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
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(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
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(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: 8/31
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
DIVERSIFIED BOND FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
AUGUST 31, 2009
(Prospectus also enclosed)
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>
This annual report includes a prospectus that
describes in detail the Fund's objective,
investment strategy, risks, sales charges,
fees and other matters of interest. Please
read the prospectus carefully before you
invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 2
Manager Commentary................. 5
The Fund's Long-term Performance... 14
Fund Expenses Example.............. 16
Portfolio of Investments........... 19
Statement of Assets and
Liabilities...................... 45
Statement of Operations............ 47
Statements of Changes in Net
Assets........................... 49
Financial Highlights............... 51
Notes to Financial Statements...... 57
Report of Independent Registered
Public Accounting Firm........... 79
Federal Income Tax Information..... 81
Board Members and Officers......... 82
Approval of Investment Management
Services Agreement............... 86
Proxy Voting....................... 89
</Table>
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RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
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> RiverSource Diversified Bond Fund (the Fund) Class A shares (excluding sales
charge) rose 7.05% for the 12 months ended Aug. 31, 2009.
> The Fund underperformed its benchmark, the unmanaged Barclays Capital U.S.
Aggregate Bond Index, which gained 7.94%.
> The Fund outperformed its peer group, as represented by the Lipper
Intermediate Investment Grade Index, which returned 6.91% during the same
period.
ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2009)
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<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------
RiverSource Diversified Bond Fund
Class A (excluding sales
charge) +7.05% +4.47% +3.88% +4.80%
- ---------------------------------------------------------------------
Barclays Capital U.S. Aggregate
Bond Index (unmanaged) +7.94% +6.35% +4.96% +6.31%
- ---------------------------------------------------------------------
Lipper Intermediate Investment
Grade Index +6.91% +4.36% +3.81% +5.50%
- ---------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial intermediary,
visiting riversource.com/funds or calling 1(800) 221-2450.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. The Fund's returns reflect the effect of fee waivers/expense
reimbursements, if any. Without such waivers/reimbursements, the Fund's returns
would be lower. See the Average Annual Total Returns table for performance of
other share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes. It is not possible to invest directly in an index.
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2 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
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<Table>
<Caption>
AT AUG. 31, 2009
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
10/3/74) +7.05% +4.47% +3.88% +4.80% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +6.24% +3.68% +3.06% +4.01% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +6.25% +3.68% +3.05% N/A +4.20%
- ---------------------------------------------------------------------------
Class I (inception 3/4/04) +7.67% +4.84% N/A N/A +4.12%
- ---------------------------------------------------------------------------
Class R2 (inception
12/11/06) +6.92% N/A N/A N/A +3.82%
- ---------------------------------------------------------------------------
Class R3 (inception
12/11/06) +7.19% N/A N/A N/A +4.09%
- ---------------------------------------------------------------------------
Class R4 (inception
3/20/95) +7.35% +4.59% +3.98% +4.95% N/A
- ---------------------------------------------------------------------------
Class R5 (inception
12/11/06) +7.62% N/A N/A N/A +4.41%
- ---------------------------------------------------------------------------
Class W (inception
12/01/06) +6.95% N/A N/A N/A +3.79%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
10/3/74) +1.96% +2.79% +2.88% +4.29% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +1.24% +2.75% +2.71% +4.01% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +5.25% +3.68% +3.05% N/A +4.20%
- ---------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum initial sales charge of 4.75%.
Class B share performance reflects a contingent deferred sales charge (CDSC)
applied as follows: first year 5%; second year 4%; third and fourth years 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 qualifying institutional investors only. Class W shares are offered through
qualifying discretionary accounts.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
STYLE MATRIX
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<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
X MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix approximates areas in which the Fund is designed
to generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 5.68 years
- ---------------------------------------
Effective duration(2) 4.25 years
- ---------------------------------------
Weighted average bond
rating(3) AA
- ---------------------------------------
</Table>
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is more pronounced for longer-term securities. Non-investment grade securities,
commonly called "high-yield" or "junk" bonds, have more volatile prices and
carry more risk to principal and income than investment grade securities.
- --------------------------------------------------------------------------------
4 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
Dear Shareholder,
RiverSource Diversified Bond Fund (the Fund) Class A shares (excluding sales
charge) rose 7.05% for the 12 months ended Aug. 31, 2009. The Fund
underperformed its benchmark, the unmanaged Barclays Capital U.S. Aggregate Bond
Index (Barclays Index), which gained 7.94%. However, the Fund outperformed its
peer group, as represented by the Lipper Intermediate Investment Grade Index,
which returned 6.91% during the same period.
SIGNIFICANT PERFORMANCE FACTORS
The 12 months ended Aug. 31, 2009 was largely a tale of two distinct periods.
Through late-March 2009, the worsening financial crisis and the rapid
deterioration of economic conditions dominated the psychology of the fixed
income market. Such investor sentiment sent many running in a classic flight to
quality to what many consider the safest investments in the world -- U.S.
Treasury securities. As investor risk aversion reached new heights, prices of
U.S. Treasury securities rose, and yields tumbled.
SECTOR DIVERSIFICATION(1) (at Aug. 31, 2009; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
Asset-Backed 4.4%
- ------------------------------------------------
Commercial Mortgage-Backed 4.3%
- ------------------------------------------------
Consumer Discretionary 0.9%
- ------------------------------------------------
Consumer Staples 1.0%
- ------------------------------------------------
Energy 1.6%
- ------------------------------------------------
Financials 2.6%
- ------------------------------------------------
Foreign Government 0.6%
- ------------------------------------------------
Health Care 0.7%
- ------------------------------------------------
Industrials 1.3%
- ------------------------------------------------
Materials 0.9%
- ------------------------------------------------
Residential Mortgage-Backed 36.3%
- ------------------------------------------------
Telecommunication 6.1%
- ------------------------------------------------
U.S. Government Obligations & Agencies 16.1%
- ------------------------------------------------
Utilities 8.2%
- ------------------------------------------------
Other(2) 15.0%
- ------------------------------------------------
</Table>
(1) Percentages indicated are based upon total investments (excluding
Investments of Cash Collateral Received for Securities on Loan) as of Aug.
31, 2009. The Fund's composition is subject to change.
(2) Cash & Cash Equivalents.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 5
MANAGER COMMENTARY (continued) -------------------------------------------------
In addition to heightened risk aversion, shorter-maturity U.S. Treasury yields
were driven significantly lower by the dramatic actions of the Federal Reserve
System (the Fed). Between the end of August 2008 and the end of December 2008,
the Fed lowered the targeted federal funds rate from 2% to a historically
unprecedented range of 0% to 0.25%. Aggressive Fed easing traditionally has a
bigger impact on the short-term end of the yield curve, and this time was no
exception.
Investor sentiment improved meaningfully from late-March through the end of the
fiscal year. The pace of economic decline slowed, second quarter corporate
earnings reports exceeded expectations in most areas, and readings on the
housing market, consumer spending and employment improved. The probability of
economic growth during the second half of 2009 appeared to increase as these
data releases provided some "green shoots" that seemed to indicate better times
ahead. The Fed maintained its highly accommodative stance by keeping the federal
funds target rate between 0% and 0.25%, with no indication that it would raise
rates any time soon. The Fed provided additional support to economic recovery
efforts by implementing a quantitative easing program, which authorized the
purchase of up to $1.25 trillion in mortgage-backed securities, $300 billion in
U.S. Treasuries and $200 billion of agency debt. The
QUALITY BREAKDOWN (at Aug. 31, 2009; % of portfolio assets excluding
cash equivalents and equities)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 68.5%
- ------------------------------------------------
AA bonds 1.2%
- ------------------------------------------------
A bonds 7.4%
- ------------------------------------------------
BBB bonds 16.4%
- ------------------------------------------------
Non-investment grade bonds 6.1%
- ------------------------------------------------
Non-rated bonds 0.4%
- ------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, (the Investment Manager), rates a security using
an internal rating system when Moody's doesn't provide a rating. Ratings for
0.3% of the bond portfolio assets were determined through internal analysis.
- --------------------------------------------------------------------------------
6 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
intent of the program is to help keep consumer rates -- and specifically
mortgage rates -- at low levels during the early stage of economic recovery. The
equity market rallied during these months, driven by investor sentiment relief
as financing markets normalized, liquidity improved and the wave of new
regulatory programs slowed.
Overall, then, higher-quality fixed income sectors outperformed during the
crisis of the fall of 2008 as investors sought to hoard cash. However, spread,
or non-Treasury, sectors bounced back strongly following the spring 2009 release
of the Fed's Supervisory Capital Assessment Program (SCAP) report on what was
commonly called the "stress tests" of the 19 largest U.S. bank holding
companies. Relief about the near-term health of the U.S. banking system,
combined with improved economic data and traction from the various Treasury
Department liquidity programs and the Fed's quantitative easing efforts, buoyed
hopes for the sustainability of the nascent economic recovery.
For the fiscal year as a whole, high yield corporate bonds and high yield bank
loans performed best within the fixed income market. Asset-backed securities,
emerging market debt and investment grade corporate bonds also fared well, as
investors became more comfortable taking risk. U.S. Treasury debt, which, as the
highest-quality fixed income sector, was the best performing fixed income area
during the first half of the fiscal year, lagged for the 12-month period
overall, though it still produced overall positive returns. Indeed, Treasury
yields moved lower across the yield curve, or spectrum of maturities, but more
meaningfully in short-term maturity U.S.
The primary contributor to the Fund's performance was effective individual
issue selection within investment grade corporate bonds.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
Treasuries. For example, yields on two-year U.S. Treasuries fell 140 basis
points (1.40%), while yields on five-year U.S. Treasuries decreased 70 basis
points (0.70%) and yields on ten-year U.S. Treasury securities dropped 41 basis
points (0.41%). Yields on 30-year U.S. Treasuries declined just 25 basis points
(0.25%). As short-term rates declined more dramatically than longer-term rates,
the yield curve steepened, meaning long-term yields were higher than short-term
yields. Short-term rates appeared anchored by the low federal funds target rate
and language that indicates this target will be in place for an extended period
of time. Rates across the remainder of the yield curve were left to vacillate
based on investors' concerns about the U.S. dollar and foreign central banks'
appetite for U.S. dollar-denominated securities, the impact of a net $2 trillion
of U.S. Treasury security issuance for 2009, inflationary pressures, and cash
flows between Treasury and non-Treasury fixed income securities. Treasury
Inflation Protected Securities ( TIPS) was the worst performing area of fixed
income, as deflationary expectations dominated the second half of the year, thus
decreasing demand for inflation-linked securities.
The primary contributor to the Fund's performance was effective individual issue
selection within investment grade corporate bonds. We steered away from the
financial sector, which continued to be pressured by loan losses and a general
lack of transparency. Instead, we focused positions on utilities and less-
cyclical industrials. To a more modest degree, having a significant allocation
to investment grade corporate bonds also proved effective, as spreads (the
difference in yields between these securities and U.S. Treasuries) tightened
significantly year-to-date in 2009. Indeed, after a choppy first quarter of
2009, investment grade corporate bonds recorded their three best months of
excess returns of the last twenty years in April, May and July of 2009 versus
similar-duration Treasury securities. An increasingly meaningful exposure to
high yield corporate bonds and high yield bank loans helped the Fund's results
as well, for as mentioned, these were the best performing segments of the fixed
income market during the fiscal year.
Detracting most from the Fund's results was issue selection within mortgage-
backed securities. The Fund's short duration positioning relative to the
Barclays Index also hurt performance, as interest rates declined
- --------------------------------------------------------------------------------
8 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
substantially over the fiscal year as a whole. That said, the Fund's short
duration positioning benefited the Fund during the first quarter of 2009, when
Treasury yields moved higher across the yield curve despite the Fed's
quantitative easing. Duration is a measure of the Fund's sensitivity to changes
in interest rates. The Fund's exposure to TIPS further detracted from its
performance, for as mentioned, TIPS were the worst performing area of the fixed
income market during the fiscal year. Yields on TIPS moved higher with the
deflationary numbers reported and growing investors' risk appetites.
CHANGES TO THE FUND'S PORTFOLIO
Between October 2008 and January 2009, amidst the worst of the financial crisis,
we materially increased the Fund's allocations to corporate bonds -- both
investment grade and high yield -- as well as to high yield bank loans. We
believed valuations for these fixed income areas were incorporating expectations
for default rates that were excessive, even in the face of global financial
markets being brought back from the precipice of collapse by extraordinary
coordinated measures by global central banks. In our view, these valuations were
not supported by our more constructive view of underlying fundamentals. Further,
we liked the transparency that investment grade and high yield corporate bonds
offered in comparison to structured asset sectors, such as asset-backed
securities, mortgage-backed securities and commercial mortgage-backed securities
(CMBS). We felt uncertainties about the lingering impact of the recession on
these latter fixed income segments were comparatively greater, and thus we
correspondingly reduced the Fund's exposure to non-agency mortgage-backed
securities and commercial mortgage-backed securities during these months. These
changes in fixed income sector allocation boosted the Fund's results. Investment
grade and high yield corporate bonds turned in exceptional performance through
the first eight months of 2009. Mortgage-backed securities and CMBS, while
generating positive returns for the fiscal year, lagged in comparison. Toward
the end of the reporting period, we modestly reduced the Fund's exposure to both
high yield and investment grade corporate bonds, given the strong rally these
areas had enjoyed but still maintained a greater-than-Barclays Index weighting
in investment grade corporate bonds and a material exposure to higher-quality
high yield corporate bonds.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
During the fiscal year, we increased the Fund's exposure to agency mortgage-
backed securities. We eliminated the Fund's allocation to TIPS, as we believed
prices began to imply a more reasonable assessment of future inflation. The
Fund's portfolio turnover rate for the 12-month period, including mortgage
dollar rolls, was 371%.*
OUR FUTURE STRATEGY
Clearly, at the end of August, we were in the midst of a tug of war between the
optimists and the pessimists on the state of the markets and the economy. The
disagreement was fundamentally grounded in a differing view of where the economy
stood along the recovery continuum. Over the last few months of the reporting
period, the economy seemed to be stabilizing, with encouraging data coming from
both the manufacturing and housing sectors. However, uncertainty remained
regarding both the strength and sustainability of any upcoming recovery.
Given the large amounts of government stimulus programs put into place earlier
in the year, as well as a housing market that showed signs of stabilization, we
feel it is reasonable to expect positive economic growth for the remainder of
2009. At the same time, we remain concerned about the durability of the recovery
based on a couple of key factors. First, recent improvements in residential real
estate and home prices could prove fleeting as the growing pipeline of bank-
owned properties inevitably flood the market over the next few quarters. In
addition, the commercial real estate market remains a troubled area for the U.S.
economy, as significant drops in commercial real estate values over the past
year and a half or so have the potential to reignite large losses at banks.
All told, while we would agree with most that numerous U.S. and global economic
statistics, including housing indicators, have presented a mosaic that may best
be described as "less bad" than seen just a few months prior, we are of the view
that the dramatic recovery in valuations characterizes a market that may have
come "too far, too fast." We also remain concerned by the fact that lower-
quality assets have rallied the most. Still, while markets might have overshot a
bit, the probability of a repeat of 2008 is, in our view, fairly low. Interest
rates, though likely to be volatile, will probably trend higher over the
intermediate to long term.
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10 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
Given this view, we intend to maintain the Fund's shorter-than-Barclays Index
duration positioning for the near term.
Going forward, we continue to believe that the best risk-reward opportunities in
the fixed income market are in corporate bonds, both investment grade and high
yield. We continue to prefer the transparency of corporate bonds to structured
or securitized assets and feel that the credit markets must lead the economy out
of its malaise and on the road to recovery. Within investment grade corporate
bonds, we intend to continue to focus on the asset-rich, non-cyclical industries
and names within the space that our analysts favor. Our analysts research in
depth each issuer's competitive position, corporate strategy, liquidity and
capital adequacy. We also analyze factors such as credit quality, interest rate
outlook and price to select what we consider to be the most attractive
securities within each area. In our view, at the end of August, the premiums
available in the market for bonds in more cyclical industries were not enough to
compensate for risk, given the still uncertain economic conditions. Within the
high yield corporate bond market, we intend to continue to focus on those select
higher-quality bonds where we think valuations warrant a position.
