively, for the six months ended Feb. 29, 2008. 7. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Under the prior credit facility, a Fund paid interest on its outstanding borrowings at a rate equal to either the higher of the federal funds effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. The Fund had no borrowings during the six months ended Feb. 29, 2008. 8. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, the Fund had a capital loss carry-over of $143,554,285 at Aug. 31, 2007, that if not offset by capital gains will expire as follows:
2009 2010 2012 2014 $75,831,798 $49,658,521 $5,227,159 $12,836,807
The Fund also had a post-October loss of $10,930,078 at Aug. 31, 2007. Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the Fund is permitted to treat net capital losses realized between Nov. 1, 2006 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At Aug. 31, 2007, the Fund had a post-October loss of $10,930,078 that is treated for income tax purposes as occurring on Sept. 1, 2007. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over and post-October loss have been offset or expire. - -------------------------------------------------------------------------------- 52 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 53 legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. - -------------------------------------------------------------------------------- 54 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 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, 2008(J) 2007 2006 2005 2004 Net asset value, beginning of period $4.81 $4.77 $4.89 $4.87 $4.78 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .21(b) .19 .18 .18 Net gains (losses) (both realized and unrealized) .05 .05 (.11) .03 .08 - ----------------------------------------------------------------------------------------------------------- Total from investment operations .16 .26 .08 .21 .26 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.21) (.20) (.19) (.17) Tax return of capital -- (.01) -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.11) (.22) (.20) (.19) (.17) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.86 $4.81 $4.77 $4.89 $4.87 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1,992 $1,937 $2,013 $1,774 $1,933 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .96%(e) .97% .99% 1.02% 1.00% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .89%(e) .89% .89% .94% .98% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.64%(e) 4.43% 4.09% 3.67% 3.55% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% 281% 300% 279% - ----------------------------------------------------------------------------------------------------------- Total return(h) 3.34%(i) 5.54% 1.64% 4.38% 5.54% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. (j) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 55 CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED AUG. 31, 2008(K) 2007 2006 2005 2004 Net asset value, beginning of period $4.81 $4.77 $4.89 $4.88 $4.78 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09(b) .18(b) .16 .15 .14 Net gains (losses) (both realized and unrealized) .05 .04 (.12) .01 .09 - ----------------------------------------------------------------------------------------------------------- Total from investment operations .14 .22 .04 .16 .23 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.18) (.16) (.15) (.13) Tax return of capital -- (.00)(c) -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.09) (.18) (.16) (.15) (.13) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.86 $4.81 $4.77 $4.89 $4.88 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $315 $304 $402 $484 $628 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.72%(f) 1.73% 1.76% 1.78% 1.75% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.65%(f) 1.65% 1.65% 1.70% 1.73% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.88%(f) 3.66% 3.31% 2.92% 2.78% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% 281% 300% 279% - ----------------------------------------------------------------------------------------------------------- Total return(i) 2.95%(j) 4.74% .88% 3.39% 4.95% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- 56 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED AUG. 31, 2008(K) 2007 2006 2005 2004 Net asset value, beginning of period $4.81 $4.77 $4.90 $4.88 $4.78 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09(b) .18(b) .16 .15 .14 Net gains (losses) (both realized and unrealized) .05 .04 (.13) .02 .09 - ----------------------------------------------------------------------------------------------------------- Total from investment operations .14 .22 .03 .17 .23 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.18) (.16) (.15) (.13) Tax return of capital -- (.00)(c) -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.09) (.18) (.16) (.15) (.13) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.86 $4.81 $4.77 $4.90 $4.88 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $22 $17 $17 $18 $21 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.71%(f) 1.73% 1.76% 1.79% 1.75% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.65%(f) 1.65% 1.66% 1.70% 1.73% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.88%(f) 3.67% 3.31% 2.93% 2.79% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% 281% 300% 279% - ----------------------------------------------------------------------------------------------------------- Total return(i) 2.95%(j) 4.73% .66% 3.60% 4.95% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 57 CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED AUG. 31, 2008(K) 2007 2006 2005 2004(B) Net asset value, beginning of period $4.82 $4.78 $4.89 $4.88 $4.91 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .12(c) .23(c) .21 .20 .11 Net gains (losses) (both realized and unrealized) .05 .04 (.11) .02 (.04) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .17 .27 .10 .22 .07 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.22) (.21) (.21) (.10) Tax return of capital -- (.01) -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.12) (.23) (.21) (.21) (.10) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.87 $4.82 $4.78 $4.89 $4.88 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $335 $386 $276 $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) .56%(f) .56% .55% .60% .59%(f) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) .53%(f) .54% .54% .60% .59%(f) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 5.00%(f) 4.80% 4.59% 4.01% 3.13%(f) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% 281% 300% 279% - ----------------------------------------------------------------------------------------------------------- Total return(i) 3.52%(j) 5.90% 2.19% 4.53% 1.43%(j) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from March 4, 2004 (inception date) to Aug. 31, 2004. