N-CSRS 1 c50203nvcsrs.txt N-CSRS 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: 2/28 Semiannual Report (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE DIVERSIFIED BOND FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED FEBRUARY 28, 2009 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 Fund Expenses Example.............. 7 Portfolio of Investments........... 10 Statement of Assets and Liabilities...................... 36 Statement of Operations............ 38 Statements of Changes in Net Assets........................... 40 Financial Highlights............... 42 Notes to Financial Statements...... 51 Proxy Voting....................... 71
-------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 1 YOUR FUND AT A GLANCE ---------------------------------------------------------- (UNAUDITED) FUND SUMMARY -------------------------------------------------------------------------------- > RiverSource Diversified Bond Fund (the Fund) Class A shares declined 3.76% (excluding sales charge) for the 6 months ended Feb. 28, 2009. > The Fund underperformed its benchmark, the unmanaged Barclays Capital U.S. Aggregate Bond Index (formerly known as the Lehman Brothers U.S. Aggregate Bond Index), which gained 1.88% for the semiannual period. > The Fund outperformed its peer group, as represented by the Lipper Intermediate Investment Grade Index, which declined 4.63% during the same period. ANNUALIZED TOTAL RETURNS (for period ended Feb. 28, 2009) --------------------------------------------------------------------------------
6 months* 1 year 3 years 5 years 10 years ------------------------------------------------------------------------- RiverSource Diversified Bond Fund Class A (excluding sales charge) -3.76% -6.01% +1.40% +1.87% +3.62% ------------------------------------------------------------------------- Barclays Capital U.S. Aggregate Bond Index (unmanaged)(1) +1.88% +2.06% +4.95% +4.00% +5.61% ------------------------------------------------------------------------- Lipper Intermediate Investment Grade Index(2) -4.63% -7.00% +1.05% +1.66% +4.23% -------------------------------------------------------------------------
* 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 Barclays Capital U.S. 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 -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS --------------------------------------------------------------------------------
AT FEB. 28, 2009 SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** Class A (inception 10/3/74) -3.76% -6.01% +1.40% +1.87% +3.62% N/A ------------------------------------------------------------------------------------- Class B (inception 3/20/95) -4.12% -6.72% +0.64% +1.10% +2.84% N/A ------------------------------------------------------------------------------------- Class C (inception 6/26/00) -4.12% -6.72% +0.56% +1.10% N/A +3.22% ------------------------------------------------------------------------------------- Class I (inception 3/4/04) -3.36% -5.66% +1.77% N/A N/A +2.31% ------------------------------------------------------------------------------------- Class R2 (inception 12/11/06) -3.85% -6.17% N/A N/A N/A -0.19% ------------------------------------------------------------------------------------- Class R3 (inception 12/11/06) -3.73% -5.93% N/A N/A N/A +0.08% ------------------------------------------------------------------------------------- Class R4 (inception 3/20/95) -3.52% -5.73% +1.54% +2.02% +3.77% N/A ------------------------------------------------------------------------------------- Class R5 (inception 12/11/06) -3.40% -5.52% N/A N/A N/A +0.43% ------------------------------------------------------------------------------------- Class W (inception 12/1/06) -3.80% -6.10% N/A N/A N/A -0.17% ------------------------------------------------------------------------------------- With sales charge Class A (inception 10/3/74) -8.29% -10.43% -0.23% +0.86% +3.09% N/A ------------------------------------------------------------------------------------- Class B (inception 3/20/95) -8.82% -11.22% -0.58% +0.76% +2.84% N/A ------------------------------------------------------------------------------------- Class C (inception 6/26/00) -5.06% -7.62% +0.56% +1.10% N/A +3.22% -------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 3 YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AT MARCH 31, 2009 SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION** Class A (inception 10/3/74) -0.26% -2.83% +2.40% +2.13% +3.74% N/A ------------------------------------------------------------------------------------ Class B (inception 3/20/95) -0.85% -3.78% +1.55% +1.32% +2.94% N/A ------------------------------------------------------------------------------------ Class C (inception 6/26/00) -0.63% -3.76% +1.62% +1.36% N/A +3.42% ------------------------------------------------------------------------------------ Class I (inception 3/4/04) -0.29% -2.69% +2.68% +2.49% N/A +2.64% ------------------------------------------------------------------------------------ Class R2 (inception 12/11/06) -0.39% -3.21% N/A N/A N/A +0.67% ------------------------------------------------------------------------------------ Class R3 (inception 12/11/06) -0.26% -2.97% N/A N/A N/A +0.94% ------------------------------------------------------------------------------------ Class R4 (inception 3/20/95) -0.23% -2.96% +2.45% +2.23% +3.87% N/A ------------------------------------------------------------------------------------ Class R5 (inception 12/11/06) -0.10% -2.75% N/A N/A N/A +1.21% ------------------------------------------------------------------------------------ Class W (inception 12/1/06) -0.30% -3.12% N/A N/A N/A +0.70% ------------------------------------------------------------------------------------ With sales charge Class A (inception 10/3/74) -5.04% -7.47% +0.72% +1.13% +3.21% N/A ------------------------------------------------------------------------------------ Class B (inception 3/20/95) -5.71% -8.41% +0.32% +0.97% +2.94% N/A ------------------------------------------------------------------------------------ Class C (inception 6/26/00) -1.60% -4.69% +1.62% +1.36% N/A +3.42% ------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R2, Class R3, Class R4, Class R5 and Class W shares. Class I, Class R2, Class R3, Class R4 and Class R5 are available to institutional investors only. Class W shares are offered through qualifying discretionary accounts. *Not annualized. **For classes with less than 10 years performance. -------------------------------------------------------------------------------- 4 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- STYLE MATRIX --------------------------------------------------------------------------------
DURATION SHORT INT. LONG X HIGH X MEDIUM QUALITY 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) 6.8 years -------------------------------------- Effective duration(2) 3.9 years -------------------------------------- Weighted average bond rating(3) AA --------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) --------------------------------------------------------------------------------
Total Net fund fund expenses expenses(a) ---------------------------------------- Class A 0.95% 0.83% ---------------------------------------- Class B 1.71% 1.59% ---------------------------------------- Class C 1.70% 1.58% ---------------------------------------- Class I 0.55% 0.47% ---------------------------------------- Class R2 1.34% 1.27% ---------------------------------------- Class R3 1.08% 1.02% ---------------------------------------- Class R4 0.85% 0.77% ---------------------------------------- Class R5 0.59% 0.52% ---------------------------------------- Class W 0.99% 0.92% ----------------------------------------
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding fees and expenses of acquired funds) will not exceed 0.83% for Class A, 1.59% for Class B, 1.58% for Class C, 0.47% for Class I, 1.27% for Class R2, 1.02% for Class R3, 0.77% for Class R4, 0.52% for Class R5 and 0.92% 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 more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, have more volatile prices and carry more risk to principal and income than investment grade securities. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 5 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- SECTOR DIVERSIFICATION (at Feb. 28, 2009; % of portfolio assets) ---------------------------------------------------------------------
Asset-Backed 0.9% ------------------------------------------------ Commercial Mortgage-Backed 5.0% ------------------------------------------------ Consumer Discretionary 1.4% ------------------------------------------------ Consumer Staples 1.9% ------------------------------------------------ Energy 4.1% ------------------------------------------------ Financials 2.5% ------------------------------------------------ Foreign Government 0.6% ------------------------------------------------ Health Care 0.8% ------------------------------------------------ Industrials 1.4% ------------------------------------------------ Materials 1.1% ------------------------------------------------ Mortgage-Backed 34.7% ------------------------------------------------ Telecommunication 8.2% ------------------------------------------------ U.S. Government Obligations & Agencies 17.7% ------------------------------------------------ Utilities 6.6% ------------------------------------------------ Other(1) 13.1% ------------------------------------------------
(1) Cash & Cash Equivalents. Of the 13.1%, 7.1% is due to security lending activity and 6.0% is the Fund's cash equivalent position. QUALITY BREAKDOWN (at Feb. 28, 2009; % of portfolio assets excluding cash equivalents and equities) ---------------------------------------------------------------------
AAA bonds 63.5% ------------------------------------------------ AA bonds 1.4% ------------------------------------------------ A bonds 10.3% ------------------------------------------------ BBB bonds 16.4% ------------------------------------------------ Non-investment grade bonds 8.4% ------------------------------------------------
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. -------------------------------------------------------------------------------- 6 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 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 expense ratio of each of the acquired funds as of the acquired fund's most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Feb. 28, 2009. 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 -- 2009 SEMIANNUAL REPORT 7 FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2008 FEB. 28, 2009 THE PERIOD(A) EXPENSE RATIO ------------------------------------------------------------------------------------------ Class A ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 962.40 $4.06 .83% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,020.79 $4.18 .83% ------------------------------------------------------------------------------------------ Class B ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 958.80 $7.76 1.59% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,017.00 $8.00 1.59% ------------------------------------------------------------------------------------------ Class C ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 958.80 $7.72 1.58% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,017.05 $7.95 1.58% ------------------------------------------------------------------------------------------ Class I ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 966.40 $2.30 .47% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,022.59 $2.37 .47% ------------------------------------------------------------------------------------------ Class R2 ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 961.50 $6.16 1.26% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.34 1.26% ------------------------------------------------------------------------------------------ Class R3 ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 962.70 $4.94 1.01% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,019.90 $5.09 1.01% ------------------------------------------------------------------------------------------ Class R4 ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 964.80 $3.77 .77% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,021.09 $3.88 .77% ------------------------------------------------------------------------------------------ Class R5 ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 966.00 $2.55 .52% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,022.34 $2.62 .52% ------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 8 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2008 FEB. 28, 2009 THE PERIOD(A) EXPENSE RATIO ------------------------------------------------------------------------------------------ Class W ------------------------------------------------------------------------------------------ Actual(b) $1,000 $ 962.00 $4.50 .92% ------------------------------------------------------------------------------------------ Hypothetical (5% return before expenses) $1,000 $1,020.34 $4.63 .92% ------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 28, 2009: -3.76% for Class A, -4.12% for Class B, -4.12% for Class C, -3.36% for Class I, -3.85% for Class R2, -3.73% for Class R3, -3.52% for Class R4, -3.40%. for Class R5, and -3.80% for Class W. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 9 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- FEB. 28, 2009 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
BONDS (109.7%) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) FOREIGN AGENCIES (0.1%)(C) Pemex Project Funding Master Trust 03-01-18 5.75% $1,790,000 $1,448,774 06-15-35 6.63 2,543,000(s) 1,795,122 Petroleos de Venezuela 04-12-17 5.25 3,534,000 1,325,250 --------------- Total 4,569,146 ------------------------------------------------------------------------------------- SOVEREIGN (0.6%)(c) Govt of Ukraine Sr Unsecured 11-14-17 6.75 1,670,000(d) 592,434 Republic of Argentina 09-12-13 7.00 2,762,000 911,460 Republic of Argentina Sr Unsecured 12-15-35 0.00 3,350,000(e) 86,095 Republic of Colombia 01-27-17 7.38 1,495,000 1,491,263 09-18-37 7.38 1,320,000 1,207,800 Republic of El Salvador 06-15-35 7.65 1,313,000(d) 932,230 Republic of Indonesia Sr Unsecured 01-17-18 6.88 742,000(d) 571,340 10-12-35 8.50 987,000(d) 730,380 01-17-38 7.75 850,000(d) 578,000 Republic of Philippines 01-15-16 8.00 425,000 450,500 01-14-31 7.75 1,979,000 1,919,630 Republic of Turkey 09-26-16 7.00 450,000 418,500 04-03-18 6.75 1,429,000 1,253,948 03-17-36 6.88 3,506,000 2,620,734 Republic of Uruguay 05-17-17 9.25 678,000 727,155 Republic of Venezuela 02-26-16 5.75 714,000 339,150 05-07-23 9.00 1,600,000 788,000 Republic of Venezuela Sr Unsecured 10-08-14 8.50 715,000 411,125 Republica Orient Uruguay Sr Unsecured 03-21-36 7.63 1,592,000 1,309,420 Russian Federation 03-31-30 7.50 968,240(d) 852,051 --------------- Total 18,191,215 ------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS & AGENCIES (22.8%) Federal Farm Credit Bank 10-17-12 4.50 1,060,000 1,140,900 Federal Home Loan Mtge Corp 03-15-09 5.75 170,000 170,404 05-28-10 2.38 1,160,000(s) 1,174,370 07-17-15 4.38 75,935,000(s) 80,769,781 04-16-37 6.00 46,875,000 47,332,172 Federal Home Loan Mtge Corp Sub Nts 12-14-18 5.00 31,666,000 29,895,459 Federal Natl Mtge Assn 01-02-14 5.13 46,467,000(s) 47,528,678 04-15-15 5.00 37,060,000 40,827,149 07-15-37 5.63 5,345,000 5,977,929 U.S. Treasury 06-30-10 2.88 6,195,000(s,v) 6,362,699 10-31-10 1.50 37,665,000 38,006,320 02-28-11 0.88 5,485,000(g) 5,469,587 01-31-14 1.75 42,565,000(s) 42,095,934 02-28-14 1.88 63,115,000(g) 62,681,400 02-15-19 2.75 41,760,000(s) 40,716,000 02-15-29 5.25 56,935,000 66,578,366 02-15-38 4.38 33,045,000(s) 36,442,423 05-15-38 4.50 13,740,000(s) 15,599,187
