-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bkr8Jw0AdTOp4lvwhtqWHPuDSkFtBhOOGtrfohktFouU9RALoPXi1LOOBXfF8eFd E6gtjR/XDVkG32MO+l49Jg== 0001068800-07-001166.txt : 20070502 0001068800-07-001166.hdr.sgml : 20070502 20070502101419 ACCESSION NUMBER: 0001068800-07-001166 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070228 FILED AS OF DATE: 20070502 DATE AS OF CHANGE: 20070502 EFFECTIVENESS DATE: 20070502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE DIVERSIFIED INCOME SERIES INC CENTRAL INDEX KEY: 0000049697 IRS NUMBER: 411237361 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02503 FILM NUMBER: 07808702 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. DATE OF NAME CHANGE: 20060504 FORMER COMPANY: FORMER CONFORMED NAME: AXP FIXED INCOME SERIES INC DATE OF NAME CHANGE: 20021118 FORMER COMPANY: FORMER CONFORMED NAME: AXP BOND FUND INC DATE OF NAME CHANGE: 20000829 0000049697 S000003362 RiverSource Diversified Bond Fund C000009231 RiverSource Diversified Bond Fund Class I RDBIX C000009232 RiverSource Diversified Bond Fund Class A INBNX C000009233 RiverSource Diversified Bond Fund Class B ININX C000009234 RiverSource Diversified Bond Fund Class C AXBCX C000038360 RiverSource Diversified Bond Fund Class R2 C000038361 RiverSource Diversified Bond Fund Class R3 RSDBX C000038362 RiverSource Diversified Bond Fund Class R5 RSVBX C000038363 RiverSource Diversified Bond Fund Class W RVBWX C000039562 RiverSource Diversified Bond Fund Class R4 IDBYX N-CSR 1 diversified-inc_ncsr.txt RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-2503 ------------ 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 [LOGO](R) INVESTMENTS RIVERSOURCE(R) DIVERSIFIED BOND FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED FEB. 28, 2007 > 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. TABLE OF CONTENTS Fund Snapshot .......................................................... 3 Performance Summary .................................................... 5 Questions & Answers with Portfolio Management .......................... 8 Fund Expenses Example .................................................. 11 Investments in Securities .............................................. 14 Financial Statements ................................................... 33 Notes to Financial Statements .......................................... 39 Proxy Voting ........................................................... 62
[LOGO] DALBAR RATED 2007 FOR COMMUNICATION The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - ------------------------------------------------------------------------------ 2 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT FUND SNAPSHOT AT FEB. 28, 2007 FUND OVERVIEW RiverSource Diversified Bond Fund combines securities from all fixed income sectors including U.S. government bonds, corporate bonds and mortgage-backed securities. Although the Fund emphasizes high and medium quality bonds, it may add exposure to high yield bonds and foreign investments in an effort to achieve higher yield and/or capital appreciation. The Fund targets an intermediate-term portfolio duration. SECTOR BREAKDOWN Percentage of portfolio assets Mortgage-Backed 41.7% Corporate Bonds(1) 19.8% Commercial Mortgage-Backed 15.9% U.S. Government Obligations & Agencies 14.2% [PIE CHART] Cash & Cash Equivalents(2) 5.4% Asset-Backed 2.8% Foreign Government 0.2% (1) Includes Financials 5.2%, Utilities 4.4%, Telecommunication 4.2%, Consumer Discretionary 1.5%, Consumer Staples 1.3%, Health Care 1.3%, Energy 1.2%, Industrials 0.4% and Materials 0.3%. (2) Of the 5.4%, 2.4% is due to security lending activity and 3.0% is the Fund's cash equivalent position.
QUALITY BREAKDOWN Percentage of bond portfolio assets AAA bonds 77.6% AA bonds 1.2% A bonds 6.4% [PIE CHART] BBB bonds 10.6% Non-investment grade bonds 4.1% Non-rated bonds 0.1%
Bond ratings apply to 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. Ratings for 0.2% of the bond portfolio assets were determined through internal analysis. 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, bonds prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 3 FUND SNAPSHOT AT FEB. 28, 2007 STYLE MATRIX [chart] Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X HIGH X MEDIUM QUALITY LOW 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 serves 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 MANAGERS
YEARS IN INDUSTRY Jamie Jackson, CFA 19 Scott Kirby 28 Tom Murphy, CFA 21 Nicholas Pifer, CFA 17 Jennifer Ponce de Leon 18
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A INBNX 10/3/74 Class B ININX 3/20/95 Class C AXBCX 6/26/00 Class I RDBIX 3/4/04 Class R2 -- 12/11/06 Class R3 -- 12/11/06 Class R4(1) IDBYX 3/20/95 Class R5 -- 12/11/06 Class W -- 12/1/06 Total net assets $2.754 billion Number of holdings 497 Weighted average life(2) 6.0 years Effective duration(3) 4.2 years Weighted average bond rating(4) AA+ (1) Effective Dec. 11, 2006, Class Y was renamed Class R4. (2) 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. (3) 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. (4) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio.
- ------------------------------------------------------------------------------ 4 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT PERFORMANCE SUMMARY PERFORMANCE COMPARISON For the six-month period ended Feb. 28, 2007 [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.] RiverSource Diversified Bond Fund Class A (excluding sales charge) +4.72% Lehman Brothers Aggregate Bond Index(1) (unmanaged) +3.66% Lipper Intermediate Investment Grade Index(2) +3.76% 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 bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (1) Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of a representative list of government, corporate, asset-backed and mortgage-backed securities. The index is frequently used as a general measure of bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but excludes brokerage commissions or other fees. (2) The Lipper Intermediate Investment Grade Index includes the 30 largest investment grade funds tracked by Lipper Inc. The index's returns include net reinvested dividends.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(a) Class A 0.97% 0.89% Class B 1.74% 1.65% Class C 1.74% 1.66% Class I 0.53% 0.53% Class R2(b) 1.35% 1.32% Class R3(b) 1.10% 1.07% Class R4(b) 0.85% 0.73% Class R5(b) 0.60% 0.57% Class W(b) 1.00% 0.97% (a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2007, 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 expenses will not exceed 0.89% for Class A; 1.65% for Class B; 1.66% for Class C; 0.54% for Class I; 1.32% for Class R2; 1.07% for Class R3; 0.73% for Class R4; 0.57% for Class R5; and 0.97% for Class W. (b) Effective Dec. 11, 2006, Class Y was renamed Class R4. Inception date for Class R2, Class R3 and Class R5 is Dec. 11, 2006. Inception date for Class W is Dec. 1, 2006. For Class R2, Class R3, Class R5 and Class W, expenses are based on estimated amounts for the current fiscal year.
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 5 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS AT FEB. 28, 2007
SINCE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Without sales charge Class A (inception 10/3/74) +4.72% +6.53% +3.87% +4.49% +5.20% +9.19% Class B (inception 3/20/95) +4.34% +5.72% +3.09% +3.70% +4.41% +5.45% Class C (inception 6/26/00) +4.33% +5.49% +3.08% +3.69% N/A +4.78% Class I (inception 3/4/04) +4.90% +6.68% N/A N/A N/A +4.31% Class R2 (inception 12/11/06) N/A N/A N/A N/A N/A +2.14%* Class R3 (inception 12/11/06) N/A N/A N/A N/A N/A +2.20%* Class R4** (inception 3/20/95) +4.60% +6.49% +3.97% +4.61% +5.33% +6.39% Class R5 (inception 12/11/06) N/A N/A N/A N/A N/A +2.30%* Class W (inception 12/1/06) N/A N/A N/A N/A N/A +2.00%* With sales charge Class A (inception 10/3/74) -0.25% +1.46% +2.20% +3.48% +4.69% +9.03% Class B (inception 3/20/95) -0.66% +0.72% +1.83% +3.35% +4.41% +5.45% Class C (inception 6/26/00) +3.33% +4.49% +3.08% +3.69% N/A +4.78%
- ------------------------------------------------------------------------------ 6 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS AT MARCH 31, 2007
SINCE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Without sales charge Class A (inception 10/3/74) +3.83% +7.40% +3.59% +4.73% +5.33% +9.16% Class B (inception 3/20/95) +3.44% +6.60% +2.81% +3.94% +4.53% +5.40% Class C (inception 6/26/00) +3.43% +6.59% +2.81% +3.89% N/A +4.70% Class I (inception 3/4/04) +4.01% +7.78% +4.02% N/A N/A +4.24% Class R2 (inception 12/11/06) N/A N/A N/A N/A N/A +2.03%* Class R3 (inception 12/11/06) N/A N/A N/A N/A N/A +2.11%* Class R4** (inception 3/20/95) +3.70% +7.36% +3.69% +4.86% +5.45% +6.34% Class R5 (inception 12/11/06) N/A N/A N/A N/A N/A +2.26%* Class W (inception 12/1/06) N/A N/A N/A N/A N/A +1.90%* With sales charge Class A (inception 10/3/74) -1.11% +2.30% +1.93% +3.72% +4.81% +9.00% Class B (inception 3/20/95) -1.56% +1.60% +1.56% +3.60% +4.53% +5.40% Class C (inception 6/26/00) +2.43% +5.59% +2.81% +3.89% N/A +4.70% 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. ** Effective Dec. 11, 2006, Class Y was renamed Class R4.
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 7 QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, the portfolio management team for RiverSource Diversified Bond Fund discusses the Fund's results and positioning for the six months ended Feb. 28, 2007. Q: How did RiverSource Diversified Bond Fund perform for the semiannual period? A: RiverSource Diversified Bond Fund's Class A shares (excluding sales charge) returned 4.72% for the six months ended Feb. 28, 2007. The Fund outperformed its benchmark, the Lehman Brothers Aggregate Bond Index (Lehman Index), which gained 3.66%. The Fund also outperformed its peer group, as represented by the Lipper Intermediate Investment Grade Index, which returned 3.76% during the same period. THE FUND OUTPERFORMED ITS BENCHMARK AND PEER GROUP DUE PRIMARILY TO ISSUE SELECTION WITHIN COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS), MORTGAGE-BACKED SECURITIES AND INVESTMENT GRADE CORPORATE BONDS. Q: What factors most significantly affected the Fund's performance? A: The Fund outperformed its benchmark and peer group due primarily to issue selection within commercial mortgage-backed securities (CMBS), mortgage-backed securities and investment grade corporate bonds. The Fund's exposure to high yield corporate bonds, including bank loans, supported the Fund's results as well, as this sector outpaced the Lehman Index during the period. The Fund also benefited significantly from the payment it received during the period as part of the settlement of the WorldCom class action case. Interest rates fell in near unison across the yield curve, or range of maturities, as the market reacted to mixed economic data releases. Also supporting the fixed income market rally was the growing concern that weakness in the housing market might spread into the broader economy. The Federal Reserve Board (the Fed) kept the targeted federal funds rate, an interest rate that affects short-term rates, on hold at 5.25% throughout the period. The late-February equity market sell-off saw investors shed riskier assets across all markets. All told, the yield on the 10-year U.S. Treasury declined approximately 17 basis points (0.17%) over the six months, and most other maturity Treasuries fell by a similar amount. - ------------------------------------------------------------------------------ 8 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT QUESTIONS & ANSWERS Given the declining interest rate environment during the six months, the Fund's defensive posture on duration detracted from returns. We implemented this duration strategy because in the months after Fed policy went on hold, we believed rates declined to levels that appeared too low given our view that the economy would slow. Rather than rising as we had anticipated, rates continued to fall through the period. Duration is a measure of the Fund's sensitivity to interest rate changes. Q: What changes did you make to the Fund's portfolio during the period? A: We moderately reduced the Fund's sizable position in mortgage-backed securities during the period, while maintaining its emphasis on prime adjustable rate mortgages (ARMs) and prime agency pass-through mortgages. Pass-through mortgages consist of a pool of residential mortgage loans, where homeowners' monthly payments of principal, interest and prepayments pass from the original bank through a government agency or investment bank to investors. We modestly increased the Fund's exposure to high yield corporate bonds, including bank loans. We expect high yield corporate bonds to perform well during the coming months, as we expect that default rates should remain low and the demand for yield should remain rather high. We also increased the Fund's allocation of investment grade corporate bonds, as we viewed the recent volatility within the fixed income sector as a buying opportunity. The Fund's portfolio turnover rate for the semiannual period was 134%.* * A significant portion of the turnover was the result of "roll" transactions in the liquid derivatives and Treasury securities. In the derivative transactions, positions in expiring contracts are liquidated and simultaneously replaced with positions in new contracts with equivalent characteristics. In the Treasury transactions, existing holdings are sold to purchase newly issued securities with slightly longer maturity dates. Although these transactions affect the turnover rate of the portfolio, they do not change the risk exposure or result in material transactions costs. The remaining turnover resulted from strategic reallocations and relative value trading. After transaction costs, we expect this activity to enhance the returns on the overall Fund. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 9 QUESTIONS & ANSWERS WE EXPECT HIGH YIELD CORPORATE BONDS TO PERFORM WELL DURING THE COMING MONTHS, AS WE EXPECT THAT DEFAULT RATES SHOULD REMAIN LOW AND THE DEMAND FOR YIELD SHOULD REMAIN RATHER HIGH. Q: What is the Fund's tactical view and strategy for the months ahead? A: We believe the primary questions facing the fixed income market at the end of February centered on the strength of the economy and the direction of Fed policy going forward. Until there is more clarity surrounding these questions, volatility within the U.S. bond market will likely remain high. At the same time, as long as the equity market also remains volatile, we believe the heightened risk aversion among investors will continue to benefit the higher quality segments of the fixed income market. While there are some concerns over whether and how the problems in subprime mortgages might impact the broader mortgage sector, or indeed the broader economy, for the time being, the problems seem largely contained within the subprime mortgage sector, which represents only about 15% of the total mortgage securities market. Given our view that rates are too low and will ultimately move higher, we intend to maintain the Fund's current short duration positioning compared to the Lehman Index for the near term. In the non-Treasury sectors, we intend to maintain the Fund's significant allocation to CMBS and to favor select higher quality industries within the investment grade bond sector. We further expect to maintain the Fund's exposure to mortgage-backed securities but to stay defensively positioned in ARMs and premium coupon securities, which are expected to perform well in a rising rate environment. At the end of February, the Fund had no exposure to emerging market bonds. As always, we will maintain a disciplined focus on individual security selection. Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource Fund. - ------------------------------------------------------------------------------ 10 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT FUND EXPENSES EXAMPLE (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds expense ratio as of the most recent shareholder report. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Feb. 28, 2007. 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 - 2007 SEMIANNUAL REPORT 11
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $ 1,000 $ 1,047.20 $ 4.52 .89% Hypothetical (5% return before expenses) $ 1,000 $ 1,020.38 $ 4.46 .89% Class B Actual(b) $ 1,000 $ 1,043.40 $ 8.36 1.65% Hypothetical (5% return before expenses) $ 1,000 $ 1,016.61 $ 8.25 1.65% Class C Actual(b) $ 1,000 $ 1,043.30 $ 8.36 1.65% Hypothetical (5% return before expenses) $ 1,000 $ 1,016.61 $ 8.25 1.65% Class I Actual(b) $ 1,000 $ 1,049.00 $ 2.74 .54% Hypothetical (5% return before expenses) $ 1,000 $ 1,022.12 $ 2.71 .54% Class R2 Actual(c) N/A N/A N/A N/A Hypothetical (5% return before expenses) $ 1,000 $ 1,018.25 $ 6.61 1.32% Class R3 Actual(c) N/A N/A N/A N/A Hypothetical (5% return before expenses) $ 1,000 $ 1,019.49 $ 5.36 1.07% Class R4 Actual(b) $ 1,000 $ 1,046.00 $ 3.70(d) .73% Hypothetical (5% return before expenses) $ 1,000 $ 1,021.17 $ 3.66(d) .73%
- ------------------------------------------------------------------------------ 12 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO Class R5 Actual(c) N/A N/A N/A N/A Hypothetical (5% return before expenses) $ 1,000 $ 1,021.97 $ 2.86 .57% Class W Actual(c) N/A N/A N/A N/A Hypothetical (5% return before expenses) $ 1,000 $ 1,020.08 $ 4.76 .95% (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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 28, 2007: +4.72% for Class A, +4.34% for Class B, +4.33% for Class C, +4.90% for Class I and 4.60% Class R4. (c) The actual values and expenses paid are not presented because Class R2, Class R3, Class R5 and Class W do not have a full six months of history. The inception date of Class R2, Class R3 and Class R5 is Dec. 11, 2006. The inception date of Class W is Dec. 1, 2006. (d) In September 2006, the Board approved renaming Class Y as Class R4, terminating the shareholder servicing agreement, revising the fee structure under the transfer agent agreement from an account-based fee to an asset-based fee, and adopting a plan administration services agreement. In addition, the investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2007, unless sooner terminated at the discretion of the Fund's Board, such that net expenses, (excluding fees and expenses of acquired funds), will not exceed 0.73% for Class R4. Any amounts waived will not be reimbursed by the Fund. These changes were effective Dec. 11, 2006. If these changes had been in place for the six-month period ended Feb. 28, 2007, the actual and hypothetical expenses paid for Class R4 would have been the same as presented in the table above.