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- 58 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED AUG. 31, 2008(L) 2007(B) Net asset value, beginning of period $4.80 $4.81 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .11 .14 Net gains (losses) (both realized and unrealized) .05 (.02) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .16 .12 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.13) Total return of capital -- (.00)(d) - ----------------------------------------------------------------------------------------------------------- Total distributions (.10) (.13) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.86 $4.80 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) 1.31%(g) 1.32%(g) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) 1.08%(g) 1.32%(g) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.44%(g) 4.06%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% - ----------------------------------------------------------------------------------------------------------- Total return(j) 3.33%(k) 2.70%(k) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. (l) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 59 CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED AUG. 31, 2008(L) 2007(B) Net asset value, beginning of period $4.80 $4.81 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .11 .15 Net gains (losses) (both realized and unrealized) .06 (.02) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .17 .13 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.14) Total return of capital -- (.00)(d) - ----------------------------------------------------------------------------------------------------------- Total distributions (.11) (.14) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.86 $4.80 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) 1.04%(g) 1.06%(g) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) .81%(g) 1.06%(g) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.72%(g) 4.33%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% - ----------------------------------------------------------------------------------------------------------- Total return(j) 3.47%(k) 2.90%(k) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. (l) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- 60 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED AUG. 31, 2008(J) 2007 2006 2005 2004 Net asset value, beginning of period $4.80 $4.77 $4.89 $4.88 $4.78 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .22(b) .20 .19 .18 Net gains (losses) (both realized and unrealized) .06 .04 (.12) .02 .10 - ----------------------------------------------------------------------------------------------------------- Total from investment operations .17 .26 .08 .21 .28 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.22) (.20) (.20) (.18) Tax return of capital -- (.01) -- -- -- - ----------------------------------------------------------------------------------------------------------- Total distributions (.12) (.23) (.20) (.20) (.18) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.85 $4.80 $4.77 $4.89 $4.88 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $83 $78 $173 $202 $203 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .86%(e) .83% .82% .86% .83% - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .76%(e) .73% .73% .78% .81% - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.77%(e) 4.53% 4.24% 3.85% 3.70% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% 281% 300% 279% - ----------------------------------------------------------------------------------------------------------- Total return(h) 3.40%(i) 5.49% 1.81% 4.34% 5.92% - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (d) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (e) Adjusted to an annual basis. (f) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. (j) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 61 CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED AUG. 31, 2008(L) 2007(B) Net asset value, beginning of period $4.80 $4.81 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .12 .17 Net gains (losses) (both realized and unrealized) .05 (.02) - ----------------------------------------------------------------------------------------------------------- Total from investment operations .17 .15 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.16) Total return of capital -- (.00)(d) - ----------------------------------------------------------------------------------------------------------- Total distributions (.12) (.16) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.85 $4.80 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $-- $-- - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) .58%(g) .59%(g) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) .58%(g) .57%(g) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.94%(g) 4.81%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% - ----------------------------------------------------------------------------------------------------------- Total return(j) 3.49%(k) 3.25%(k) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. (l) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- 62 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) FISCAL PERIOD ENDED AUG. 31, 2008(L) 2007(B) Net asset value, beginning of period $4.81 $4.82 - ----------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .11 .15 Net gains (losses) (both realized and unrealized) .05 -- - ----------------------------------------------------------------------------------------------------------- Total from investment operations .16 .15 - ----------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.16) Total return of capital -- (.00)(d) - ----------------------------------------------------------------------------------------------------------- Total distributions (.11) (.16) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.86 $4.81 - ----------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $440 $223 - ----------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) 1.00%(g) .98%(g) - ----------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) .98%(g) .97%(g) - ----------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.48%(g) 4.32%(g) - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 110% 295% - ----------------------------------------------------------------------------------------------------------- Total return(j) 3.29%(k) 2.71%(k) - -----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Aug. 31, 2007. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Rounds to zero. (e) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (f) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (g) Adjusted to an annual basis. (h) The Investment Manager and its affiliates have agreed to waive certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits for the six months ended Feb. 29, 2008 were less than 0.01% of average net assets. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. (l) Six months ended Feb. 29, 2008 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT 63 PROXY VOTING - ------------------------------------------------------------- The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- 64 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 SEMIANNUAL REPORT RIVERSOURCE DIVERSIFIED BOND FUND 734 Ameriprise Financial Center Minneapolis, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R) mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6490 Y (4/08)
Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. 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) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource Diversified Income Series, Inc. By /s/ Patrick T. Bannigan ----------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date May 2, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ Patrick T. Bannigan ----------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date May 2, 2008 By /s/ Jeffrey P. Fox ----------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date May 2, 2008 EX-99.CERT 2 c25179exv99wcert.txt CERTIFICATION Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Patrick T. Bannigan, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Diversified 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: April 18, 2008 /s/ Patrick T. Bannigan - ------------------------------------- Name: Patrick T. Bannigan Title: President and Principal Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey P. Fox, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Diversified 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: April 18, 2008 /s/ Jeffrey P. Fox - ------------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Principal Financial Officer EX-99.906CERT 3 c25179exv99w906cert.txt SECTION 906 CERTIFICATION CERTIFICATION RiverSource Diversified 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: April 18, 2008 /s/ Patrick T. Bannigan ---------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date: April 18, 2008 /s/ Jeffrey P. Fox ---------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----