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 10 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) U.S. GOVERNMENT OBLIGATIONS & AGENCIES (CONT.) U.S. Treasury Inflation-Indexed Bond 01-15-14 2.00% $63,403,498(i,s) $63,062,656 01-15-15 1.63 107,977,380(i,s) 103,653,388 --------------- Total 735,484,802 ------------------------------------------------------------------------------------- ASSET-BACKED (1.1%) AmeriCredit Automobile Receivables Trust Series 2007-DF Cl A3A (FSA) 07-06-12 5.49 7,000,000(h) 6,660,942 Capital Auto Receivables Asset Trust Series 2006-SN1A Cl D 04-20-11 6.15 4,775,000(d) 4,504,179 Countrywide Asset-backed Ctfs Series 2005-10 Cl AF6 02-25-36 4.92 1,930,545 1,446,994 Countrywide Asset-backed Ctfs Series 2006-4 Cl 1A1M 07-25-36 0.73 1,544,127(j) 1,072,381 CPS Auto Trust Series 2007-A Cl A3 (MBIA) 09-15-11 5.04 4,149,997(d,h) 3,844,036 Dunkin Securitization Series 2006-1 Cl A2 (AMBAC) 06-20-31 5.78 9,650,000(d,h) 6,923,201 Keycorp Student Loan Trust Series 2003-A Cl 2A2 (MBIA) 10-25-25 1.47 1,106,078(h,j) 1,060,107 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-2 Cl AIO 08-25-11 0.00 9,525,000(m) 952,500 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-3 Cl AIO 01-25-12 5.88 15,000,000(m) 2,636,715 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-4 Cl AIO 02-27-12 29.68 11,700,000(m) 1,458,405 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2007-2 Cl AIO 07-25-12 50.00 6,800,000(m) 586,160 Renaissance Home Equity Loan Trust Series 2005-4 Cl A3 02-25-36 5.57 3,340,220 3,171,774 Renaissance Home Equity Loan Trust Series 2007-2 Cl M4 06-25-37 6.31 1,500,000(r) 132,895 Renaissance Home Equity Loan Trust Series 2007-2 Cl M5 06-25-37 6.66 980,000(r) 68,940 Renaissance Home Equity Loan Trust Series 2007-2 Cl M6 06-25-37 7.01 1,435,000(r) 87,766 Residential Asset Securities Series 2007-KS3 Cl AI2 04-25-37 0.65 1,050,000(j) 511,416 Triad Auto Receivables Owner Trust Series 2007-B Cl A3A (FSA) 10-12-12 5.24 2,135,000(h) 1,791,202 --------------- Total 36,909,613 ------------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED (6.4%)(f) Banc of America Commercial Mtge Series 2007-1 Cl A3 01-15-49 5.45 13,425,000 8,603,876 Bear Stearns Commercial Mtge Securities Series 2003-T10 Cl A1 03-13-40 4.00 1,600,399 1,502,614 Bear Stearns Commercial Mtge Securities Series 2004-PWR5 Cl A3 07-11-42 4.57 475,000 415,047 Bear Stearns Commercial Mtge Securities Series 2007-PW16 Cl A1 06-11-40 5.59 10,138,179 9,807,680 CDC Commercial Mtge Trust Series 2002-FX1 Cl A2 11-15-30 5.68 12,775,000 12,340,499
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 11 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) COMMERCIAL MORTGAGE-BACKED (CONT.) Citigroup Commercial Mtge Trust Series 2006-C5 Cl A4 10-15-49 5.43% $3,150,000 $2,100,966 Citigroup/Deutsche Bank Commercial Mtge Trust Series 2005-CD1 Cl ASB 07-15-44 5.23 3,225,000 2,543,080 Commercial Mtge Acceptance Series 1999-C1 Cl A2 06-15-31 7.03 648,018 646,303 Commercial Mtge Pass-Through Ctfs Series 2006-CN2A Cl BFL 02-05-19 0.75 2,700,000(d,j) 1,438,418 CS First Boston Mtge Securities Series 2001-CP4 Cl A4 12-15-35 6.18 7,400,000 7,190,634 CS First Boston Mtge Securities Series 2003-CPN1 Cl A2 03-15-35 4.60 3,800,000 3,255,737 CS First Boston Mtge Securities Series 2004-C2 Cl A1 05-15-36 3.82 1,289,603 1,150,379 Federal Natl Mtge Assn #555806 10-01-13 5.10 413,318 429,441 Federal Natl Mtge Assn #725217 02-01-14 4.78 999,994 1,025,558 Federal Natl Mtge Assn #735029 09-01-13 5.32 352,839 365,985 GE Capital Commercial Mtge Series 2005-C1 Cl A5 06-10-48 4.77 400,000 309,107 General Electric Capital Assurance Series 2003-1 Cl A3 05-12-35 4.77 1,330,758(d) 1,319,657 General Electric Capital Assurance Series 2003-1 Cl A4 05-12-35 5.25 3,100,000(d) 2,744,301 Greenwich Capital Commercial Funding Series 2004-GG1 Cl A5 06-10-36 4.88 3,550,000 3,131,121 GS Mtge Securities II Series 2006-GG6 Cl A4 04-10-38 5.55 375,000 267,475 GS Mtge Securities II Series 2007-EOP Cl J 03-06-20 1.29 9,050,000(d,j) 5,575,050 GS Mtge Securities II Series 2007-GG10 Cl F 08-10-45 5.80 9,800,000 1,388,464 JPMorgan Chase Commercial Mtge Securities Series 2003-LN1 Cl A1 10-15-37 4.13 2,382,613 2,138,993 JPMorgan Chase Commercial Mtge Securities Series 2003-ML1A Cl A1 03-12-39 3.97 1,582,539 1,430,348 JPMorgan Chase Commercial Mtge Securities Series 2003-ML1A Cl A2 03-12-39 4.77 7,419,000 6,355,002 JPMorgan Chase Commercial Mtge Securities Series 2004-C2 Cl A2 05-15-41 5.10 425,000 353,951 JPMorgan Chase Commercial Mtge Securities Series 2004-CBX Cl A3 01-12-37 4.18 4,150,000 4,004,309 JPMorgan Chase Commercial Mtge Securities Series 2004-LN2 Cl A1 07-15-41 4.48 8,309,531 7,587,935 JPMorgan Chase Commercial Mtge Securities Series 2005-LDP4 Cl AM 10-15-42 5.00 14,900,000 7,159,729 JPMorgan Chase Commercial Mtge Securities Series 2006-CB17 Cl A1 12-12-43 5.28 6,168,220 5,981,683 JPMorgan Chase Commercial Mtge Securities Series 2006-LDP6 Cl ASB 04-15-43 5.49 9,225,000 7,111,840 JPMorgan Chase Commercial Mtge Securities Series 2006-LDP8 Cl A4 05-15-45 5.40 50,000 30,629 JPMorgan Chase Commercial Mtge Securities Series 2007-CB20 Cl A4 02-12-51 5.79 6,000,000 3,528,692 JPMorgan Chase Commercial Mtge Securities Series 2007-CB20 Cl AM 02-12-51 5.90 11,225,000 3,807,392
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 12 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) COMMERCIAL MORTGAGE-BACKED (CONT.) JPMorgan Chase Commercial Mtge Securities Series 2007-CB20 Cl E 02-12-51 6.20% $4,725,000(d) $289,769 LB-UBS Commercial Mtge Trust Series 2004-C2 Cl A3 03-15-29 3.97 4,700,000 4,178,408 LB-UBS Commercial Mtge Trust Series 2004-C6 Cl A6 08-15-29 5.02 3,500,000 2,748,277 LB-UBS Commercial Mtge Trust Series 2006-C4 Cl AAB 06-15-32 5.86 5,100,000 3,881,054 LB-UBS Commercial Mtge Trust Series 2006-C6 Cl A4 09-15-39 5.37 5,500,000 3,397,770 LB-UBS Commercial Mtge Trust Series 2008-C1 Cl A1 04-15-41 5.61 1,135,389 968,140 Merrill Lynch Mtge Trust Series 2005-CKI1 Cl A1 11-12-37 5.08 808,578 796,480 Merrill Lynch Mtge Trust Series 2008-C1 Cl A1 02-12-51 4.71 2,309,719 2,158,234 Morgan Stanley Capital I Series 2003-T11 Cl A2 06-13-41 4.34 2,110,948 2,078,386 Morgan Stanley Capital I Series 2004-HQ4 Cl A5 04-14-40 4.59 5,200,000 4,853,878 Morgan Stanley Capital I Series 2006-T23 Cl AAB 08-12-41 5.80 3,675,000 2,826,332 Morgan Stanley Capital I Series 2007-IQ15 Cl A4 06-11-49 5.88 6,200,000 3,855,625 TIAA Seasoned Commercial Mtge Trust Series 2007-C4 Cl A3 08-15-39 6.09 9,475,000 6,988,416 Wachovia Bank Commercial Mtge Trust Series 2003-C7 Cl A2 10-15-35 5.08 18,750,000(d) 15,843,623 Wachovia Bank Commercial Mtge Trust Series 2003-C8 Cl A2 11-15-35 3.89 553,861 552,476 Wachovia Bank Commercial Mtge Trust Series 2005-C20 Cl A5 07-15-42 5.09 5,017,000 4,189,752 Wachovia Bank Commercial Mtge Trust Series 2006-C24 Cl A3 03-15-45 5.56 29,675,000 18,000,201 Wachovia Bank Commercial Mtge Trust Series 2006-C24 Cl APB 03-15-45 5.58 3,200,000 2,506,327 Wachovia Bank Commercial Mtge Trust Series 2006-C27 Cl APB 07-15-45 5.73 5,475,000 4,260,310 Wachovia Bank Commercial Mtge Trust Series 2006-C29 Cl A4 11-15-48 5.31 1,425,000 861,938 Wachovia Bank Commercial Mtge Trust Series 2006-C29 Cl AM 11-15-48 5.34 8,655,000 2,874,307 --------------- Total 205,151,598 ------------------------------------------------------------------------------------- MORTGAGE-BACKED (44.6%)(f,p) Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-1 Cl 3A21 03-25-37 6.17 5,616,482(k) 3,064,223 American Home Mtge Assets Collateralized Mtge Obligation Series 2007-2 Cl A2A 03-25-47 0.64 821,768(k) 163,730 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11 Cl 1A1 01-25-34 6.00 6,079,977 4,242,902 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2004-3 Cl 1A1 04-25-34 6.00 7,789,109 6,876,326
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 13 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2006-9 Cl 1CB1 01-25-37 6.00% $15,551,892 $8,308,113 Banc of America Funding Collateralized Mtge Obligation Series 2006-2 Cl N1 11-25-46 7.25 288,686(d,o) 31,755 Banc of America Funding Collateralized Mtge Obligation Series 2007-8 Cl 1A1 10-25-37 6.00 1,911,368 1,001,975 Bear Stearns Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2005-8 Cl A4 08-25-35 5.10 6,475,000(d,k) 3,842,861 ChaseFlex Trust Collateralized Mtge Obligation Series 2005-2 Cl 2A2 06-25-35 6.50 1,741,780 1,559,982 Citicorp Mtge Securities Collateralized Mtge Obligation Series 2005-5 Cl 3A1 08-25-35 5.00 7,050,854 5,257,569 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Interest Only Series 2007-8CB Cl A13 05-25-37 7.73 5,334,610(m) 723,026 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11T1 Cl A1 07-25-18 4.75 3,020,886 2,954,804 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2003-20CB Cl 1A1 10-25-33 5.50 14,555,981 11,378,684 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-50CB Cl 2A1 11-25-35 6.00 11,165,890 5,685,881 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50 4,512,137 2,790,493 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-22R Cl 1A2 05-25-36 6.00 6,112,454 5,254,290 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-2CB Cl A11 03-25-36 6.00 7,776,264 3,987,769 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-31CB Cl A16 11-25-36 6.00 8,820,000 5,497,761 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-43CB Cl 1A4 02-25-37 6.00 10,068,221 6,723,341 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-45T1 Cl 2A5 02-25-37 6.00 14,018,211 7,188,721 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-25 Cl 1A1 11-25-37 6.50 17,614,243 9,433,940 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OA9 Cl A2 06-25-47 0.82 908,607(j) 203,601 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2007-OH3 Cl A3 09-25-47 0.97 15,650,499(j) 1,690,263 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06-25-35 7.00 5,661,441(d) 4,140,371
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 14 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Countrywide Home Loans Collateralized Mtge Obligation Series 2006-HYB1 Cl 1A1 03-20-36 5.32% $3,606,348(k) $1,551,091 CS First Boston Mtge Securities Collateralized Mtge Obligation Series 2003-29 Cl 8A1 11-25-18 6.00 1,494,950 1,338,448 Deutsche Bank Alternate Mtge Loan Trust Collateralized Mtge Obligation Series 2007-AR3 Cl 2A1 06-25-37 0.58 245,317(j) 219,923 Downey Savings & Loan Assn Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR5 Cl X1 08-19-45 0.00 24,456,548(b,m,q) -- Federal Home Loan Mtge Corp 03-01-39 4.50 15,000,000(g) 15,014,070 03-01-39 5.00 65,000,000(g) 65,995,279 03-01-39 5.50 26,000,000(g) 26,625,612 03-01-39 6.00 30,000,000(g) 31,054,686 Federal Home Loan Mtge Corp #170216 03-01-17 8.50 5,379 5,796 Federal Home Loan Mtge Corp #1B3592 09-01-37 6.02 5,432,946(k) 5,654,731 Federal Home Loan Mtge Corp #284190 01-01-17 8.00 215 228 Federal Home Loan Mtge Corp #290970 04-01-17 8.00 7,621 8,064 Federal Home Loan Mtge Corp #295114 06-01-17 8.50 3,319 3,576 Federal Home Loan Mtge Corp #540861 09-01-19 8.50 31,006 33,523 Federal Home Loan Mtge Corp #A00304 04-01-21 9.00 36,259 39,963 Federal Home Loan Mtge Corp #A12692 10-01-32 6.00 68,314 71,630 Federal Home Loan Mtge Corp #A13854 09-01-33 6.00 114,257 119,618 Federal Home Loan Mtge Corp #B10254 10-01-18 5.50 326,529 340,236 Federal Home Loan Mtge Corp #B12280 02-01-19 5.50 186,713 194,551 Federal Home Loan Mtge Corp #C00103 03-01-22 8.50 87,648 95,165 Federal Home Loan Mtge Corp #C00144 08-01-22 8.50 79,121 85,914 Federal Home Loan Mtge Corp #C00356 08-01-24 8.00 295,078 313,187 Federal Home Loan Mtge Corp #C00666 10-01-28 7.00 38,125 40,768 Federal Home Loan Mtge Corp #C53878 12-01-30 5.50 1,369,899 1,410,324 Federal Home Loan Mtge Corp #C59161 10-01-31 6.00 104,581 109,023 Federal Home Loan Mtge Corp #C62993 01-01-32 6.50 830,362 875,961 Federal Home Loan Mtge Corp #C63552 01-01-32 6.50 1,386,839 1,471,803 Federal Home Loan Mtge Corp #C64703 03-01-32 6.50 791,315 840,394 Federal Home Loan Mtge Corp #C67723 06-01-32 7.00 644,746 690,529 Federal Home Loan Mtge Corp #C77372 03-01-33 6.00 227,902 238,356 Federal Home Loan Mtge Corp #C78031 04-01-33 5.50 7,641,004 7,891,310 Federal Home Loan Mtge Corp #C79930 06-01-33 5.50 6,528,141 6,712,037 Federal Home Loan Mtge Corp #C90767 12-01-23 6.00 5,942,921 6,179,891 Federal Home Loan Mtge Corp #D96300 10-01-23 5.50 4,319,570 4,436,793 Federal Home Loan Mtge Corp #E01127 02-01-17 6.50 810,728 849,061 Federal Home Loan Mtge Corp #E01419 05-01-18 5.50 3,160,227 3,298,128 Federal Home Loan Mtge Corp #E74288 12-01-13 6.00 84,308 88,385 Federal Home Loan Mtge Corp #E79810 11-01-14 7.50 658,214 696,798 Federal Home Loan Mtge Corp #E90216 05-01-17 6.00 874,056 917,142
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 15 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp #E98725 08-01-18 5.00% $7,294,934 $7,564,300 Federal Home Loan Mtge Corp #E99684 10-01-18 5.00 7,739,130 8,027,807 Federal Home Loan Mtge Corp #G00286 02-01-25 8.00 120,140 127,513 Federal Home Loan Mtge Corp #G01108 04-01-30 7.00 2,286,415 2,445,005 Federal Home Loan Mtge Corp #G01410 04-01-32 7.00 243,233 259,752 Federal Home Loan Mtge Corp #G01441 07-01-32 7.00 2,135,666 2,280,707 Federal Home Loan Mtge Corp #G01535 04-01-33 6.00 8,660,830 9,072,925 Federal Home Loan Mtge Corp #G02757 06-01-36 5.00 25,291,895 25,738,737 Federal Home Loan Mtge Corp #G03419 07-01-37 6.00 8,697,328 9,013,771 Federal Home Loan Mtge Corp #G30225 02-01-23 6.00 8,055,219 8,378,555 Federal Home Loan Mtge Corp #H01724 09-01-37 6.00 1,464,651 1,510,650 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2795 Cl IY 07-15-17 84.62 263,512(m) 8,622 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2817 Cl SA 06-15-32 77.27 5,918,349(m) 405,965 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 1241 Cl K 03-15-22 7.00 160,204 160,022 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2576 Cl KJ 02-15-33 5.50 7,366,110 7,506,145 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2641 Cl KC 01-15-18 6.50 2,828,069 3,026,848 Federal Natl Mtge Assn 03-01-24 4.50 40,500,000(g) 41,208,750 03-01-24 5.00 20,800,000(g) 21,385,000 03-01-39 4.50 170,000,000(g) 170,318,749 03-01-39 5.00 35,975,000(g) 36,593,338 03-01-39 5.50 44,500,000(g) 45,584,688 03-01-39 6.00 29,400,000(g) 30,364,673 03-01-39 7.00 30,000,000(g) 31,668,750 Federal Natl Mtge Assn #125479 04-01-27 7.50 192,239 205,940 Federal Natl Mtge Assn #190899 04-01-23 8.50 262,665 282,734 Federal Natl Mtge Assn #190944 05-01-24 6.00 4,559,117 4,741,000 Federal Natl Mtge Assn #190988 06-01-24 9.00 216,166 235,428 Federal Natl Mtge Assn #231309 09-01-23 6.50 64,865 68,538 Federal Natl Mtge Assn #231310 09-01-23 6.50 351,905 371,831 Federal Natl Mtge Assn #250330 09-01-25 8.00 209,156 222,958 Federal Natl Mtge Assn #250495 03-01-26 7.00 432,434 462,599 Federal Natl Mtge Assn #250765 12-01-26 8.00 165,080 175,964 Federal Natl Mtge Assn #251116 08-01-27 8.00 210,355 224,056 Federal Natl Mtge Assn #252440 05-01-29 7.00 166,613 178,093 Federal Natl Mtge Assn #252498 06-01-29 7.00 4,669 4,991 Federal Natl Mtge Assn #253883 08-01-16 6.00 1,979,485 2,075,573 Federal Natl Mtge Assn #254236 03-01-17 6.50 1,189,502 1,246,465 Federal Natl Mtge Assn #254383 06-01-32 7.50 304,900 325,762