Toward the end of the period, we began to increase the liquidity of the Fund in
order that we might seek to take advantage of the next opportunity that emerges
within the fixed income market. Of course, we will continue to closely monitor
Fed policy shifts, economic data releases, supply/demand factors and interest
rate movements and adjust the portfolio's holdings and duration
We continue to prefer the transparency of corporate bonds to structured or
securitized assets and feel that the credit markets must lead the economy out
of its malaise and on the road to recovery.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 11
MANAGER COMMENTARY (continued) -------------------------------------------------
stance if necessary. Given current market conditions, our goal is to maintain an
attractive yield profile, with an emphasis on high quality assets. As always, we
will maintain a disciplined focus on individual security selection.
<Table>
Tom Murphy, CFA(R) Scott Schroepfer, CFA(R) Todd White
Portfolio Manager Portfolio Manager Portfolio Manager
</Table>
* 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.
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 fund in the RiverSource Family of Funds are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any fund in the RiverSource Family of Funds.
- --------------------------------------------------------------------------------
12 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
THIS PAGE LEFT BLANK INTENTIONALLY
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Diversified Bond Fund Class A shares (from 9/1/99 to
8/31/09) as compared to the performance of two widely cited performance indices,
the Barclays Capital U.S. Aggregate Bond Index and the Lipper Intermediate
Investment Grade Index. In comparing the Fund's Class A shares to these indices,
you should take into account the fact that the Fund's performance reflects the
maximum sales charge of 4.75%, while such charges are not reflected in the
performance of the indices. Returns for the Fund include the reinvestment of any
distributions paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. 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 intermediary or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Aug. 31, 2009
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE DIVERSIFIED BOND FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $10,196 $10,861 $11,523 $15,214
- ------------------------------------------------------------------------------------------
Average annual total return +1.96% +2.79% +2.88% +4.29%
- ------------------------------------------------------------------------------------------
BARCLAYS CAPITAL U.S. AGGREGATE BOND INDEX(1)
Cumulative value of $10,000 $10,794 $12,027 $12,740 $18,435
- ------------------------------------------------------------------------------------------
Average annual total return +7.94% +6.35% +4.96% +6.31%
- ------------------------------------------------------------------------------------------
LIPPER INTERMEDIATE INVESTMENT GRADE INDEX(2)
Cumulative value of $10,000 $10,691 $11,365 $12,055 $17,078
- ------------------------------------------------------------------------------------------
Average annual total return +6.91% +4.36% +3.81% +5.50%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 3.
- --------------------------------------------------------------------------------
14 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE DIVERSIFIED BOND FUND
LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE DIVERSIFIED
BOND FUND
CLASS A BARCLAYS CAPITAL LIPPER INTERMEDIATE
(INCLUDES SALES U.S. AGGREGATE INVESTMENT GRADE
CHARGE) BOND INDEX(1) INDEX(2)
----------------------- ---------------- -------------------
8/99 $ 9,525 $10,000 $10,000
11/99 9,635 10,153 10,137
2/00 9,704 10,192 10,164
5/00 9,562 10,292 10,207
8/00 9,971 10,756 10,658
11/00 10,126 11,073 10,938
2/01 10,609 11,563 11,464
5/01 10,673 11,642 11,517
8/01 11,016 12,084 11,970
11/01 11,127 12,309 12,154
2/02 11,222 12,449 12,280
5/02 11,262 12,586 12,386
8/02 11,361 13,065 12,666
11/02 11,489 13,212 12,816
2/03 11,919 13,683 13,305
5/03 12,275 14,043 13,713
8/03 11,918 13,633 13,348
11/03 12,136 13,897 13,646
2/04 12,470 14,305 14,029
5/04 12,202 13,981 13,723
8/04 12,576 14,470 14,167
11/04 12,693 14,514 14,227
2/05 12,843 14,653 14,391
5/05 13,003 14,934 14,634
8/05 13,127 15,070 14,788
11/05 12,951 14,862 14,570
2/06 13,117 15,054 14,765
5/06 12,980 14,863 14,586
8/06 13,343 15,327 15,027
11/06 13,663 15,745 15,432
2/07 13,973 15,888 15,592
5/07 13,949 15,853 15,533
8/07 14,082 16,134 15,695
11/07 14,425 16,697 16,174
2/08 14,551 17,049 16,381
5/08 14,459 16,946 16,168
8/08 14,210 17,079 15,975
11/08 13,145 16,988 14,877
2/09 13,677 17,400 15,235
5/09 14,480 17,855 16,169
8/09 15,214 18,435 17,078
</Table>
(1) The Barclays Capital U.S. Aggregate Bond Index, an unmanaged index, is made
up of a representative list of government, corporate, asset-backed and
mortgage-backed securities. The index is frequently used as a general
measure of bond market performance. The index reflects reinvestment of all
distributions and changes in market prices.
(2) The Lipper Intermediate Investment Grade Index includes the 30 largest
investment grade funds tracked by Lipper Inc. The index's returns include
net reinvested dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 15
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended August 31, 2009.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
16 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2009 AUG. 31, 2009 THE PERIOD(a) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,112.30 $4.44(c) .83%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.14 $4.25(c) .83%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,108.10 $8.49(c) 1.59%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.28 $8.13(c) 1.59%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,108.20 $8.44(c) 1.58%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.33 $8.08(c) 1.58%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,114.20 $2.52(c) .47%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.96 $2.41(c) .47%
- ------------------------------------------------------------------------------------------
Class R2
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,112.10 $6.64(c) 1.24%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,019.06 $6.34(c) 1.24%
- ------------------------------------------------------------------------------------------
Class R3
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,113.40 $5.41(c) 1.01%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.22 $5.17(c) 1.01%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,112.70 $4.12(c) .77%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.44 $3.94(c) .77%
- ------------------------------------------------------------------------------------------
Class R5
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,114.10 $2.79(c) .52%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.71 $2.67(c) .52%
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 17
FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2009 AUG. 31, 2009 THE PERIOD(a) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class W
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,111.80 $4.92(c) .92%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.68 $4.71(c) .92%
- ------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the annualized expense ratio for each class as
indicated above, multiplied by the average account value over the period,
multiplied by 185/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2009: +11.23%
for Class A, +10.81% for Class B, +10.82% for Class C, +11.42% for Class I,
+11.21% for Class R2, +11.34% for Class R3, +11.27% for Class R4, +11.41%
for Class R5 and +11.18% for Class W.
(c) RiverSource Investments, LLC (the Investment Manager) and its affiliates
have contractually agreed to waive certain fees and to absorb certain
expenses until Oct. 31, 2010, 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 0.85% for Class A, 1.61% for Class B, 1.60%
for Class C, 0.49% for Class I, 1.29% for Class R2, 1.04% for Class R3,
0.79% for Class R4, 0.54% for Class R5 and 0.94% for Class W. Any amounts
waived will not be reimbursed by the Fund. This change was effective Sept.
1, 2009. Had this change been in place for the entire six month period ended
Aug. 31, 2009, the actual expenses paid would have been $4.55 for Class A,
$8.60 for Class B, $8.55 for Class C, $2.63 for Class I, $6.90 for Class R2,
$5.57 for Class R3, $4.23 for Class R4, $2.89 for Class R5 and $5.03 for
Class W; the hypothetical expenses paid would have been $4.35 for Class A,
$8.23 for Class B, $8.18 for Class C, $2.51 for Class I, $6.60 for Class R2,
$5.32 for Class R3, $4.05 for Class R4, $2.77 for Class R5 and $4.81 for
Class W.
- --------------------------------------------------------------------------------
18 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
AUG. 31, 2009
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (107.0%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
FOREIGN AGENCIES (0.2%)(C)
Pemex Project Funding Master Trust
03-01-18 5.75% $1,790,000(m) $1,736,300
06-15-35 6.63 2,543,000(m) 2,316,119
Petroleos de Venezuela
04-12-17 5.25 4,359,000 2,397,450
---------------
Total 6,449,869
- -------------------------------------------------------------------------------------
SOVEREIGN (0.6%)(c)
Emirate of Abu Dhabi
Sr Unsecured
08-02-12 5.50 200,000(d) 209,191
Republic of Argentina
09-12-13 7.00 2,762,000 1,992,783
Republic of Argentina
Sr Unsecured
12-15-35 0.00 3,350,000(e) 175,875
Republic of El Salvador
06-15-35 7.65 1,313,000(d) 1,207,960
Republic of Indonesia
Sr Unsecured
01-17-18 6.88 1,522,000(d) 1,567,660
10-12-35 8.50 987,000(d) 1,110,375
01-17-38 7.75 850,000(d) 875,500
Republic of Philippines
01-15-16 8.00 425,000 483,969
01-14-31 7.75 1,979,000(m) 2,159,584
Republic of Turkey
09-26-16 7.00 450,000 475,875
04-03-18 6.75 1,429,000 1,473,656
03-17-36 6.88 3,506,000 3,361,378
Republic of Turkey
Sr Unsecured
11-07-19 7.50 1,400,000 1,512,000
Republic of Uruguay
05-17-17 9.25 678,000(m) 798,345
Republic of Venezuela
02-26-16 5.75 1,579,000 1,081,615
05-07-23 9.00 1,600,000 1,115,200
Republic of Venezuela
Sr Unsecured
10-08-14 8.50 715,000(m) 600,600
Republica Orient Uruguay
Sr Unsecured
03-21-36 7.63 1,592,000 1,627,820
Russian Federation
03-31-30 7.50 1,658,880(d) 1,698,278
---------------
Total 23,527,664
- -------------------------------------------------------------------------------------
SUPRANATIONAL (--%)(c)
Corp Andina de Fomento
Unsecured
01-12-17 5.75 140,000 138,741
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (20.3%)
Federal Farm Credit Bank
10-17-12 4.50 1,060,000(m) 1,142,782
02-07-13 3.40 240,000 249,516
Federal Home Loan Banks
05-20-11 2.63 250,000 258,054
11-17-17 5.00 70,000 75,739
Federal Home Loan Mtge Corp
05-28-10 2.38 1,160,000 1,176,545
08-24-11 1.55 57,960,000 58,197,809
02-24-12 2.00 28,120,000 28,225,169
02-24-12 2.05 36,000,000 36,123,192
08-17-12 2.25 56,910,000 57,047,267
07-17-15 4.38 75,935,000 81,219,012
04-16-37 6.00 30,230,000 30,361,712
Federal Natl Mtge Assn
06-09-10 3.26 200,000 204,154
08-17-12 2.24 28,350,000 28,463,646
01-02-14 5.13 13,000 13,765
03-13-14 2.75 20,850,000(m) 21,086,856
05-15-14 2.50 14,305,000(m) 14,225,965
04-15-15 5.00 18,160,000 20,059,028
10-15-15 4.38 18,900,000 20,156,472
07-15-37 5.63 5,345,000 5,817,885
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (CONT.)
U.S. Treasury
11-30-10 1.25% $4,490,000 $4,529,813
07-31-11 1.00 2,600,000 2,603,656
05-15-12 1.38 16,705,000 16,711,532
02-15-14 4.00 30,000 32,351
04-30-14 1.88 1,710,000(m) 1,680,208
07-31-14 2.63 67,915,000(m) 68,721,490
08-31-14 2.38 43,870,000(m) 43,839,159
02-15-15 4.00 17,535,000 18,807,655
07-31-16 3.25 7,670,000 7,787,443
08-15-17 4.75 7,780,000 8,613,308
05-15-19 3.13 9,185,000(m) 8,966,856
08-15-19 3.63 146,610,000(m) 149,358,937
11-15-24 7.50 19,000,000(m) 26,445,625
02-15-39 3.50 52,085,000(m) 46,013,868
05-15-39 4.25 23,525,000(m) 23,785,986
U.S. Treasury Principal Strip
05-15-37 0.00 1,850,000 571,374
---------------
Total 832,573,829
- -------------------------------------------------------------------------------------
ASSET-BACKED (5.5%)
American Express Credit Account Master Trust
Series 2005-4 Cl A
01-15-15 0.34 6,225,000(i) 6,084,791
American Express Credit Account Master Trust
Series 2006-2 Cl A
01-15-14 5.35 10,025,000 10,666,167
American Express Credit Account Master Trust
Series 2006-3 Cl A
03-17-14 0.29 5,575,000(i) 5,490,635
AmeriCredit Automobile Receivables Trust
Series 2007-DF Cl A3A (FSA)
07-06-12 5.49 4,509,544(h) 4,558,438
Bank of America Credit Card Trust
Series 2008-A5 Cl A5
12-16-13 1.47 11,175,000(i) 11,197,027
BMW Vehicle Lease Trust
Series 2009-1 Cl A2
04-15-11 2.04 11,400,000 11,451,032
Capital Auto Receivables Asset Trust
Series 2006-SN1A Cl D
04-20-11 6.15 4,775,000(d) 4,766,327
Capital One Multi-Asset Execution Trust
Series 2006-A10 Cl A10
06-16-14 5.15 3,450,000 3,652,729
Carmax Auto Owner Trust
Series 2009-1 Cl A4
12-16-13 5.81 5,200,000 5,505,124
Caterpillar Financial Asset Trust
Series 2008A Cl A3
04-25-14 4.94 110,000 111,128
Centex Home Equity
Series 2002-D Cl M2
12-25-32 2.32 305,481(i) 42,412
CIT Equipment Collateral
Series 2009-VT1 Cl A2
06-15-11 2.20 12,050,000(d) 11,920,189
Citibank Omni Master Trust
Series 2007-A9A Cl A9
12-23-13 1.37 14,650,000(d,i) 14,631,478
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2009-6 Cl 13A1
01-25-37 0.35 14,318,266(d,i) 12,643,709
Countrywide Asset-Backed Ctfs
Series 2005-1 Cl MV1
07-25-35 0.67 10,107,958(i) 9,799,898
Countrywide Asset-Backed Ctfs
Series 2005-10 Cl AF6
02-25-36 4.92 1,890,001 1,042,915
Countrywide Asset-Backed Ctfs
Series 2006-4 Cl 1A1M
07-25-36 0.53 1,474,074(i) 811,949
CPS Auto Trust
Series 2007-A Cl A3 (MBIA)
09-15-11 5.04 2,596,003(d,h) 2,581,292
Deutsche Mtge Securities
Collateralized Mtge Obligation
Series 2009-RS2 Cl 4A1
04-26-37 0.42 18,213,087(d,i) 16,164,114
Dunkin Securitization
Series 2006-1 Cl A2 (AMBAC)
06-20-31 5.78 9,650,000(d,h) 9,295,073
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ASSET-BACKED (CONT.)