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 13 INVESTMENTS IN SECURITIES FEB. 28, 2007 (UNAUDITED) (Percentages represent value of investments compared to net assets) BONDS (97.9%)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT SOVEREIGN (0.2%) United Mexican States 09-27-34 6.75% $ 5,310,000(c) $ 5,795,865 - --------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS & AGENCIES (15.0%) Federal Farm Credit Bank 10-10-08 4.25 13,285,000 13,173,712 Federal Home Loan Bank 02-13-08 5.25 29,685,000 29,742,619 06-18-08 5.13 37,180,000 37,289,159 Federal Home Loan Mtge Corp 06-15-08 3.88 29,840,000 29,419,853 10-15-08 5.13 25,085,000 25,195,725 03-15-09 5.75 9,385,000 9,547,032 07-15-09 4.25 10,000,000 9,868,240 Federal Natl Mtge Assn 09-15-07 4.25 24,930,000 24,802,608 01-15-08 4.63 15,565,000 15,502,510 08-15-08 3.25 86,170,000 84,097,611 10-15-08 4.50 19,250,000 19,158,409 Overseas Private Investment U.S. Govt Guaranty Series 1996A 09-15-08 6.99 2,222,222 2,252,489 U.S. Treasury 01-31-09 4.88 3,365,000 3,378,144 02-15-10 4.75 6,650,000 6,686,369 02-29-12 4.63 9,500,000(b) 9,547,500 02-15-17 4.63 57,570,000(o) 57,902,811 02-15-26 6.00 27,538,000(m) 31,696,679 --------------- Total 409,261,470 - --------------------------------------------------------------------------------------- ASSET-BACKED (2.9%) Capital Auto Receivables Asset Trust Series 2004-1 Cl CTFS 09-15-10 2.84 4,200,000 4,153,698 Capital Auto Receivables Asset Trust Series 2006-SN1A Cl D 04-20-11 6.15 2,500,000(d) 2,552,345
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT ASSET-BACKED (CONT.) College Loan Corporation Trust Collateralized Mtge Obligation Interest Only Series 2006-1 Cl AIO 07-25-08 5.62% $ 14,700,000(g) $ 1,951,770 Countrywide Asset-backed Ctfs Series 2005-10 Cl AF6 02-25-36 4.91 1,865,000 1,833,387 Countrywide Asset-backed Ctfs Series 2006-4 Cl 1A1M 07-25-36 5.58 2,999,298(i) 3,002,661 Drive Auto Receivables Trust Series 2006-2 Cl A2 (MBIA) 07-15-11 5.30 6,525,000(d,e) 6,544,771 Dunkin Securitization Series 2006-1 Cl A2 (AMBAC) 06-20-31 5.78 8,875,000(d,e) 9,074,324 Ford Credit Floorplan Master Owner Trust Series 2006-3 Cl A 06-15-11 5.50 22,200,000(i) 22,216,343 Hertz Vehicle Financing LLC Series 2004-1A Cl A3 (MBIA) 05-25-09 2.85 2,600,000(d,e) 2,543,890 Metris Master Trust Series 2005-1A Cl D 03-21-11 7.22 1,375,000(d,i) 1,376,367 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-2 Cl AIO 08-25-11 5.89 8,875,000(g) 2,058,121 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-3 Cl AIO 01-25-12 0.00 13,900,000(g) 4,033,919 Natl Collegiate Student Loan Trust Collateralized Mtge Obligation Interest Only Series 2006-4 Cl AIO 02-27-12 5.45 11,700,000(g) 3,167,775
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 14 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT ASSET-BACKED (CONT.) Popular ABS Mtge Pass-Through Trust Series 2005-A Cl AF2 06-25-35 4.49% $ 3,615,000 $ 3,586,652 Renaissance Home Equity Loan Trust Series 2005-4 Cl A3 02-25-36 5.57 4,670,000 4,649,686 Residential Asset Securities Series 2006-KS1 Cl A2 02-25-36 5.46 7,225,000(i) 7,228,389 WFS Financial Owner Trust Series 2004-1 Cl D 08-22-11 3.17 386,259 383,878 --------------- Total 80,357,976 - --------------------------------------------------------------------------------------- COMMERCIAL MORTGAGE-BACKED (16.7%)(f) Banc of America Commercial Mtge Series 2005-1 Cl A4 11-10-42 4.89 4,850,000 4,848,126 Banc of America Commercial Mtge Series 2005-4 Cl ASB 07-10-45 4.87 4,050,000 3,989,253 Banc of America Commercial Mtge Series 2006-2 Cl AAB 05-10-45 5.72 5,200,000 5,364,485 Banc of America Commercial Mtge Series 2006-4 Cl AAB 07-10-46 5.60 5,375,000 5,488,498 Banc of America Commercial Mtge Series 2007-1 Cl A3 01-15-49 5.45 5,800,000 5,829,000 Banc of America Large Loan Series 2006-LAQ Cl E 02-09-21 5.70 3,350,000(d,i) 3,357,336 Banc of America Large Loan Series 2006-LAQ Cl F 02-09-21 5.76 3,750,000(d,i) 3,758,204 Banc of America Large Loan Series 2006-LAQ Cl G 02-09-21 5.85 2,625,000(d,i) 2,630,014 Bear Stearns Commercial Mtge Securities Series 2003-T10 Cl A1 03-13-40 4.00 2,590,831 2,518,572 Bear Stearns Commercial Mtge Securities Series 2005-PW10 Cl A4 12-11-40 5.41 6,450,000 6,508,810
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT COMMERCIAL MORTGAGE-BACKED (CONT.) Bear Stearns Commercial Mtge Securities Series 2005-T20 Cl E 10-12-42 5.16% $ 3,200,000 $ 3,131,392 Bear Stearns Commercial Mtge Securities Series 2006-PW14 Cl A4 12-11-38 5.20 4,825,000 4,799,379 CDC Commercial Mtge Trust Series 2002-FX1 Cl A2 11-15-30 5.68 11,750,000 12,007,472 Citigroup Commercial Mtge Trust Series 2005-EMG Cl A1 09-20-51 4.15 6,557,259(d) 6,457,636 Citigroup/Deutsche Bank Commercial Mtge Trust Series 2005-CD1 Cl ASB 07-15-44 5.23 3,050,000 3,068,069 Commercial Mtge Acceptance Series 1999-C1 Cl A2 06-15-31 7.03 9,112,555 9,401,350 Commercial Mtge Pass-Through Ctfs Series 2006-CN2A Cl BFL 02-05-19 5.63 2,550,000(d,i) 2,562,768 Credit Suisse Mtge Capital Ctfs Series 2006-C2 Cl A3 03-15-39 5.66 5,000,000 5,154,401 Credit Suisse Mtge Capital Ctfs Series 2006-C4 Cl A3 09-15-39 5.47 5,000,000 5,069,348 CS First Boston Mtge Securities Series 2001-CP4 Cl A4 12-15-35 6.18 7,375,000 7,643,712 CS First Boston Mtge Securities Series 2003-CPN1 Cl A2 03-15-35 4.60 3,525,000 3,426,862 Federal Natl Mtge Assn #385683 02-01-13 4.83 6,171,038 6,123,143 Federal Natl Mtge Assn #385815 01-01-13 4.77 7,152,297 7,080,822 Federal Natl Mtge Assn #555806 10-01-13 5.26 494,533 496,820 Federal Natl Mtge Assn #745629 01-01-18 5.08 6,634,769 6,623,091 GE Capital Commercial Mtge Series 2004-C2 Cl A2 03-10-40 4.12 6,250,000 6,084,500
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 15 BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT COMMERCIAL MORTGAGE-BACKED (CONT.) General Electric Capital Assurance Series 2003-1 Cl A3 05-12-35 4.77% $ 10,350,000(d) $ 10,250,268 GMAC Commercial Mtge Securities Series 1999-C1 Cl B 05-15-33 6.30 8,000,000 8,146,554 Greenwich Capital Commercial Funding Series 2004-GG1 Cl A5 06-10-36 4.88 3,400,000 3,372,885 Greenwich Capital Commercial Funding Series 2006-GG7 Cl AAB 07-10-38 5.91 5,250,000 5,479,449 Greenwich Capital Commercial Funding Series 2007-GG9 Cl A4 01-10-17 5.56 7,225,000(b) 7,261,082 GS Mtge Securities II Series 2004-GG2 Cl A4 08-10-38 4.96 5,900,000 5,866,201 GS Mtge Securities II Series 2006-GG8 Cl A4 11-10-39 5.56 7,875,000 8,039,671 JPMorgan Chase Commercial Mtge Securities Series 2002-CIB5 Cl A1 10-12-37 4.37 6,329,778 6,231,244 JPMorgan Chase Commercial Mtge Securities Series 2003-CB6 Cl A2 07-12-37 5.26 11,000,000 11,049,257 JPMorgan Chase Commercial Mtge Securities Series 2003-LN1 Cl A1 10-15-37 4.13 3,847,891 3,737,848 JPMorgan Chase Commercial Mtge Securities Series 2003-ML1A Cl A1 03-12-39 3.97 3,674,145 3,582,747 JPMorgan Chase Commercial Mtge Securities Series 2003-ML1A Cl A2 03-12-39 4.77 6,869,000 6,730,507 JPMorgan Chase Commercial Mtge Securities Series 2004-CBX Cl A3 01-12-37 4.18 4,000,000 3,905,662 JPMorgan Chase Commercial Mtge Securities Series 2005-LDP2 Cl A1 07-15-42 4.33 4,983,109 4,913,994 JPMorgan Chase Commercial Mtge Securities Series 2005-LDP5 Cl A1 12-15-44 5.04 11,884,552 11,848,978
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT COMMERCIAL MORTGAGE-BACKED (CONT.) JPMorgan Chase Commercial Mtge Securities Series 2006-LDP6 Cl A4 04-15-43 5.47% $ 4,250,000 $ 4,307,232 JPMorgan Chase Commercial Mtge Securities Series 2006-LDP6 Cl ASB 04-15-43 5.49 6,450,000 6,542,049 JPMorgan Chase Commercial Mtge Securities Series 2006-LDP7 Cl ASB 04-15-45 5.88 9,500,000(i) 9,888,582 JPMorgan Chase Commercial Mtge Securities Series 2006-LDP8 Cl A4 05-15-45 5.40 5,300,000 5,340,197 LB-UBS Commercial Mtge Trust Series 2002-C2 Cl A3 06-15-26 5.39 10,150,000 10,241,466 LB-UBS Commercial Mtge Trust Series 2002-C4 Cl A4 09-15-26 4.56 7,000,000 6,890,816 LB-UBS Commercial Mtge Trust Series 2002-C4 Cl A5 09-15-31 4.85 6,000,000 5,929,735 LB-UBS Commercial Mtge Trust Series 2004-C2 Cl A3 03-15-29 3.97 4,475,000 4,256,307 LB-UBS Commercial Mtge Trust Series 2004-C8 Cl A2 12-15-29 4.20 8,100,000 7,920,909 LB-UBS Commercial Mtge Trust Series 2005-C5 Cl AAB 09-15-30 4.93 7,300,000 7,209,626 LB-UBS Commercial Mtge Trust Series 2006-C3 Cl AAB 03-15-39 5.64 5,950,000 6,085,720 LB-UBS Commercial Mtge Trust Series 2006-C4 Cl AAB 06-15-32 5.87 4,100,000 4,272,661 LB-UBS Commercial Mtge Trust Series 2006-C7 Cl A3 11-15-38 5.35 4,600,000 4,619,842 LB-UBS Commercial Mtge Trust Series 2007-C1 Cl A4 02-15-40 5.42 4,850,000 4,903,229 Morgan Stanley Capital I Series 2003-IQ4 Cl A1 05-15-40 3.27 4,123,125 3,974,409
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 16 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT COMMERCIAL MORTGAGE-BACKED (CONT.) Morgan Stanley Capital I Series 2003-T11 Cl A2 06-13-41 4.34% $ 4,550,000 $ 4,467,689 Morgan Stanley Capital I Series 2004-HQ4 Cl A5 04-14-40 4.59 4,950,000 4,830,309 Morgan Stanley Capital I Series 2005-T19 Cl AAB 06-12-47 4.85 9,125,000 8,992,956 Morgan Stanley Capital I Series 2006-T23 Cl AAB 08-12-41 5.80 3,425,000 3,554,507 Morgan Stanley Capital I Series 2006-XLF Cl A2 07-15-19 5.45 6,500,000(d,i) 6,501,649 Morgan Stanley Dean Witter Capital I Series 2002-TOP7 Cl A2 01-15-39 5.98 19,810,000 20,540,552 Nomura Asset Securities Series 1998-D6 Cl A3 03-15-30 7.22 6,770,000 7,495,964 Prudential Commercial Mtge Trust Series 2003-PWR1 Cl A1 02-11-36 3.67 5,353,006 5,164,478 SBA CMBS Trust Series 2006-1A Cl B 11-15-36 5.45 4,050,000(d) 4,096,892 Wachovia Bank Commercial Mtge Trust Series 2003-C4 Cl A2 04-15-35 4.57 14,000,000 13,719,785 Wachovia Bank Commercial Mtge Trust Series 2003-C7 Cl A2 10-15-35 5.08 14,550,000(d) 14,461,685 Wachovia Bank Commercial Mtge Trust Series 2005-C18 Cl A4 04-15-42 4.94 4,225,000 4,135,645 Wachovia Bank Commercial Mtge Trust Series 2005-C20 Cl A5 07-15-42 5.09 4,642,000 4,629,684 Wachovia Bank Commercial Mtge Trust Series 2006-C24 Cl A3 03-15-45 5.56 8,100,000 8,265,808 Wachovia Bank Commercial Mtge Trust Series 2006-C24 Cl APB 03-15-45 5.58 6,750,000 6,890,188
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT COMMERCIAL MORTGAGE-BACKED (CONT.) Wachovia Bank Commercial Mtge Trust Series 2006-C27 Cl A3 07-15-45 5.76% $ 2,900,000 $ 3,003,428 Wachovia Bank Commercial Mtge Trust Series 2006-C27 Cl APB 07-15-45 5.73 5,075,000 5,223,383 Wachovia Bank Commercial Mtge Trust Series 2006-C29 Cl A4 11-15-48 5.31 6,275,000 6,270,936 --------------- Total 458,467,728 - --------------------------------------------------------------------------------------- MORTGAGE-BACKED (43.7%)(f,l) Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2005-12 Cl 2A1 03-25-36 5.69 8,395,524(j) 8,456,041 Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2006-1 Cl 2A1 03-25-36 5.96 9,732,305(j) 9,755,954 Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2007-1 Cl 3A21 02-25-37 6.20 7,400,000(j) 7,558,626 American Home Mtge Assets Collateralized Mtge Obligation Series 2006-2 Cl 2A2 09-25-46 5.55 16,927,285(j) 16,927,285 American Home Mtge Assets Collateralized Mtge Obligation Series 2006-3 Cl 3A2 10-25-46 5.58 10,096,588(j) 10,121,724 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11 Cl 1A1 01-25-34 6.00 7,321,174 7,283,470 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11 Cl 4A1 01-25-19 4.75 4,017,395 3,899,384 Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2004-3 Cl 1A1 04-25-34 6.00 9,154,438 9,174,468
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 17 BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Banc of America Alternative Loan Trust Collateralized Mtge Obligation Series 2006-9 Cl 1CB1 01-25-37 6.00% $ 17,752,093 $ 17,768,735 Banc of America Funding Collateralized Mtge Obligation Series 2006-2N Cl N1 11-25-46 7.25 886,342(d) 878,587 Banc of America Funding Collateralized Mtge Obligation Series 2006-A Cl 3A2 02-20-36 5.90 6,719,756(j) 6,753,086 Bear Stearns Adjustable Rate Mtge Trust Collateralized Mtge Obligation Series 2005-8 Cl A4 08-25-35 5.09 6,025,000(d,j) 5,929,354 ChaseFlex Trust Collateralized Mtge Obligation Series 2005-2 Cl 2A2 06-25-35 6.50 2,190,489 2,224,374 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2003-11T1 Cl A1 07-25-18 4.75 4,227,458 4,103,277 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-54CB Cl 2A3 11-25-35 5.50 6,295,385 6,321,431 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-54CB Cl 3A7 11-25-35 5.50 6,379,450 6,405,795 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-64CB Cl 1A1 12-25-35 5.50 10,936,919 11,035,176 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-6CB Cl 1A1 04-25-35 7.50 5,876,952 6,136,710 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2005-85CB Cl 2A2 02-25-36 5.50 2,953,715 2,967,342