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 16 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #254587 12-01-22 5.50% $451,064 $464,588 Federal Natl Mtge Assn #254802 07-01-18 4.50 2,201,853 2,253,688 Federal Natl Mtge Assn #254916 09-01-23 5.50 8,407,926 8,650,832 Federal Natl Mtge Assn #255788 06-01-15 5.50 2,465,473 2,570,028 Federal Natl Mtge Assn #256135 02-01-36 5.50 3,334,922 3,399,810 Federal Natl Mtge Assn #268071 01-01-24 6.50 97,527 103,050 Federal Natl Mtge Assn #303226 02-01-25 8.00 86,825 92,418 Federal Natl Mtge Assn #313049 08-01-11 8.50 219,245 220,733 Federal Natl Mtge Assn #323715 05-01-29 6.00 358,453 373,704 Federal Natl Mtge Assn #323933 09-01-29 7.00 3,179,220 3,398,276 Federal Natl Mtge Assn #408207 01-01-28 6.50 107,552 114,229 Federal Natl Mtge Assn #455791 01-01-29 6.50 403,512(v) 426,299 Federal Natl Mtge Assn #489888 05-01-29 6.50 1,589,889 1,678,682 Federal Natl Mtge Assn #493945 04-01-29 6.50 69,725 73,539 Federal Natl Mtge Assn #496029 01-01-29 6.50 1,578,678 1,667,831 Federal Natl Mtge Assn #518159 09-01-14 7.00 264,559 276,354 Federal Natl Mtge Assn #545008 06-01-31 7.00 2,030,734 2,177,051 Federal Natl Mtge Assn #545342 04-01-13 7.00 201,553 202,248 Federal Natl Mtge Assn #545684 05-01-32 7.50 244,892 261,804 Federal Natl Mtge Assn #545868 08-01-32 7.00 81,566 87,544 Federal Natl Mtge Assn #545869 07-01-32 6.50 1,651,944 1,751,495 Federal Natl Mtge Assn #545885 08-01-32 6.50 3,105,610 3,305,549 Federal Natl Mtge Assn #545910 08-01-17 6.00 3,370,188 3,522,451 Federal Natl Mtge Assn #555340 04-01-33 5.50 234,417 242,665 Federal Natl Mtge Assn #555343 08-01-17 6.00 3,271,105 3,427,845 Federal Natl Mtge Assn #555375 04-01-33 6.00 18,910,821(v) 19,732,513 Federal Natl Mtge Assn #555458 05-01-33 5.50 17,302,012 17,750,826 Federal Natl Mtge Assn #555528 04-01-33 6.00 13,192,150 13,703,935 Federal Natl Mtge Assn #555734 07-01-23 5.00 6,859,768 7,012,073 Federal Natl Mtge Assn #555794 09-01-28 7.50 683,590 732,000 Federal Natl Mtge Assn #567840 10-01-30 7.00 1,068,646 1,142,278 Federal Natl Mtge Assn #582154 05-01-31 6.50 92,202 97,236 Federal Natl Mtge Assn #587859 12-01-16 5.50 3,028,635 3,157,668 Federal Natl Mtge Assn #597374 09-01-31 7.00 638,803 684,832 Federal Natl Mtge Assn #606882 10-01-31 7.00 673,054 719,442 Federal Natl Mtge Assn #611831 02-01-31 7.50 31,524 33,760 Federal Natl Mtge Assn #615135 11-01-16 6.00 217,666 228,232 Federal Natl Mtge Assn #634650 04-01-32 7.50 115,133 123,011 Federal Natl Mtge Assn #638969 03-01-32 5.50 1,243,950 1,287,932 Federal Natl Mtge Assn #643362 04-01-17 6.50 395,421 414,356 Federal Natl Mtge Assn #646147 06-01-32 7.00 2,522,329 2,704,070 Federal Natl Mtge Assn #646446 06-01-17 6.50 851,324 892,092
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 17 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #649068 06-01-17 6.50% $1,450,567 $1,535,699 Federal Natl Mtge Assn #649263 08-01-17 6.50 1,455,629 1,540,796 Federal Natl Mtge Assn #650009 09-01-31 7.50 48,883 52,349 Federal Natl Mtge Assn #654208 10-01-32 6.50 1,692,471 1,783,819 Federal Natl Mtge Assn #654682 10-01-32 6.00 1,014,822 1,051,700 Federal Natl Mtge Assn #654689 11-01-32 6.00 1,153,300 1,197,778 Federal Natl Mtge Assn #656908 09-01-32 6.50 1,432,535 1,523,161 Federal Natl Mtge Assn #661815 10-01-32 6.00 117,977 122,936 Federal Natl Mtge Assn #662061 09-01-32 6.50 2,211,410 2,330,767 Federal Natl Mtge Assn #667604 10-01-32 5.50 242,349 249,403 Federal Natl Mtge Assn #667787 02-01-18 5.50 1,177,847 1,225,820 Federal Natl Mtge Assn #670382 09-01-32 6.00 8,642,883 8,978,181 Federal Natl Mtge Assn #670387 08-01-32 7.00 1,044,853 1,116,875 Federal Natl Mtge Assn #677089 01-01-33 5.50 508,631 523,436 Federal Natl Mtge Assn #678028 09-01-17 6.00 4,147,737 4,346,483 Federal Natl Mtge Assn #678065 02-01-33 6.50 366,042 389,245 Federal Natl Mtge Assn #678937 01-01-18 5.50 1,998,770 2,086,970 Federal Natl Mtge Assn #678941 02-01-18 5.50 2,420,000 2,525,592 Federal Natl Mtge Assn #679095 04-01-18 5.00 4,177,861 4,320,605 Federal Natl Mtge Assn #680961 01-01-33 6.00 480,737 500,925 Federal Natl Mtge Assn #681080 02-01-18 5.00 769,240 795,523 Federal Natl Mtge Assn #681166 04-01-32 6.50 310,626 327,586 Federal Natl Mtge Assn #681400 03-01-18 5.50 3,786,857 3,947,874 Federal Natl Mtge Assn #682825 01-01-33 6.00 1,373,917 1,427,218 Federal Natl Mtge Assn #683100 02-01-18 5.50 133,932 139,733 Federal Natl Mtge Assn #683116 02-01-33 6.00 218,451 226,926 Federal Natl Mtge Assn #684586 03-01-33 6.00 2,688,155 2,801,240 Federal Natl Mtge Assn #686172 02-01-33 6.00 2,309,585 2,399,185 Federal Natl Mtge Assn #686528 02-01-33 6.00 2,887,975 3,009,786 Federal Natl Mtge Assn #687051 01-01-33 6.00 8,903,577 9,193,805 Federal Natl Mtge Assn #689026 05-01-33 5.50 1,042,726 1,078,355 Federal Natl Mtge Assn #689093 07-01-28 5.50 2,981,399 3,086,813 Federal Natl Mtge Assn #694628 04-01-33 5.50 5,694,715(v) 5,901,333 Federal Natl Mtge Assn #694795 04-01-33 5.50 6,545,615(v) 6,778,640 Federal Natl Mtge Assn #694988 03-01-33 5.50 9,103,557 9,413,100 Federal Natl Mtge Assn #695202 03-01-33 6.50 3,212,505 3,381,879 Federal Natl Mtge Assn #695909 05-01-18 5.50 1,672,673 1,744,649 Federal Natl Mtge Assn #699424 04-01-33 5.50 3,809,804 3,944,964 Federal Natl Mtge Assn #702427 04-01-33 5.50 3,154,992 3,263,724 Federal Natl Mtge Assn #704005 05-01-33 5.50 871,941 896,776 Federal Natl Mtge Assn #705655 05-01-33 5.00 417,056 425,909 Federal Natl Mtge Assn #709093 06-01-33 6.00 142,783 148,233
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 18 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #709901 06-01-18 5.00% $397,588 $413,282 Federal Natl Mtge Assn #710823 05-01-33 5.50 584,715 606,212 Federal Natl Mtge Assn #711503 06-01-33 5.50 100,465 103,638 Federal Natl Mtge Assn #720070 07-01-23 5.50 2,127,198 2,188,653 Federal Natl Mtge Assn #723687 08-01-28 5.50 3,622,787 3,750,878 Federal Natl Mtge Assn #725232 03-01-34 5.00 16,639,331 16,992,545 Federal Natl Mtge Assn #725424 04-01-34 5.50 1,551,737 1,595,934 Federal Natl Mtge Assn #725425 04-01-34 5.50 23,215,472 23,847,905 Federal Natl Mtge Assn #725431 08-01-15 5.50 94,094 98,397 Federal Natl Mtge Assn #725684 05-01-18 6.00 7,358,480 7,700,247 Federal Natl Mtge Assn #725813 12-01-33 6.50 8,314,850 8,753,235 Federal Natl Mtge Assn #726940 08-01-23 5.50 69,305 71,899 Federal Natl Mtge Assn #730153 08-01-33 5.50 983,454 1,011,465 Federal Natl Mtge Assn #735212 12-01-34 5.00 17,639,619 17,997,530 Federal Natl Mtge Assn #735224 02-01-35 5.50 28,971,586 29,796,758 Federal Natl Mtge Assn #735578 06-01-35 5.00 17,365,759 17,707,260 Federal Natl Mtge Assn #735841 11-01-19 4.50 1,468,839 1,500,664 Federal Natl Mtge Assn #738921 11-01-32 6.50 766,506 814,699 Federal Natl Mtge Assn #743262 10-01-18 5.00 2,605,710 2,703,922 Federal Natl Mtge Assn #743347 10-01-33 6.00 82,902 86,469 Federal Natl Mtge Assn #743579 11-01-33 5.50 259,616 267,010 Federal Natl Mtge Assn #745355 03-01-36 5.00 16,685,338(v) 17,013,458 Federal Natl Mtge Assn #745563 08-01-34 5.50 1,284,190 1,320,767 Federal Natl Mtge Assn #747642 11-01-28 5.50 2,323,429 2,405,579 Federal Natl Mtge Assn #753074 12-01-28 5.50 6,451,454 6,679,559 Federal Natl Mtge Assn #753091 12-01-33 5.50 3,745,612 3,852,295 Federal Natl Mtge Assn #757581 01-01-19 5.50 800,966 833,589 Federal Natl Mtge Assn #759342 01-01-34 6.50 1,292,204 1,366,875 Federal Natl Mtge Assn #765759 12-01-18 5.00 2,535,049 2,621,663 Federal Natl Mtge Assn #766641 03-01-34 5.00 5,903,170 6,022,946 Federal Natl Mtge Assn #776962 04-01-29 5.00 15,231,209 15,648,776 Federal Natl Mtge Assn #779676 06-01-34 5.00 1,992,024 2,032,443 Federal Natl Mtge Assn #804442 12-01-34 6.50 1,121,372 1,178,392 Federal Natl Mtge Assn #831870 11-01-36 6.50 1,435,481 1,503,314 Federal Natl Mtge Assn #844445 12-01-35 5.50 13,563,611 13,924,500 Federal Natl Mtge Assn #845109 05-01-36 6.00 23,985,089 24,818,143 Federal Natl Mtge Assn #878661 02-01-36 5.50 1,567,425 1,596,128 Federal Natl Mtge Assn #881629 02-01-36 5.50 1,039,752 1,058,793 Federal Natl Mtge Assn #882063 06-01-36 6.50 3,006,165 3,173,929 Federal Natl Mtge Assn #886291 07-01-36 7.00 6,140,338 6,518,205 Federal Natl Mtge Assn #909214 07-01-38 7.00 1,757,923 1,858,019 Federal Natl Mtge Assn #915770 03-01-37 6.50 2,798,240 2,930,312
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 19 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #928860 11-01-37 8.00% $1,206,262 $1,276,886 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-63 Cl IP 07-25-33 25.56 13,294,868(m) 1,654,899 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12-25-31 33.07 2,539,745(m) 224,534 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2004-84 Cl GI 12-25-22 59.90 699,272(m) 37,751 Federal Natl Mtge Assn Collateralized Mtge Obligation Principal Only Series 43 Cl 1 09-01-18 2.72 9,874(n) 9,240 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-133 Cl GB 12-25-26 8.00 2,654,174 2,805,044 Govt Natl Mtge Assn 03-01-39 5.50 19,000,000(g) 19,475,095 03-01-39 6.00 50,000,000(g) 51,671,899 Govt Natl Mtge Assn #345538 02-15-24 8.00 91,808 99,064 Govt Natl Mtge Assn #398831 08-15-26 8.00 119,597 129,194 Govt Natl Mtge Assn #423782 05-15-26 7.50 300,757 324,352 Govt Natl Mtge Assn #425004 10-15-33 5.50 3,242,584 3,343,298 Govt Natl Mtge Assn #426170 06-15-26 8.00 103,347 111,640 Govt Natl Mtge Assn #567717 06-15-32 7.50 15,127 16,345 Govt Natl Mtge Assn #595256 12-15-32 6.00 5,291,135 5,505,512 Govt Natl Mtge Assn #604580 08-15-33 5.00 3,161,997 3,239,673 Govt Natl Mtge Assn #604708 10-15-33 5.50 8,165,718 8,419,343 Govt Natl Mtge Assn #606844 09-15-33 5.00 7,798,669 7,990,245 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-70 Cl IC 08-20-32 47.25 6,016,572(m) 448,582 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-80 Cl CI 01-20-32 452.28 806,214(m) 11,657 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2005-16 Cl 3A1B 01-19-36 0.81 262,493(k) 48,666 Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2006-8 Cl 2A1B 08-21-36 0.72 899,464(k) 225,045 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR8 Cl AX1 04-25-35 0.80 65,790,560(b,m) 1 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-AR25 Cl 3A3 09-25-36 6.72 29,573,246(m) 302,818 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Series 2005-AR25 Cl 1A21 12-25-35 5.78 5,691,211(k) 2,896,974 Lehman XS Trust Collateralized Mtge Obligation Series 2007-5H Cl 1A1 05-25-37 6.50 18,379,591 8,190,405
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 20 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MORTGAGE-BACKED (CONT.) MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-2 Cl 4A1 02-25-19 5.00% $4,912,293 $4,313,607 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-4 Cl 2A1 05-25-34 6.00 2,798,399 2,471,877 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-7 Cl 8A1 08-25-19 5.00 3,961,675 3,665,713 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2004-8 Cl 7A1 09-25-19 5.00 5,469,938 4,892,928 MASTR Alternative Loan Trust Collateralized Mtge Obligation Series 2005-3 Cl 1A2 04-25-35 5.50 950,000 741,072 Merrill Lynch Alternative Note Asset Collateralized Mtge Obligation Series 2007-OAR2 Cl A1 04-25-37 0.65 937,136(j) 371,880 Residential Accredit Loans Collateralized Mtge Obligation Series 2006-QS3 Cl 1A10 03-25-36 6.00 4,878,249 2,861,921 Residential Funding Mtge Securities I Collateralized Mtge Obligation Series 2005-S6 Cl A8 08-25-35 5.25 19,610,507 14,682,220 Structured Adjustable Rate Mtge Loan Trust Collateralized Mtge Obligation Series 2006-5 Cl 4A1 06-25-36 5.91 635,027(k) 322,817 Structured Asset Securities Collateralized Mtge Obligation Series 2003-33H Cl 1A1 10-25-33 5.50 11,569,068 9,911,438 Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation Series 2005-AR14 Cl 2A1 12-25-35 5.28 5,030,953(k) 3,383,582 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-10 Cl A1 10-25-35 5.00 24,746,056 18,452,245 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-14 Cl 2A1 12-25-35 5.50 1,878,576 1,468,518 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-5 Cl 2A1 05-25-35 5.50 9,943,952 7,203,151 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR6 Cl 5A1 03-25-36 5.11 10,408,662(k) 6,411,180 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2007-15 Cl A1 11-25-37 6.00 13,860,300 9,691,381 --------------- Total 1,439,552,318 ------------------------------------------------------------------------------------- AEROSPACE & DEFENSE (--%) Moog Sr Sub Nts 06-15-18 7.25 915,000(d) 823,500 ------------------------------------------------------------------------------------- BANKING (1.7%) Banco Nacional de Desenvolvimento Economico e Social Sr Unsecured 06-16-18 6.37 975,000(c,d) 903,094 Bank of America Sr Unsecured 05-01-18 5.65 17,400,000(s) 14,795,914 Citigroup Sr Unsecured 02-14-11 5.13 4,235,000 3,925,379 Goldman Sachs Group Sr Unsecured 02-15-19 7.50 6,365,000(s) 6,297,268
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 21 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) BANKING (CONT.) JPMorgan Chase & Co Sr Unsecured 01-15-18 6.00% $5,090,000 $4,920,070 Manufacturers & Traders Trust Sub Nts 12-01-21 5.63 15,595,000 10,760,837 Wells Fargo & Co Sr Unsecured 12-11-17 5.63 13,050,000(s) 12,386,786 --------------- Total 53,989,348 ------------------------------------------------------------------------------------- BROKERAGE (--%) Lehman Brothers Holdings Sr Unsecured 05-02-18 6.88 755,000(b,g,r) 98,150 05-02-18 6.88 9,285,000(b,r) 1,207,050 --------------- Total 1,305,200 ------------------------------------------------------------------------------------- CHEMICALS (0.4%) Airgas 10-01-18 7.13 2,695,000(d) 2,560,250 Chemtura 06-01-16 6.88 2,710,000(b) 1,219,500 INVISTA Sr Unsecured 05-01-12 9.25 9,676,000(d) 8,853,540 NALCO 11-15-11 7.75 1,415,000 1,400,850 --------------- Total 14,034,140 ------------------------------------------------------------------------------------- CONSUMER CYCLICAL SERVICES (--%) West Corp 10-15-14 9.50 875,000 612,500 ------------------------------------------------------------------------------------- CONSUMER PRODUCTS (0.3%) Clorox Sr Unsecured 10-15-12 5.45 4,620,000 4,705,343 Jarden 05-01-17 7.50 4,550,000 3,503,500 Visant 10-01-12 7.63 370,000 345,025 --------------- Total 8,553,868 ------------------------------------------------------------------------------------- ELECTRIC (5.7%) Alabama Power Sr Unsecured 03-01-39 6.00 2,570,000(g) 2,551,239 Aquila Sr Unsecured 07-01-12 11.88 1,675,000 1,767,125 CenterPoint Energy Houston Electric LLC Series U 03-01-14 7.00 8,230,000 8,512,001 Cleveland Electric Illuminating 1st Mtge 11-15-18 8.88 13,575,000 14,997,198 Consumers Energy 1st Mtge 09-15-18 5.65 2,030,000 1,930,475 Detroit Edison 10-01-13 6.40 6,325,000 6,581,681 Dominion Resources Sr Nts 01-15-19 8.88 5,105,000 5,839,558 Duke Energy Carolinas LLC 1st Refunding Mtge 10-01-15 5.30 3,130,000 3,181,413 Duke Energy Carolinas LLC Sr Unsecured 02-01-14 6.30 6,370,000(s) 6,617,812 Duke Energy Carolinas LLC Sr Unsecured Series D 03-01-10 7.38 9,880,000 10,215,841 Duke Energy Indiana 1st Mtge 08-15-38 6.35 750,000 809,676 Edison Mission Energy Sr Unsecured 06-15-13 7.50 2,040,000 1,871,700 06-15-16 7.75 1,235,000(s) 1,123,850 Exelon Sr Unsecured 06-15-10 4.45 11,905,000 11,789,414 FirstEnergy Sr Unsecured Series B 11-15-11 6.45 5,945,000 5,999,823