Equifirst Mtge Loan Trust
Series 2003-1 Cl IF1
12-25-32 3.51% $145,956(i) $119,666
GSAA Trust
Series 2005-12 Cl AF4
09-25-35 5.34 100,000(i) 61,878
Irwin Home Equity Corp
Series 2005-A Cl A3
02-25-34 0.65 77,618(i) 67,792
JPMorgan Reremic
Collateralized Mtge Obligation
Series 2009-5 Cl 4AI
04-26-37 0.38 7,449,761(d,i) 6,813,683
Keycorp Student Loan Trust
Series 2003-A Cl 2A2 (MBIA)
10-25-25 0.81 781,389(h,i) 766,076
Merrill Lynch First Franklin Mtge Loan Trust
Series 2007-2 Cl A2A
05-25-37 0.38 15,014,202(i) 14,333,113
Merrill Lynch First Franklin Mtge Loan Trust
Series 2007-3 Cl A2A
06-25-37 0.32 11,419,621(i) 10,873,940
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-2 Cl AIO
08-25-11 17.54 9,525,000(j) 904,875
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-3 Cl AIO
01-25-12 5.88 15,000,000(j) 2,203,125
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-4 Cl AIO
02-27-12 28.52 11,700,000(j) 1,289,925
RAAC Series
Series 2007-SP1 Cl A1
03-25-37 0.42 9,059,000(i) 7,954,917
RBSSP Resecuritization Trust
Collateralized Mtge Obligation
Series 2009-9 Cl 10A1
10-26-36 0.37 7,745,000(d,i) 7,435,200
Renaissance Home Equity Loan Trust
Series 2005-4 Cl A3
02-25-36 5.57 2,815,224 2,504,862
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M4
06-25-37 6.31 1,575,000(r) 82,835
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M5
06-25-37 6.66 1,030,000(r) 45,340
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M6
06-25-37 7.01 1,505,000(r) 54,598
Santander Drive Auto Receivables Trust
Series 2007-1 Cl A4 (FGIC)
09-15-14 0.32 11,510,895(i,h) 10,941,679
Santander Drive Auto Receivables Trust
Series 2007-3 Cl A3 (FGIC)
08-15-12 5.42 5,756,859(h) 5,713,475
Saxon Asset Securities Trust
Series 2007-2 Cl A2A
05-25-47 0.37 2,614,215(i) 2,442,975
Triad Auto Receivables Owner Trust
Series 2007-B Cl A3A (FSA)
10-12-12 5.24 2,135,000(h) 2,005,977
Volkswagen Auto Lease Trust
Series 2009-A Cl A3
04-16-12 3.41 5,875,000 6,028,501
---------------
Total 225,060,859
- -------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (5.4%)(f)
Bear Stearns Commercial Mtge Securities
Series 2003-T10 Cl A1
03-13-40 4.00 1,361,795 1,329,453
Bear Stearns Commercial Mtge Securities
Series 2004-PWR5 Cl A3
07-11-42 4.57 2,220,000 2,216,564
CDC Commercial Mtge Trust
Series 2002-FX1 Cl A2
11-15-30 5.68 12,775,000 13,106,508
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 21
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
COMMERCIAL MORTGAGE-BACKED (CONT.)
Citigroup Commercial Mtge Trust
Series 2006-C5 Cl A4
10-15-49 5.43% $3,150,000 $2,837,338
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2005-CD1 Cl A4
07-15-44 5.40 6,500,000(i) 6,287,926
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2005-CD1 Cl ASB
07-15-44 5.40 3,225,000 3,327,313
Commercial Mtge Pass-Through Ctfs
Series 2006-CN2A Cl BFL
02-05-19 0.59 2,700,000(d,i) 1,948,432
CS First Boston Mtge Securities
Series 2001-CP4 Cl A4
12-15-35 6.18 7,356,505 7,645,639
CS First Boston Mtge Securities
Series 2004-C1 Cl A4
01-15-14 4.75 4,375,000 4,267,272
CS First Boston Mtge Securities
Series 2004-C2 Cl A1
05-15-36 3.82 1,005,145 997,229
Federal Natl Mtge Assn #725217
02-01-14 4.78 989,132 1,041,521
Federal Natl Mtge Assn #735029
09-01-13 5.32 349,348 357,271
GE Capital Commercial Mtge Corp
Series 2001-3 Cl A2
06-10-38 6.07 6,900,000 7,251,236
GE Capital Commercial Mtge
Series 2005-C1 Cl A5
06-10-48 4.77 400,000 371,386
General Electric Capital Assurance
Series 2003-1 Cl A4
05-12-35 5.25 3,078,642(d) 3,104,669
Greenwich Capital Commercial Funding
Series 2003-C1 Cl A3
07-05-35 3.86 5,650,000 5,385,597
Greenwich Capital Commercial Funding
Series 2004-GG1 Cl A5
06-10-36 4.88 3,550,000 3,535,299
GS Mtge Securities II
Series 2005-GG4 Cl A4A
07-10-39 4.75 13,000,000 12,045,094
GS Mtge Securities II
Series 2006-GG6 Cl A4
04-10-38 5.55 375,000 329,397
GS Mtge Securities II
Series 2007-EOP Cl J
03-06-20 1.13 9,050,000(d,i) 6,745,191
GS Mtge Securities II
Series 2007-GG10 Cl F
08-10-45 6.00 9,800,000 1,357,075
JPMorgan Chase Commercial Mtge Securities
Series 2003-LN1 Cl A1
10-15-37 4.13 2,221,203 2,258,436
JPMorgan Chase Commercial Mtge Securities
Series 2003-ML1A Cl A1
03-12-39 3.97 1,483,550 1,503,515
JPMorgan Chase Commercial Mtge Securities
Series 2003-ML1A Cl A2
03-12-39 4.77 7,419,000 7,239,062
JPMorgan Chase Commercial Mtge Securities
Series 2004-C2 Cl A2
05-15-41 5.28 4,635,000 4,591,589
JPMorgan Chase Commercial Mtge Securities
Series 2004-CBX Cl A3
01-12-37 4.18 3,700,896 3,704,206
JPMorgan Chase Commercial Mtge Securities
Series 2004-LN2 Cl A1
07-15-41 4.48 7,456,338 7,546,790
JPMorgan Chase Commercial Mtge Securities
Series 2005-LDP5 Cl A4
12-15-44 5.34 3,825,000 3,695,185
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP6 Cl ASB
04-15-43 5.49 12,380,000 11,981,748
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP8 Cl A4
05-15-45 5.40 50,000 41,533
JPMorgan Chase Commercial Mtge Securities
Series 2007-CB20 Cl A4
02-12-51 5.79 6,000,000 4,919,495
JPMorgan Chase Commercial Mtge Securities
Series 2007-CB20 Cl E
02-12-51 6.40 4,725,000(d) 348,515
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
22 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
COMMERCIAL MORTGAGE-BACKED (CONT.)
JPMorgan Chase Commercial Mtge Securities
Series 2007-LDPX Cl A3
01-15-49 5.42% $6,700,000 $5,623,920
LB-UBS Commercial Mtge Trust
Series 2004-C2 Cl A3
03-15-29 3.97 4,700,000 4,367,696
LB-UBS Commercial Mtge Trust
Series 2004-C6 Cl A6
08-15-29 5.02 3,500,000 3,183,241
LB-UBS Commercial Mtge Trust
Series 2006-C4 Cl AAB
06-15-32 6.05 5,100,000 5,026,224
LB-UBS Commercial Mtge Trust
Series 2007-C6 Cl A4
07-15-40 5.86 4,475,000 3,494,110
Merrill Lynch Mtge Trust
Series 2005-CKI1 Cl A1
11-12-37 5.08 470,143 472,620
Merrill Lynch Mtge Trust
Series 2008-C1 Cl A1
02-12-51 4.71 2,180,704 2,192,458
Morgan Stanley Capital I
Series 2003-T11 Cl A2
06-13-41 4.34 1,407,364 1,419,053
Morgan Stanley Capital I
Series 2004-HQ4 Cl A5
04-14-40 4.59 5,200,000 4,982,453
Morgan Stanley Capital I
Series 2006-T23 Cl AAB
08-12-41 5.97 3,675,000 3,627,342
TIAA Seasoned Commercial Mtge Trust
Series 2007-C4 Cl A2
08-15-39 5.79 3,900,000(i) 3,948,702
TIAA Seasoned Commercial Mtge Trust
Series 2007-C4 Cl A3
08-15-39 6.07 2,850,000 2,874,786
Wachovia Bank Commercial Mtge Trust
Series 2003-C7 Cl A2
10-15-35 5.08 20,500,000(d) 20,341,534
Wachovia Bank Commercial Mtge Trust
Series 2005-C16 Cl A2
10-15-41 4.38 2,783,858 2,790,696
Wachovia Bank Commercial Mtge Trust
Series 2005-C20 Cl A5
07-15-42 5.09 5,342,000 5,411,794
Wachovia Bank Commercial Mtge Trust
Series 2006-C24 Cl A3
03-15-45 5.56 9,425,000 8,943,122
Wachovia Bank Commercial Mtge Trust
Series 2006-C24 Cl APB
03-15-45 5.58 3,200,000 3,198,995
Wachovia Bank Commercial Mtge Trust
Series 2006-C27 Cl APB
07-15-45 5.73 5,475,000 5,395,345
---------------
Total 220,611,575
- -------------------------------------------------------------------------------------
RESIDENTIAL MORTGAGE-BACKED (45.8%)(f,p)
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-3 Cl 1A1
04-25-34 6.00 7,517,279 6,781,999
Banc of America Funding
Collateralized Mtge Obligation
Series 2007-8 Cl 1A1
10-25-37 6.00 1,744,750 914,494
Banc of America Mtge Securities
Commercial Mtge Obligation
Series 2004-F Cl 1A1
07-25-34 4.09 69,961(i) 61,950
BCAP LLC Trust
Collateralized Mtge Obligation
Series 2009-RR1 Cl 2A2
05-26-35 3.73 13,823,234(d,i) 1,244,091
Bear Stearns Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2005-8 Cl A4
08-25-35 5.10 6,475,000(d,i) 5,130,924
Bear Stearns Alt-A Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2B
04-25-35 4.13 81,657(i) 14,970
Chase Mtge Finance
Collateralized Mtge Obligation
Series 2002-S6 Cl M
05-25-32 6.30 430,483 416,884
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 23
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50% $1,720,540 $1,409,767
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2009-3 Cl 3A2
01-19-34 4.69 16,045,000(d,i) 14,645,154
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2009-4 Cl 13A3
10-25-35 4.32 2,046,982(d,i) 245,638
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2009-5 Cl 3A2
06-25-36 5.50 4,547,358(d) 545,683
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-8CB Cl A13
05-25-37 44.25 4,881,979(j) 439,828
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11T1 Cl A1
07-25-18 4.75 2,641,359 2,620,724
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-50CB Cl 2A1
11-25-35 6.00 10,542,657 6,790,954
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-22R Cl 1A2
05-25-36 6.00 5,336,075 4,004,662
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-45T1 Cl 2A5
02-25-37 6.00 6,296,130 4,106,261
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH1 Cl A1A
04-25-47 0.36 2,407,442(i) 1,939,266
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 0.77 15,236,645(i) 1,649,999
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 5,374,077(d) 4,526,611
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.31 3,412,862(i) 1,775,092
Downey Savings & Loan Assn Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR5 Cl X1
08-19-45 13.12 1(b,j,t) --
Federal Home Loan Mtge Corp
09-01-24 4.50 200,000(g) 205,500
09-01-24 5.50 200,000(g) 210,250
09-01-39 5.00 57,962,897(g) 59,502,507
09-01-39 5.50 26,900,000(g) 28,026,438
09-01-39 6.00 30,000,000(g) 31,593,750
Federal Home Loan Mtge Corp #170216
03-01-17 8.50 4,364 4,734
Federal Home Loan Mtge Corp #1G2547
12-01-36 6.09 308,068(i) 326,039
Federal Home Loan Mtge Corp #1Q0140
08-01-36 6.16 312,681(i) 331,816
Federal Home Loan Mtge Corp #284190
01-01-17 8.00 204 223
Federal Home Loan Mtge Corp #290970
04-01-17 8.00 4,053 4,392
Federal Home Loan Mtge Corp #295114
06-01-17 8.50 3,182 3,452
Federal Home Loan Mtge Corp #540861
09-01-19 8.50 30,100 32,822
Federal Home Loan Mtge Corp #A00304
04-01-21 9.00 33,468 37,087
Federal Home Loan Mtge Corp #A12692
10-01-32 6.00 67,452 72,601
Federal Home Loan Mtge Corp #A13854
09-01-33 6.00 106,979 114,863
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
24 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #A75929
04-01-38 7.00% $158,086 $171,077
Federal Home Loan Mtge Corp #B10254
10-01-18 5.50 303,088 322,988
Federal Home Loan Mtge Corp #B12280
02-01-19 5.50 178,867 190,610
Federal Home Loan Mtge Corp #C00103
03-01-22 8.50 72,531 82,019
Federal Home Loan Mtge Corp #C00144
08-01-22 8.50 76,593 87,547
Federal Home Loan Mtge Corp #C00356
08-01-24 8.00 280,687 317,800
Federal Home Loan Mtge Corp #C00666
10-01-28 7.00 32,640 35,865
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 1,294,339 1,357,311
Federal Home Loan Mtge Corp #C59161
10-01-31 6.00 94,837 100,907
Federal Home Loan Mtge Corp #C62993
01-01-32 6.50 786,626 846,142
Federal Home Loan Mtge Corp #C63552
01-01-32 6.50 1,149,576 1,235,967
Federal Home Loan Mtge Corp #C64703
03-01-32 6.50 711,254 770,234
Federal Home Loan Mtge Corp #C67723
06-01-32 7.00 602,858 667,291
Federal Home Loan Mtge Corp #C77372
03-01-33 6.00 206,313 221,131
Federal Home Loan Mtge Corp #C78031
04-01-33 5.50 6,725,899 7,060,957
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 5,395,729 5,653,396
Federal Home Loan Mtge Corp #C90767
12-01-23 6.00 5,349,730 5,730,399
Federal Home Loan Mtge Corp #D96300
10-01-23 5.50 4,018,258 4,244,429
Federal Home Loan Mtge Corp #E01127
02-01-17 6.50 690,675 741,024
Federal Home Loan Mtge Corp #E01419
05-01-18 5.50 2,779,874 2,961,687
Federal Home Loan Mtge Corp #E74288
12-01-13 6.00 70,525 75,133
Federal Home Loan Mtge Corp #E79810
11-01-14 7.50 557,252 604,931
Federal Home Loan Mtge Corp #E90216
05-01-17 6.00 713,547 763,295
Federal Home Loan Mtge Corp #E96624
05-01-18 5.00 874,447 923,935
Federal Home Loan Mtge Corp #E98725
08-01-18 5.00 6,670,300 7,045,007
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 6,918,974 7,339,057