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-22R Cl 1A2 05-25-36 6.00% $ 8,400,000 $ 8,530,331 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-2CB Cl A11 03-25-36 6.00 9,055,184 9,126,259 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-31CB Cl A16 11-25-36 6.00 10,000,000 10,159,400 Countrywide Alternative Loan Trust Collateralized Mtge Obligation Series 2006-43CB Cl 1A4 02-25-37 6.00 13,331,181 13,443,696 Countrywide Home Loans Collateralized Mtge Obligation Series 2005-R2 Cl 2A1 06-25-35 7.00 7,237,455(d) 7,543,106 Countrywide Home Loans Collateralized Mtge Obligation Series 2006-HYB1 Cl 1A1 03-20-36 5.38 4,136,193(j) 4,147,113 CS First Boston Mtge Securities Collateralized Mtge Obligation Series 2003-29 Cl 8A1 11-25-18 6.00 2,282,427 2,294,999 CS First Boston Mtge Securities Collateralized Mtge Obligation Series 2005-12 Cl 3A1 01-25-36 7.00 9,737,090 9,984,537 Downey Savings & Loan Assn Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR5 Cl X1 08-19-45 6.38 54,704,704(g) 623,976 Federal Home Loan Mtge Corp #170216 03-01-17 8.50 8,141 8,651 Federal Home Loan Mtge Corp #1G2496 09-01-36 6.21 8,572,369(j) 8,733,100 Federal Home Loan Mtge Corp #1J1445 01-01-37 5.92 13,600,374(j) 13,750,536 Federal Home Loan Mtge Corp #284190 01-01-17 8.00 355 372
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 18 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED) ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp #290970 04-01-17 8.00% $ 13,799 $ 14,424 Federal Home Loan Mtge Corp #295114 06-01-17 8.50 3,806 4,045 Federal Home Loan Mtge Corp #540861 09-01-19 8.50 34,249 36,536 Federal Home Loan Mtge Corp #A00304 04-01-21 9.00 55,544 59,470 Federal Home Loan Mtge Corp #B11835 01-01-19 5.50 542,763 545,025 Federal Home Loan Mtge Corp #C00103 03-01-22 8.50 140,012 150,024 Federal Home Loan Mtge Corp #C00144 08-01-22 8.50 116,730 125,209 Federal Home Loan Mtge Corp #C00356 08-01-24 8.00 439,610 465,939 Federal Home Loan Mtge Corp #C00666 10-01-28 7.00 51,878 53,736 Federal Home Loan Mtge Corp #C53878 12-01-30 5.50 1,770,275 1,765,704 Federal Home Loan Mtge Corp #C62993 01-01-32 6.50 1,309,739 1,345,525 Federal Home Loan Mtge Corp #C63552 01-01-32 6.50 1,753,871 1,816,345 Federal Home Loan Mtge Corp #C64703 03-01-32 6.50 1,103,482 1,142,620 Federal Home Loan Mtge Corp #C67723 06-01-32 7.00 886,170 921,637 Federal Home Loan Mtge Corp #C78031 04-01-33 5.50 9,821,105 9,782,515 Federal Home Loan Mtge Corp #C79930 06-01-33 5.50 8,305,653 8,261,208 Federal Home Loan Mtge Corp #C90767 12-01-23 6.00 8,238,081 8,379,100 Federal Home Loan Mtge Corp #D96300 10-01-23 5.50 5,373,086 5,374,291 Federal Home Loan Mtge Corp #E01127 02-01-17 6.50 1,304,896 1,336,978 Federal Home Loan Mtge Corp #E01419 05-01-18 5.50 4,702,126 4,723,165 Federal Home Loan Mtge Corp #E79810 11-01-14 7.50 1,073,055 1,114,359 Federal Home Loan Mtge Corp #E90216 05-01-17 6.00 1,477,325 1,501,984
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Home Loan Mtge Corp #E98725 08-01-18 5.00% $ 10,540,972 $10,427,075 Federal Home Loan Mtge Corp #E99684 10-01-18 5.00 10,614,600 10,499,692 Federal Home Loan Mtge Corp #G00286 02-01-25 8.00 171,796 182,085 Federal Home Loan Mtge Corp #G01108 04-01-30 7.00 3,322,270 3,441,137 Federal Home Loan Mtge Corp #G01441 07-01-32 7.00 3,100,297 3,202,748 Federal Home Loan Mtge Corp #G01535 04-01-33 6.00 11,080,110 11,286,377 Federal Home Loan Mtge Corp #G11302 07-01-17 7.00 3,589,736 3,684,514 Federal Home Loan Mtge Corp #G12101 11-01-18 5.00 3,469,378 3,431,033 Federal Home Loan Mtge Corp #G30225 02-01-23 6.00 10,966,004 11,161,272 Federal Home Loan Mtge Corp Collateralized Mtge Obligation 03-15-22 7.00 720,604 718,736 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2590 Cl BI 02-15-14 0.14 2,300,016(g) 83,178 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Interest Only Series 2718 Cl IA 10-15-22 20.00 5,175,005(g) 173,086 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2576 Cl KJ 02-15-33 5.50 10,824,054 10,908,542 Federal Home Loan Mtge Corp Collateralized Mtge Obligation Series 2641 Cl KC 01-15-18 6.50 3,933,064 4,072,558 Federal Natl Mtge Assn 03-01-37 5.50 18,700,000(b) 18,548,063 03-01-37 6.00 41,025,000(b) 41,371,168 Federal Natl Mtge Assn #125479 04-01-27 7.50 260,020 271,765
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 19 BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #190899 04-01-23 8.50% $ 440,003 $ 463,372 Federal Natl Mtge Assn #190944 05-01-24 6.00 6,133,441 6,209,001 Federal Natl Mtge Assn #190988 06-01-24 9.00 397,848 423,331 Federal Natl Mtge Assn #231309 09-01-23 6.50 155,048 159,030 Federal Natl Mtge Assn #231310 09-01-23 6.50 388,724 398,707 Federal Natl Mtge Assn #250330 09-01-25 8.00 273,820 289,752 Federal Natl Mtge Assn #250495 03-01-26 7.00 668,350 692,616 Federal Natl Mtge Assn #250765 12-01-26 8.00 245,507 259,955 Federal Natl Mtge Assn #251116 08-01-27 8.00 275,763 292,154 Federal Natl Mtge Assn #252498 06-01-29 7.00 6,285 6,512 Federal Natl Mtge Assn #252982 01-01-30 8.00 197,976 209,922 Federal Natl Mtge Assn #253883 08-01-16 6.00 3,191,485 3,244,910 Federal Natl Mtge Assn #254236 03-01-17 6.50 1,864,767 1,910,464 Federal Natl Mtge Assn #254383 06-01-32 7.50 400,591 416,646 Federal Natl Mtge Assn #254802 07-01-18 4.50 3,101,540 3,013,511 Federal Natl Mtge Assn #254916 09-01-23 5.50 10,620,483 10,618,750 Federal Natl Mtge Assn #255788 06-01-15 5.50 3,297,639 3,315,753 Federal Natl Mtge Assn #268071 01-01-24 6.50 106,096 108,821 Federal Natl Mtge Assn #303226 02-01-25 8.00 127,052 134,350 Federal Natl Mtge Assn #313049 08-01-11 8.50 891,313 926,153 Federal Natl Mtge Assn #323933 09-01-29 7.00 4,137,213 4,286,654 Federal Natl Mtge Assn #408207 01-01-28 6.50 155,472 161,075
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #455791 01-01-29 6.50% $ 537,258 $ 553,009 Federal Natl Mtge Assn #489888 05-01-29 6.50 2,269,223 2,334,301 Federal Natl Mtge Assn #496029 01-01-29 6.50 3,048,875 3,138,287 Federal Natl Mtge Assn #50700 03-01-08 7.00 439,688 442,690 Federal Natl Mtge Assn #545008 06-01-31 7.00 2,678,249 2,789,163 Federal Natl Mtge Assn #545342 04-01-13 7.00 1,743,367 1,755,272 Federal Natl Mtge Assn #545684 05-01-32 7.50 353,247 368,398 Federal Natl Mtge Assn #545869 07-01-32 6.50 2,373,122 2,440,669 Federal Natl Mtge Assn #545885 08-01-32 6.50 4,091,357 4,189,795 Federal Natl Mtge Assn #545910 08-01-17 6.00 5,317,454 5,418,423 Federal Natl Mtge Assn #555343 08-01-17 6.00 5,123,536 5,210,248 Federal Natl Mtge Assn #555375 04-01-33 6.00 24,450,307 24,882,224 Federal Natl Mtge Assn #555458 05-01-33 5.50 21,884,504 21,768,298 Federal Natl Mtge Assn #555528 04-01-33 6.00 16,132,662 16,341,272 Federal Natl Mtge Assn #555734 07-01-23 5.00 8,400,735 8,240,312 Federal Natl Mtge Assn #555740 08-01-18 4.50 10,537,021 10,236,551 Federal Natl Mtge Assn #555794 09-01-28 7.50 956,158 999,558 Federal Natl Mtge Assn #567840 10-01-30 7.00 1,374,758 1,424,416 Federal Natl Mtge Assn #587859 12-01-16 5.50 4,963,664 4,990,835 Federal Natl Mtge Assn #597374 09-01-31 7.00 739,767 767,855 Federal Natl Mtge Assn #606882 10-01-31 7.00 939,971 972,033 Federal Natl Mtge Assn #634650 04-01-32 7.50 248,681 258,648
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 20 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #638969 03-01-32 5.50% $ 1,483,348 $ 1,479,966 Federal Natl Mtge Assn #643362 04-01-17 6.50 720,777 738,440 Federal Natl Mtge Assn #646147 06-01-32 7.00 2,498,033 2,600,561 Federal Natl Mtge Assn #646446 06-01-17 6.50 1,160,869 1,189,317 Federal Natl Mtge Assn #649068 06-01-17 6.50 1,991,414 2,046,964 Federal Natl Mtge Assn #649263 08-01-17 6.50 2,045,374 2,100,731 Federal Natl Mtge Assn #654208 10-01-32 6.50 2,060,941 2,116,125 Federal Natl Mtge Assn #654682 10-01-32 6.00 1,360,100 1,377,906 Federal Natl Mtge Assn #654689 11-01-32 6.00 1,573,086 1,592,921 Federal Natl Mtge Assn #656908 09-01-32 6.50 1,975,055 2,045,539 Federal Natl Mtge Assn #662061 09-01-32 6.50 1,726,995 1,773,237 Federal Natl Mtge Assn #667787 02-01-18 5.50 1,830,037 1,838,352 Federal Natl Mtge Assn #670382 09-01-32 6.00 11,501,604 11,650,330 Federal Natl Mtge Assn #670387 08-01-32 7.00 1,497,524 1,551,825 Federal Natl Mtge Assn #678028 09-01-17 6.00 5,771,189 5,868,863 Federal Natl Mtge Assn #678065 02-01-33 6.50 447,722 459,853 Federal Natl Mtge Assn #678937 01-01-18 5.50 2,966,235 2,984,093 Federal Natl Mtge Assn #678941 02-01-18 5.50 3,612,046 3,633,744 Federal Natl Mtge Assn #678944 01-01-18 5.50 1,743,973 1,754,426 Federal Natl Mtge Assn #679095 04-01-18 5.00 5,617,338 5,556,588 Federal Natl Mtge Assn #680961 01-01-33 6.00 611,745 620,807 Federal Natl Mtge Assn #681400 03-01-18 5.50 5,229,425 5,256,097
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #682825 01-01-33 6.00% $ 1,986,572 $ 2,012,260 Federal Natl Mtge Assn #683274 02-01-18 5.50 2,512,547 2,525,334 Federal Natl Mtge Assn #684586 03-01-33 6.00 3,443,470 3,491,265 Federal Natl Mtge Assn #686172 02-01-33 6.00 2,877,737 2,914,949 Federal Natl Mtge Assn #686528 02-01-33 6.00 3,728,129 3,784,546 Federal Natl Mtge Assn #687051 01-01-33 6.00 11,153,358 11,237,810 Federal Natl Mtge Assn #689093 07-01-28 5.50 3,487,475 3,479,526 Federal Natl Mtge Assn #694628 04-01-33 5.50 7,028,481 6,998,962 Federal Natl Mtge Assn #694795 04-01-33 5.50 8,327,747 8,292,824 Federal Natl Mtge Assn #694988 03-01-33 5.50 11,938,294 11,877,009 Federal Natl Mtge Assn #695202 03-01-33 6.50 4,442,450 4,552,027 Federal Natl Mtge Assn #695220 04-01-33 5.50 1,878,044 1,867,268 Federal Natl Mtge Assn #695909 05-01-18 5.50 2,406,733 2,420,419 Federal Natl Mtge Assn #697843 04-01-18 5.00 2,360,008 2,335,196 Federal Natl Mtge Assn #699424 04-01-33 5.50 4,773,291 4,753,267 Federal Natl Mtge Assn #702427 04-01-33 5.50 4,566,327 4,547,157 Federal Natl Mtge Assn #704049 05-01-18 5.50 2,829,855 2,845,321 Federal Natl Mtge Assn #709901 06-01-18 5.00 5,980,374 5,917,385 Federal Natl Mtge Assn #710823 05-01-33 5.50 658,368 655,600 Federal Natl Mtge Assn #712057 07-01-18 4.50 3,886,141 3,775,843 Federal Natl Mtge Assn #720006 07-01-33 5.50 9,579,691 9,524,720 Federal Natl Mtge Assn #720070 07-01-23 5.50 2,713,181 2,712,738
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 21 BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #720378 06-01-18 4.50% $ 6,409,877 $ 6,227,949 Federal Natl Mtge Assn #723687 08-01-28 5.50 4,101,350 4,092,002 Federal Natl Mtge Assn #725232 03-01-34 5.00 18,936,600 18,431,227 Federal Natl Mtge Assn #725425 04-01-34 5.50 25,967,521 25,820,986 Federal Natl Mtge Assn #725684 05-01-18 6.00 10,842,271 11,028,622 Federal Natl Mtge Assn #725719 07-01-33 4.84 7,141,056(j) 7,006,232 Federal Natl Mtge Assn #725737 08-01-34 4.54 5,341,334(j) 5,312,063 Federal Natl Mtge Assn #725813 12-01-33 6.50 11,190,554 11,466,580 Federal Natl Mtge Assn #730153 08-01-33 5.50 1,282,566 1,275,206 Federal Natl Mtge Assn #735057 01-01-19 4.50 11,094,602 10,779,711 Federal Natl Mtge Assn #735212 12-01-34 5.00 20,963,945 20,390,564 Federal Natl Mtge Assn #735949 10-01-35 4.99 9,516,357(j) 9,489,386 Federal Natl Mtge Assn #738921 11-01-32 6.50 878,744 904,298 Federal Natl Mtge Assn #743262 10-01-18 5.00 3,688,875 3,649,690 Federal Natl Mtge Assn #747642 11-01-28 5.50 2,741,455 2,735,206 Federal Natl Mtge Assn #753074 12-01-28 5.50 7,658,411 7,640,954 Federal Natl Mtge Assn #753091 12-01-33 5.50 4,670,325 4,643,526 Federal Natl Mtge Assn #753919 12-01-33 4.95 6,155,253(j) 6,086,468 Federal Natl Mtge Assn #759342 01-01-34 6.50 1,876,017 1,936,671 Federal Natl Mtge Assn #765183 01-01-19 5.50 616,575 619,597 Federal Natl Mtge Assn #765759 12-01-18 5.00 4,117,644 4,073,114 Federal Natl Mtge Assn #765761 02-01-19 5.00 2,013,689 1,991,912
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn #766641 03-01-34 5.00% $ 7,025,623 $ 6,833,466 Federal Natl Mtge Assn #776962 04-01-29 5.00 17,735,783 17,252,463 Federal Natl Mtge Assn #779327 06-01-34 4.55 4,237,720(j) 4,168,887 Federal Natl Mtge Assn #804442 12-01-34 6.50 1,622,548 1,658,470 Federal Natl Mtge Assn #837258 09-01-35 4.92 2,868,819(j) 2,884,425 Federal Natl Mtge Assn #844257 11-01-35 5.09 10,308,823(j) 10,319,031 Federal Natl Mtge Assn #845070 12-01-35 5.09 6,986,987(j) 6,981,174 Federal Natl Mtge Assn #882063 06-01-36 6.50 4,059,858 4,172,600 Federal Natl Mtge Assn #886291 07-01-36 7.00 7,632,287 7,897,208 Federal Natl Mtge Assn #886461 08-01-36 6.19 7,371,232(j) 7,518,583 Federal Natl Mtge Assn #900197 10-01-36 5.98 9,879,827(j) 10,038,694 Federal Natl Mtge Assn #901922 10-01-36 5.79 9,549,968(j) 9,639,780 Federal Natl Mtge Assn #909471 02-01-37 5.55 8,815,938(j) 8,848,997 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-24 Cl PI 12-25-12 20.00 1,296,728(g) 20,339 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2003-71 Cl IM 12-25-31 13.34 3,142,974(g) 477,584 Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2004-84 Cl GI 12-25-22 12.17 848,498(g) 109,895