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 22 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) ELECTRIC (CONT.) Florida Power 1st Mtge 06-15-38 6.40% $1,260,000 $1,324,486 Indiana Michigan Power Sr Nts 03-15-19 7.00 6,570,000 6,412,183 Indiana Michigan Power Sr Unsecured 03-15-37 6.05 13,020,000 10,907,609 Jersey Central Power & Light Sr Unsecured 02-01-19 7.35 1,785,000 1,791,915 Majapahit Holding 10-17-16 7.75 480,000(c,d) 326,400 Midwest Generation LLC Pass-Through Ctfs Series B 01-02-16 8.56 163,621 161,576 Nevada Power 08-01-18 6.50 8,395,000 8,001,598 Nevada Power Series M 03-15-16 5.95 4,535,000 4,192,712 NiSource Finance 03-01-13 6.15 3,890,000 3,328,054 03-15-18 6.40 1,890,000 1,483,769 01-15-19 6.80 5,580,000 4,375,741 09-15-20 5.45 1,985,000 1,359,249 Northern States Power Sr Unsecured 08-01-09 6.88 8,930,000 9,032,686 NRG Energy 02-01-16 7.38 9,935,000 9,165,038 PacifiCorp 1st Mtge 09-15-13 5.45 5,095,000 5,317,606 07-15-38 6.35 1,675,000 1,700,882 Portland General Electric 03-15-10 7.88 3,165,000 3,195,767 Potomac Electric Power 1st Mtge 12-15-38 7.90 4,390,000 4,950,811 Potomac Electric Power Sr Secured 06-01-35 5.40 3,160,000 2,660,395 PPL Electric Utilities 1st Mtge 11-30-13 7.13 7,935,000 8,981,898 Sierra Pacific Power Series M 05-15-16 6.00 13,555,000 12,549,449 --------------- Total 185,008,630 ------------------------------------------------------------------------------------- ENTERTAINMENT (0.1%) United Artists Theatre Circuit Pass-Through Ctfs 07-01-15 9.30 4,943,559(o) 4,836,778 ------------------------------------------------------------------------------------- FOOD AND BEVERAGE (1.9%) ConAgra Foods Sr Unsecured 09-15-11 6.75 3,895,000 4,099,530 08-01-27 6.70 6,687,000 6,712,297 Cott Beverages USA 12-15-11 8.00 2,563,000 1,384,020 Dr Pepper Snapple Group 05-01-18 6.82 18,820,000 17,521,476 Molson Coors Capital Finance 09-22-10 4.85 13,415,000(c) 13,498,589 SABMiller 01-15-14 5.70 20,215,000(c,d) 19,374,035 --------------- Total 62,589,947 ------------------------------------------------------------------------------------- GAMING (0.2%) Boyd Gaming Sr Sub Nts 02-01-16 7.13 6,454,000 3,291,540 MGM MIRAGE 02-27-14 5.88 1,779,000(s) 720,495 07-15-15 6.63 1,686,000 657,540 Shingle Springs Tribal Gaming Authority Sr Nts 06-15-15 9.38 2,505,000(d) 1,415,325 --------------- Total 6,084,900 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 23 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) GAS DISTRIBUTORS (0.2%) Southern California Gas 1st Mtge 03-15-14 5.50% $4,940,000 $5,231,638 ------------------------------------------------------------------------------------- GAS PIPELINES (2.3%) CenterPoint Energy Resources Sr Unsecured 02-15-11 7.75 8,660,000 8,777,681 Colorado Interstate Gas Sr Unsecured 11-15-15 6.80 14,603,000 13,392,075 El Paso Sr Unsecured 12-12-13 12.00 3,075,000 3,259,500 06-15-14 6.88 965,000 852,886 02-15-16 8.25 1,080,000 993,600 Kinder Morgan Energy Partners LP Sr Unsecured 03-15-11 6.75 2,345,000 2,399,472 Northern Natural Gas Sr Unsecured 02-15-37 5.80 2,975,000(d) 2,528,226 Northwest Pipeline Sr Unsecured 06-15-16 7.00 5,870,000 5,805,759 04-15-17 5.95 9,860,000 9,087,207 Southern Natural Gas Sr Unsecured 04-01-17 5.90 9,256,000(d) 7,897,164 Southern Star Central Sr Nts 03-01-16 6.75 1,460,000 1,175,300 Transcontinental Gas Pipe Line Sr Unsecured 04-15-16 6.40 11,329,000 10,864,715 Transcontinental Gas Pipe Line Sr Unsecured Series B 08-15-11 7.00 8,665,000 8,782,957 --------------- Total 75,816,542 ------------------------------------------------------------------------------------- HEALTH CARE (0.8%) Cardinal Health Sr Unsecured 06-15-12 5.65 3,860,000 3,771,294 Community Health Systems 07-15-15 8.88 9,190,000(s) 8,696,038 DaVita 03-15-13 6.63 3,500,000 3,412,500 HCA Sr Secured 02-15-17 9.88 4,525,000(d) 4,321,375 HCA Sr Secured Pay-in-kind 11-15-16 9.63 4,615,000(l) 3,853,525 Omnicare 12-15-13 6.75 2,370,000 2,204,100 12-15-15 6.88 355,000 330,150 Select Medical 02-01-15 7.63 1,175,000 722,625 --------------- Total 27,311,607 ------------------------------------------------------------------------------------- HEALTH CARE INSURANCE (0.1%) Coventry Health Care Sr Unsecured 08-15-14 6.30 3,370,000 2,453,583 03-15-17 5.95 1,685,000 1,101,575 --------------- Total 3,555,158 ------------------------------------------------------------------------------------- INDEPENDENT ENERGY (4.1%) Anadarko Petroleum Sr Unsecured 09-15-09 2.40 2,175,000(j) 2,151,754 09-15-16 5.95 13,215,000 11,763,147 Canadian Natural Resources Sr Unsecured 02-01-39 6.75 8,795,000(c) 7,020,387 Chesapeake Energy 01-15-16 6.63 5,260,000(s) 4,300,050 01-15-16 6.88 4,570,000 3,758,825 Denbury Resources Sr Sub Nts 03-01-16 9.75 2,055,000 1,931,700 EnCana Holdings Finance 05-01-14 5.80 9,010,000(c) 8,745,584
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 24 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) INDEPENDENT ENERGY (CONT.) EnCana Sr Unsecured 11-01-11 6.30% $17,330,000(c) $17,931,698 10-15-13 4.75 6,305,000(c) 5,934,277 08-15-37 6.63 2,465,000(c) 2,054,647 Forest Oil Sr Nts 02-15-14 8.50 3,930,000(d) 3,576,300 Nexen Sr Unsecured 11-20-13 5.05 3,275,000(c) 3,019,060 05-15-37 6.40 10,743,000(c) 7,581,528 PetroHawk Energy Sr Nts 08-01-14 10.50 3,125,000(d) 3,078,125 Quicksilver Resources 08-01-15 8.25 6,120,000 4,957,200 SandRidge Energy 06-01-18 8.00 5,740,000(d) 4,505,900 XTO Energy Sr Unsecured 06-15-13 4.63 755,000 722,009 02-01-14 4.90 21,995,000 20,857,881 01-31-15 5.00 6,965,000 6,465,714 06-30-15 5.30 11,615,000 11,050,279 --------------- Total 131,406,065 ------------------------------------------------------------------------------------- INTEGRATED ENERGY (0.8%) Marathon Oil Sr Nts 02-15-19 7.50 2,920,000 2,836,503 Marathon Oil Sr Unsecured 03-15-18 5.90 11,760,000 10,475,409 Petro-Canada Sr Unsecured 05-15-38 6.80 11,560,000(c) 8,512,876 Suncor Energy Sr Unsecured 06-01-39 6.85 3,320,000(c) 2,400,955 TNK-BP Finance 03-13-18 7.88 545,000(c,d) 321,550 --------------- Total 24,547,293 ------------------------------------------------------------------------------------- LIFE INSURANCE (1.2%) MetLife 02-15-19 7.72 5,335,000 5,147,656 Metropolitan Life Global Funding I Sr Secured 04-10-13 5.13 15,785,000(d) 14,886,794 Pricoa Global Funding I Sr Secured 10-18-12 5.40 11,265,000(d) 10,228,726 Principal Life Income Funding Trusts Sr Secured 12-14-12 5.30 8,140,000 7,566,350 --------------- Total 37,829,526 ------------------------------------------------------------------------------------- MEDIA CABLE (1.1%) Charter Communications Operating LLC/Capital Secured 04-30-12 8.00 3,150,000(d) 2,803,500 Comcast 03-15-11 5.50 13,135,000 13,315,170 03-15-37 6.45 7,140,000(s) 6,130,918 CSC Holdings Sr Unsecured 04-15-14 8.50 3,145,000(d) 3,042,788 02-15-19 8.63 1,085,000(d) 1,022,613 CSC Holdings Sr Unsecured Series B 07-15-09 8.13 2,670,000 2,716,725 DIRECTV Holdings LLC/Financing 05-15-16 7.63 3,505,000 3,364,800 Videotron 04-15-18 9.13 465,000(c,d) 458,606 04-15-18 9.13 1,530,000(c,d) 1,537,650 Virgin Media Finance 04-15-14 8.75 1,405,000(c) 1,262,744 --------------- Total 35,655,514 ------------------------------------------------------------------------------------- MEDIA NON CABLE (3.3%) British Sky Broadcasting Group 02-15-18 6.10 14,415,000(c,d) 12,905,533 EchoStar DBS 10-01-13 7.00 4,415,000 4,116,988 10-01-14 6.63 3,653,000 3,287,700 02-01-16 7.13 2,945,000 2,657,863
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 25 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) MEDIA NON CABLE (CONT.) Intelsat Subsidiary Holding Sr Unsecured 01-15-15 8.88% $615,000(c,d) $570,413 Lamar Media 08-15-15 6.63 7,578,000 4,887,810 Liberty Media LLC Sr Unsecured 05-15-13 5.70 8,595,000 6,500,201 News America 12-15-35 6.40 4,188,000 3,289,310 11-15-37 6.65 3,610,000 2,918,440 01-09-38 6.75 2,970,000 2,991,544 Nielsen Finance LLC 08-01-14 10.00 3,485,000 2,875,125 Rainbow Natl Services LLC 09-01-12 8.75 1,850,000(d) 1,852,313 Reed Elsevier Capital 08-01-11 6.75 7,680,000 7,462,208 RR Donnelley & Sons Sr Unsecured 01-15-17 6.13 20,400,000 14,918,009 Thomson Reuters 08-15-09 4.25 6,430,000(c) 6,463,905 07-15-13 5.95 3,320,000(c) 3,278,935 10-01-14 5.70 16,400,000(c) 16,248,266 07-15-18 6.50 9,720,000(c) 9,108,593 --------------- Total 106,333,156 ------------------------------------------------------------------------------------- METALS (0.3%) Freeport-McMoRan Copper & Gold Sr Unsecured 04-01-17 8.38 9,820,000 8,469,750 ------------------------------------------------------------------------------------- NON CAPTIVE DIVERSIFIED (0.3%) General Electric Capital Sr Unsecured 01-10-39 6.88 10,610,000 8,586,047 ------------------------------------------------------------------------------------- OIL FIELD SERVICES (0.3%) Gaz Capital Secured 11-22-16 6.21 1,255,000(c,d) 831,438 KazMunaiGaz Finance 07-02-18 9.13 720,000(c,d) 473,162 Weatherford Intl 03-01-19 9.63 6,825,000(c) 6,971,655 03-15-38 7.00 1,425,000(c) 1,014,576 --------------- Total 9,290,831 ------------------------------------------------------------------------------------- PACKAGING (0.3%) Crown Americas LLC/Capital 11-15-15 7.75 4,475,000 4,508,562 Owens-Brockway Glass Container 05-15-13 8.25 4,320,000 4,363,200 Vitro 02-01-17 9.13 4,465,000(b,c) 1,127,413 --------------- Total 9,999,175 ------------------------------------------------------------------------------------- PAPER (0.1%) Georgia-Pacific LLC 01-15-17 7.13 1,970,000(d,s) 1,807,475 NewPage Sr Secured 05-01-12 10.00 3,530,000 1,067,825 Smurfit-Stone Container Enterprises Sr Unsecured 03-15-17 8.00 890,000(b,r) 77,875 --------------- Total 2,953,175 ------------------------------------------------------------------------------------- PHARMACEUTICALS (0.1%) Roche Holdings 03-01-39 7.00 2,780,000(d) 2,913,079 ------------------------------------------------------------------------------------- RAILROADS (0.7%) CSX Sr Unsecured 03-15-12 6.30 4,400,000 4,309,131 03-15-13 5.75 10,785,000 10,249,503 04-01-15 6.25 10,349,000 9,631,183 --------------- Total 24,189,817 ------------------------------------------------------------------------------------- RETAILERS (0.1%) Home Depot Sr Unsecured 03-01-11 5.20 2,060,000 2,068,819 ------------------------------------------------------------------------------------- TECHNOLOGY (0.3%) SunGard Data Systems 08-15-13 9.13 3,246,000 2,759,100
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 26 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
BONDS (CONTINUED) COUPON PRINCIPAL ISSUER RATE AMOUNT VALUE(a) TECHNOLOGY (CONT.) Tyco Electronics Group 10-01-12 6.00% $1,720,000(c) $1,516,003 01-15-14 5.95 7,850,000(c) 6,938,053 --------------- Total 11,213,156 ------------------------------------------------------------------------------------- TRANSPORTATION SERVICES (0.9%) Erac USA Finance 10-15-17 6.38 23,290,000(d) 15,227,573 FedEx Sr Nts 01-15-19 8.00 13,570,000 14,186,357 --------------- Total 29,413,930 ------------------------------------------------------------------------------------- TREASURY (--%) Govt of Indonesia (Indonesian Rupiah) 07-15-22 10.25 15,000,000,000(c) 926,098 ------------------------------------------------------------------------------------- WIRELESS (1.0%) Centennial Communications Sr Nts 01-01-13 7.19 4,005,000(j) 3,984,975 Nextel Communications Series D 08-01-15 7.38 4,480,000 2,060,800 Nextel Communications Series E 10-31-13 6.88 310,000 147,250 Rogers Communications 08-15-18 6.80 8,830,000(c) 8,818,962 Sprint Capital 01-30-11 7.63 6,800,000 5,899,000 US Cellular Sr Unsecured 12-15-33 6.70 5,685,000 4,079,619 Verizon Wireless Capital LLC Sr Unsecured 02-01-14 5.55 7,445,000(d) 7,401,730 --------------- Total 32,392,336 ------------------------------------------------------------------------------------- WIRELINES (5.5%) AT&T Sr Unsecured 03-15-11 6.25 14,811,000 15,443,326 01-15-38 6.30 5,605,000 4,992,274 02-15-39 6.55 9,055,000 8,403,049 Frontier Communications Sr Unsecured 03-15-19 7.13 1,770,000 1,486,800 Qwest Sr Unsecured 10-01-14 7.50 7,220,000 6,416,775 06-15-15 7.63 2,030,000 1,811,775 Telecom Italia Capital 11-15-13 5.25 24,965,000(c) 22,419,893 Telefonica Europe 09-15-10 7.75 19,171,000(c) 20,143,698 TELUS Sr Unsecured 06-01-11 8.00 41,981,000(c) 43,482,241 Verizon New York Sr Unsecured Series A 04-01-12 6.88 41,117,000 42,011,706 Verizon Pennsylvania Sr Unsecured Series A 11-15-11 5.65 3,290,000 3,348,508 Windstream 08-01-16 8.63 5,560,000 5,337,600 03-15-19 7.00 2,700,000 2,322,000 --------------- Total 177,619,645 ------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $3,787,127,356) $3,545,419,860 -------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 27 PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
MUNICIPAL BONDS (0.1%) 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% $7,730,000 $4,026,093 ------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $7,716,800) $4,026,093 ------------------------------------------------------------------------------------- SENIOR LOANS (1.7%)(t) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(a) CHEMICALS (0.2%) Hexion Specialty Chemicals Tranche C1 Term Loan TBD TBD $2,200,032(g,u) $821,338 05-05-13 3.69% 8,835,838 3,298,683 Hexion Specialty Chemicals Tranche C2 Term Loan TBD TBD 477,909(g,u) 178,418 05-05-13 3.75 1,921,996 717,539 --------------- Total 5,015,978 ------------------------------------------------------------------------------------- CONSUMER CYCLICAL SERVICES (0.2%) West Corp Term B2 Loan 10-24-13 2.82-2.85 7,805,502 5,691,538 ------------------------------------------------------------------------------------- ELECTRIC (0.1%) Energy Future Holdings LLC Tranche B3 Term Loan TBD TBD 3,401,389(g,u) 2,104,609 10-10-14 3.95-4.45 8,503,472 5,261,523 --------------- Total 7,366,132 ------------------------------------------------------------------------------------- FOOD AND BEVERAGE (0.2%) Pinnacle Foods Finance LLC Term Loan 04-02-14 3.16 6,024,709 4,881,099 ------------------------------------------------------------------------------------- HEALTH CARE (--%) HCA Tranche B1 Term Loan 11-18-13 3.71 126,406 106,050 ------------------------------------------------------------------------------------- MEDIA CABLE (0.2%) Charter Communications Operating LLC Term Loan 03-06-14 3.18-3.36 6,375,957 5,068,184 ------------------------------------------------------------------------------------- MEDIA NON CABLE (0.2%) Idearc Tranche B Term Loan 11-17-14 2.48-3.46 2,604,767 909,506 Nielsen Finance LLC Term Loan 08-09-13 2.45 5,795,898(c) 4,552,215 --------------- Total 5,461,721 ------------------------------------------------------------------------------------- OIL FIELD SERVICES (0.2%) Dresser Tranche B Term Loan 05-04-14 2.73-3.49 7,166,795 5,098,673 ------------------------------------------------------------------------------------- PAPER (0.1%) Georgia-Pacific LLC Tranche B Term Loan 12-20-12 2.96-4.19 7,209 6,212 NewPage Term Loan TBD TBD 8,877,000(g,u) 5,501,520 12-22-14 5.31 1,157,078 717,099 --------------- Total 6,224,831 ------------------------------------------------------------------------------------- TECHNOLOGY (0.1%) SunGard Data Systems Term Loan 02-28-14 2.20-2.99 5,386,260 4,489,124 ------------------------------------------------------------------------------------- TRANSPORTATION SERVICES (0.1%) Hertz Letter of Credit TBD TBD 124,230(g,u) 81,915 12-21-12 1.53 248,460 163,829