Federal Home Loan Mtge Corp #G00286
02-01-25 8.00 109,363 123,823
Federal Home Loan Mtge Corp #G01108
04-01-30 7.00 2,032,892 2,232,147
Federal Home Loan Mtge Corp #G01410
04-01-32 7.00 222,423 243,455
Federal Home Loan Mtge Corp #G01441
07-01-32 7.00 1,913,291 2,094,212
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 7,875,012 8,448,299
Federal Home Loan Mtge Corp #G02757
06-01-36 5.00 22,522,667(m) 23,211,105
Federal Home Loan Mtge Corp #G03419
07-01-37 6.00 8,019,443 8,465,054
Federal Home Loan Mtge Corp #G30225
02-01-23 6.00 7,106,216 7,617,638
Federal Home Loan Mtge Corp #H01724
09-01-37 6.00 1,212,685 1,277,583
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2795 Cl IY
07-15-17 41.78 196,957(j) 7,863
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2817 Cl SA
06-15-32 26.19 4,645,254(j) 363,561
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2576 Cl KJ
02-15-33 5.50 4,570,505 4,691,150
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 25
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
09-01-24 4.50% $35,500,000(g) $36,498,438
09-01-24 5.00 121,695,000(g) 126,829,069
09-01-39 4.50 81,600,000(g) 82,033,459
09-01-39 5.00 104,975,000(g) 107,730,594
09-01-39 5.50 272,400,000(g) 283,551,512
09-01-39 6.00 213,400,000(g) 224,536,919
09-01-39 7.00 30,000,000(g) 32,578,140
Federal Natl Mtge Assn #125479
04-01-27 7.50 163,233 181,900
Federal Natl Mtge Assn #190899
04-01-23 8.50 234,789 255,901
Federal Natl Mtge Assn #190944
05-01-24 6.00 4,020,711 4,259,425
Federal Natl Mtge Assn #190988
06-01-24 9.00 198,615 216,077
Federal Natl Mtge Assn #231309
09-01-23 6.50 61,584 66,522
Federal Natl Mtge Assn #231310
09-01-23 6.50 344,211 371,809
Federal Natl Mtge Assn #250330
09-01-25 8.00 192,661 217,595
Federal Natl Mtge Assn #250495
03-01-26 7.00 372,082 409,064
Federal Natl Mtge Assn #250765
12-01-26 8.00 151,730 171,464
Federal Natl Mtge Assn #251116
08-01-27 8.00 204,220 230,877
Federal Natl Mtge Assn #252440
05-01-29 7.00 155,261 170,983
Federal Natl Mtge Assn #252498
06-01-29 7.00 4,310 4,747
Federal Natl Mtge Assn #253883
08-01-16 6.00 1,712,474 1,832,400
Federal Natl Mtge Assn #254236
03-01-17 6.50 1,029,857 1,110,078
Federal Natl Mtge Assn #254383
06-01-32 7.50 289,643 322,084
Federal Natl Mtge Assn #254587
12-01-22 5.50 369,593 390,530
Federal Natl Mtge Assn #254802
07-01-18 4.50 1,929,868 2,024,954
Federal Natl Mtge Assn #254916
09-01-23 5.50 7,473,916 7,896,658
Federal Natl Mtge Assn #256901
09-01-37 6.50 316,558 337,895
Federal Natl Mtge Assn #268071
01-01-24 6.50 95,218 102,852
Federal Natl Mtge Assn #303226
02-01-25 8.00 78,566 88,665
Federal Natl Mtge Assn #313049
08-01-11 8.50 94,991 97,444
Federal Natl Mtge Assn #323715
05-01-29 6.00 298,059 317,415
Federal Natl Mtge Assn #323933
09-01-29 7.00 2,776,775 3,057,958
Federal Natl Mtge Assn #408207
01-01-28 6.50 94,520 102,196
Federal Natl Mtge Assn #455791
01-01-29 6.50 254,182 275,286
Federal Natl Mtge Assn #489888
05-01-29 6.50 1,160,697 1,255,615
Federal Natl Mtge Assn #493945
04-01-29 6.50 63,844 68,536
Federal Natl Mtge Assn #496029
01-01-29 6.50 1,455,672 1,577,442
Federal Natl Mtge Assn #518159
09-01-14 7.00 224,712 240,686
Federal Natl Mtge Assn #545008
06-01-31 7.00 1,940,171 2,151,201
Federal Natl Mtge Assn #545342
04-01-13 7.00 122,879 126,806
Federal Natl Mtge Assn #545684
05-01-32 7.50 227,885 254,124
Federal Natl Mtge Assn #545868
08-01-32 7.00 73,557 81,058
Federal Natl Mtge Assn #545869
07-01-32 6.50 1,427,161 1,548,513
Federal Natl Mtge Assn #545885
08-01-32 6.50 2,807,900 3,057,972
Federal Natl Mtge Assn #545910
08-01-17 6.00 2,901,402 3,124,638
Federal Natl Mtge Assn #555340
04-01-33 5.50 220,261 232,742
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
26 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #555343
08-01-17 6.00% $2,823,763 $3,023,280
Federal Natl Mtge Assn #555375
04-01-33 6.00 17,731,176 19,047,322
Federal Natl Mtge Assn #555458
05-01-33 5.50 16,243,745 16,939,140
Federal Natl Mtge Assn #555528
04-01-33 6.00 11,074,208 11,769,157
Federal Natl Mtge Assn #555734
07-01-23 5.00 6,324,666 6,601,942
Federal Natl Mtge Assn #555794
09-01-28 7.50 621,356 691,762
Federal Natl Mtge Assn #567840
10-01-30 7.00 1,032,159 1,136,678
Federal Natl Mtge Assn #582154
05-01-31 6.50 76,667 82,793
Federal Natl Mtge Assn #587859
12-01-16 5.50 2,467,645 2,627,348
Federal Natl Mtge Assn #597374
09-01-31 7.00 587,949 651,660
Federal Natl Mtge Assn #606882
10-01-31 7.00 591,729 650,609
Federal Natl Mtge Assn #611831
02-01-31 7.50 26,579 29,628
Federal Natl Mtge Assn #615135
11-01-16 6.00 176,529 188,892
Federal Natl Mtge Assn #634650
04-01-32 7.50 113,942 126,704
Federal Natl Mtge Assn #638969
03-01-32 5.50 1,053,721 1,108,979
Federal Natl Mtge Assn #643362
04-01-17 6.50 305,474 329,270
Federal Natl Mtge Assn #646147
06-01-32 7.00 2,393,063 2,651,905
Federal Natl Mtge Assn #646446
06-01-17 6.50 792,664 854,409
Federal Natl Mtge Assn #649068
06-01-17 6.50 1,274,121 1,373,215
Federal Natl Mtge Assn #649263
08-01-17 6.50 1,317,046 1,423,092
Federal Natl Mtge Assn #650009
09-01-31 7.50 47,731 53,206
Federal Natl Mtge Assn #654208
10-01-32 6.50 1,648,553 1,779,246
Federal Natl Mtge Assn #654682
10-01-32 6.00 622,906 667,577
Federal Natl Mtge Assn #654689
11-01-32 6.00 1,142,857 1,224,684
Federal Natl Mtge Assn #656908
09-01-32 6.50 1,309,819 1,428,826
Federal Natl Mtge Assn #661815
10-01-32 6.00 101,496 108,751
Federal Natl Mtge Assn #662061
09-01-32 6.50 2,064,322 2,227,976
Federal Natl Mtge Assn #667604
10-01-32 5.50 204,769 214,516
Federal Natl Mtge Assn #667787
02-01-18 5.50 1,090,770 1,163,068
Federal Natl Mtge Assn #670382
09-01-32 6.00 7,660,209 8,140,918
Federal Natl Mtge Assn #670387
08-01-32 7.00 986,098 1,083,870
Federal Natl Mtge Assn #677089
01-01-33 5.50 405,381 424,676
Federal Natl Mtge Assn #678028
09-01-17 6.00 3,721,719 3,984,681
Federal Natl Mtge Assn #678065
02-01-33 6.50 362,376 395,199
Federal Natl Mtge Assn #678937
01-01-18 5.50 1,756,160 1,881,854
Federal Natl Mtge Assn #678941
02-01-18 5.50 2,222,166 2,381,303
Federal Natl Mtge Assn #679095
04-01-18 5.00 3,774,997(o) 3,993,357
Federal Natl Mtge Assn #680961
01-01-33 6.00 473,160 506,920
Federal Natl Mtge Assn #681080
02-01-18 5.00 658,836 696,945
Federal Natl Mtge Assn #681166
04-01-32 6.50 297,230 320,979
Federal Natl Mtge Assn #681400
03-01-18 5.50 3,375,544 3,600,463
Federal Natl Mtge Assn #682825
01-01-33 6.00 1,250,353 1,328,817
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 27
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #683100
02-01-18 5.50% $120,876 $129,432
Federal Natl Mtge Assn #683116
02-01-33 6.00 201,587 214,238
Federal Natl Mtge Assn #684586
03-01-33 6.00 2,478,405 2,656,027
Federal Natl Mtge Assn #686172
02-01-33 6.00 1,937,635 2,059,230
Federal Natl Mtge Assn #686528
02-01-33 6.00 2,586,694 2,772,081
Federal Natl Mtge Assn #687051
01-01-33 6.00 7,389,650 7,780,252
Federal Natl Mtge Assn #689026
05-01-33 5.50 930,432 980,222
Federal Natl Mtge Assn #689093
07-01-28 5.50 2,486,417 2,616,808
Federal Natl Mtge Assn #694628
04-01-33 5.50 5,089,508 5,349,390
Federal Natl Mtge Assn #694795
04-01-33 5.50 5,985,167(o) 6,307,516
Federal Natl Mtge Assn #694988
03-01-33 5.50 8,359,391 8,808,994
Federal Natl Mtge Assn #695202
03-01-33 6.50 2,465,936 2,658,347
Federal Natl Mtge Assn #695909
05-01-18 5.50 1,497,340 1,603,123
Federal Natl Mtge Assn #699424
04-01-33 5.50 3,490,972 3,679,312
Federal Natl Mtge Assn #702427
04-01-33 5.50 2,872,851 3,033,626
Federal Natl Mtge Assn #704005
05-01-33 5.50 805,386 843,594
Federal Natl Mtge Assn #705655
05-01-33 5.00 372,105 383,945
Federal Natl Mtge Assn #709093
06-01-33 6.00 116,951 124,143
Federal Natl Mtge Assn #709901
06-01-18 5.00 355,698 377,507
Federal Natl Mtge Assn #710823
05-01-33 5.50 540,364 570,325
Federal Natl Mtge Assn #711503
06-01-33 5.50 82,165 86,370
Federal Natl Mtge Assn #720070
07-01-23 5.50 1,900,310 2,007,796
Federal Natl Mtge Assn #723687
08-01-28 5.50 2,944,061 3,098,452
Federal Natl Mtge Assn #725232
03-01-34 5.00 14,798,381 15,269,213
Federal Natl Mtge Assn #725424
04-01-34 5.50 1,315,185 1,377,579
Federal Natl Mtge Assn #725425
04-01-34 5.50 19,914,974 20,860,832
Federal Natl Mtge Assn #725431
08-01-15 5.50 76,639 81,336
Federal Natl Mtge Assn #725684
05-01-18 6.00 6,537,575 7,018,189
Federal Natl Mtge Assn #725813
12-01-33 6.50 7,857,282 8,470,365
Federal Natl Mtge Assn #726940
08-01-23 5.50 67,451 71,114
Federal Natl Mtge Assn #730153
08-01-33 5.50 808,225 846,568
Federal Natl Mtge Assn #735212
12-01-34 5.00 15,769,217 16,261,081
Federal Natl Mtge Assn #735224
02-01-35 5.50 24,929,974 26,112,688
Federal Natl Mtge Assn #735578
06-01-35 5.00 15,206,010 15,666,051
Federal Natl Mtge Assn #738921
11-01-32 6.50 759,073 826,073
Federal Natl Mtge Assn #743262
10-01-18 5.00 2,405,859 2,553,228
Federal Natl Mtge Assn #743347
10-01-33 6.00 72,108 76,551
Federal Natl Mtge Assn #743579
11-01-33 5.50 226,918 237,683
Federal Natl Mtge Assn #745355
03-01-36 5.00 14,813,662 15,261,833
Federal Natl Mtge Assn #745563
08-01-34 5.50 1,146,027 1,200,396
Federal Natl Mtge Assn #747642
11-01-28 5.50 1,953,954 2,056,422
Federal Natl Mtge Assn #753074
12-01-28 5.50 6,024,704 6,340,648
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
28 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #753091
12-01-33 5.50% $3,417,750 $3,579,893
Federal Natl Mtge Assn #757581
01-01-19 5.50 729,302 777,641
Federal Natl Mtge Assn #759342
01-01-34 6.50 1,265,982 1,377,251
Federal Natl Mtge Assn #765759
12-01-18 5.00 2,397,862 2,536,563
Federal Natl Mtge Assn #766641
03-01-34 5.00 5,098,467 5,257,495
Federal Natl Mtge Assn #776962
04-01-29 5.00 14,008,905 14,523,787
Federal Natl Mtge Assn #779676
06-01-34 5.00 1,718,559 1,772,163
Federal Natl Mtge Assn #804442
12-01-34 6.50 1,113,174 1,197,597
Federal Natl Mtge Assn #831870
11-01-36 6.50 1,182,327 1,267,191
Federal Natl Mtge Assn #844445
12-01-35 5.50 12,162,482 12,716,682
Federal Natl Mtge Assn #845109
05-01-36 6.00 21,109,519 22,289,096
Federal Natl Mtge Assn #868574
04-01-36 5.50 59,956 62,595
Federal Natl Mtge Assn #881886
04-01-36 5.36 170,021(i) 178,423
Federal Natl Mtge Assn #882063
06-01-36 6.50 2,654,650 2,848,119
Federal Natl Mtge Assn #886291
07-01-36 7.00 5,701,675 6,263,891
Federal Natl Mtge Assn #889150
01-01-38 5.50 7,463,695 7,783,963
Federal Natl Mtge Assn #894547
05-01-35 4.01 6,398,795(i) 6,515,246
Federal Natl Mtge Assn #909214
07-01-38 7.00 1,666,103 1,811,862
Federal Natl Mtge Assn #915770
03-01-37 6.50 2,495,194 2,673,122
Federal Natl Mtge Assn #934324
06-01-38 5.50 433,115 451,540
Federal Natl Mtge Assn #937672
06-01-37 5.50 423,803 441,988
Federal Natl Mtge Assn #967656
12-01-37 6.50 421,033 451,056
Federal Natl Mtge Assn #967739
12-01-37 5.50 4,117,012 4,293,674
Federal Natl Mtge Assn #968411
01-01-38 5.50 2,676,299 2,791,140
Federal Natl Mtge Assn #976421
03-01-23 4.50 6,446,452 6,642,196
Federal Natl Mtge Assn #AA4180
03-01-39 5.50 496,034 517,086
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 5.89 11,949,903(j) 2,000,431
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 5.34 2,353,080(j) 284,635
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 7.82 577,921(j) 49,196
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series 43 Cl 1
09-01-18 2.72 9,351(k) 8,618
Govt Natl Mtge Assn
09-01-39 4.50 65,000,000(g) 65,528,125
09-01-39 6.00 44,000,000(g) 46,378,728
Govt Natl Mtge Assn #425004
10-15-33 5.50 3,018,118 3,176,451
Govt Natl Mtge Assn #595256
12-15-32 6.00 4,823,256 5,139,123
Govt Natl Mtge Assn #604580
08-15-33 5.00 2,911,257 3,019,406
Govt Natl Mtge Assn #604708
10-15-33 5.50 7,646,645 8,047,795
Govt Natl Mtge Assn #606844
09-15-33 5.00 7,271,468 7,541,592
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 29
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-70 Cl IC