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 22 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Federal Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 367 Cl 2 01-25-36 8.53% $ 15,276,563(g) $ 3,437,227 Federal Natl Mtge Assn Collateralized Mtge Obligation Principal Only Series 43 Cl 1 09-01-18 5.24 20,075(h) 17,003 Federal Natl Mtge Assn Collateralized Mtge Obligation Series 2003-133 Cl GB 12-25-26 8.00 3,728,677 3,947,626 Govt Natl Mtge Assn #345538 02-15-24 8.00 149,003 157,765 Govt Natl Mtge Assn #3920 11-20-36 6.00 18,807,068 19,046,734 Govt Natl Mtge Assn #398831 08-15-26 8.00 197,166 209,027 Govt Natl Mtge Assn #423782 05-15-26 7.50 459,163 479,237 Govt Natl Mtge Assn #425004 10-15-33 5.50 3,909,516 3,909,168 Govt Natl Mtge Assn #426170 06-15-26 8.00 109,239 115,811 Govt Natl Mtge Assn #595256 12-15-32 6.00 6,815,099 6,933,964 Govt Natl Mtge Assn #604580 08-15-33 5.00 4,086,492 4,000,804 Govt Natl Mtge Assn #604708 10-15-33 5.50 10,547,891 10,546,953 Govt Natl Mtge Assn #606844 09-15-33 5.00 10,117,875 9,905,717 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-70 Cl IC 08-20-32 13.50 8,987,969(g) 1,473,343 Govt Natl Mtge Assn Collateralized Mtge Obligation Interest Only Series 2002-80 Cl CI 01-20-32 20.00 1,658,119(g) 139,356
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Harborview Mtge Loan Trust Collateralized Mtge Obligation Series 2006-5 Cl 2A1B 07-19-46 5.55% $ 4,917,457(j) $ 4,918,789 Harborview Nim Collateralized Mtge Obligation Series 2006-10 Cl N1 11-19-36 6.41 1,450,586(d) 1,449,679 Harborview Nim Collateralized Mtge Obligation Series 2006-8A Cl N1 07-21-36 6.41 903,419(d) 903,419 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Interest Only Series 2005-AR8 Cl AX1 04-25-35 4.50 129,084,859(g) 1,089,154 IndyMac Index Mtge Loan Trust Collateralized Mtge Obligation Series 2005-AR25 Cl 1A21 12-25-35 5.87 6,811,956(j) 6,835,372 IndyMac Index Nim Collateralized Mtge Obligation Series 2006-AR6 Cl N1 06-25-46 6.65 2,133,924(d) 2,125,922 Lehman XS Net Interest Margin Nts Collateralized Mtge Obligation Series 2006-2N Cl A1 02-27-46 7.00 1,082,568(d) 1,082,568 Lehman XS Net Interest Margin Nts Collateralized Mtge Obligation Series 2006-AR8 Cl A1 10-28-46 6.25 1,165,548(d) 1,162,269 Lehman XS Net Interest Margin Nts Collateralized Mtge Obligation Series 2006-GPM6 Cl A1 10-28-46 6.25 2,440,254(d) 2,438,331 Master Alternative Loans Trust Collateralized Mtge Obligation Series 2004-2 Cl 4A1 02-25-19 5.00 6,362,713 6,233,486 Master Alternative Loans Trust Collateralized Mtge Obligation Series 2004-4 Cl 2A1 05-25-34 6.00 3,671,602 3,640,651
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 23 BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Master Alternative Loans Trust Collateralized Mtge Obligation Series 2004-7 Cl 8A1 08-25-19 5.00% $ 5,079,989 $ 4,943,998 Master Alternative Loans Trust Collateralized Mtge Obligation Series 2004-8 Cl 7A1 09-25-19 5.00 6,842,802 6,663,042 Rali NIM Collateralized Mtge Obligation Series 2006-QO4 Cl N1 04-25-46 6.05 1,499,784(d) 1,493,222 Residential Accredit Loans Collateralized Mtge Obligation Series 2006-QS3 Cl 1A10 03-25-36 6.00 6,535,098 6,632,604 Structured Asset Securities Collateralized Mtge Obligation Series 2003-33H Cl 1A1 10-25-33 5.50 14,243,093 14,091,876 Washington Mutual Alternative Mtge Loan Trust Pass-Through Ctfs Collateralized Mtge Obligation Interest Only Series 2005-AR1 Cl X 12-25-35 7.10 47,193,748(g) 405,571 Washington Mutual Alternative Mtge Loan Trust Pass-Through Ctfs Collateralized Mtge Obligation Series 2006-AR10 Cl 1A1 09-25-36 5.96 5,637,146(j) 5,689,392 Washington Mutual Collateralized Mtge Obligation Series 2003-AR10 Cl A7 10-25-33 4.06 9,025,000(j) 8,980,750 Washington Mutual Collateralized Mtge Obligation Series 2004-CB2 Cl 6A 07-25-19 4.50 4,812,179 4,583,167 Washington Mutual Collateralized Mtge Obligation Series 2005-AR14 Cl 2A1 12-25-35 5.30 5,559,473(j) 5,527,916
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MORTGAGE-BACKED (CONT.) Washington Mutual Collateralized Mtge Obligation Series 2005-AR17 Cl A1C1 12-25-45 5.51% $ 882,079(j) $ 882,173 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-10 Cl A1 10-25-35 5.00 18,191,435 17,604,579 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2005-5 Cl 2A1 05-25-35 5.50 12,418,834 12,248,075 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR12 Cl 1A1 09-25-36 6.04 5,420,093(j) 5,480,043 Wells Fargo Mtge Backed Securities Trust Collateralized Mtge Obligation Series 2006-AR6 Cl 5A1 03-25-36 5.11 11,882,116(j) 11,768,657 -------------- Total 1,201,869,570 - ---------------------------------------------------------------------------------- AEROSPACE & DEFENSE (0.1%) DRS Technologies 02-01-16 6.63 825,000 827,063 L-3 Communications 06-15-12 7.63 670,000 693,450 L-3 Communications Sr Sub Nts Series B 10-15-15 6.38 890,000 885,550 ------------- Total 2,406,063 - ---------------------------------------------------------------------------------- BANKING (2.9%) Bank of America Sub Nts 10-15-36 6.00 15,500,000 16,180,140 Citigroup Sub Nts 08-25-36 6.13 13,090,000 13,840,685 Manufacturers & Traders Trust Sub Nts 12-01-21 5.63 6,945,000 6,962,440 Natl City Bank of Cleveland Sub Nts 12-15-11 6.20 2,910,000 3,042,987
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 24 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT BANKING (CONT.) Natl City Bank of Kentucky Sub Nts 02-15-11 6.30% $ 1,433,000 $ 1,492,429 Popular North America Sr Nts 10-01-08 3.88 28,122,000 27,545,162 Wachovia Bank Sub Nts 02-01-37 5.85 2,490,000 2,529,840 Wells Fargo Bank Sub Nts 08-26-36 5.95 8,630,000 9,048,728 -------------- Total 80,642,411 - -------------------------------------------------------------------------------- BROKERAGE (1.5%) LaBranche & Co Sr Nts 05-15-12 11.00 935,000 1,016,813 Lehman Brothers Holdings Sr Nts 02-06-12 5.25 12,825,000 12,894,133 Merrill Lynch & Co Sub Nts 01-29-37 6.11 6,290,000 6,281,647 Morgan Stanley 01-09-17 5.45 22,360,000 22,210,769 -------------- Total 42,403,362 - -------------------------------------------------------------------------------- CHEMICALS (--%) NewMarket Sr Nts 12-15-16 7.13 845,000(d) 847,113 PQ 02-15-13 7.50 90,000 90,675 -------------- Total 937,788 - -------------------------------------------------------------------------------- CONSUMER PRODUCTS (--%) Jarden 05-01-17 7.50 775,000 784,688 - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING (--%) Baldor Electric Sr Nts 02-15-17 8.63 170,000 178,500 - --------------------------------------------------------------------------------
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT ELECTRIC (4.0%) Arizona Public Service 05-15-15 4.65% $ 12,465,000 $ 11,723,994 CMS Energy Sr Nts 01-15-09 7.50 1,275,000 1,303,688 Commonwealth Edison 1st Mtge 04-15-15 4.70 8,115,000 7,667,904 Commonwealth Edison 1st Mtge Series 104 08-15-16 5.95 4,120,000 4,217,817 Consumers Energy 1st Mtge 02-15-12 5.00 3,355,000 3,316,773 Consumers Energy 1st Mtge Series F 05-15-10 4.00 1,040,000 1,003,341 Consumers Energy 1st Mtge Series H 02-17-09 4.80 10,775,000 10,696,925 Duke Energy Indiana 10-15-35 6.12 7,970,000 8,265,440 Edison Mission Energy Sr Unsecured 06-15-13 7.50 720,000 752,400 Entergy Gulf States 1st Mtge 06-01-08 3.60 5,500,000 5,383,796 Exelon 06-15-10 4.45 9,790,000 9,535,020 Exelon Sr Nts 05-01-11 6.75 1,320,000 1,386,818 Florida Power 1st Mtge 07-15-11 6.65 2,250,000 2,383,389 Indiana Michigan Power Sr Nts 03-15-37 6.05 7,965,000 8,085,757 IPALCO Enterprises Secured 11-14-08 8.38 400,000 413,000 11-14-11 8.63 3,680,000 3,988,200
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 25 BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT ELECTRIC (CONT.) Metropolitan Edison Sr Nts 03-15-10 4.45% $ 1,810,000 $ 1,769,921 MidAmerican Energy Holdings 04-01-36 6.13 1,540,000 1,598,766 Midwest Generation LLC Pass-Through Ctfs Series B 01-02-16 8.56 163,621 178,960 Northern States Power Sr Nts 08-01-09 6.88 5,730,000 5,948,754 NRG Energy 02-01-14 7.25 695,000 708,900 Oncor Electric Delivery Secured 01-15-15 6.38 5,960,000 6,245,347 Pacific Gas & Electric 03-01-34 6.05 1,540,000 1,593,253 Portland General Electric 03-15-10 7.88 2,935,000 3,149,725 Public Service Company of Colorado Sr Nts Series A 07-15-09 6.88 2,005,000 2,077,916 Sierra Pacific Power Series M 05-15-16 6.00 3,525,000 3,611,676 Xcel Energy Sr Nts 07-01-08 3.40 3,315,000 3,241,904 -------------- Total 110,249,384 - -------------------------------------------------------------------------------- ENTERTAINMENT (0.2%) United Artists Theatre Circuit 07-01-15 9.30 6,492,049(n) 6,751,731 - -------------------------------------------------------------------------------- ENVIRONMENTAL (0.1%) Allied Waste North America 06-01-17 6.88 1,370,000(b) 1,361,438 Allied Waste North America Series B 05-15-16 7.13 1,385,000 1,407,506 -------------- Total 2,768,944 - --------------------------------------------------------------------------------
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT FOOD AND BEVERAGE (1.3%) Aramark Sr Nts 02-01-15 8.86% $ 130,000(d,i) $ 134,550 Cadbury Schweppes US Finance LLC 10-01-08 3.88 15,250,000(d) 14,946,372 Constellation Brands 09-01-16 7.25 945,000 980,438 Cott Beverages USA 12-15-11 8.00 1,740,000 1,781,325 Kraft Foods 10-01-13 5.25 9,415,000 9,386,905 Molson Coors Capital Finance 09-22-10 4.85 7,680,000(c) 7,581,220 -------------- Total 34,810,810 - -------------------------------------------------------------------------------- GAMING (0.1%) Majestic Star Casino LLC/Capital 10-15-10 9.50 690,000 726,225 Mohegan Tribal Gaming Authority Sr Sub Nts 04-01-12 8.00 750,000 780,000 Pokagon Gaming Authority Sr Nts 06-15-14 10.38 235,000(d) 257,325 Wynn Las Vegas LLC/Capital 1st Mtge 12-01-14 6.63 690,000 683,100 -------------- Total 2,446,650 - -------------------------------------------------------------------------------- GAS DISTRIBUTORS (0.1%) Atmos Energy 10-15-09 4.00 4,005,000 3,880,917 - -------------------------------------------------------------------------------- GAS PIPELINES (0.4%) Colorado Interstate Gas Sr Nts 03-15-15 5.95 470,000 475,906 11-15-15 6.80 830,000 887,595 Regency Energy Partners LP/Finance Sr Unsecured 12-15-13 8.38 300,000(d) 306,750 Southern Star Central Sr Nts 03-01-16 6.75 1,460,000 1,463,650 Tennessee Gas Pipe Line 04-01-37 7.63 3,145,000 3,708,125
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 26 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT GAS PIPELINES (CONT.) Transcontinental Gas Pipe Line Series B 08-15-11 7.00% $ 1,915,000 $ 2,008,356 Transcontinental Gas Pipe Line Sr Unsecured 04-15-16 6.40 656,000 679,780 Williams Companies Sr Nts 07-15-19 7.63 2,079,000 2,255,715 -------------- Total 11,785,877 - -------------------------------------------------------------------------------- HEALTH CARE (0.5%) Community Health Systems Sr Sub Nts 12-15-12 6.50 835,000 839,175 DaVita 03-15-13 6.63 1,305,000 1,301,737 03-15-15 7.25 945,000 954,450 Health Management Associates Sr Unsecured 04-15-16 6.13 695,000 681,900 Mckesson 03-01-17 5.70 7,315,000(b) 7,302,930 Omnicare Sr Sub Nts 12-15-13 6.75 1,105,000 1,093,950 Triad Hospitals Sr Nts 05-15-12 7.00 720,000 743,400 Triad Hospitals Sr Sub Nts 11-15-13 7.00 860,000 895,475 -------------- Total 13,813,017 - -------------------------------------------------------------------------------- HEALTH CARE INSURANCE (0.3%) CIGNA Sr Unsecured 11-15-36 6.15 9,010,000 9,231,556 - -------------------------------------------------------------------------------- INDEPENDENT ENERGY (1.2%) Apache 01-15-37 6.00 5,770,000 5,932,604 Canadian Natural Resources 02-15-37 6.50 2,920,000(c) 3,054,416
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT INDEPENDENT ENERGY (CONT.) Chesapeake Energy 01-15-16 6.63% $ 1,510,000 $ 1,517,550 08-15-17 6.50 675,000 664,875 01-15-18 6.25 925,000 911,125 Denbury Resources Sr Sub Nts 12-15-15 7.50 100,000 101,000 Pioneer Natural Resources 05-01-18 6.88 2,675,000 2,697,684 Range Resources 03-15-15 6.38 425,000 416,500 05-15-16 7.50 180,000 184,950 XTO Energy 01-31-15 5.00 10,850,000 10,492,515 XTO Energy Sr Unsecured 06-30-15 5.30 6,515,000 6,419,868 -------------- Total 32,393,087 - -------------------------------------------------------------------------------- LIFE INSURANCE (0.4%) Prudential Financial 12-14-36 5.70 11,990,000 11,834,243 - -------------------------------------------------------------------------------- MEDIA CABLE (0.2%) Comcast 03-15-37 6.45 3,105,000 3,314,625 Videotron Ltee 01-15-14 6.88 1,310,000(c) 1,323,100 -------------- Total 4,637,725 - -------------------------------------------------------------------------------- MEDIA NON CABLE (0.5%) Clear Channel Communications Sr Nts 09-15-14 5.50 1,355,000 1,201,073 Dex Media West LLC/Finance Sr Nts Series B 08-15-10 8.50 560,000 586,600 Idearc Sr Nts 11-15-16 8.00 574,000(d) 596,960 Lamar Media 01-01-13 7.25 242,000 245,630 Lamar Media Series B 08-15-15 6.63 735,000 723,975