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- 28 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
SENIOR LOANS (CONTINUED) COUPON PRINCIPAL BORROWER RATE AMOUNT VALUE(a) TRANSPORTATION SERVICES (CONT.) Hertz Tranche B Term Loan TBD TBD $694,031(g,u) $457,630 12-21-12 2.20-2.65% 1,388,061 915,260 --------------- Total 1,618,634 ------------------------------------------------------------------------------------- WIRELINES (0.1%) Fairpoint Communications Tranche B Term Loan TBD TBD 7,735,000(g,u) 4,215,575 ------------------------------------------------------------------------------------- TOTAL SENIOR LOANS) (Cost: $60,231,513) $55,237,539 -------------------------------------------------------------------------------------
COMMON STOCKS (--%) ISSUER SHARES VALUE(a) PAPER & FOREST PRODUCTS Crown Paper Escrow 6,950,000(b,o) $7 TOTAL COMMON STOCKS (Cost: $--) 7 -------------------------------------------------------------------------------------
MONEY MARKET FUND (7.7%) SHARES VALUE(a) RiverSource Short-Term Cash Fund, 0.29% 249,118,002(w) $249,118,002 ------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $249,118,002) $249,118,002 ------------------------------------------------------------------------------------- INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN (9.1%) SHARES VALUE(a) JPMorgan Prime Money Market Fund 293,327,710 $293,327,710 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN (Cost: $293,327,710) $293,327,710 ------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $4,397,521,381)(x) $4,147,129,211 =====================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT FEB. 28, 2009
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) ------------------------------------------------------------------------------------ U.S. Long Bond, 20-year 169 $20,845,094 June 2009 $(482,021) U.S. Treasury Note, 2- year 366 79,279,033 July 2009 (114,971) U.S. Treasury Note, 5- year (4,130) (485,500,870) April 2009 (1,797,815) U.S. Treasury Note, 5- year (230) (26,814,766) July 2009 29,477 U.S. Treasury Note, 10- year (1,070) (130,222,349) March 2009 1,896,363 ------------------------------------------------------------------------------------ Total $(468,967) ------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 29 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- CREDIT DEFAULT SWAP CONTRACTS OUTSTANDING AT FEB. 28, 2009
REFERENCED BUY/SELL PAY/RECEIVE EXPIRATION UNREALIZED COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE NOTIONAL AMOUNT APPRECIATION --------------------------------------------------------------------------------------------------------------- Goldman Sachs Home Depot Buy .50 March 20, 2011 $1,920,000 $59,462 --------------------------------------------------------------------------------------------------------------- Goldman Sachs ConAgra Foods Buy .18 Sept. 20, 2011 3,895,000 28,039 --------------------------------------------------------------------------------------------------------------- Citibank Reed Elsevier Buy .26 Sept. 20, 2011 1,915,000 53,372 Capital --------------------------------------------------------------------------------------------------------------- Goldman Sachs FirstEnergy Buy .60 Dec. 20, 2011 1,750,000 20,064 --------------------------------------------------------------------------------------------------------------- JPMorgan Chase Bank Cardinal Health Buy .225 June 20, 2012 3,860,000 36,908 --------------------------------------------------------------------------------------------------------------- JPMorgan Chase Bank NiSource Finance Buy .55 Dec. 20, 2012 3,890,000 576,782 --------------------------------------------------------------------------------------------------------------- Total $774,627 ---------------------------------------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT FEB. 28, 2009
CURRENCY TO BE CURRENCY TO BE UNREALIZED UNREALIZED EXCHANGE DATE DELIVERED RECEIVED APPRECIATION DEPRECIATION --------------------------------------------------------------------------------------------- March 11, 2009 7,643,000 9,619,938 $-- $(66,622) European Monetary Unit U.S. Dollar --------------------------------------------------------------------------------------------- March 11, 2009 4,984,000 6,344,134 27,528 -- European Monetary Unit U.S. Dollar --------------------------------------------------------------------------------------------- March 11, 2009 65,957,000 9,884,696 498,804 -- Norwegian Krone U.S. Dollar --------------------------------------------------------------------------------------------- March 11, 2009 7,495,000 6,485,864 77,692 -- Swiss Franc U.S. Dollar --------------------------------------------------------------------------------------------- March 11, 2009 16,040,462 24,360,000 -- (480,841) U.S. Dollar Australian Dollar --------------------------------------------------------------------------------------------- March 11, 2009 408,064 640,000 727 -- U.S. Dollar Australian Dollar --------------------------------------------------------------------------------------------- March 11, 2009 6,445,423 608,163,000 -- (212,061) U.S. Dollar Japanese Yen --------------------------------------------------------------------------------------------- March 11, 2009 10,178,653 18,910,000 -- (717,201) U.S. Dollar New Zealand Dollar --------------------------------------------------------------------------------------------- Total $604,751 $(1,476,725) ---------------------------------------------------------------------------------------------
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. 28, 2009, the value of foreign securities represented 9.0% of net assets. -------------------------------------------------------------------------------- 30 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Feb. 28, 2009, the value of these securities amounted to $193,201,833 or 6.0% of net assets. (e) 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 Gross Domestic Product (GDP) level of the previous year for the respective country. 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. (f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. (g) At Feb. 28, 2009, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $671,693,305. See Note 1 to the financial statements. (h) 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
(i) 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. (j) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2009. (k) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2009. (l) Pay-in-kind securities are securities in which the issuer makes interest or dividend payments in cash or in additional securities. The securities usually have the same terms as the original holdings. (m) 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. The interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at Feb. 28, 2009. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 31 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (n) 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. 28, 2009. (o) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). Information concerning such security holdings at Feb. 28, 2009, is as follows:
ACQUISITION SECURITY DATES COST -------------------------------------------------------------------------- Banc of America Funding* Series 2006-2 Cl N1 7.25% 2046 11-14-06 thru 10-14-08 $286,277 Crown Paper Escrow Common 04-16-07 -- United Artist Theatre Circuit Pass-Through Ctfs 9.30% 2015 02-23-96 thru 08-12-96 4,784,489
* Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. (p) Represents comparable securities held to satisfy future delivery requirements of the following open forward sale commitments at Feb. 28, 2009:
PRINCIPAL SETTLEMENT PROCEEDS SECURITY AMOUNT DATE RECEIVABLE VALUE --------------------------------------------------------------------------- Federal Natl Mtge Assn 03-01-24 5.50% $13,000,000 03-17-09 $13,426,563 $13,475,306
(q) Negligible market value. (r) This position is in bankruptcy. (s) At Feb. 28, 2009, security was partially or fully on loan. See Note 5 to the financial statements. (t) 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. (u) 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. -------------------------------------------------------------------------------- 32 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (v) At Feb. 28, 2009, investments in securities included securities valued at $13,272,061 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (w) Affiliated Money Market Fund -- See Note 6 to the financial statements. The rate shown is the seven-day current annualized yield at Feb. 28, 2009. (x) At Feb. 28, 2009, the cost of securities for federal income tax purposes was approximately $4,397,521,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $63,336,000 Unrealized depreciation (313,728,000) ------------------------------------------------------------ Net unrealized depreciation $(250,392,000) ------------------------------------------------------------
The industries identified above are based on the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 33 PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------- FAIR VALUE MEASUREMENTS Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to implement more uniform reporting relating to the fair valuation of securities for financial statement purposes. Mutual funds are required to implement the requirements of this standard for fiscal years beginning after Nov. 15, 2007. While uniformity of presentation is the objective of the standard, it is likely that there may be a range of practices utilized and it may be some period of time before industry practices become more uniform. For this reason care should be exercised in interpreting this information and/or using it for comparison with other mutual funds. Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below: - Level 1 -- quoted prices in active markets for identical securities - Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.) - Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) Observable inputs are those based on market data obtained from sources independent of the fund, and unobservable inputs reflect the fund's own assumptions based on the best information available. The input levels are not necessarily an indication of the risk or liquidity associated with investments at that level. The following table is a summary of the inputs used to value the Fund's investments as of Feb. 28, 2009:
FAIR VALUE AT FEB. 28, 2009 ---------------------------------------------------------------- LEVEL 1 LEVEL 2 QUOTED PRICES OTHER LEVEL 3 IN ACTIVE SIGNIFICANT SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL -------------------------------------------------------------------------------------- Investments in securities $856,397,627 $3,238,554,152 $52,177,432 $4,147,129,211 Other financial instruments* (468,967) (97,347) -- (566,314) -------------------------------------------------------------------------------------- Total $855,928,660 $3,238,456,805 $52,177,432 $4,146,562,897 --------------------------------------------------------------------------------------
* Other financial instruments are derivative instruments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. The following table is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
INVESTMENTS IN SECURITIES --------------------------------------------------------------- Balance as of Aug. 31, 2008 $90,234,544 Accrued discounts/premiums (784,860) Realized gain (loss) (7,464,861) Change in unrealized appreciation (depreciation) (11,565,684) Net purchases (sales) (9,446,863) Transfers in and/or out of Level 3 (8,794,844) --------------------------------------------------------------- Balance as of Feb. 28, 2009 $52,177,432 ---------------------------------------------------------------
-------------------------------------------------------------------------------- 34 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 35 STATEMENT OF ASSETS AND LIABILITIES ------------------------------------------- FEB. 28, 2009 (UNAUDITED)
ASSETS Investments in securities, at value Unaffiliated issuers* (identified cost $3,855,075,669) $3,604,683,499 Affiliated money market fund (identified cost $249,118,002) 249,118,002 Investments of cash collateral received for securities on loan (identified cost $293,327,710) 293,327,710 --------------------------------------------------------------------------------- Total investments in securities (identified cost $4,397,521,381) 4,147,129,211 Foreign currency holdings (identified cost $67,520) 63,105 Capital shares receivable 23,293,877 Dividends and accrued interest receivable 32,328,744 Receivable for investment securities sold 232,646,868 Unrealized appreciation on forward foreign currency contracts 604,751 Unrealized appreciation on swap contracts 774,627 --------------------------------------------------------------------------------- Total assets 4,436,841,183 --------------------------------------------------------------------------------- LIABILITIES Forward sale commitments, at value (proceeds receivable $13,426,563) 13,475,306 Disbursements in excess of cash 28,573 Dividends payable to shareholders 1,756,899 Capital shares payable 5,742,073 Payable for investment securities purchased 217,075,535 Payable for securities purchased on a forward-commitment basis 671,693,305 Payable upon return of securities loaned 293,327,710 Variation margin payable on futures contracts 824,871 Unrealized depreciation on forward foreign currency contracts 1,476,725 Accrued investment management services fees 39,984 Accrued distribution fees 523,430 Accrued transfer agency fees 12,120 Accrued administrative services fees 5,456 Accrued plan administration services fees 12,181 Other accrued expenses 271,973 --------------------------------------------------------------------------------- Total liabilities 1,206,266,141 --------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $3,230,575,042 ---------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 36 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