08-20-32 8.72% $5,058,821(j) $639,153
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-80 Cl CI
01-20-32 68.86 578,179(j) 17,829
GSR Mtge Loan Trust
Commercial Mtge Obligation
Series 2005-AR4 Cl 4A1
07-25-35 5.35 272,848(i) 220,090
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-16 Cl 2A1A
01-19-36 0.52 236,901(i) 120,834
Homestar Mtge Acceptance Corporation
Commercial Mtge Obligation
Series 2004-1 Cl A1
03-25-34 0.59 114,382(i) 74,301
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 0.00 65,790,560(b,j) 1
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-AR25 Cl 3A3
09-25-36 20.00 27,979,403(j) 288,683
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-AR25 Cl 1A21
12-25-35 5.69 5,468,414(i) 3,528,211
Indymac Index Mtge Loan Trust
Commercial Mtge Obligation
Series 2006-AR3 Cl 2A1B
03-25-36 5.83 447,748(i) 212,782
Jefferies & Co
Collateralized Mtge Obligation
Series 2009-R10 Cl 1A1
06-26-47 0.42 5,852,610(d,i) 5,662,400
Jefferies & Co
Collateralized Mtge Obligation
Series 2009-R10 Cl 2A1
05-26-48 0.36 10,196,376(d,i) 9,864,994
JPMorgan Mtge Trust
Collateralized Mtge Obligation
Series 2005-A3 Cl 3A2
06-25-35 5.03 4,964,468(i) 4,749,804
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-2 Cl 4A1
02-25-19 5.00 4,634,749 4,366,802
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 2A1
05-25-34 6.00 2,491,441 2,159,109
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00 3,622,434 3,244,052
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00 5,150,050 5,108,816
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-3 Cl 1A2
04-25-35 5.50 950,000 692,375
Structured Adjustable Rate Mtge Loan Trust
Collateralized Mtge Obligation
Series 2006-5 Cl 4A1
06-25-36 5.89 575,422(i) 376,082
Structured Asset Securities Corp
Series 2003-18XS Cl A6
06-25-33 4.04 348,462 311,915
Structured Asset Securities
Collateralized Mtge Obligation
Series 2003-33H Cl 1A1
10-25-33 5.50 5,173,960 4,986,606
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
30 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2004-AR9 Cl A6
08-25-34 2.96% $20,555,572(i) $20,228,051
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-14 Cl 2A1
12-25-35 5.50 1,747,443 1,509,422
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-8 Cl 2A7
07-25-37 6.00 26,032,443 24,569,310
Wells Fargo Mtge Backed Securities Trust
Commercial Mtge Obligation
Series 2004-K Cl 2A3
07-25-34 4.72 202,564(i) 185,793
---------------
Total 1,873,004,669
- -------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.1%)
L-3 Communications
06-15-12 7.63 3,615,000 3,651,150
- -------------------------------------------------------------------------------------
BANKING (2.7%)
American Express
Sr Unsecured
05-20-19 8.13 4,235,000(m) 4,739,511
Bank of America
Sr Unsecured
05-01-18 5.65 17,450,000 16,924,695
06-01-19 7.63 7,195,000 7,940,404
Citigroup
05-22-19 8.50 15,360,000(m) 16,789,678
Citigroup
Sr Unsecured
05-15-18 6.13 9,105,000(m) 8,560,940
Export-Import Bank of Korea
Sr Unsecured
10-17-12 5.50 165,000(c) 170,592
Goldman Sachs Group
Sr Unsecured
02-15-19 7.50 12,535,000 14,411,592
ICICI Bank
10-03-12 6.63 150,000(c,d) 152,438
JPMorgan Chase & Co
Sr Unsecured
01-15-18 6.00 6,490,000 6,974,758
04-23-19 6.30 6,980,000(m) 7,666,127
Morgan Stanley
Sr Unsecured
04-01-18 6.63 6,920,000(m) 7,394,290
05-13-19 7.30 5,250,000 5,846,563
Wells Fargo & Co
Sr Unsecured
12-11-17 5.63 13,055,000(m) 13,678,663
---------------
Total 111,250,251
- -------------------------------------------------------------------------------------
BROKERAGE (--%)
Lehman Brothers Holdings
Sr Unsecured
05-02-18 6.88 10,135,000(b,r) 1,862,306
- -------------------------------------------------------------------------------------
CHEMICALS (0.8%)
Airgas
10-01-18 7.13 2,695,000(d,m) 2,695,000
Ashland
06-01-17 9.13 1,450,000(d,m) 1,522,500
Chemtura
06-01-16 6.88 2,710,000(b) 2,466,100
Dow Chemical
Sr Unsecured
05-15-19 8.55 20,890,000 22,754,537
INVISTA
Sr Unsecured
05-01-12 9.25 2,066,000(d) 2,055,670
Nalco
Sr Nts
05-15-17 8.25 1,815,000(d,m) 1,896,675
---------------
Total 33,390,482
- -------------------------------------------------------------------------------------
CONSUMER PRODUCTS (0.1%)
Jarden
05-01-16 8.00 2,410,000 2,470,250
Visant Holding
Sr Disc Nts
12-01-13 10.25 2,015,000 2,040,188
---------------
Total 4,510,438
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 31
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ELECTRIC (6.8%)
Arizona Public Service
Sr Unsecured
10-15-11 6.38% $4,446,000 $4,715,597
CenterPoint Energy Houston Electric LLC
Series U
03-01-14 7.00 10,895,000 12,124,476
Cleveland Electric Illuminating
1st Mtge
11-15-18 8.88 22,950,000(m) 28,858,270
Consumers Energy
1st Mtge
03-15-15 5.00 7,070,000 7,457,217
09-15-18 5.65 2,170,000 2,311,896
09-15-19 6.70 3,880,000(m) 4,461,162
04-15-20 5.65 2,155,000 2,305,667
Detroit Edison
Sr Secured
10-01-13 6.40 6,325,000 6,980,782
Dominion Resources
Sr Nts
01-15-19 8.88 1,265,000 1,589,925
DTE Energy
Sr Unsecured
05-15-14 7.63 15,710,000 17,013,537
Duke Energy Carolinas LLC
Sr Unsecured Series D
03-01-10 7.38 9,880,000 10,185,865
Edison Mission Energy
Sr Unsecured
06-15-13 7.50 2,040,000(m) 1,815,600
06-15-16 7.75 1,235,000 1,006,525
Exelon
Sr Unsecured
06-15-10 4.45 11,905,000 12,179,125
FirstEnergy
Sr Unsecured Series B
11-15-11 6.45 5,945,000 6,421,016
Indiana Michigan Power
Sr Nts
03-15-19 7.00 7,845,000 8,958,362
Indiana Michigan Power
Sr Unsecured
03-15-37 6.05 8,855,000 9,115,302
Interstate Power & Light
Sr Unsecured
07-15-39 6.25 1,570,000 1,696,889
Jersey Central Power & Light
Sr Unsecured
02-01-19 7.35 1,630,000 1,907,850
Kansas Gas & Electric
1st Mtge
06-15-19 6.70 5,900,000(d) 6,667,543
KCP&L Greater Missouri Operations
Sr Unsecured
07-01-12 11.88 1,675,000 1,901,125
Majapahit Holding
10-17-16 7.75 480,000(c,d) 481,200
Nevada Power
04-15-12 6.50 1,000,000 1,069,789
08-01-18 6.50 8,400,000 9,138,430
Nevada Power
Series L
01-15-15 5.88 21,308,000 22,700,285
Nevada Power
Series M
03-15-16 5.95 4,575,000 4,840,451
NiSource Finance
11-15-10 7.88 2,450,000 2,576,631
03-01-13 6.15 5,390,000 5,603,961
09-15-17 5.25 6,280,000 5,834,798
03-15-18 6.40 1,890,000 1,866,606
01-15-19 6.80 11,135,000 11,292,416
09-15-20 5.45 3,205,000 2,905,246
NRG Energy
02-01-16 7.38 5,555,000 5,311,969
Ohio Edison
Sr Unsecured
05-01-15 5.45 2,280,000 2,370,869
Oncor Electric Delivery
Sr Secured
05-01-12 6.38 2,225,000 2,422,967
PacifiCorp
1st Mtge
09-15-13 5.45 5,095,000 5,497,459
Portland General Electric
03-15-10 7.88 3,165,000 3,254,702
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
32 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ELECTRIC (CONT.)
Potomac Electric Power
1st Mtge
04-15-14 4.65% $1,035,000 $1,076,784
06-01-35 5.40 3,160,000 3,101,960
PPL Electric Utilities
1st Mtge
11-30-13 7.13 7,935,000 9,154,742
Sierra Pacific Power
Series M
05-15-16 6.00 16,645,000 17,292,424
Tampa Electric
Sr Unsecured
05-15-18 6.10 6,825,000 7,348,307
Toledo Edison
1st Mtge
05-01-20 7.25 1,790,000 2,087,090
---------------
Total 276,902,817
- -------------------------------------------------------------------------------------
ENTERTAINMENT (0.2%)
Regal Cinemas
07-15-19 8.63 1,510,000(d) 1,532,650
Speedway Motorsports
Sr Unsecured
06-01-16 8.75 3,520,000(d,m) 3,608,000
United Artists Theatre Circuit
Pass-Through Ctfs
07-01-15 9.30 4,665,160(l) 4,779,457
---------------
Total 9,920,107
- -------------------------------------------------------------------------------------
ENVIRONMENTAL (0.5%)
Allied Waste North America
Sr Unsecured
04-15-13 7.88 13,775,000 14,257,125
Republic Services
Sr Unsecured
09-15-19 5.50 4,350,000(d,g) 4,318,898
---------------
Total 18,576,023
- -------------------------------------------------------------------------------------
FOOD AND BEVERAGE (1.2%)
Anheuser-Busch InBev Worldwide
01-15-19 7.75 2,890,000(d) 3,383,878
ConAgra Foods
Sr Unsecured
09-15-11 6.75 412,000 447,984
HJ Heinz Finance
08-01-39 7.13 6,820,000(d) 8,008,324
Molson Coors Capital Finance
09-22-10 4.85 15,215,000(c) 15,685,326
SABMiller
01-15-14 5.70 19,845,000(c,d) 21,150,622
---------------
Total 48,676,134
- -------------------------------------------------------------------------------------
GAMING (0.1%)
Boyd Gaming
Sr Sub Nts
02-01-16 7.13 2,244,000 1,868,130
MGM MIRAGE
Sr Secured
11-15-17 11.13 2,345,000(d,m) 2,556,050
---------------
Total 4,424,180
- -------------------------------------------------------------------------------------
GAS PIPELINES (3.6%)
CenterPoint Energy Resources
Sr Unsecured
02-15-11 7.75 15,535,000 16,635,965
CenterPoint Energy Resources
Sr Unsecured Series B
04-01-13 7.88 3,780,000 4,247,514
Colorado Interstate Gas
Sr Unsecured
11-15-15 6.80 37,961,000 41,795,099
El Paso
Sr Unsecured
12-12-13 12.00 3,075,000 3,474,750
Northwest Pipeline
Sr Unsecured
06-15-16 7.00 6,514,000 7,381,066
04-15-17 5.95 10,330,000 10,943,815
Southern Natural Gas
Sr Unsecured
04-01-17 5.90 25,946,000(d,m) 26,579,134
Southern Star Central
Sr Nts
03-01-16 6.75 1,460,000 1,365,100
TransCapitalInvest for Transneft
Secured
08-07-18 8.70 650,000(c,d) 682,500
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 33
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
GAS PIPELINES (CONT.)
Transcontinental Gas Pipe Line LLC
Sr Unsecured
04-15-16 6.40% $17,114,000 $18,715,391
Transcontinental Gas Pipe Line LLC
Sr Unsecured Series B
08-15-11 7.00 12,410,000 13,348,035
---------------
Total 145,168,369
- -------------------------------------------------------------------------------------
HEALTH CARE (0.8%)
Cardinal Health
Sr Unsecured
06-15-12 5.65 3,860,000 4,130,200
CareFusion
Sr Nts
08-01-19 6.38 10,150,000(d) 10,860,652
DaVita
03-15-13 6.63 5,285,000 5,126,450
HCA
Secured Pay-in-kind
11-15-16 9.63 3,714,000(s) 3,751,140
Omnicare
12-15-13 6.75 3,240,000(m) 3,061,800
Select Medical
02-01-15 7.63 4,360,000 3,967,600
---------------
Total 30,897,842
- -------------------------------------------------------------------------------------
HEALTH CARE INSURANCE (0.1%)
Coventry Health Care
Sr Unsecured
08-15-14 6.30 3,370,000 3,071,441
03-15-17 5.95 1,690,000 1,506,676
WellPoint
Sr Unsecured
01-15-16 5.25 87,000 88,105
---------------
Total 4,666,222
- -------------------------------------------------------------------------------------
INDEPENDENT ENERGY (1.9%)
Anadarko Petroleum
Sr Unsecured
09-15-16 5.95 25,352,000 26,364,330
Chesapeake Energy
01-15-16 6.63 2,750,000(m) 2,499,063
Denbury Resources
03-01-16 9.75 2,055,000(m) 2,162,888
EnCana
Sr Unsecured
11-01-11 6.30 17,330,000(c) 18,820,951
Forest Oil
Sr Nts
02-15-14 8.50 3,930,000(d,m) 3,949,650
Nexen
Sr Unsecured
11-20-13 5.05 8,455,000(c) 8,694,085
PetroHawk Energy
Sr Nts
08-01-14 10.50 1,670,000(d,m) 1,786,900
Quicksilver Resources
08-01-15 8.25 3,358,000 3,164,915
Range Resources
05-15-19 8.00 5,775,000(m) 5,890,500
Ras Laffan Liquefied Natural Gas II
Sr Secured
09-30-20 5.30 360,000(c,d) 357,491
SandRidge Energy
06-01-18 8.00 2,235,000(d) 1,977,975
---------------
Total 75,668,748
- -------------------------------------------------------------------------------------
INTEGRATED ENERGY (0.1%)
Hess
Sr Unsecured
08-15-11 6.65 2,000,000 2,147,890
Petro-Canada
Sr Unsecured
07-15-13 4.00 1,515,000(c) 1,515,479
TNK-BP Finance
03-13-18 7.88 545,000(c,d) 502,081
---------------
Total 4,165,450
- -------------------------------------------------------------------------------------
LODGING (--%)
Starwood Hotels & Resorts Worldwide
Sr Unsecured
10-15-14 7.88 2,015,000(m) 2,004,925
- -------------------------------------------------------------------------------------
MEDIA CABLE (0.6%)
Comcast
03-15-11 5.50 13,485,000 14,199,233
05-15-18 5.70 60,000 63,358
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
34 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MEDIA CABLE (CONT.)