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 27 BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT MEDIA NON CABLE (CONT.) News America 12-15-35 6.40% $ 3,055,000 $ 3,152,891 Radio One Series B 07-01-11 8.88 1,000,000 1,032,500 RH Donnelley Sr Disc Nts Series A-1 01-15-13 6.88 645,000 628,875 RR Donnelley & Sons Sr Unsecured 01-15-17 6.13 4,095,000 4,178,023 Sinclair Broadcast Group 03-15-12 8.00 720,000 741,600 Sun Media 02-15-13 7.63 745,000(c) 756,175 ------------ Total 13,844,302 - ------------------------------------------------------------------------------------ METALS (0.1%) Reliance Steel & Aluminum 11-15-36 6.85 2,320,000(d) 2,413,006 - ------------------------------------------------------------------------------------ NON CAPTIVE CONSUMER (0.2%) Countrywide Financial Sub Nts 05-15-16 6.25 5,210,000 5,302,587 - ------------------------------------------------------------------------------------ OIL FIELD SERVICES (0.1%) Chart Inds Sr Sub Nts 10-15-15 9.88 345,000(d) 364,838 OPTI Canada 12-15-14 8.25 1,306,000(c,d) 1,354,975 Pride Intl Sr Nts 07-15-14 7.38 845,000 866,125 ------------ Total 2,585,938 - ------------------------------------------------------------------------------------ OTHER FINANCIAL INSTITUTIONS (0.3%) Residential Capital Sr Unsecured 06-30-10 6.38 9,220,000 9,300,601 - ------------------------------------------------------------------------------------
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT PACKAGING (0.1%) Greif Sr Nts 02-01-17 6.75% $ 2,715,000(d) $ 2,742,150 Owens-Brockway Glass Container 05-15-13 8.25 630,000 659,925 Plastipak Holdings Sr Nts 12-15-15 8.50 345,000(d) 359,663 ------------ Total 3,761,738 - ------------------------------------------------------------------------------------ PAPER (0.1%) Cascades Sr Nts 02-15-13 7.25 90,000(c) 90,900 Georgia-Pacific 01-15-17 7.13 1,830,000(d) 1,830,000 NewPage Secured 05-01-12 10.00 260,000 283,400 Norampac Sr Nts 06-01-13 6.75 155,000(c) 153,450 ------------ Total 2,357,750 - ------------------------------------------------------------------------------------ RAILROADS (0.2%) Burlington Nothern Sante Fe 08-15-36 6.20 5,470,000 5,674,244 - ------------------------------------------------------------------------------------ RESTAURANTS (--%) Seminole Hard Rock Entertainment/Intl LLC Secured 03-15-14 7.85 100,000(b,d,i) 100,625 - ------------------------------------------------------------------------------------ RETAILERS (0.8%) Home Depot Sr Unsecured 12-16-36 5.88 9,835,000 9,868,537 May Department Stores 07-15-09 4.80 11,204,000 11,081,126 United Auto Group 03-15-12 9.63 715,000 749,413 United Auto Group Sr Sub Nts 12-15-16 7.75 980,000(d) 999,600 ------------ Total 22,698,676 - ------------------------------------------------------------------------------------
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 28 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT TECHNOLOGY (0.1%) Flextronics Intl Sr Sub Nts 11-15-14 6.25% $ 775,000(c) $ 749,813 NXP Funding LLC Secured 10-15-13 8.11 1,055,000(c,d,i) 1,078,737 --------------- Total 1,828,550 - --------------------------------------------------------------------------------------- TRANSPORTATION SERVICES (0.1%) Ryder System 03-01-14 5.85 2,040,000 2,064,205 - --------------------------------------------------------------------------------------- WIRELESS (0.1%) American Tower Sr Nts 10-15-12 7.13 220,000 227,425 Vodafone Group 02-27-37 6.15 1,545,000(c) 1,544,552 --------------- Total 1,771,977 - --------------------------------------------------------------------------------------- WIRELINES (3.4%) AT&T 05-15-36 6.80 7,460,000 8,176,809 Qwest 03-15-12 8.88 1,095,000 1,209,975 Qwest Sr Nts 06-15-15 7.63 1,450,000 1,547,875 Qwest Sr Unsecured 10-01-14 7.50 950,000 1,008,188 Telecom Italia Capital 11-15-33 6.38 10,045,000(c) 9,809,826 Telefonica Europe 09-15-10 7.75 9,823,000(c) 10,612,808 TELUS 06-01-11 8.00 23,894,000(c) 26,241,371 Verizon New York Series A 04-01-12 6.88 20,910,000 22,096,454 Verizon Pennsylvania Series A 11-15-11 5.65 10,520,000 10,708,729
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a) RATE AMOUNT WIRELINES (CONT.) Windstream 08-01-16 8.63% $ 1,750,000 $ 1,916,250 Windstream Sr Nts 03-15-19 7.00 660,000(d) 664,950 --------------- Total 93,993,235 - --------------------------------------------------------------------------------------- TOTAL BONDS (Cost: $2,699,333,326) $ 2,695,406,796 - ---------------------------------------------------------------------------------------
SENIOR LOANS (1.1%)(k)
BORROWER COUPON PRINCIPAL VALUE(a) RATE AMOUNT AUTOMOTIVE (0.1%) Ford Motor Tranche B Term Loan 11-29-13 8.36% $ 1,425,000 $ 1,444,152 - --------------------------------------------------------------------------------------- ENTERTAINMENT (--%) Natl CineMedia LLC Tranche B Term Loan 02-13-15 7.07 80,000 80,600 - --------------------------------------------------------------------------------------- FOOD AND BEVERAGE (0.1%) Aramark Tranche B Term Loan 08-08-13 7.45-7.47 220,000(b) 222,382 08-08-13 7.45-7.47 1,955,000 1,976,173 --------------- Total 2,198,555 - --------------------------------------------------------------------------------------- HEALTH CARE (0.5%) HCA Tranche B Term Loan 11-14-13 7.61 1,570,000(b) 1,588,651 11-14-13 7.61 11,480,000 11,616,382 --------------- Total 13,205,033 - --------------------------------------------------------------------------------------- MEDIA NON CABLE (0.2%) Intelsat Bermuda Term Loan 07-11-14 7.86 1,135,000(c) 1,144,931 VNU Tranche B Term Loan 08-09-13 7.61 1,475,000(b,c) 1,489,750 08-09-13 7.61 3,994,988(c) 4,034,938 --------------- Total 6,669,619 - ---------------------------------------------------------------------------------------
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 29 SENIOR LOANS (CONTINUED)
BORROWER COUPON PRINCIPAL VALUE(a) RATE AMOUNT RETAILERS (0.1%) Michaels Stores Tranche B Term Loan 10-31-13 8.13% $ 2,222,035 $ 2,242,434 Neiman Marcus Group Tranche B Term Loan 04-06-13 7.35 1,755,000 1,774,884 --------------- Total 4,017,318 - --------------------------------------------------------------------------------------- TECHNOLOGY (0.1%) West Corp Tranche B Term Loan 10-24-13 7.76-8.11 2,715,000 2,741,580 - --------------------------------------------------------------------------------------- TOTAL SENIOR LOANS (Cost: $30,112,636) $ 30,356,857 - ---------------------------------------------------------------------------------------
MONEY MARKET FUND (5.6%)(p)
SHARES VALUE(a) RiverSource Short-Term Cash Fund 155,260,259(q) $ 155,260,259 - --------------------------------------------------------------------------------------- TOTAL MONEY MARKET FUND (Cost: $155,260,259) $ 155,260,259 - --------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $2,884,706,221)(r) $ 2,881,023,912 ======================================================================================= NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) At Feb. 28, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $88,592,289. (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, 2007, the value of foreign securities represented 2.8% of net assets. (d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Fund's Board of Directors. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Feb. 28, 2007, the value of these securities amounted to $130,172,220 or 4.7% of net assets. (e) The following abbreviations are used in the portfolio security descriptions to identify the insurer of the issue: AMBAC -- Ambac Assurance Corporation MBIA -- MBIA Insurance Corporation (f) Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. - ------------------------------------------------------------------------------ 30 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (g) Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. Interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at Feb. 28, 2007. (h) Principal only represents securities that entitle holders to receive only principal payments on the underlying mortgages. The yield to maturity of a principal only is sensitive to the rate of principal payments on the underlying mortgage assets. A slow (rapid) rate of principal repayments may have an adverse (positive) effect on yield to maturity. Interest rate disclosed represents yield based upon the estimated timing of future cash flows at Feb. 28, 2007. (i) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (j) Adjustable rate mortgage; interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (k) 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. (l) Comparable securities are held to satisfy future delivery requirements of the following open forward sale commitments at Feb. 28, 2007:
SECURITY PRINCIPAL SETTLEMENT PROCEEDS VALUE AMOUNT DATE RECEIVABLE -------------------------------------------------------------------------------------- Federal Natl Mtge Assn 03-01-22 4.50% $ 15,000,000 03-19-07 $ 14,411,719 $ 14,535,930 03-01-22 5.00 15,650,000 03-19-07 15,332,109 15,439,695 03-01-37 5.00 19,000,000 03-13-07 18,337,968 18,441,875 (m) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 6 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT ---------------------------------------------------------------------------------- PURCHASE CONTRACTS U.S. Long Bond, June 2007, 20-year $ 68,500,000 U.S. Treasury Note, June 2007, 5-year 77,800,000 U.S. Treasury Note, June 2007, 10-year 43,700,000 SALE CONTRACTS U.S. Treasury Note, June 2007, 2-year 55,000,000 (n) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities may be valued at fair value according to methods selected in good faith by the Fund's Board of Directors. Information concerning such security holdings at Feb. 28, 2007, is as follows: SECURITY ACQUISITION COST DATES ----------------------------------------------------------------------------------------- United Artists Theatre Circuit 9.30% 2015 02-23-96 thru 08-12-96 $ 6,295,664 - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 31 NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (o) At Feb. 28, 2007, security was partially or fully on loan. See Note 5 to the financial statements. (p) Cash collateral received from security lending activity is invested in an affiliated money market fund and represents 2.5% of net assets. See Note 5 to the financial statements. 3.1% of net assets is the Fund's cash equivalent position. (q) Affiliated Money Market Fund -- See Note 7 to the financial statements. (r) At Feb. 28, 2007, the cost of securities for federal income tax purposes was approximately $2,884,706,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $ 18,499,000 Unrealized depreciation (22,181,000) ------------------------------------------------------------------------------------ Net unrealized depreciation $ (3,682,000) ------------------------------------------------------------------------------------ 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.
- ------------------------------------------------------------------------------ 32 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEB. 28, 2007 (UNAUDITED) ASSETS Investments in securities, at value (Note 1) Unaffiliated issuers* (identified cost $2,729,445,962) $ 2,725,763,653 Affiliated money market fund (identified cost $155,260,259) (Note 7) 155,260,259 - ----------------------------------------------------------------------------------------------- Total investments in securities (identified cost $2,884,706,221) 2,881,023,912 Cash in bank on demand deposit 323,121 Foreign currency holdings (identified cost $2,070,004) (Note 1) 2,161,459 Capital shares receivable 1,190,712 Accrued interest receivable 18,503,129 Receivable for investment securities sold 136,054,707 - ----------------------------------------------------------------------------------------------- Total assets 3,039,257,040 - ----------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 1,522,869 Capital shares payable 323,694 Payable for investment securities purchased 164,707,264 Payable upon return of securities loaned (Note 5) 69,055,000 Accrued investment management services fee 34,546 Accrued distribution fee 473,090 Accrued transfer agency fee 6,586 Accrued administrative services fee 4,739 Accrued plan administration services fee 16,728 Other accrued expenses 245,428 Forward sale commitments, at value (proceeds receivable $48,081,796) (Note 1) 48,417,500 - ----------------------------------------------------------------------------------------------- Total liabilities 284,807,444 - ----------------------------------------------------------------------------------------------- Net assets applicable to outstanding capital stock $ 2,754,449,596 ===============================================================================================