REPRESENTED BY Capital stock -- $.01 par value $ 7,388,588 Additional paid-in capital 3,756,220,136 Excess of distributions over net investment income (1,825,032) Accumulated net realized gain (loss) (280,196,592) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (251,012,058) --------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $3,230,575,042 --------------------------------------------------------------------------------- *Including securities on loan, at value $ 287,118,567 ---------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE Class A $1,855,839,496 424,538,198 $4.37(1) Class B $ 228,953,596 52,385,585 $4.37 Class C $ 35,588,809 8,139,899 $4.37 Class I $ 540,978,429 123,592,552 $4.38 Class R2 $ 10,779 2,464 $4.37 Class R3 $ 9,039 2,067 $4.37 Class R4 $ 62,314,688 14,273,068 $4.37 Class R5 $ 9,023 2,067 $4.37 Class W $ 506,871,183 115,922,859 $4.37 -------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A is $4.59. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 37 STATEMENT OF OPERATIONS -------------------------------------------------------- SIX MONTHS ENDED FEB. 28, 2009 (UNAUDITED)
INVESTMENT INCOME Income: Interest $ 86,775,555 Income distributions from affiliated money market fund 1,357,326 Fee income from securities lending 604,059 Less foreign taxes withheld (4,106) -------------------------------------------------------------------------------- Total income 88,732,834 -------------------------------------------------------------------------------- Expenses: Investment management services fees 7,469,436 Distribution fees Class A 2,254,038 Class B 1,163,816 Class C 159,939 Class R2 24 Class R3 11 Class W 732,950 Transfer agency fees Class A 1,408,362 Class B 194,598 Class C 25,693 Class R2 2 Class R3 2 Class R4 16,886 Class R5 2 Class W 586,360 Administrative services fees 1,016,624 Plan administration services fees Class R2 12 Class R3 11 Class R4 84,430 Compensation of board members 56,438 Custodian fees 107,252 Printing and postage 151,000 Registration fees 78,750 Professional fees 50,516 Other 38,290 -------------------------------------------------------------------------------- Total expenses 15,595,442 Expenses waived/reimbursed by the Investment Manager and its affiliates (1,624,350) Earnings and bank fee credits on cash balances (8,655) -------------------------------------------------------------------------------- Total net expenses 13,962,437 -------------------------------------------------------------------------------- Investment income (loss) -- net 74,770,397 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 38 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions $ (93,276,709) Foreign currency transactions 1,741,328 Futures contracts (35,067,625) Swap transactions 38,838 -------------------------------------------------------------------------------- Net realized gain (loss) on investments (126,564,168) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (84,159,858) -------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies (210,724,026) -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(135,953,629) --------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 39 STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
SIX MONTHS ENDED YEAR ENDED FEB. 28, 2009 AUG. 31, 2008 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 74,770,397 $ 152,258,368 Net realized gain (loss) on investments (126,564,168) 4,060,405 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (84,159,858) (142,483,859) --------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (135,953,629) 13,834,914 --------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (42,623,309) (84,539,939) Class B (4,631,013) (10,768,502) Class C (635,910) (828,277) Class I (15,331,508) (22,019,428) Class R2 (217) (290) Class R3 (219) (308) Class R4 (1,631,671) (3,476,394) Class R5 (229) (328) Class W (13,716,255) (18,133,130) --------------------------------------------------------------------------------------------------- Total distributions (78,570,331) (139,766,596) ---------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 40 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED FEB. 28, 2009 AUG. 31, 2008 (UNAUDITED) CAPITAL SHARE TRANSACTIONS Proceeds from sales Class A shares $ 294,620,892 $ 386,502,419 Class B shares 34,707,309 80,268,108 Class C shares 10,091,770 20,510,381 Class I shares 58,512,021 193,548,806 Class R2 shares 1,728 -- Class R4 shares 11,764,423 31,152,017 Class W shares 88,283,154 529,049,476 Fund Merger (Note 8) Class A shares -- 52,349,504 Class B shares -- 13,151,218 Class C shares -- 1,247,150 Class I shares -- 250,084,366 Class R2 shares -- 4,925 Class R3 shares -- 4,925 Class R4 shares -- 11,052 Class R5 shares -- 4,913 Class W shares -- 4,890 Reinvestment of distributions at net asset value Class A shares 35,166,779 71,053,046 Class B shares 4,177,762 9,967,093 Class C shares 554,184 747,742 Class I shares 15,201,345 22,202,710 Class R2 shares 9 -- Class R4 shares 1,616,599 3,527,696 Class W shares 13,609,140 18,163,448 Payments for redemptions Class A shares (281,495,450) (458,212,241) Class B shares (49,409,187) (142,424,544) Class C shares (4,787,368) (6,555,566) Class I shares (186,646,058) (137,684,266) Class R4 shares (22,025,002) (34,245,276) Class W shares (209,033,703) (92,614,678) --------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (185,089,653) 811,819,314 --------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (399,613,613) 685,887,632 Net assets at beginning of period 3,630,188,655 2,944,301,023 --------------------------------------------------------------------------------------------------- Net assets at end of period $3,230,575,042 $3,630,188,655 --------------------------------------------------------------------------------------------------- Undistributed (excess of distributions over) net investment income $ (1,825,032) $ 1,974,902 ---------------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 41 FINANCIAL HIGHLIGHTS ----------------------------------------------------------- CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(k) 2008 2007 2006 2005 Net asset value, beginning of period $4.65 $4.81 $4.77 $4.89 $4.87 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .22(b) .21(b) .19 .18 Net gains (losses) (both realized and unrealized) (.28) (.17) .05 (.11) .03 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.18) .05 .26 .08 .21 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.21) (.21) (.20) (.19) Tax return of capital -- -- (.01) -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.21) (.22) (.20) (.19) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.37 $4.65 $4.81 $4.77 $4.89 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1,856 $1,920 $1,937 $2,013 $1,774 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .94%(e) .95% .97% .99% 1.02% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .83%(e) .89% .89% .89% .94% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.50%(e) 4.68% 4.43% 4.09% 3.67% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 160% 226% 295% 281% 300% -------------------------------------------------------------------------------------------------------------- Total return(i) (3.76%)(j) .93% 5.54% 1.64% 4.38% --------------------------------------------------------------------------------------------------------------
(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/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. (k) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 42 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(l) 2008 2007 2006 2005 Net asset value, beginning of period $4.65 $4.81 $4.77 $4.89 $4.88 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(b) .19(b) .18(b) .16 .15 Net gains (losses) (both realized and unrealized) (.27) (.18) .04 (.12) .01 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.19) .01 .22 .04 .16 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.17) (.18) (.16) (.15) Tax return of capital -- -- (.00)(c) -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.17) (.18) (.16) (.15) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.37 $4.65 $4.81 $4.77 $4.89 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $229 $254 $304 $402 $484 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.71%(f) 1.71% 1.73% 1.76% 1.78% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.59%(f) 1.65% 1.65% 1.65% 1.70% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.75%(f) 3.91% 3.66% 3.31% 2.92% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(i) 160% 226% 295% 281% 300% -------------------------------------------------------------------------------------------------------------- Total return(j) (4.12%)(k) .16% 4.74% .88% 3.39% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (i) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. (l) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 43 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(l) 2008 2007 2006 2005 Net asset value, beginning of period $4.65 $4.81 $4.77 $4.90 $4.88 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(b) .19(b) .18(b) .16 .15 Net gains (losses) (both realized and unrealized) (.27) (.18) .04 (.13) .02 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.19) .01 .22 .03 .17 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.17) (.18) (.16) (.15) Tax return of capital -- -- (.00)(c) -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.17) (.18) (.16) (.15) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.37 $4.65 $4.81 $4.77 $4.90 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $36 $32 $17 $17 $18 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(d),(e) 1.70%(f) 1.70% 1.73% 1.76% 1.79% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(e),(g),(h) 1.58%(f) 1.65% 1.65% 1.66% 1.70% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.75%(f) 3.93% 3.67% 3.31% 2.93% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(i) 160% 226% 295% 281% 300% -------------------------------------------------------------------------------------------------------------- Total return(j) (4.12%)(k) .16% 4.73% .66% 3.60% --------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Per share amounts have been calculated using the average shares outstanding method. (c) Rounds to zero. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the above reported expense ratios. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (i) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (j) Total return does not reflect payment of a sales charge. (k) Not annualized. (l) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 44 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(j) 2008 2007 2006 2005 Net asset value, beginning of period $4.65 $4.82 $4.78 $4.89 $4.88 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11(b) .24(b) .23(b) .21 .20 Net gains (losses) (both realized and unrealized) (.27) (.18) .04 (.11) .02 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.16) .06 .27 .10 .22 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.23) (.22) (.21) (.21) Tax return of capital -- -- (.01) -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.23) (.23) (.21) (.21) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.38 $4.65 $4.82 $4.78 $4.89 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $541 $693 $386 $276 $-- -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .54%(e) .55% .56% .55% .60% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .47%(e) .53% .54% .54% .60% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.88%(e) 5.09% 4.80% 4.59% 4.01% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 160% 226% 295% 281% 300% -------------------------------------------------------------------------------------------------------------- Total return (3.36%)(i) 1.07% 5.90% 2.19% 4.53% --------------------------------------------------------------------------------------------------------------
(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/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (i) Not annualized. (j) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 45 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(l) 2008 2007(b) Net asset value, beginning of period $4.65 $4.80 $4.81 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .09 .21 .14 Net gains (losses) (both realized and unrealized) (.27) (.16) (.02) -------------------------------------------------------------------------------------------------------------- Total from investment operations (.18) .05 .12 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.20) (.13) Tax return of capital -- -- (.00)(d) -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.20) (.13) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.37 $4.65 $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) 1.33%(g) 1.34% 1.32%(g) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) 1.02%(g) 1.08% 1.32%(g) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.29%(g) 4.53% 4.06%(g) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(j) 160% 226% 295% -------------------------------------------------------------------------------------------------------------- Total return (3.85%)(k) .84% 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/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (k) Not annualized. (l) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 46 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(l) 2008 2007(b) Net asset value, beginning of period $4.65 $4.80 $4.81 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .10 .23 .15 Net gains (losses) (both realized and unrealized) (.28) (.17) (.02) -------------------------------------------------------------------------------------------------------------- Total from investment operations (.18) .06 .13 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.21) (.14) Tax return of capital -- -- (.00)(d) -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.21) (.14) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.37 $4.65 $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) 1.09%(g) 1.08% 1.06%(g) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) .76%(g) .83% 1.06%(g) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.59%(g) 4.79% 4.33%(g) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(j) 160% 226% 295% -------------------------------------------------------------------------------------------------------------- Total return (3.73%)(k) 1.11% 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/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (k) Not annualized. (l) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 47 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS R4
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(j) 2008 2007 2006 2005 Net asset value, beginning of period $4.64 $4.80 $4.77 $4.89 $4.88 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(b) .23(b) .22(b) .20 .19 Net gains (losses) (both realized and unrealized) (.27) (.17) .04 (.12) .02 -------------------------------------------------------------------------------------------------------------- Total from investment operations (.17) .06 .26 .08 .21 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.22) (.22) (.20) (.20) Tax return of capital -- -- (.01) -- -- -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.22) (.23) (.20) (.20) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.37 $4.64 $4.80 $4.77 $4.89 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $62 $75 $78 $173 $202 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(c),(d) .84%(e) .85% .83% .82% .86% -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(d),(f),(g) .77%(e) .76% .73% .73% .78% -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.58%(e) 4.81% 4.53% 4.24% 3.85% -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(h) 160% 226% 295% 281% 300% -------------------------------------------------------------------------------------------------------------- Total return (3.52%)(i) 1.03% 5.49% 1.81% 4.34% --------------------------------------------------------------------------------------------------------------