CSC Holdings
Sr Unsecured
02-15-19 8.63% $1,085,000(d) $1,101,275
DIRECTV Holdings LLC/Financing
05-15-16 7.63 3,505,000 3,689,013
Time Warner Cable
06-15-39 6.75 4,450,000(m) 4,746,695
---------------
Total 23,799,574
- -------------------------------------------------------------------------------------
MEDIA NON CABLE (2.4%)
DISH DBS
02-01-16 7.13 2,945,000 2,827,200
Lamar Media
Sr Nts
04-01-14 9.75 2,445,000(d) 2,567,250
Liberty Media LLC
Sr Unsecured
05-15-13 5.70 4,308,000(m) 4,092,600
News America
12-15-35 6.40 5,543,000 5,500,507
11-15-37 6.65 5,232,000(m) 5,380,306
01-09-38 6.75 10,725,000 10,873,927
Nielsen Finance LLC
08-01-14 10.00 1,790,000(m) 1,691,550
Rainbow Natl Services LLC
09-01-12 8.75 1,850,000(d) 1,868,500
Reed Elsevier Capital
08-01-11 6.75 12,130,000 13,039,319
RR Donnelley & Sons
Sr Unsecured
04-01-14 4.95 4,140,000 3,851,997
01-15-17 6.13 25,827,000 23,970,736
Thomson Reuters
07-15-13 5.95 3,320,000(c) 3,575,504
10-01-14 5.70 16,015,000(c) 17,484,889
---------------
Total 96,724,285
- -------------------------------------------------------------------------------------
METALS (0.1%)
Freeport-McMoRan Copper & Gold
Sr Unsecured
04-01-17 8.38 3,390,000 3,534,075
- -------------------------------------------------------------------------------------
NON CAPTIVE DIVERSIFIED (0.5%)
General Electric Capital
Sr Unsecured
01-10-39 6.88 19,855,000 19,691,732
- -------------------------------------------------------------------------------------
OIL FIELD SERVICES (0.1%)
Gaz Capital
Secured
11-22-16 6.21 1,825,000(c,d) 1,642,500
KazMunaiGaz Finance
07-02-18 9.13 720,000(c,d) 691,489
---------------
Total 2,333,989
- -------------------------------------------------------------------------------------
PACKAGING (0.2%)
Ball
09-01-16 7.13 240,000(m) 240,000
09-01-19 7.38 255,000(m) 254,363
Crown Americas LLC/Capital
11-15-15 7.75 4,475,000(m) 4,430,250
Owens-Brockway Glass Container
05-15-13 8.25 3,935,000 3,974,350
---------------
Total 8,898,963
- -------------------------------------------------------------------------------------
PAPER (--%)
Georgia-Pacific LLC
01-15-17 7.13 1,970,000(d) 1,891,200
- -------------------------------------------------------------------------------------
RAILROADS (0.5%)
Canadian Pacific Railway
Sr Unsecured
05-15-19 7.25 8,260,000(c) 9,434,059
CSX
Sr Unsecured
03-15-12 6.30 2,455,000 2,628,338
04-01-15 6.25 8,144,000 9,023,194
---------------
Total 21,085,591
- -------------------------------------------------------------------------------------
TRANSPORTATION SERVICES (0.6%)
Erac USA Finance
10-15-17 6.38 24,090,000(d) 23,582,746
- -------------------------------------------------------------------------------------
TREASURY (--%)
Govt of Indonesia
(Indonesian Rupiah) Series FR43
07-15-22 10.25 15,000,000,000(c) 1,417,753
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 35
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
WIRELESS (0.8%)
CC Holdings GS V LLC/Crown Castle GS III
Sr Secured
05-01-17 7.75% $4,985,000(d) $5,034,850
Cricket Communications
Sr Secured
05-15-16 7.75 3,845,000(d,m) 3,691,200
Nextel Communications
Series D
08-01-15 7.38 2,330,000 1,989,238
SBA Telecommunications
08-15-16 8.00 650,000(d) 648,375
08-15-19 8.25 650,000(d,m) 653,250
Sprint Nextel
Sr Nts
08-15-17 8.38 3,750,000(m) 3,571,875
US Cellular
Sr Unsecured
12-15-33 6.70 13,854,000 14,215,700
Wind Acquisition Finance
Sr Nts
07-15-17 11.75 1,945,000(c,d) 2,110,325
---------------
Total 31,914,813
- -------------------------------------------------------------------------------------
WIRELINES (4.4%)
AT&T
Sr Unsecured
03-15-11 6.25 14,811,000 15,761,377
02-01-18 5.50 65,000 68,110
01-15-38 6.30 8,605,000 8,974,295
02-15-39 6.55 9,075,000(m) 9,902,105
Embarq
Sr Unsecured
06-01-13 6.74 2,250,000 2,406,350
Frontier Communications
Sr Unsecured
05-01-14 8.25 3,100,000(m) 3,076,750
Qwest
Sr Unsecured
10-01-14 7.50 7,220,000 7,156,825
06-15-15 7.63 2,030,000 2,014,775
Telecom Italia Capital
11-15-13 5.25 5,080,000(c) 5,314,955
Telefonica Europe
09-15-10 7.75 19,171,000(c) 20,327,299
TELUS
Sr Unsecured
06-01-11 8.00 43,171,000(c) 46,987,317
Verizon New York
Sr Unsecured Series A
04-01-12 6.88 33,857,000 36,888,251
Verizon New York
Sr Unsecured Series B
04-01-32 7.38 13,597,000 14,716,400
Verizon Pennsylvania
Sr Unsecured Series A
11-15-11 5.65 3,290,000 3,512,222
Windstream
08-01-16 8.63 3,635,000 3,648,631
---------------
Total 180,755,662
- -------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $4,277,813,786) $4,372,733,033
- -------------------------------------------------------------------------------------
<Caption>
SENIOR LOANS (0.4%)(n)
COUPON PRINCIPAL
BORROWER RATE AMOUNT VALUE(a)
CHEMICALS (--%)
Hexion Specialty Chemicals
Tranche C1 Term Loan
05-05-13 2.88% $2,118,983 $1,609,834
Hexion Specialty Chemicals
Tranche C2 Term Loan
05-05-13 2.88 462,890 351,667
---------------
Total 1,961,501
- -------------------------------------------------------------------------------------
MEDIA CABLE (0.1%)
Charter Communications Operating LLC
Term Loan
03-05-14 6.25 6,343,755 5,886,497
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
36 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SENIOR LOANS (CONTINUED)
COUPON PRINCIPAL
BORROWER RATE AMOUNT VALUE(a)
WIRELINES (0.3%)
Fairpoint Communications
Tranche B Term Loan
03-31-15 5.00% $9,630,444 $7,286,009
- -------------------------------------------------------------------------------------
TOTAL SENIOR LOANS
(Cost: $12,328,917) $15,134,007
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COMMON STOCKS (--%)
ISSUER SHARES VALUE(a)
PAPER & FOREST PRODUCTS
Crown Paper Escrow 6,950,000(b,l) $7
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $--) $7
- -------------------------------------------------------------------------------------
<Caption>
MONEY MARKET FUND (18.9%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.28% 772,014,015(q) $772,014,015
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $772,014,015) $772,014,015
- -------------------------------------------------------------------------------------
<Caption>
INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN (10.2%)
SHARES VALUE(a)
CASH COLLATERAL REINVESTMENT FUND(5.2%)
JPMorgan Prime Money Market Fund 214,687,144 $214,687,144
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ASSET-BACKED COMMERCIAL PAPER (1.1%)
Belmont Funding LLC
09-01-09 0.48% $14,999,800 $14,999,801
Ebbets Funding LLC
09-08-09 0.50 9,998,889 9,998,889
Elysian Funding LLC
09-01-09 0.42 9,999,883 9,999,883
Grampian Funding LLC
09-21-09 0.40 9,996,333 9,996,333
---------------
Total 44,994,906
- -------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (3.2%)
Banco Popular Espanol
09-04-09 0.76 4,993,272 4,993,272
09-23-09 0.63 1,997,849 1,997,849
10-05-09 0.51 2,997,367 2,997,367
Banco Santander NY
11-09-09 0.41 3,000,000 3,000,000
Banco Santander Madrid
10-13-09 0.45 7,000,000 7,000,000
Bank of Nova Scotia Singapore
10-30-09 0.40 10,000,000 10,000,000
Bayrische Hypo und Vereinsbank NY
09-14-09 0.30 5,000,000 5,000,000
Caisse de Depots et Consignment Paris
10-19-09 0.43 7,991,028 7,991,028
Caixa Geral Dep London
10-26-09 0.57 4,000,000 4,000,000
Credit Indusrial et Comm London
10-13-09 0.52 8,988,056 8,988,056
Danske Bank AS
11-24-09 0.32 5,000,000 5,000,000
ING Bank London
10-13-09 0.50 10,000,000 10,000,000
Mit UFJ Trust New York
09-21-09 0.35 5,000,000 5,000,000
Mizuho London
10-29-09 0.49 3,000,000 3,000,000
Monte de Paschi NY
09-14-09 0.51 4,000,035 4,000,035
Nederlandse Waterschapsbank
10-20-09 0.40 7,991,831 7,991,831
Norinchukin Bank NY
11-20-09 0.41 10,000,000 10,000,000
Raiffeisen Zentralbank Oest Vienna
09-10-09 0.41 10,000,000 10,000,000
San Paolo Imi Ireland
10-07-09 0.40 4,995,005 4,995,005
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 37
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
CERTIFICATES OF DEPOSIT (CONT.)
Sumitomo Mitsui Banking Corp Brussels
11-19-09 0.44% $12,000,000 $12,000,000
Svenska Singapore
10-15-09 0.45 4,000,000 4,000,000
---------------
Total 131,954,443
- -------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.7%)
Citigroup Funding
09-08-09 0.39 11,998,570 11,998,570
Natixis Commercial Paper
09-08-09 0.32 6,998,009 6,998,009
Royal Bank of Scotland Group
09-10-09 0.47 7,993,211 7,993,211
---------------
Total 26,989,790
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN
(Cost: $418,626,283) 418,626,283
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $5,480,783,001)(u) $5,578,507,345
=====================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT AUG. 31, 2009
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- -------------------------------------------------------------------------------------
U.S. Long Bond, 20-year 439 $52,570,250 Dec. 2009 $211,980
U.S. Treasury Note, 2- 285 61,657,969 Jan. 2010 182,152
year
U.S. Treasury Note, 5- 589 67,882,250 Jan. 2010 348,835
year
U.S. Treasury Note, 10- 265 31,062,969 Dec. 2009 235,618
year
- -------------------------------------------------------------------------------------
Total $978,585
- -------------------------------------------------------------------------------------
</Table>
CREDIT DEFAULT SWAP CONTRACTS OUTSTANDING AT AUG. 31, 2009
<Table>
<Caption>
REFERENCED BUY/SELL PAY/RECEIVE EXPIRATION NOTIONAL UNREALIZED
COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE AMOUNT APPRECIATION
- ------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank Cardinal Health Buy .225% June 20, 2012 $3,860,000 $10,722
</Table>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT AUG. 31, 2009
<Table>
<Caption>
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED
EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION
- ---------------------------------------------------------------------------------------------
Oct. 7, 2009 7,490,000 12,198,072 $5,590 $--
British Pound U.S. Dollar
- ---------------------------------------------------------------------------------------------
Oct. 7, 2009 5,671,000 8,138,169 7,551 --
European Monetary Unit U.S. Dollar
- ---------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
38 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT AUG. 31, 2009
(CONTINUED)
<Table>
<Caption>
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED
EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION
- ---------------------------------------------------------------------------------------------
Oct. 7, 2009 21,507,000 20,354,719 $38,859 $--
Swiss Franc U.S. Dollar
- ---------------------------------------------------------------------------------------------
Oct. 7, 2009 20,337,582 24,226,000 93,180 --
U.S. Dollar Australian Dollar
- ---------------------------------------------------------------------------------------------
Oct. 7, 2009 8,144,287 8,968,000 47,874 --
U.S. Dollar Canadian Dollar
- ---------------------------------------------------------------------------------------------
Oct. 7, 2009 12,195,414 73,367,000 -- (13,061)
U.S. Dollar Norwegian Krone
- ---------------------------------------------------------------------------------------------
Total $193,054 $(13,061)
- ---------------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using policies described in Note 2 to the
financial statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in U.S. dollar currency unless otherwise
noted. At Aug. 31, 2009, the value of foreign securities represented 5.1%
of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At Aug. 31,
2009, the value of these securities amounted to $319,482,656 or 7.8% of net
assets.
(e) This is a variable rate security that entitles holders to receive only
interest payments. Interest is paid annually. The interest payment is based
on the Gross Domestic Product (GDP) level of the previous year for the
respective country. To the extent that the previous year's GDP exceeds the
"base case GDP'', an interest payment is made equal to 0.012225 of the
difference.
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) At Aug. 31, 2009, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$1,119,736,012 See Note 2 to the financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 39
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(h) The following abbreviations are used in the portfolio security descriptions
to identify the insurer of the issue:
<Table>
AMBAC -- Ambac Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
MBIA -- MBIA Insurance Corporation
</Table>
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31,
2009.
(j) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only security is extremely sensitive to the rate of principal
payments on the underlying mortgage assets. A rapid (slow) rate of
principal repayments may have an adverse (positive) effect on yield to
maturity. The principal amount shown is the notional amount of the
underlying mortgages. The interest rate disclosed represents yield based
upon the estimated timing and amount of future cash flows at Aug. 31, 2009.
(k) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments may
have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents yield based upon the estimated timing of future cash
flows at Aug. 31, 2009.
(l) Identifies issues considered to be illiquid as to their marketability (see
Note 2 to the financial statements). The aggregate value of such securities
at Aug. 31, 2009 was $4,779,464, representing 0.1% of net assets.
Information concerning such security holdings at Aug. 31, 2009 is as
follows:
<Table>
<Caption>
ACQUISITION
SECURITY DATES COST
---------------------------------------------------------------------
Crown Paper Escrow 04-16-07 $--
United Artists Theatre Circuit
Pass-Through Ctfs
9.30% 2015 02-23-96 thru 08-12-96 4,516,092
</Table>
(m) At Aug. 31, 2009, security was partially or fully on loan. See Note 7 to
the financial statements.
(n) 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.
(o) At Aug. 31, 2009, investments in securities included securities valued at
$4,229,927 that were partially pledged as collateral to cover initial
margin deposits on open interest rate futures contracts.
- --------------------------------------------------------------------------------
40 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(p) Represents comparable securities held to satisfy future delivery
requirements of the following open forward sale commitments at Aug. 31,
2009:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
------------------------------------------------------------------------------
Federal Natl Mtge
Assn
09-01-24 5.50% $13,000,000 09-17-09 $13,555,547 $13,678,444
</Table>
(q) Affiliated Money Market Fund -- See Note 8 to the financial statements. The
rate shown is the seven-day current annualized yield at Aug. 31, 2009.
(r) This position is in bankruptcy.
(s) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities
usually have the same terms as the original holdings.
(t) Negligible market value.
(u) At Aug. 31, 2009, the cost of securities for federal income tax purposes
was $5,499,395,155 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $148,984,428
Unrealized depreciation (68,547,908)
------------------------------------------------------------
Net unrealized appreciation $80,436,520
------------------------------------------------------------
</Table>
The industries identified above are based on the Global Industry Classification
Standard (GICS), which was developed by and is the exclusive property of Morgan
Stanley Capital International Inc. and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 41
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) requires
disclosure regarding the inputs and valuation techniques used to measure fair
value and any changes in valuation inputs or techniques. In addition,
investments shall be disclosed by major category.
SFAS 157 establishes a fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by prioritizing that the most observable input be used when
available. Observable inputs are those that market participants would use in
pricing an investment based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are those that reflect the Fund's
assumptions about the information market participants would use in pricing an
investment. An investment's level within the fair value hierarchy is based on
the lowest level of any input that is deemed significant to the asset or
liability's fair value measurement. When a valuation uses multiple inputs from
varying levels of the hierarchy, the hierarchy level is determined based on the
lowest level input or inputs that are significant to the fair value measurement
in its entirety. The input levels are not necessarily an indication of the risk
or liquidity associated with investments at that level. For example, certain
U.S. government securities are generally high quality and liquid, however, they
are reflected as Level 2 because the inputs used to determine fair value may not
always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels listed below:
- Level 1 -- Valuations based on quoted prices for investments in active
markets that the Fund has the ability to access at the measurement date.
Valuation adjustments are not applied to Level 1 investments.
- Level 2 -- Valuations based on other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment speeds, credit risks, etc.).
- Level 3 -- Valuations based on significant unobservable inputs (including
the Fund's own assumptions and judgment in determining the fair value of
investments).
Inputs that are used in determining fair value of an investment may include
price information, credit data, volatility statistics, and other factors. These
inputs can be either observable or unobservable. The availability of observable
inputs can vary between investments, and is affected by various factors such as
the type of investment, and the volume and level of activity for that investment
or similar investments in the marketplace. The inputs will be considered by the
Fund Administrator, along with any other relevant factors in the calculation of
an investment's fair value. The Fund uses prices and inputs that are current as
of the measurement date, which may include periods of market dislocations.
During these periods, the availability of prices and inputs may be reduced for
many investments. This condition could cause an investment to be reclassified
between the various levels within the hierarchy.
Non-U.S. equity securities actively traded in foreign markets may be reflected
in Level 2 despite the availability of closing prices, because the Fund
evaluates and determines whether those closing prices reflect fair value at the
close of the New York Stock Exchange (NYSE) or require adjustment, as described
in Note 2 to the financial statements -- Valuation of securities.
- --------------------------------------------------------------------------------
42 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS (CONTINUED)
Investments falling into the Level 3 category are primarily supported by quoted
prices from brokers and dealers participating in the market for those
investments. However, these may be classified as Level 3 investments due to lack
of market transparency and corroboration to support these quoted prices.
Additionally, valuation models may be used as the pricing source for any
remaining investments classified as Level 3. These models rely on one or more
significant unobservable inputs and/or significant assumptions by the Fund
Administrator. Inputs used in a valuation model may include, but are not limited
to, financial statement analysis, discount rates and estimated cash flows, and
comparable company data.
The following table is a summary of the inputs used to value the Fund's
investments as of Aug. 31, 2009:
<Table>
<Caption>
FAIR VALUE AT AUG. 31, 2009
--------------------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- -----------------------------------------------------------------------------------------------
Bonds
Foreign Government
Obligations &
Agencies $1,115,200 $29,001,074 $-- $30,116,274
U.S. Government
Obligations &
Agencies 427,897,889 404,675,940 -- 832,573,829
Asset-Backed
Securities -- 187,845,169 37,215,690 225,060,859
Commercial Mortgage-
Backed Securities -- 220,611,575 -- 220,611,575
Residential Mortgage-
Backed Securities -- 1,848,961,599 24,043,070 1,873,004,669
Corporate Debt
Securities -- 1,186,586,370 4,779,457 1,191,365,827
- -----------------------------------------------------------------------------------------------
Total Bonds 429,013,089 3,877,681,727 66,038,217 4,372,733,033
- -----------------------------------------------------------------------------------------------
Equity Securities
Common Stocks(a) -- -- 7 7
- -----------------------------------------------------------------------------------------------
Total Equity Securities -- -- 7 7
- -----------------------------------------------------------------------------------------------
Other
Senior Loans -- 15,134,007 -- 15,134,007
Affiliated Money
Market Fund(b) 772,014,015 -- -- 772,014,015
Investments of Cash
Collateral Received
for Securities on
Loan(c) 214,687,144 203,939,139 -- 418,626,283
- -----------------------------------------------------------------------------------------------
Total Other 986,701,159 219,073,146 -- 1,205,774,305
- -----------------------------------------------------------------------------------------------
Investments in
Securities 1,415,714,248 4,096,754,873 66,038,224 5,578,507,345
Other Financial
Instruments(d) 978,585 190,715 -- 1,169,300
- -----------------------------------------------------------------------------------------------
Total $1,416,692,833 $4,096,945,588 $66,038,224 $5,579,676,645
- -----------------------------------------------------------------------------------------------
</Table>
(a) All industry classifications are identified in the Portfolio of
Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 43
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
FAIR VALUE MEASUREMENTS (CONTINUED)
(b) Money market fund that is a sweep investment for cash balances in the Fund
at Aug. 31, 2009.