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 33 STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) FEB. 28, 2007 (UNAUDITED) REPRESENTED BY Capital stock -- $.01 par value (Note 1) $ 5,645,397 Additional paid-in capital 2,900,775,931 Excess of distributions over net investment income (1,145,380) Accumulated net realized gain (loss) (Note 10) (148,666,945) Unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies (Note 6) (2,159,407) - ---------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding capital stock $ 2,754,449,596 ========================================================================================================== Net assets applicable to outstanding shares: Class A $ 1,954,741,012 Class B $ 381,162,809 Class C $ 16,747,242 Class I $ 319,653,597 Class R2 $ 5,063 Class R3 $ 5,063 Class R4 $ 81,115,961 Class R5 $ 5,063 Class W $ 1,013,786 Net asset value per share of outstanding capital stock: Class A shares 400,684,005 $ 4.88 Class B shares 78,128,377 $ 4.88 Class C shares 3,432,220 $ 4.88 Class I shares 65,435,375 $ 4.89 Class R2 shares 1,040 $ 4.87 Class R3 shares 1,040 $ 4.87 Class R4 shares 16,648,855 $ 4.87 Class R5 shares 1,040 $ 4.87 Class W shares 207,722 $ 4.88 - ---------------------------------------------------------------------------------------------------------- * Including securities on loan, at value (Note 5) $ 68,423,700 - ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ 34 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT STATEMENT OF OPERATIONS SIX MONTHS ENDED FEB. 28, 2007 (UNAUDITED) INVESTMENT INCOME Income: Interest $ 67,731,305 Income distributions from affiliated money market fund (Note 7) 3,740,752 Fee income from securities lending (Note 5) 183,803 - ------------------------------------------------------------------------------------------------ Total income 71,655,860 - ------------------------------------------------------------------------------------------------ Expenses (Note 2): Investment management services fee 6,297,290 Distribution fee Class A 2,445,361 Class B 1,933,077 Class C 83,772 Class R2 5 Class R3 2 Class W 60 Transfer agency fee Class A 1,598,600 Class B 340,750 Class C 14,745 Class R2 1 Class R3 1 Class R4 59,172 Class R5 1 Class W 48 Service fee -- Class R4 36,188 Administrative services fees and expenses 863,988 Plan administration services fee Class R2 2 Class R3 2 Class R4 46,594 Compensation of board members 28,804 Custodian fees 130,700 Printing and postage 288,235 Registration fees 75,970 Professional fees 26,843 Other 52,835 - ------------------------------------------------------------------------------------------------ Total expenses 14,323,046 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (1,114,756) - ------------------------------------------------------------------------------------------------ 13,208,290 Earnings and bank fee credits on cash balances (Note 2) (120,083) - ------------------------------------------------------------------------------------------------ Total net expenses 13,088,207 - ------------------------------------------------------------------------------------------------ Investment income (loss) -- net 58,567,653 - ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 35 STATEMENT OF OPERATIONS (CONTINUED) SIX MONTHS ENDED FEB. 28, 2007 (UNAUDITED) REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) $ 40,375,717 Futures contracts 1,469,870 Swap transactions 289,325 - ----------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 42,134,912 Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 25,131,401 - ----------------------------------------------------------------------------------------------- Net gain (loss) on investments and foreign currencies 67,266,313 - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $125,833,966 ===============================================================================================
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ 36 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
FEB. 28, 2007 AUG. 31, 2006 SIX MONTHS ENDED YEAR ENDED (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 58,567,653 $ 103,147,373 Net realized gain (loss) on investments 42,134,912 (39,151,119) Net change in unrealized appreciation (depreciation) on investments and on translation of assets and liabilities in foreign currencies 25,131,401 (17,503,759) - ------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 125,833,966 46,492,495 - ------------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income Class A (46,273,505) (76,604,597) Class B (7,677,278) (15,585,869) Class C (332,467) (591,217) Class I (7,302,646) (4,560,444) Class R2 (44) N/A Class R3 (47) N/A Class R4 (2,629,979) (6,737,531) Class R5 (52) N/A Class W (852) N/A - ------------------------------------------------------------------------------------------------------------ Total distributions (64,216,870) (104,079,658) - ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 37 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FEB. 28, 2007 AUG. 31, 2006 SIX MONTHS ENDED YEAR ENDED (UNAUDITED) CAPITAL SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) $ 124,019,701 $ 316,729,749 Class B shares 32,578,573 79,990,744 Class C shares 1,689,939 3,579,299 Class I shares 80,806,691 109,101,564 Class R2 shares 5,000 N/A Class R3 shares 5,000 N/A Class R4 shares 13,541,321 19,247,047 Class R5 shares 5,000 N/A Class W shares 1,011,580 N/A Fund Merger (Note 9) Class A shares N/A 482,178,674 Class B shares N/A 84,180,791 Class C shares N/A 3,014,375 Class I shares N/A 161,023,234 Class R4 shares N/A 43,644,789 Reinvestment of distributions at net asset value Class A shares 37,191,322 60,868,805 Class B shares 6,839,149 13,634,050 Class C shares 290,185 518,063 Class I shares 7,223,848 4,443,417 Class R4 shares 2,653,017 6,613,878 Class W shares 725 N/A Payments for redemptions Class A shares (263,739,909) (578,402,371) Class B shares (Note 2) (68,847,786) (247,147,060) Class C shares (Note 2) (2,904,158) (7,432,273) Class I shares (50,771,560) (1,248,255) Class R4 shares (109,531,516) (95,308,639) Class W shares (1,304) N/A - ------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from capital share transactions (187,935,182) 459,229,881 - ------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (126,318,086) 401,642,718 Net assets at beginning of period 2,880,767,682 2,479,124,964 - ------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 2,754,449,596 $ 2,880,767,682 ============================================================================================================= Undistributed (excess of distributions over) net investment income $ (1,145,380) $ 4,503,837 - -------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ 38 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS (Unaudited as to Feb. 28, 2007) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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 and Class R4 shares. o Class A shares are sold with a front-end sales charge. o Class B shares may be subject to a contingent deferred sales charge (CDSC) and automatically convert to Class A shares during the ninth year of ownership. o Class C shares may be subject to a CDSC. o Class I and Class R4 shares have no sales charge and are offered only to qualifying institutional investors. In September 2006, the Board approved renaming Class Y as Class R4, terminating the shareholder servicing agreement, revising the fee structure under the transfer agent agreement from account-based to asset-based, and adopting a plan administration services agreement. These changes were effective Dec. 11, 2006. At Feb. 28, 2007, Ameriprise Financial, Inc. (Ameriprise Financial) and the affiliated funds-of-funds owned 100% of Class I shares. Effective Dec. 11, 2006, the Fund offers additional classes of shares, Class R2, Class R3 and Class R5, offered to certain institutional investors. These shares are sold without a front-end sales charge or CDSC. At Feb. 28, 2007, Ameriprise Financial owned 100% of Class R2, Class R3 and Class R5 shares. Effective Dec. 1, 2006, the Fund offers an additional class of shares, Class W, offered through qualifying discretionary accounts. Class W shares are sold without a front-end sales charge or CDSC. At Feb. 28, 2007, Ameriprise Financial owned 100% of Class W shares. At Feb. 28, 2007, Ameriprise Financial and the affiliated funds-of-funds owned approximately 12% of the total outstanding Fund shares. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 39 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 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. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the Board. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. ILLIQUID SECURITIES At Feb. 28, 2007, investments in securities included issues that are illiquid which the Fund currently limits to 10% of net assets, at market value, at the time of purchase. The aggregate value of such securities at Feb. 28, 2007 was $6,751,731 representing 0.25% of net assets. These securities are valued at fair value according to methods selected in good faith by the Board. According to board guidelines, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Assets are liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Fund on a forward-commitment basis, including when-issued securities and other forward-commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect the Fund's net assets the same as owned securities. The Fund designates cash or liquid securities at least equal to the amount of its forward-commitments. At Feb. 28, 2007, the Fund has entered into outstanding when-issued securities of $85,512,289 and other forward-commitments of $3,080,000. - ------------------------------------------------------------------------------ 40 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT The Fund also enters into transactions to sell purchase commitments to third parties at current market values and concurrently acquires other purchase commitments for similar securities at later dates. As an inducement for the Fund to "roll over" its purchase commitments, the Fund receives negotiated amounts in the form of reductions of the purchase price of the commitment. OPTION TRANSACTIONS To produce incremental earnings, protect gains, and facilitate buying and selling of securities for investments, the Fund may buy and write options traded on any U.S. or foreign exchange or in the over-the-counter market where completing the obligation depends upon the credit standing of the other party. The Fund also may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Fund will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Fund may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Fund also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 41 FOREIGN CURRENCY TRANSLATIONS AND FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars. Foreign currency amounts related to the purchase or sale of securities and income and expenses are translated at the exchange rate on the transaction date. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. In the statement of operations, net realized gains or losses from foreign currency transactions, if any, may arise from sales of foreign currency, closed forward contracts, exchange gains or losses realized between the trade date and settlement date on securities transactions, and other translation gains or losses on dividends, interest income and foreign withholding taxes. At Feb. 28, 2007, foreign currency holdings consisted of European monetary units and British pounds. The Fund may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuation. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates from an independent pricing service. The Fund is subject to the credit risk that the other party will not complete its contract obligations. FORWARD SALE COMMITMENTS The Fund may enter into forward sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of forward sale commitments are not received until the contractual settlement date. During the time a forward sale commitment is outstanding, equivalent deliverable securities, or an offsetting forward purchase commitment deliverable on or before the sale commitment date, are used to satisfy the commitment. Unsettled forward sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Valuation of securities" above. The forward sale commitment is "marked-to-market" daily and the change in market value is recorded by the Fund as an unrealized gain or loss. If the forward sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss. If the Fund delivers securities under the commitment, the Fund realizes a gain or a loss from the sale of the securities based upon the market price established at the date the commitment was entered into. Forward sale commitments outstanding at period end are listed in the "Notes to investments in securities." - ------------------------------------------------------------------------------ 42 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 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 collateralized 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 Funds. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund's contracts with its service providers contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined and the Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES The Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of the deferred losses on certain futures contracts, the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Fund. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 43 RECENT ACCOUNTING PRONOUNCEMENTS On Sept. 20, 2006, the Financial Accounting Standards Board ("FASB") released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" ("SFAS 157"). SFAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of SFAS 157 is required for fiscal years beginning after Nov. 15, 2007 and interim periods within those fiscal years. The impact of SFAS 157 on the Fund's financial statements is being evaluated. In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after Dec. 15, 2006. Tax positions of the Fund are being evaluated to determine the impact, if any, to the fund. The adoption of FIN 48 is not anticipated to have a material impact on the fund. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and payable monthly, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Dividend income is recognized on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES Under an Investment Management Services Agreement, RiverSource Investments, LLC (the Investment Manager) determines which securities will be purchased, held or sold. 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. - ------------------------------------------------------------------------------ 44 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 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. Other expenses in the amount of $12,829 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. Compensation of Board members includes, for the former Board Chair, compensation as well as retirement benefits. Certain other aspects of the former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or other RiverSource funds. The Fund's liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan. Professional fees include fees paid by the Fund for legal services and independent auditor services. Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. The Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: o Class A $20.50 o Class B $21.50 o Class C $21.00 Effective Dec. 11, 2006, as part of the Board's approval to rename Class Y as Class R4, the fee structure under the Transfer Agency Agreement was revised from an account-based fee for Class Y to an asset-based fee for Class R4. The Fund will pay 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 R4 shares. Prior to Dec. 11, 2006, the Fund paid the Transfer Agent an annual account-based fee of $18.50 per shareholder account. In addition, with the introduction of Class R2, Class R3, Class R5 and Class W shares, the Fund will pay 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 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. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 45 Prior to Dec. 11, 2006, Class I paid a transfer agency fee at an annual rate per shareholder account of $1. This amount is included in the transfer agency fee on the statement of operations. Effective Dec. 11, 2006, this fee was eliminated. The Transfer Agent charges an annual closed account fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the statement of operations. The Fund has agreements with Ameriprise Financial Services, Inc. and RiverSource Distributors, Inc. (collectively, the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily net assets attributable to Class A, Class R3 and Class W shares, a fee at an annual rate of up to 0.50% of the Fund's average daily net assets attributable to Class R2 shares and a fee at an annual rate of up to 1.00% of the Fund's average daily net assets attributable to Class B and Class C shares. Beginning Dec. 11, 2006, a new Plan Administration Services Agreement was adopted for the restructured Class R4 and the introduction of Class R2 and Class R3. The fee is calculated at a rate of 0.25% of the Fund's average daily net assets attributable to Class R2, Class R3 and Class R4 shares. Prior to Dec. 11, 2006, under a Shareholder Service Agreement, the Fund paid the Distributor a fee for service provided to shareholders by the Distributor and other servicing agents with respect to those shares. The fee was calculated at a rate of 0.10% of the Fund's average daily net assets attributable to Class Y shares. Effective Dec. 11, 2006, this agreement was terminated. Sales charges received by the Distributor for distributing Fund shares were $928,404 for Class A, $184,687 for Class B and $1,520 for Class C for the six months ended Feb. 28, 2007. In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). Because the acquired funds have varied expense and fee levels and the Fund may own different proportions of acquired funds at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. For the six months ended Feb. 28, 2007, the Investment Manager and its affiliates waived certain fees and expenses (excluding fees and expenses of acquired funds), such that net expenses are 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.54% for Class I, 1.32% for Class R2, 1.07% for Class R3, 0.73% for Class R4, 0.57% for Class R5 and 0.95% for Class W. Of these waived fees and expenses, the transfer agency fees waived for Class A, Class B, Class C, Class R4 and Class W were $620,456, $127,815, $5,195, $37,786 and $5, respectively, and the management fees waived at the Fund level were $323,499. In addition, the Investment Manager - ------------------------------------------------------------------------------ 46 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT and its affiliates have agreed to waive certain fees and expenses until Aug. 31, 2007, unless sooner terminated at the discretion of the Board, such that net expenses (excluding fees and expenses of acquired funds), will not exceed 0.89% for Class A, 1.65% for Class B, 1.66% for Class C, 0.54% for Class I, 1.32% for Class R2, 1.07% for Class R3, 0.73% for Class R4, 0.57% for Class R5 and 0.97% for Class W of the Fund's average daily net assets. During the six months ended Feb. 28, 2007, the Fund's custodian and transfer agency fees were reduced by $120,083 as a result of earnings and bank fee credits from overnight cash balances. 3. SECURITIES TRANSACTIONS Cost of purchases and proceeds from sales of securities (other than short-term obligations) aggregated $3,754,878,291 and $4,075,330,220, respectively, for the six months ended Feb. 28, 2007. Realized gains and losses are determined on an identified cost basis. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of capital stock for the periods indicated are as follows:
SIX MONTHS ENDED FEB. 28, 2007 CLASS A CLASS B CLASS C CLASS I CLASS R2(a) - ----------------------------------------------------------------------------------------------------------- Sold 25,785,759 6,771,888 351,116 16,755,014 1,040 Issued for reinvested distributions 7,722,377 1,420,212 60,259 1,497,909 -- Redeemed (54,845,844) (14,313,864) (603,790) (10,557,562) -- - ----------------------------------------------------------------------------------------------------------- Net increase (decrease) (21,337,708) (6,121,764) (192,415) 7,695,361 1,040 - -----------------------------------------------------------------------------------------------------------
CLASS R3(a) CLASS R4(b) CLASS R5(a) CLASS W(c) - ----------------------------------------------------------------------------------------------------------- Sold 1,040 2,808,650 1,040 207,840 Issued for reinvested distributions -- 551,782 -- 150 Redeemed -- (22,913,597) -- (268) - ----------------------------------------------------------------------------------------------------------- Net increase (decrease) 1,040 (19,553,165) 1,040 207,722 - -----------------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2006 CLASS A CLASS B CLASS C CLASS I CLASS R4(b) - ----------------------------------------------------------------------------------------------------------- Sold 66,603,100 16,761,356 749,835 23,207,815 4,039,333 Fund merger 101,470,543 17,711,859 633,369 33,851,639 9,182,696 Issued for reinvested distributions 12,810,045 2,867,046 108,893 941,851 1,392,410 Redeemed (121,661,365) (52,093,450) (1,561,227) (263,328) (19,763,678) - ----------------------------------------------------------------------------------------------------------- Net increase (decrease) 59,222,323 (14,753,189) (69,130) 57,737,977 (5,149,239) - ----------------------------------------------------------------------------------------------------------- (a) Inception date is Dec. 11, 2006. (b) Effective Dec. 11, 2006, Class Y was renamed Class R4. (c) Inception date is Dec. 1, 2006.
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 47 5. LENDING OF PORTFOLIO SECURITIES In order to generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets (which includes collateral for securities on loan) to broker-dealers, banks, or other institutional borrowers of securities. The Fund receives collateral in the form of cash and U.S. government securities, equal to at least 100% of the value of securities loaned, which is marked to the market value of the loaned securities daily until the securities are returned, e.g., if the value of the securities on loan increases, additional cash collateral is provided by the borrower. The Investment Manager serves as securities lending agent for the Fund under the investment management services agreement pursuant to which the Fund has agreed to reimburse the Investment Manager for expenses incurred by it in connection with the lending program, and pursuant to guidelines adopted by and under the oversight of the Board. At Feb. 28, 2007, securities valued at $68,423,700 were on loan to brokers. For collateral, the Fund received $69,055,000 in cash. Cash collateral received is invested in short-term securities, including U.S. government securities or other high-grade debt obligations, which are included in the "Investments in securities." Income from securities lending amounted to $183,803 for the six months ended Feb. 28, 2007. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due. 6. INTEREST RATE FUTURES CONTRACTS At Feb. 28, 2007, investments in securities included securities valued at $1,438,770 that were pledged as collateral to cover initial margin deposits on 1,900 open purchase contracts and 275 open sale contracts. The notional market value of the open purchase contracts at Feb. 28, 2007 was $207,249,191 with a net unrealized gain of $1,953,678. The notional market value of the open sale contracts at Feb. 28, 2007 was $56,362,111 with a net unrealized loss of $186,527. See "Summary of significant accounting policies" and "Notes to investments in securities." 7. AFFILIATED MONEY MARKET FUND The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund, a money market fund established for the exclusive use of the RiverSource funds and other institutional clients of RiverSource Investments. - ------------------------------------------------------------------------------ 48 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 8. BANK BORROWINGS The Fund has a revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 19, 2006. The Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.06% per annum. Prior to this agreement, the Fund paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. The Fund had no borrowings under the facility outstanding during the six months ended Feb. 28, 2007. 9. FUND MERGER At the close of business on March 10, 2006, RiverSource Diversified Bond Fund acquired the assets and assumed the identified liabilities of RiverSource Selective Fund. The reorganization was completed after shareholders approved the plan on Feb. 15, 2006. The aggregate net assets of RiverSource Diversified Bond Fund immediately before the acquisition were $2,230,540,317 and the combined net assets immediately after the acquisition were $3,004,582,180. The merger was accomplished by a tax-free exchange of 91,783,512 shares of RiverSource Selective Fund valued at $774,041,863. In exchange for the RiverSource Selective Fund shares and net assets, RiverSource Diversified Bond Fund issued the following number of shares:
SHARES Class A 101,470,543 Class B 17,711,859 Class C 633,369 Class I 33,851,639 Class Y 9,182,696
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 49 RiverSource Selective Fund's net assets after adjustments for any permanent book-to-tax differences at the merger date were as follows, which include the following amounts of capital stock, unrealized depreciation, accumulated net realized loss and temporary book-to-tax differences.