(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/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (h) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (i) Not annualized. (j) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 48 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(l) 2008 2007(b) Net asset value, beginning of period $4.64 $4.80 $4.81 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .11 .24 .17 Net gains (losses) (both realized and unrealized) (.27) (.18) (.02) -------------------------------------------------------------------------------------------------------------- Total from investment operations (.16) .06 .15 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.22) (.16) Tax return of capital -- -- (.00)(d) -------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.22) (.16) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.37 $4.64 $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) .59%(g) .59% .59%(g) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) .52%(g) .58% .57%(g) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.81%(g) 5.02% 4.81%(g) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(j) 160% 226% 295% -------------------------------------------------------------------------------------------------------------- Total return (3.40%)(k) 1.22% 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/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (k) Not annualized. (l) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 49 FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------- CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2009(l) 2008 2007(b) Net asset value, beginning of period $4.65 $4.81 $4.82 -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(c) .10 .22 .15 Net gains (losses) (both realized and unrealized) (.28) (.17) -- -------------------------------------------------------------------------------------------------------------- Total from investment operations (.18) .05 .15 -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.21) (.16) Tax return of capital -- -- (.00)(d) -------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.21) (.16) -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.37 $4.65 $4.81 -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $507 $655 $223 -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement(e),(f) .99%(g) .99% .98%(g) -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement(f),(h),(i) .92%(g) .98% .97%(g) -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.44%(g) 4.56% 4.32%(g) -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(j) 160% 226% 295% -------------------------------------------------------------------------------------------------------------- Total return (3.80%)(k) .82% 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/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). (i) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits were less than 0.01% of average net assets for the six months ended Feb. 28, 2009 and for the year ended Aug. 31, 2008. (j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were excluded, the portfolio turnovers would have been 70% for the six months ended Feb. 28, 2009 and 122% for the year ended Aug. 31, 2008, respectively. (k) Not annualized. (l) Six months ended Feb. 28, 2009 (Unaudited). The accompanying Notes to Financial Statements are an integral part of this statement. -------------------------------------------------------------------------------- 50 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS ------------------------------------------------- (UNAUDITED AS TO FEB. 28, 2009) 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. 28, 2009, RiverSource Investments, LLC (RiverSource Investments or the Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of Class I shares and the Investment Manager owned 100% of Class R3 and Class R5 shares. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. The Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 51 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- VALUATION OF SECURITIES Effective Sept. 1, 2008, the Fund adopted Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statement of Operations for a fiscal period. There was no impact to the Fund's net assets or results of operations upon adoption. The fair valuation measurements disclosure can be found following the Notes to Portfolio of Investments. All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Foreign securities are valued based on quotations from the principal market in which such securities are normally traded. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange, including significant movements in the U.S. market after foreign exchanges have closed. Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the Investment Manager, as administrator to the Fund, will fair value foreign securities pursuant to procedures adopted by the Board, including utilizing a third party pricing service to determine these fair values. These procedures take into account multiple factors, including movements in the U.S. securities markets, to determine a good faith estimate that reasonably reflects the current market conditions as of the close of the New York Stock -------------------------------------------------------------------------------- 52 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- 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, which approximates fair value. ILLIQUID SECURITIES At Feb. 28, 2009, 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. 28, 2009 was $4,868,540 representing 0.15% of net assets. Certain illiquid securities may be valued by management at fair value according to procedures approved, in good faith, by the Board. According to Board guidelines, certain unregistered securities are determined to be liquid and are not included within the 15% limitation specified above. Assets are liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward- commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward- commitments. At Feb. 28, 2009, the Fund has outstanding when-issued securities of $657,737,658 and other forward-commitments of $13,955,647. 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. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 53 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. Cash collateral may be collected by the Fund to secure certain over-the-counter options (OTC options) trades. Cash collateral held by the Fund for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. Option contracts, including OTC option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the New York Stock Exchange. The Fund will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Fund will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. At Feb. 28, 2009, and for the six months then ended, the Fund had no outstanding option contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures and options on futures are valued daily based upon the last sale price at the close of the market on the principal exchange on which they are traded. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the -------------------------------------------------------------------------------- 54 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- 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. 28, 2009, foreign currency holdings were entirely comprised of Indonesian rupiahs. The Fund may enter into forward foreign currency contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the counterparty will not complete its contract obligations. 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 -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 55 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- 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 that may be made by the Fund may equal the notional amount (shown in the Credit Default Swap Contracts Outstanding table following the Portfolio of Investments), 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. 28, 2009, 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. -------------------------------------------------------------------------------- 56 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- 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. 28, 2009, 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 contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of the 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 -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 57 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- of its taxable income to shareholders. No provision for income or excise taxes is thus required. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of futures and options contracts, foreign currency transactions, recognition of unrealized appreciation (depreciation) for certain derivative investments, post-October losses, market discount and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. RECENT ACCOUNTING PRONOUNCEMENTS The Fund has adopted FASB Staff Position No. 133-1 and FIN No. 45-4 (FSP FAS 133-1 and FIN 45-4), "Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45." The amendments to FSP FAS 133-1 and FIN 45-4 require enhanced disclosures about a fund's derivatives and guarantees. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows and (d) the current status of the payment/performance risk of the credit derivative. The amendments to FSP FAS 133-1 and FIN 45-4 also require additional disclosures about the current status of the payment/performance risk of a guarantee. At Feb. 28, 2009, the Fund was not a party to any credit derivative contracts under which the Fund was the seller of credit protection. As such, those credit derivative contracts to which the Fund was a party at Feb. 28, 2009 are not within the scope of this pronouncement. -------------------------------------------------------------------------------- 58 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after Nov. 15, 2008. As of Feb. 28, 2009, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income, if any, is recognized on the ex-dividend date 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. SECURITY LITIGATION SETTLEMENTS Litigation proceeds from Enron Corp. related to portfolio securities no longer included in the portfolio are recorded as realized gains. Proceeds received during the six months ended Feb. 28, 2009 were $133,574. 2. EXPENSES AND SALES CHARGES INVESTMENT MANAGEMENT SERVICES FEES Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is a percentage of the Fund's average daily net assets that declines from 0.48% to 0.29% annually as the Fund's assets increase. The management fee for the six months ended Feb. 28, 2009 was 0.45% of the Fund's average daily net assets. ADMINISTRATIVE SERVICES FEES Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a fee for administration and accounting services at a percentage of the Fund's average daily net assets that declines from 0.07% to 0.04% annually as the Fund's assets increase. The fee for the six months ended Feb. 28, 2009 was 0.06% of the Fund's average daily net assets. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 59 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- OTHER FEES Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the six months ended Feb. 28, 2009, other expenses paid to this company were $11,576. COMPENSATION OF BOARD MEMBERS Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Fund also pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's average daily net assets attributable to Class R2, Class R3, Class R4 and Class R5 shares and an annual asset-based fee at a rate of 0.20% of the Fund's average daily net assets attributable to Class W shares. The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees in the Statement of Operations. PLAN ADMINISTRATION SERVICES FEES Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. DISTRIBUTION FEES The Fund has agreements with RiverSource Distributors, Inc. and RiverSource Fund Distributors, Inc. (collectively, the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A, Class R3 and Class W shares, a fee at an annual rate of up to 0.50% of the Fund's average daily net assets attributable to Class R2 shares -------------------------------------------------------------------------------- 60 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") was approximately $7,196,000 and $230,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Jan. 31, 2009, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing Fund shares were $653,650 for Class A, $83,053 for Class B and $6,230 for Class C for the six months ended Feb. 28, 2009. EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the six months ended Feb. 28, 2009, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows: Class A............................................. 0.83% Class B............................................. 1.59 Class C............................................. 1.58 Class I............................................. 0.47 Class R2............................................ 1.02 Class R3............................................ 0.76 Class R4............................................ 0.77 Class R5............................................ 0.52 Class W............................................. 0.92
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows: Class A.......................................... $410,552 Class B.......................................... 52,996 Class C.......................................... 7,776
The waived/reimbursed fees and expenses for the plan administration services fees at the class level were as follows: Class R2........................................... $12 Class R3........................................... 11 Class R4........................................... 1,346
The management fees waived/reimbursed at the Fund level were $1,151,657. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 61 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Aug. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds*) will not exceed the following percentage of the Fund's average daily net assets: Class A............................................. 0.83% Class B............................................. 1.59 Class C............................................. 1.58 Class I............................................. 0.47 Class R2............................................ 1.27 Class R3............................................ 1.02 Class R4............................................ 0.77 Class R5............................................ 0.52 Class W............................................. 0.92