(c) Asset categories for Investments of Cash Collateral are identified in the
Portfolio of Investments.
(d) Other Financial Instruments are derivative instruments, which are valued at
the unrealized appreciation (depreciation) on the instrument. Derivative
descriptions are located in the Investments in Derivatives section of the
Portfolio of Investments.
The following table is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value.
<Table>
<Caption>
RESIDENTIAL
ASSET- MORTGAGE- CORPORATE
BACKED BACKED DEBT COMMON
SECURITIES SECURITIES SECURITIES STOCKS TOTAL
- -----------------------------------------------------------------------------------------------
Balance as of Aug. 31,
2008 $3,180,765 $81,896,281 $5,157,491 $7 $90,234,544
Accrued
discounts/premiums (959,819) 237,972 17,441 -- (704,406)
Realized gain (loss) 270,392 (16,179,539) 2,042 -- (15,907,105)
Change in unrealized
appreciation
(depreciation)* 781,244 6,241,491 146,910 -- 7,169,645
Net purchases (sales) 35,233,033 (2,598,950) (544,427) -- 32,089,656
Transfers in and/or out
of Level 3 (1,289,925) (45,554,185) -- -- (46,844,110)
- -----------------------------------------------------------------------------------------------
Balance as of Aug. 31,
2009 $37,215,690 $24,043,070 $4,779,457 $7 $66,038,224
- -----------------------------------------------------------------------------------------------
</Table>
* Change in unrealized appreciation (depreciation) relating to securities
held at Aug. 31, 2009 was $26,866,218.
HOW TO FIND INFORMATION ABOUT THE FUND'S QUARTERLY 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 filed on Form N-Q,
can be obtained without charge, upon request, by calling the RiverSource
Family of Funds at 1(800) 221-2450.
- --------------------------------------------------------------------------------
44 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
AUG. 31, 2009
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers* (identified cost $4,290,142,703) $4,387,867,047
Affiliated money market fund (identified cost $772,014,015) 772,014,015
Investments of cash collateral received for securities on loan
(identified cost $418,626,283) 418,626,283
- ---------------------------------------------------------------------------------
Total investments in securities (identified cost $5,480,783,001) 5,578,507,345
Cash 510,518
Capital shares receivable 11,615,606
Dividends and accrued interest receivable 33,983,970
Receivable for investment securities sold 147,737,859
Variation margin receivable on futures contracts 694,313
Unrealized appreciation on forward foreign currency contracts 193,054
Unrealized appreciation on swap contracts 10,722
Other receivables 7,419
- ---------------------------------------------------------------------------------
Total assets 5,773,260,806
- ---------------------------------------------------------------------------------
LIABILITIES
Forward sale commitments, at value (proceeds receivable
$13,555,547) 13,678,444
Dividends payable to shareholders 2,717,704
Capital shares payable 5,523,398
Payable for investment securities purchased 125,984,619
Payable for securities purchased on a forward-commitment basis 1,119,736,012
Payable upon return of securities loaned 418,626,283
Unrealized depreciation on forward foreign currency contracts 13,061
Accrued investment management services fees 147,970
Accrued distribution fees 701,270
Accrued transfer agency fees 41,194
Accrued administrative services fees 19,828
Accrued plan administration services fees 15,653
Other accrued expenses 348,035
- ---------------------------------------------------------------------------------
Total liabilities 1,687,553,471
- ---------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $4,085,707,335
- ---------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 45
STATEMENT OF ASSETS AND LIABILITIES (continued) --------------------------------
AUG. 31, 2009
<Table>
<Caption>
REPRESENTED BY
Capital stock -- $.01 par value $ 8,593,314
Additional paid-in capital 4,250,612,589
Excess of distributions over net investment income (3,547,347)
Accumulated net realized gain (loss) (268,721,785)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies 98,770,564
- ---------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $4,085,707,335
- ---------------------------------------------------------------------------------
*Including securities on loan, at value $ 466,722,174
- ---------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $2,402,834,582 505,515,125 $4.75(1)
Class B $ 191,468,923 40,286,990 $4.75
Class C $ 52,650,113 11,074,642 $4.75
Class I $ 787,166,241 165,384,786 $4.76
Class R2 $ 287,638 60,428 $4.76
Class R3 $ 9,829 2,067 $4.76
Class R4 $ 72,569,590 15,286,568 $4.75
Class R5 $ 296,257 62,408 $4.75
Class W $ 578,424,162 121,658,362 $4.75
- -------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $4.99. The offering
price is calculated by dividing the net asset value by 1.0 minus the maximum
sales charge of 4.75%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
46 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
STATEMENT OF OPERATIONS -------------------------------------------------------
YEAR ENDED AUG. 31, 2009
<Table>
<Caption>
INVESTMENT INCOME
Income:
Interest $ 181,414,773
Income distributions from affiliated money market fund 1,906,239
Income from securities lending 1,126,998
Less foreign taxes withheld (19,246)
- --------------------------------------------------------------------------------
Total income 184,428,764
- --------------------------------------------------------------------------------
Expenses:
Investment management services fees 15,648,683
Distribution fees
Class A 4,876,489
Class B 2,344,842
Class C 378,881
Class R2 135
Class R3 23
Class W 1,433,055
Transfer agency fees
Class A 2,991,064
Class B 386,127
Class C 59,573
Class R2 13
Class R3 4
Class R4 33,855
Class R5 5
Class W 1,146,444
Administrative services fees 2,122,615
Plan administration services fees
Class R2 67
Class R3 23
Class R4 169,275
Compensation of board members 110,167
Custodian fees 146,077
Printing and postage 219,500
Registration fees 216,534
Professional fees 115,951
Other 163,320
- --------------------------------------------------------------------------------
Total expenses 32,562,722
Expenses waived/reimbursed by the Investment Manager and its
affiliates (3,276,919)
Earnings and bank fee credits on cash balances (8,655)
- --------------------------------------------------------------------------------
Total net expenses 29,277,148
- --------------------------------------------------------------------------------
Investment income (loss) -- net 155,151,616
- --------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 47
STATEMENT OF OPERATIONS (continued) -------------------------------------------
YEAR ENDED AUG. 31, 2009
<Table>
<Caption>
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions $(136,839,296)
Foreign currency transactions 1,741,873
Futures contracts (33,595,241)
Swap transactions 216,409
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (168,476,255)
Net change in unrealized appreciation (depreciation) on
investments and on translation of assets and liabilities in
foreign currencies 266,074,461
- --------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies 97,598,206
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 252,749,822
- --------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
48 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
YEAR ENDED AUG. 31, 2009 2008
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 155,151,616 $ 152,258,368
Net realized gain (loss) on investments (168,476,255) 4,060,405
Net change in unrealized appreciation (depreciation) on
investments and on translation of assets and liabilities in
foreign currencies 266,074,461 (142,483,859)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 252,749,822 13,834,914
- -------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (90,380,371) (84,539,939)
Class B (9,169,639) (10,768,502)
Class C (1,472,729) (828,277)
Class I (31,440,870) (22,019,428)
Class R2 (1,352) (290)
Class R3 (427) (308)
Class R4 (3,205,438) (3,476,394)
Class R5 (1,163) (328)
Class W (26,235,706) (18,133,130)
- -------------------------------------------------------------------------------------------------
Total distributions (161,907,695) (139,766,596)
- -------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 49
STATEMENTS OF CHANGES IN NET ASSETS (continued) --------------------------------
<Table>
<Caption>
YEAR ENDED AUG. 31, 2009 2008
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares $ 798,738,888 $ 346,346,586
Class B shares 69,159,291 80,268,108
Class C shares 25,116,806 20,510,381
Class I shares 283,744,737 193,548,806
Class R2 shares 121,281 --
Class R4 shares 26,687,126 31,152,017
Class W shares 198,551,036 529,049,476
Fund merger (Note 10)
Class A shares 5,580,981 52,349,504
Class B shares 1,349,679 13,151,218
Class C shares 3,053,759 1,247,150
Class I shares -- 250,084,366
Class R2 shares 152,202 4,925
Class R3 shares -- 4,925
Class R4 shares -- 11,052
Class R5 shares 285,712 4,913
Class W shares -- 4,890
Reinvestment of distributions at net asset value
Class A shares 75,554,842 71,053,046
Class B shares 8,300,291 9,967,093
Class C shares 1,237,207 747,742
Class I shares 31,051,811 22,202,710
Class R2 shares 512 --
Class R4 shares 3,175,416 3,527,696
Class W shares 26,019,994 18,163,448
Conversions from Class B to Class A
Class A shares 56,523,003 40,155,833
Class B shares (56,523,003) (40,155,833)
Payments for redemptions
Class A shares (515,636,632) (458,212,241)
Class B shares (89,958,627) (102,268,711)
Class C shares (10,142,901) (6,555,566)
Class I shares (237,020,240) (137,684,266)
Class R4 shares (33,900,640) (34,245,276)
Class W shares (306,545,978) (92,614,678)
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions 364,676,553 811,819,314
- -------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 455,518,680 685,887,632
Net assets at beginning of year 3,630,188,655 2,944,301,023
- -------------------------------------------------------------------------------------------------
Net assets at end of year $4,085,707,335 $3,630,188,655
- -------------------------------------------------------------------------------------------------
Undistributed (excess of distributions over) net investment
income $ (3,547,347) $ 1,974,902
- -------------------------------------------------------------------------------------------------
</Table>
Certain line items from the prior year have been renamed to conform to the
current year presentation.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
50 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
The following tables are intended to help you understand the Fund's financial
performance. Certain information reflects financial results for a single share
of a class held for the periods shown. For periods ended 2007 and after, per
share amounts are calculated based on average shares outstanding during the
period. Total returns assume reinvestment of all dividends and distributions.
Total returns do not reflect payment of sales charges, if any, and are not
annualized for periods of less than one year.
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS A ------------------------------------------------------
PER SHARE DATA 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.65 $4.81 $4.77 $4.89 $4.87
- ---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20 .22 .21 .19 .18
Net gains (losses) (both realized and
unrealized) .11 (.17) .05 (.11) .03
- ---------------------------------------------------------------------------------------------------------
Total from investment operations .31 .05 .26 .08 .21
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.21) (.21) (.20) (.19)
Tax return of capital -- -- (.01) -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (.21) (.21) (.22) (.20) (.19)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.65 $4.81 $4.77 $4.89
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN 7.05% .93% 5.54% 1.64% 4.38%
- ---------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .94% .95% .97% .99% 1.02%
- ---------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) .83% .89% .89% .89% .94%
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.44% 4.68% 4.43% 4.09% 3.67%
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $2,403 $1,920 $1,937 $2,013 $1,774
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295% 281% 300%
- ---------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 51
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS B -------------------------------------------------
PER SHARE DATA 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.65 $4.81 $4.77 $4.89 $4.88
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17 .19 .18 .16 .15
Net gains (losses) (both realized and
unrealized) .10 (.18) .04 (.12) .01
- ----------------------------------------------------------------------------------------------------
Total from investment operations .27 .01 .22 .04 .16
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.17) (.17) (.18) (.16) (.15)
Tax return of capital -- -- (.00)(d) -- --
- ----------------------------------------------------------------------------------------------------
Total distributions (.17) (.17) (.18) (.16) (.15)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.65 $4.81 $4.77 $4.89
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN 6.24% .16% 4.74% .88% 3.39%
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.70% 1.71% 1.73% 1.76% 1.78%
- ----------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) 1.59% 1.65% 1.65% 1.65% 1.70%
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) 3.71% 3.91% 3.66% 3.31% 2.92%
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $191 $254 $304 $402 $484
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295% 281% 300%
- ----------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS C -------------------------------------------------
PER SHARE DATA 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.65 $4.81 $4.77 $4.90 $4.88
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17 .19 .18 .16 .15
Net gains (losses) (both realized and
unrealized) .10 (.18) .04 (.13) .02
- ----------------------------------------------------------------------------------------------------
Total from investment operations .27 .01 .22 .03 .17
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.17) (.17) (.18) (.16) (.15)
Tax return of capital -- -- (.00)(d) -- --
- ----------------------------------------------------------------------------------------------------
Total distributions (.17) (.17) (.18) (.16) (.15)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.65 $4.81 $4.77 $4.90
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN 6.25% .16% 4.73% .66% 3.60%
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.69% 1.70% 1.73% 1.76% 1.79%
- ----------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) 1.58% 1.65% 1.65% 1.66% 1.70%
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) 3.68% 3.93% 3.67% 3.31% 2.93%
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $53 $32 $17 $17 $18
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295% 281% 300%
- ----------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
52 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS I -------------------------------------------------
PER SHARE DATA 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.65 $4.82 $4.78 $4.89 $4.88
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .22 .24 .23 .21 .20
Net gains (losses) (both realized and
unrealized) .11 (.18) .04 (.11) .02
- ----------------------------------------------------------------------------------------------------
Total from investment operations .33 .06 .27 .10 .22
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.23) (.22) (.21) (.21)
Tax return of capital -- -- (.01) -- --
- ----------------------------------------------------------------------------------------------------
Total distributions (.22) (.23) (.23) (.21) (.21)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $4.76 $4.65 $4.82 $4.78 $4.89
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN 7.67% 1.07% 5.90% 2.19% 4.53%
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .54% .55% .56% .55% .60%
- ----------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) .47% .53% .54% .54% .60%
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) 4.80% 5.09% 4.80% 4.59% 4.01%
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $787 $693 $386 $276 $--
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295% 281% 300%
- ----------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS R2 -----------------------------
PER SHARE DATA 2009 2008 2007(e)
Net asset value, beginning of period $4.65 $4.80 $4.81
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17 .21 .14
Net gains (losses) (both realized and
unrealized) .13 (.16) (.02)
- --------------------------------------------------------------------------------
Total from investment operations .30 .05 .12
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.19) (.20) (.13)
Tax return of capital -- -- (.00)(d)
- --------------------------------------------------------------------------------
Total distributions (.19) (.20) (.13)
- --------------------------------------------------------------------------------
Net asset value, end of period $4.76 $4.65 $4.80
- --------------------------------------------------------------------------------
TOTAL RETURN 6.92% .84% 2.70%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.35% 1.34% 1.32%(f)
- --------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) 1.21% 1.08% 1.32%(f)
- --------------------------------------------------------------------------------
Net investment income (loss) 3.67% 4.53% 4.06%(f)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $--
- --------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295%
- --------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 53
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS R3 -----------------------------
PER SHARE DATA 2009 2008 2007(e)
Net asset value, beginning of period $4.65 $4.80 $4.81
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20 .23 .15
Net gains (losses) (both realized and
unrealized) .11 (.17) (.02)
- --------------------------------------------------------------------------------
Total from investment operations .31 .06 .13
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.21) (.14)
Tax return of capital -- -- (.00)(d)
- --------------------------------------------------------------------------------
Total distributions (.20) (.21) (.14)
- --------------------------------------------------------------------------------
Net asset value, end of period $4.76 $4.65 $4.80
- --------------------------------------------------------------------------------
TOTAL RETURN 7.19% 1.11% 2.90%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.08% 1.08% 1.06%(f)
- --------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) .91% .83% 1.06%(f)
- --------------------------------------------------------------------------------
Net investment income (loss) 4.40% 4.79% 4.33%(f)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $--
- --------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295%
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS R4 -------------------------------------------------
PER SHARE DATA 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.64 $4.80 $4.77 $4.89 $4.88
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20 .23 .22 .20 .19
Net gains (losses) (both realized and
unrealized) .12 (.17) .04 (.12) .02
- ----------------------------------------------------------------------------------------------------
Total from investment operations .32 .06 .26 .08 .21
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.22) (.22) (.20) (.20)
Tax return of capital -- -- (.01) -- --
- ----------------------------------------------------------------------------------------------------
Total distributions (.21) (.22) (.23) (.20) (.20)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.64 $4.80 $4.77 $4.89
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN 7.35% 1.03% 5.49% 1.81% 4.34%
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .84% .85% .83% .82% .86%
- ----------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) .77% .76% .73% .73% .78%
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) 4.53% 4.81% 4.53% 4.24% 3.85%
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $73 $75 $78 $173 $202
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295% 281% 300%
- ----------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
54 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS R5 -----------------------------
PER SHARE DATA 2009 2008 2007(e)
Net asset value, beginning of period $4.64 $4.80 $4.81
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23 .24 .17
Net gains (losses) (both realized and
unrealized) .10 (.18) (.02)
- --------------------------------------------------------------------------------
Total from investment operations .33 .06 .15
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.22) (.16)
Tax return of capital -- -- (.00)(d)
- --------------------------------------------------------------------------------
Total distributions (.22) (.22) (.16)
- --------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.64 $4.80
- --------------------------------------------------------------------------------
TOTAL RETURN 7.62% 1.22% 3.25%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .59% .59% .59%(f)
- --------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) .52% .58% .57%(f)
- --------------------------------------------------------------------------------
Net investment income (loss) 5.01% 5.02% 4.81%(f)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $--
- --------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295%
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED AUG. 31,
CLASS W -----------------------------
PER SHARE DATA 2009 2008 2007(g)
Net asset value, beginning of period $4.65 $4.81 $4.82
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20 .22 .15
Net gains (losses) (both realized and
unrealized) .10 (.17) --
- --------------------------------------------------------------------------------
Total from investment operations .30 .05 .15
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.21) (.16)
Tax return of capital -- -- (.00)(d)
- --------------------------------------------------------------------------------
Total distributions (.20) (.21) (.16)
- --------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.65 $4.81
- --------------------------------------------------------------------------------
TOTAL RETURN 6.95% .82% 2.71%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .99% .99% .98%(f)
- --------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(b) .92% .98% .97%(f)
- --------------------------------------------------------------------------------
Net investment income (loss) 4.37% 4.56% 4.32%(f)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $578 $655 $223
- --------------------------------------------------------------------------------
Portfolio turnover rate(c) 371% 226% 295%
- --------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 55
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS
(a) 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.