TEMPORARY TOTAL NET CAPITAL UNREALIZED ACCUMULATED BOOK-TO-TAX ASSETS STOCK DEPRECIATION NET REALIZED LOSS DIFFERENCES - ------------------------------------------------------------------------------------------------ RiverSource Selective Fund $774,041,863 $826,804,340 $(18,618,938) $ (34,129,421) $ (14,118)
10. CAPITAL LOSS CARRY-OVER For federal income tax purposes, the Fund had a capital loss carry-over of $175,789,584 at Aug. 31, 2006, that if not offset by capital gains will expire as follows:
2009 2010 2012 2014 2015 $78,698,873 $49,658,521 $5,227,159 $12,836,807 $29,368,224
RiverSource Diversified Bond Fund acquired $31,763,053 of capital loss carry-overs in connection with the RiverSource Selective Fund merger (Note 9). In addition to the acquired capital loss carry-overs, the Fund also acquired unrealized capital gains as a result of the mergers. The yearly utilization of the acquired capital losses as well as the utilization of the acquired unrealized losses is limited by the Internal Revenue Code. 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. 11. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to our motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Discovery is currently set to end in March 2007. - ------------------------------------------------------------------------------ 50 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), the parent company of RiverSource Investments, LLC (RiverSource Investments), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. In connection with these matters, the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain provisions of the federal and Minnesota securities laws by failing to adequately disclose market timing activities by allowing certain identified market timers to continue to market time contrary to disclosures in mutual fund and variable annuity product prospectuses. The Orders also alleged that AEFC failed to implement procedures to detect and prevent market timing in 401(k) plans for employees of AEFC and related companies and failed to adequately disclose that there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged that AEFC allowed inappropriate market timing to occur by failing to have written policies and procedures and failing to properly supervise its employees. As a result of the Orders, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to make presentations at least annually to its board of directors and the relevant mutual funds' board that include an overview of policies and procedures to prevent market timing, material changes to these policies and procedures and whether disclosures related to market timing are consistent with the SEC order and federal securities laws. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In addition, AEFC agreed to complete and submit to the MDOC a compliance review of its procedures regarding market timing within one year of the MDOC Order, including a summary of actions taken to ensure compliance with applicable laws and regulations and certification by a senior officer regarding compliance and supervisory procedures. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. - ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 51 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 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. - ------------------------------------------------------------------------------ 52 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 12. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating the Fund's results. CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003 Net asset value, beginning of period $ 4.77 $ 4.89 $ 4.87 $ 4.78 $ 4.75 - ---------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10 .19 .18 .18 .20 Net gains (losses) (both realized and unrealized) .12 (.11) .03 .08 .03 - ---------------------------------------------------------------------------------------------------------- Total from investment operations .22 .08 .21 .26 .23 - ---------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.20) (.19) (.17) (.20) - ---------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 4.88 $ 4.77 $ 4.89 $ 4.87 $ 4.78 - ---------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1,955 $ 2,013 $ 1,774 $ 1,933 $ 2,280 - ---------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b),(c) .89%(d),(e) .89%(d) .94%(d) .98%(d) .97% - ---------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 4.32%(e) 4.09% 3.67% 3.55% 4.16% - ---------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 134% 281% 300% 279% 256% - ---------------------------------------------------------------------------------------------------------- Total return(f) 4.72%(g) 1.64% 4.38% 5.54% 4.91% - ---------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.98% for the six months ended Feb. 28, 2007 and 0.99%, 1.02% and 1.00% for the years ended Aug. 31, 2006, 2005 and 2004, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Feb. 28, 2007 (Unaudited).
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 53 CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003 Net asset value, beginning of period $ 4.77 $ 4.89 $ 4.88 $ 4.78 $ 4.75 - ---------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .16 .15 .14 .16 Net gains (losses) (both realized and unrealized) .11 (.12) .01 .09 .03 - ---------------------------------------------------------------------------------------------------------- Total from investment operations .20 .04 .16 .23 .19 - ---------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.16) (.15) (.13) (.16) - ---------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 4.88 $ 4.77 $ 4.89 $ 4.88 $ 4.78 - ---------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 381 $ 402 $ 484 $ 628 $ 902 - ---------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b),(c) 1.65%(d),(e) 1.65%(d) 1.70%(d) 1.73%(d) 1.73% - ---------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.56%(e) 3.31% 2.92% 2.78% 3.40% - ---------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 134% 281% 300% 279% 256% - ---------------------------------------------------------------------------------------------------------- Total return(f) 4.34%(g) .88% 3.39% 4.95% 4.12% - ---------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.74% for the six months ended Feb. 28, 2007 and 1.76%, 1.78% and 1.75% for the years ended Aug. 31, 2006, 2005 and 2004, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Feb. 28, 2007 (Unaudited).
- ------------------------------------------------------------------------------ 54 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003 Net asset value, beginning of period $ 4.77 $ 4.90 $ 4.88 $ 4.78 $ 4.75 - ----------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .16 .15 .14 .16 Net gains (losses) (both realized and unrealized) .11 (.13) .02 .09 .03 - ----------------------------------------------------------------------------------------------------------------------- Total from investment operations .20 .03 .17 .23 .19 - ----------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.16) (.15) (.13) (.16) - ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 4.88 $ 4.77 $ 4.90 $ 4.88 $ 4.78 - ----------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 17 $ 17 $ 18 $ 21 $ 27 - ----------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b),(c) 1.65%(d,(e) 1.66%(d) 1.70%(d) 1.73%(d) 1.74% - ----------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.57%(e) 3.31% 2.93% 2.79% 3.34% - ----------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 134% 281% 300% 279% 256% - ----------------------------------------------------------------------------------------------------------------------- Total return(f) 4.33%(g) .66% 3.60% 4.95% 4.11% - ----------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.74% for the six months ended Feb. 28, 2007 and 1.76%, 1.79% and 1.75% for the years ended Aug. 31, 2006, 2005 and 2004, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Feb. 28, 2007 (Unaudited).
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 55 CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(i) 2006 2005 2004(b) Net asset value, beginning of period $ 4.78 $ 4.89 $ 4.88 $ 4.91 - -------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11 .21 .20 .11 Net gains (losses) (both realized and unrealized) .12 (.11) .02 (.04) - -------------------------------------------------------------------------------------------------------- Total from investment operations .23 .10 .22 .07 - -------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.21) (.21) (.10) - -------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 4.89 $ 4.78 $ 4.89 $ 4.88 - -------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 320 $ 276 $ -- $ -- - -------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d) .54%(e),(f) .54%(e) .60% .59%(f) - -------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 4.68%(f) 4.59% 4.01% 3.13%(f) - -------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 134% 281% 300% 279% - -------------------------------------------------------------------------------------------------------- Total return(g) 4.90%(h) 2.19% 4.53% 1.43%(h) - -------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Inception date is March 4, 2004. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings 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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class I would have been 0.57% for the six months ended Feb. 28, 2007 and 0.55% for the year ended Aug. 31, 2006. (f) Adjusted to an annual basis. (g) Total return does not reflect payment of a sales charge. (h) Not annualized. (i) Six months ended Feb. 28, 2007 (Unaudited).
- ------------------------------------------------------------------------------ 56 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(b) Net asset value, beginning of period $ 4.82 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04 Net gains (losses) (both realized and unrealized) .05 - -------------------------------------------------------------------------------- Total from investment operations .09 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) - -------------------------------------------------------------------------------- Net asset value, end of period $ 4.87 - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ -- - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d),(e) 1.32%(f) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.96%(f) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 134% - -------------------------------------------------------------------------------- Total return(g) 2.14%(h) - -------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007 (Unaudited). (c) Expense ratio is based on total expenses of the Fund before reduction of 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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class R2 would have been 1.33% for the period ended Feb. 28, 2007. (f) Adjusted to an annual basis. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 57 CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(b) Net asset value, beginning of period $ 4.82 - -------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .04 Net gains (losses) (both realized and unrealized) .05 - -------------------------------------------------------------------------------- Total from investment operations .09 - -------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.04) - -------------------------------------------------------------------------------- Net asset value, end of period $ 4.87 - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ -- - -------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d),(e) 1.07%(f) - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 4.23%(f) - -------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 134% - -------------------------------------------------------------------------------- Total return(g) 2.20%(h) - -------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007 (Unaudited). (c) Expense ratio is based on total expenses of the Fund before reduction of 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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class R3 would have been 1.07% for the six months ended Feb. 28, 2007. (f) Adjusted to an annual basis. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 58 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT CLASS R4*
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003 Net asset value, beginning of period $ 4.77 $ 4.89 $ 4.88 $ 4.78 $ 4.75 - -------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .11 .20 .19 .18 .21 Net gains (losses) (both realized and unrealized) .11 (.12) .02 .10 .03 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .22 .08 .21 .28 .24 - -------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.12) (.20) (.20) (.18) (.21) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 4.87 $ 4.77 $ 4.89 $ 4.88 $ 4.78 - -------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 81 $ 173 $ 202 $ 203 $ 268 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b),(c) .73%(d),(e) .73%(d) .78%(d) .81%(d) .81% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 4.41%(e) 4.24% 3.85% 3.70% 4.34% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 134% 281% 300% 279% 256% - -------------------------------------------------------------------------------------------------------------------------- Total return(f) 4.60%(g) 1.81% 4.34% 5.92% 5.08% - -------------------------------------------------------------------------------------------------------------------------- * Effective Dec. 11, 2006, Class Y was renamed Class R4. (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (c) 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. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class R4 would have been 0.81% for the six months ended Feb. 28, 2007 and 0.82%, 0.86% and 0.83% for the years ended Aug. 31, 2006, 2005 and 2004, respectively. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized. (h) Six months ended Feb. 28, 2006 (Unaudited).
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 59 CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(b) Net asset value, beginning of period $ 4.82 - ------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05 Net gains (losses) (both realized and unrealized) .05 - ------------------------------------------------------------------------ Total from investment operations .10 - ------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.05) - ------------------------------------------------------------------------ Net asset value, end of period $ 4.87 - ------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ -- - ------------------------------------------------------------------------ Ratio of expenses to average daily net assets(c),(d),(e) .57%(f) - ------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 4.72%(f) - ------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 134% - ------------------------------------------------------------------------ Total return(g) 2.30%(h) - ------------------------------------------------------------------------ (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007 (Unaudited). (c) Expense ratio is based on total expenses of the Fund before reduction of 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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class R5 would have been 0.61% for the period ended Feb. 28, 2007. (f) Adjusted to an annual basis. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 60 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a) Fiscal period ended Aug. 31, 2007(b) Net asset value, beginning of period $ 4.84 - ----------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .05 Net gains (losses) (both realized and unrealized) .04 - ----------------------------------------------------------------------------- Total from investment operations .09 - ----------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.05) - ----------------------------------------------------------------------------- Net asset value, end of period $ 4.88 - ----------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1 - ----------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c),(d),(e) .95%(f) - ----------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.89%(f) - ----------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 134% - ----------------------------------------------------------------------------- Total return(g) 2.00%(h) - ----------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from Dec. 1, 2006 (inception date) to Feb. 28, 2007 (Unaudited). (c) Expense ratio is based on total expenses of the Fund before reduction of 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) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class W would have been 0.97% for the period ended Feb. 28, 2007. (f) Adjusted to an annual basis. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 61 PROXY VOTING The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006 is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. - ------------------------------------------------------------------------------ 62 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT RIVERSOURCE(R) 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 Ameriprise Financial Services, Inc., Members NASD, and managed by RiverSource Investments, LLC. These companies RIVERSOURCE [LOGO](R) are part of Ameriprise Financial, Inc. INVESTMENTS S-6490 X (4/07) Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource Diversified Income Series, Inc. By /s/ Patrick T. Bannigan ----------------------- Patrick T. Bannigan President and Principal Executive Officer Date May 2, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ Patrick T. Bannigan ----------------------- Patrick T. Bannigan President and Principal Executive Officer Date May 2, 2007 By /s/ Jeffrey P. Fox ----------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date May 2, 2007 EX-99.CERT 2 diversified-inc_cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Patrick T. Bannigan, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Diversified Income Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 24, 2007 /s/ Patrick T. Bannigan --------------------------------------------- Name: Patrick T. Bannigan Title: President and Principal Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey P. Fox, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Diversified Income Series, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 24, 2007 /s/ Jeffrey P. Fox --------------------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Principal Financial Officer EX-99.CERT 3 diversified-inc_cert906.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION RIVERSOURCE DIVERSIFIED INCOME SERIES, INC. (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: April 24, 2007 /s/ Patrick T. Bannigan ----------------- --------------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date: April 24, 2007 /s/ Jeffrey P. Fox ----------------- --------------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----