* In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. EARNINGS AND BANK FEE CREDITS During the six months ended Feb. 28, 2009, the Fund's custodian and transfer agency fees were reduced by $8,655 as a result of earnings and bank fee credits from overnight cash balances. Effective Dec. 15, 2008, the Fund pays custodian fees to JPMorgan Chase Bank, N.A. Prior to Dec. 15, 2008, the Fund paid custodian fees amounting to $17,995 to Ameriprise Trust Company, a subsidiary of Ameriprise Financial. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations, but including mortgage dollar rolls) aggregated $5,846,699,664 and $5,786,384,876, respectively, for the six months ended Feb. 28, 2009. Realized gains and losses are determined on an identified cost basis. -------------------------------------------------------------------------------- 62 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED FEB. 28, 2009 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ------------------------------------------------------------------------------------ Class A 67,204,267 8,034,822 (63,844,669) 11,394,420 Class B 7,852,255 955,147 (11,187,154) (2,379,752) Class C 2,280,799 126,721 (1,085,073) 1,322,447 Class I 13,196,720 3,466,092 (42,035,403) (25,372,591) Class R2 395 2 -- 397 Class R4 2,660,537 369,641 (5,018,438) (1,988,260) Class W 19,820,557 3,110,457 (47,978,306) (25,047,292) ------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2008 ISSUED FOR REINVESTED NET SOLD FUND MERGER DISTRIBUTIONS REDEEMED INCREASE (DECREASE) ------------------------------------------------------------------------------------------ Class A 80,328,319 10,921,606 14,809,220 (95,553,562) 10,505,583 Class B 16,633,194 2,743,904 2,076,386 (29,781,790) (8,328,306) Class C 4,270,266 260,158 156,349 (1,369,182) 3,317,591 Class I 40,548,778 52,110,117 4,637,299 (28,465,148) 68,831,046 Class R2 -- 1,027 -- -- 1,027 Class R3 -- 1,027 -- -- 1,027 Class R4 6,464,647 2,309 736,110 (7,142,397) 60,669 Class R5 -- 1,027 -- -- 1,027 Class W 110,115,534 1,020 3,800,802 (19,306,233) 94,611,123 ------------------------------------------------------------------------------------------
5. LENDING OF PORTFOLIO SECURITIES Effective Dec. 1, 2008, the Fund has entered into a Master Securities Lending Agreement ("the Agreement") with JPMorgan Chase Bank, National Association ("JPMorgan"). The Agreement authorizes JPMorgan as lending agent to lend securities to authorized borrowers on behalf of the Fund. Pursuant to the Agreement, all loaned securities are initially collateralized in an amount equivalent to 102% (for securities denominated in U.S. dollars) or 105% (for all other securities) of the value of the loaned securities, including accrued interest in the case of fixed income securities. Collateral is maintained over the life of the loan thereafter in an amount not less than 100% of the market value of loaned securities, as determined at the close of each business day, except to the extent that a collateral shortfall is due to a diminution in the market value of authorized investments in which cash collateral is invested. Any additional collateral -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 63 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- required to maintain those levels due to market fluctuations of the loaned securities is delivered the following business day. Collateral is either in the form of cash or U.S. government securities. Cash collateral received is invested by the lending agent on behalf of the Fund into authorized investments pursuant to the Agreement. The investments made with the cash collateral are listed in the Portfolio of Investments and the value of cash collateral received at period end is disclosed in the Statement of Assets and Liabilities along with the related obligation to return the collateral upon return of the securities loaned. At Feb. 28, 2009, securities valued at $287,118,567 were on loan secured by cash collateral of $293,327,710 invested in short-term securities or cash equivalents. Pursuant to the Agreement, the Fund receives income for lending its securities either in the form of fees or by earning interest on invested cash collateral, net of negotiated rebates paid to borrowers and fees paid to the lending agent for services provided and any other securities lending expenses. Income of $599,566 earned from securities lending from Dec. 1, 2008 through Feb. 28, 2009 is included in the Statement of Operations. The Fund also continues to earn interest and dividends on the securities loaned. Risks of delay in recovery of securities or even loss of rights in the securities may occur should the borrower of the securities fail financially. Risks may also arise to the extent that the value of the securities loaned increases above the value of the collateral received. JPMorgan will indemnify the Fund from losses resulting from a borrower's failure to return a loaned security when due. Such indemnification does not extend to losses associated with declines in the value of cash collateral investments. Loans are subject to termination by the Funds or the borrower at any time, and are, therefore, not considered to be illiquid investments. Prior to Dec. 1, 2008, RiverSource Investments, LLC served as securities lending agent for the Fund under the Securities Lending Agency Agreement pursuant to which the Fund agreed to reimburse RiverSource Investments, LLC for expenses incurred by it in connection with the lending program. Expenses paid to RiverSource Investments, LLC as securities lending agent were $1,161 through Nov. 30, 2008 and are included in other expenses in the Statement of Operations. Cash collateral received on loaned securities had been invested in an affiliated money market fund. Income of $4,493 earned from securities lending from Sept. 1, 2008 through Nov. 30, 2008 is included in the Statement of Operations. 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 -------------------------------------------------------------------------------- 64 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- funds and other institutional clients of RiverSource Investments. The cost of the Fund's purchases and proceeds from sales of shares of the RiverSource Short- Term Cash Fund aggregated $541,297,433 and $622,032,139, respectively, for the six months ended Feb. 28, 2009. The income distributions received with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be found in the Statement of Operations and the Fund's invested balance in RiverSource Short- Term Cash Fund at Feb. 28, 2009, can be found in the Portfolio of Investments. 7. BANK BORROWINGS The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 16, 2008, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $475 million. The borrowers shall have the right, upon written notice to the Administrative Agent to request an increase of up to $175 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $650 million. Participation in such increase by any existing lender shall be at such lender's sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum, in addition to an upfront fee equal to its pro rata share of 0.02% of the amount of the credit facility. The Fund had no borrowings during the six months ended Feb. 28, 2009. Under the prior credit facility which was effective until Oct. 15, 2008, the Fund had entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A., whereby the Fund was permitted to borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility agreement, which was a collective agreement between the Fund and certain other RiverSource funds, severally and not jointly, permitted collective borrowings up to $500 million. Interest was charged to each Fund based on its borrowings at a rate equal to the federal funds rate plus 0.30%. Each borrowing under the credit facility matured no later than 60 days after the date of borrowing. The Fund also paid a commitment fee equal -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 65 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. 8. FUND MERGER At the close of business on March 14, 2008, RiverSource Diversified Bond Fund acquired the assets and assumed the identified liabilities of RiverSource Core Bond Fund. The reorganization was completed after shareholders approved the plan on Jan. 29, 2008. The aggregate net assets of RiverSource Diversified Bond Fund immediately before the acquisition were $3,162,732,908 and the combined net assets immediately after the acquisition were $3,479,595,851. The merger was accomplished by a tax-free exchange of 33,460,754 shares of RiverSource Core Bond Fund valued at $316,862,943. In exchange for the RiverSource Core Bond Fund shares and net assets, RiverSource Diversified Bond Fund issued the following number of shares:
SHARES ------------------------------------------------------------ Class A......................................... 10,921,606 Class B......................................... 2,743,904 Class C......................................... 260,158 Class I......................................... 52,110,117 Class R2........................................ 1,027 Class R3........................................ 1,027 Class R4........................................ 2,309 Class R5........................................ 1,027 Class W......................................... 1,020
The components of RiverSource Core Bond Fund's net assets after adjustments for any permanent book-to-tax differences at the merger date were as follows:
EXCESS DISTRIBUTIONS OVER TOTAL CAPITAL UNREALIZED ACCUMULATED NET NET INVESTMENT NET ASSETS STOCK DEPRECIATION REALIZED LOSS INCOME ---------------------------------------------------------------------------------------------- RiverSource Core Bond Fund......... $316,862,943 $322,093,199 $(3,350,834) $(1,764,611) $(114,811)
-------------------------------------------------------------------------------- 66 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- 9. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, the Fund had a capital loss carry-over of $123,970,058 at Aug. 31, 2008, that if not offset by capital gains will expire as follows:
2009 2010 2012 2013 2014 $56,247,571 $49,658,521 $5,227,159 $2,996,287 $9,840,520
Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, the Fund is permitted to treat net capital losses realized between Nov. 1 2007 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At Aug. 31, 2008, the Fund had a post-October loss of $1,853,459 that is treated for income tax purposes as occurring on Sept. 1, 2008. It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. 10. 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 (the District Court). In response to defendants' motion to dismiss the complaint, the District 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 (the Eighth Circuit) on August 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary judgment and remanded to the District Court for further proceedings. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 67 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003, Seligman conducted an extensive internal review concerning mutual fund trading practices. Seligman's review, which covered the period 2001-2003, noted one arrangement that permitted frequent trading in certain open-end registered investment companies managed by Seligman (the Seligman Funds); this arrangement was in the process of being closed down by Seligman before September 2003. Seligman identified three other arrangements that permitted frequent trading, all of which had been terminated by September 2002. In January 2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements to its clients and to shareholders of the Seligman Funds. Seligman also provided information concerning mutual fund trading practices to the SEC and the Office of the Attorney General of the State of New York (NYAG). In September 2005, the New York staff of the SEC indicated that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and the distributor of the Seligman Funds, Seligman Advisors, Inc. (which is now known as RiverSource Fund Distributors, Inc.), relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. -------------------------------------------------------------------------------- 68 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT -------------------------------------------------------------------------------- In September 2006, the NYAG commenced a civil action in New York State Supreme Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. and Brian T. Zino (collectively, the Seligman Parties), alleging, in substance, that the Seligman Parties permitted various persons to engage in frequent trading and, as a result, the prospectus disclosure used by the registered investment companies then managed by Seligman is and has been misleading. The NYAG included other related claims and also claimed that the fees charged by Seligman to the Seligman Funds were excessive. On March 13, 2009, without admitting or denying any violations of law or wrongdoing, the Seligman Parties entered into a stipulation of settlement with the NYAG and settled the claims made by the NYAG. Under the terms of the settlement, Seligman will pay $11.3 million to four Seligman Funds. This settlement resolved all outstanding matters between the Seligman Parties and the NYAG. In addition to the foregoing matter, the New York staff of the SEC indicated in September 2005 that it was considering recommending to the Commissioners of the SEC the instituting of a formal action against Seligman and Seligman Advisors, Inc. relating to frequent trading in the Seligman Funds. Seligman responded to the staff in October 2005 that it believed that any action would be both inappropriate and unnecessary, especially in light of the fact that Seligman had previously resolved the underlying issue with the Independent Directors of the Seligman Funds and made recompense to the affected Seligman Funds. There have been no further developments with the SEC on this matter. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. 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 -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 69 NOTES TO FINANCIAL STATEMENTS (continued) ------------------------------------- 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. -------------------------------------------------------------------------------- 70 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 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. -------------------------------------------------------------------------------- RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 SEMIANNUAL REPORT 71 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., and RiverSource Fund Distributors, Inc., Members FINRA, and managed by RiverSource Investments, LLC. RiverSource is part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2009 RiverSource Investments, LLC. S-6490 Z (4/09)
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 1, 2009 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 1, 2009 By /s/ Jeffrey P. Fox --------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date May 1, 2009