(b) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(c) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 184% and 122% for the years
ended Aug. 31, 2009 and 2008, respectively.
(d) Rounds to zero.
(e) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007.
(f) Annualized.
(g) For the period from Dec. 1, 2006 (inception date) to Aug. 31, 2007.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
56 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. ORGANIZATION
RiverSource Diversified Bond Fund (the Fund) is a series of RiverSource
Diversified Income Series, Inc. and is registered under the Investment Company
Act of 1940, as amended (the 1940 Act) 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 Fund's Board of Directors (the Board). The Fund
invests primarily in bonds and other debt securities including securities issued
by the U.S. government, corporate bonds and mortgage- and asset-backed
securities.
The Fund offers Class A, Class B, Class C, Class I, Class R2, Class R3, Class
R4, Class R5 and Class W shares.
- - Class A shares are offered with a front-end sales charge, which may be waived
under certain circumstances.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares one month after the completion of
the eighth year of ownership if originally purchased in a RiverSource fund on
or after May 21, 2005 or originally purchased in a Seligman fund on or after
June 13, 2009. Class B shares originally purchased in a RiverSource fund
prior to May 21, 2005 will convert to Class A shares in the ninth calendar
year of ownership. Class B shares originally purchased in a Seligman fund
prior to June 13, 2009 will convert to Class A shares in the month prior to
the ninth year of ownership.
- - Class C shares may be subject to a CDSC.
- - Class I, Class R2, Class R3, Class R4 and Class R5 shares are offered without
a front-end sales charge or CDSC to qualifying institutional investors.
- - Class W shares are offered without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At Aug. 31, 2009, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and the affiliated funds-of-funds in the RiverSource Family
of Funds owned 100% of Class I shares and the Investment Manager owned 100% of
Class R3 shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 57
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 business of the New York Stock
Exchange (NYSE). 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 by
an independent pricing service using an evaluated bid. When market quotes are
not readily available, the pricing service, in determining fair values of debt
securities, takes into consideration such factors as current quotations by
broker/dealers, coupon, maturity, quality, type of issue, trading
characteristics, and other yield and risk factors it deems relevant in
determining valuations. Foreign securities are valued based on quotations from
the principal market in which such securities are normally traded. The
procedures adopted by the Board generally contemplate the use of fair valuation
in the event that price quotations or valuations are not readily available,
price quotations or valuations from other sources are not reflective of market
value and thus deemed unreliable, or a significant event has occurred in
relation to a security or class of securities (such as foreign securities) that
is not reflected in price quotations or valuations from other sources. A fair
value price is a good faith estimate of the value of a security at a given point
in time.
Many securities markets and exchanges outside the U.S. close prior to the close
of the NYSE and therefore the closing prices for securities in such markets or
on such exchanges may not fully reflect events that occur after such close but
before the close of the NYSE, including significant movements in the U.S. market
after foreign exchanges have closed. Accordingly, in those situations,
Ameriprise Financial, Inc. (Ameriprise Financial), parent company of the
Investment Manager, as administrator to the Fund, will fair value foreign
securities pursuant to procedures adopted by the Board, including utilizing a
third party pricing service to determine these fair values. These procedures
take into account multiple factors, including movements in the U.S. securities
markets, to determine a good faith estimate that reasonably reflects the current
market conditions as of the close of the NYSE. Swap transactions are valued
through an authorized pricing service, broker, or an internal model.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
- --------------------------------------------------------------------------------
58 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
rates. Typically, those maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at amortized cost
using the market value on the 61st day before maturity. Short-term securities
maturing in 60 days or less at acquisition date are valued at amortized cost.
Amortized cost is an approximation of market value. Investments in money market
funds are valued at net asset value.
FOREIGN CURRENCY TRANSLATIONS
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.
ILLIQUID SECURITIES
At Aug. 31, 2009, investments in securities included issues that are illiquid
which the Fund currently limits to 15% of net assets, at market value, at the
time of purchase. The aggregate value of such securities at Aug. 31, 2009 was
$4,779,464 representing 0.12% of net assets. Certain illiquid securities may be
valued, in good faith, by management at fair value according to procedures
approved by the Board. According to Board guidelines, certain unregistered
securities are determined to be liquid and are not included within the 15%
limitation specified above. Assets are liquid if they can be sold or disposed of
in the ordinary course of business within seven days at approximately the value
at which the asset is valued by the Fund.
SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS
Delivery and payment for securities that have been purchased by the Fund on a
forward-commitment basis, including when-issued securities and other forward-
commitments, can take place one month or more after the transaction date. During
this period, such securities are subject to market fluctuations, and they may
affect the Fund's net assets the same as owned securities. The Fund designates
cash or liquid securities at least equal to the amount of its forward-
commitments. At Aug. 31, 2009, the Fund has outstanding when-issued securities
of $1,119,736,012.
The Fund also enters into transactions to sell purchase commitments to third
parties at current market values and concurrently acquires other purchase
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 59
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
commitments for similar securities at later dates. As an inducement for the Fund
to "roll over" its purchase commitments, the Fund receives negotiated amounts in
the form of reductions of the purchase price of the commitment. The Fund records
the incremental difference between the forward purchase and sale of each forward
roll as realized gain or loss. Losses may arise due to changes in the value of
the securities or if a counterparty does not perform under the terms of the
agreement. If a counterparty files for bankruptcy or becomes insolvent, the
Fund's right to repurchase or sell securities may be limited.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are used
to satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the Notes to Portfolio of
Investments.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of the future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income (which includes net short-term capital gains) to
shareholders. No provision for income or excise taxes is thus required.
- --------------------------------------------------------------------------------
60 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
Management of the Fund has concluded that there are no significant uncertain tax
positions that would require recognition in the financial statements. Generally,
the tax authorities can examine all the tax returns filed for the last three
years.
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. On Aug. 24, 2009, an additional
dividend was paid before the merger (see Note 10) to ensure that current
shareholders of RiverSource Diversified Bond Fund would not experience a
dilution in their share of the Fund's income or capital gains.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income, if any, is recognized on the ex-dividend date or upon
receipt of ex-dividend notification in the case of certain foreign securities.
Interest income, including amortization of premium, market discount and original
issue discount using the effective interest method, is accrued daily.
SECURITY LITIGATION SETTLEMENTS
Litigation proceeds from Enron Corp. related to portfolio securities no longer
included in the portfolio are recorded as realized gains. Proceeds received
during the year ended Aug. 31, 2009 were $133,574.
3. INVESTMENTS IN DERIVATIVES
The Fund may invest in certain derivative instruments, which are transactions
whose values depend on or are derived from (in whole or in part) the value of
one or more other assets, such as securities, currencies, commodities or
indices. Such derivative instruments may be used to maintain cash reserves while
maintaining exposure to certain other assets, to offset anticipated declines in
values of investments, to facilitate trading, to reduce transaction costs, and
to pursue higher investment returns. The Fund may also use derivative
instruments to mitigate certain investment risks, such as foreign currency
exchange rate risk, interest rate risk, and credit risk.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency contracts in connection with
settling purchases or sales of securities, to hedge the currency exposure
associated with some or all of the Fund's securities or as part of its
investment strategy. A forward foreign currency contract is an agreement between
two parties to buy and sell a currency at a set price on a future date. The
market
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 61
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
value of a forward foreign currency contract fluctuates with changes in foreign
currency exchange rates. Forward foreign currency contracts are marked to market
daily based upon foreign currency exchange rates from an independent pricing
service and the change in value is recorded as unrealized appreciation or
depreciation. The Fund will record a realized gain or loss when the forward
foreign currency contract is closed.
The risks of forward foreign currency contracts include movement in the values
of the foreign currencies relative to the U.S. dollar (or other foreign
currencies) and the possibility that the counterparty will not complete its
contractual obligation, which may be in excess of the amount reflected in the
Statement of Assets and Liabilities.
FUTURES TRANSACTIONS
The Fund may buy and sell financial futures contracts traded on any U.S. or
foreign exchange to produce incremental earnings, hedge existing positions or
protect against market changes in the value of equities, interest rates or
foreign currencies. The Fund may also buy and write put and call options on
these futures contracts. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a specified date.
Futures and options on futures are valued daily based upon the last sale price
at the close of the market on the principal exchange on which they are traded.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the 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.
Upon entering into futures contracts, the Fund bears the risk of interest rates,
exchange rates or securities prices moving unexpectedly, in which case, the Fund
may not achieve the anticipated benefits of the futures contracts and may
realize a loss. Additional risks include counterparty credit risk, 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.
CREDIT DEFAULT SWAP TRANSACTIONS
The Fund may enter into credit default swap transactions to increase or decrease
its credit exposure to an issuer of debt securities, a specific debt security,
or an index of issuers or debt securities. Additionally, credit default swaps
may be used to hedge the Fund's exposure on a debt security that it owns or in
lieu of selling such debt security.
- --------------------------------------------------------------------------------
62 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
As the purchaser of a credit default swap contract, the Fund purchases
protection by paying a periodic interest rate on the notional amount to the
counterparty. The interest amount is accrued daily as a component of unrealized
appreciation (depreciation) and is recorded as a realized loss upon payment. If
the credit event specified in the contract occurs, the Fund will be required to
deliver either the reference obligation or an equivalent cash amount to the
protection seller and in exchange, the Fund will receive the notional amount
from the seller. The difference between the value of the obligation delivered
and the notional amount received will be recorded as a realized gain (loss).
As the seller of a credit default swap contract, the Fund sells protection to a
buyer and will generally receive a periodic interest rate on the notional
amount. The interest amount is accrued daily as a component of unrealized
appreciation (depreciation) and is recorded as a realized gain upon receipt of
the payment. If the credit event specified in the contract occurs, the Fund will
receive the reference obligation or an equivalent cash amount in exchange for
the payment of the notional amount to the protection buyer. The difference
between the value of the obligation received and the notional amount paid will
be recorded as a realized gain (loss). As a protection seller, the Fund bears
the risk of loss from the credit events specified in the contract. Although
specified events are contract-specific, credit events are generally defined as
bankruptcy, failure to pay, restructuring, obligation acceleration, obligation
default, or repudiation/moratorium.
The notional amounts of credit default swap contracts are not recorded in the
financial statements. Any premium paid or received by the Fund upon entering
into a credit default swap contract is recorded as an asset or liability and
amortized daily as a component of realized gain (loss) in the Statement of
Operations. At Aug. 31, 2009, there were no credit default swap contracts
outstanding which had a premium paid or received by the Fund. Credit default
swap contracts are valued daily, and the change in value is recorded as
unrealized appreciation (depreciation) until the termination of the swap, at
which time a realized gain (loss) is recorded.
Credit default swap contracts can involve greater risks than if a fund had
invested in the reference obligation directly since, in addition to general
market risks, credit default swaps are subject to counterparty credit risk,
leverage risk, hedging risk, correlation risk and liquidity risk. The Fund will
enter into credit default swap agreements only with counterparties that meet
certain standards of creditworthiness.
EFFECTS OF DERIVATIVE TRANSACTIONS ON THE FINANCIAL STATEMENTS
The following tables are intended to provide additional information about the
effect of derivatives on the financial statements of the Fund including: the
fair
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 63
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
value of derivatives by risk category and the location of those fair values in
the Statement of Assets and Liabilities; the impact of derivative transactions
on the Fund's operations over the period including realized gains or losses and
unrealized gains or losses. The derivative schedules following the Portfolio of
Investments present additional information regarding derivative instruments
outstanding at the end of the period, if any.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AT AUG. 31, 2009
<Table>
<Caption>
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------- -------------------------------------
STATEMENT OF ASSETS STATEMENT OF ASSETS
RISK EXPOSURE AND LIABILITIES AND LIABILITIES
CATEGORY LOCATION FAIR VALUE LOCATION FAIR VALUE
- ----------------------------------------------------------------------------------------
Credit contracts Unrealized
appreciation on
swap transactions $ 10,722 N/A N/A
- ----------------------------------------------------------------------------------------
Foreign exchange Unrealized Unrealized
contracts appreciation on depreciation on
forward foreign forward foreign
currency contracts 193,054 currency contracts $13,061
- ----------------------------------------------------------------------------------------
Interest rate Net assets --
contracts unrealized
appreciation 978,585* N/A N/A
- ----------------------------------------------------------------------------------------
TOTAL $1,182,361 $13,061
- ----------------------------------------------------------------------------------------
</Table>
* Includes cumulative appreciation (depreciation) of futures contracts as
reported in the Futures Contracts Outstanding table following the Portfolio
of Investments. Only the current day's variation margin is reported in
receivables or payables in the Statement of Assets and Liabilities.
EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE YEAR
ENDED AUG. 31, 2009
<Table>
<Caption>
AMOUNT OF REALIZED GAIN OR (LOSS) ON DERIVATIVES RECOGNIZED IN INCOME
- --------------------------------------------------------------------------------
RISK EXPOSURE FORWARD FOREIGN
CATEGORY CURRENCY CONTRACTS FUTURES SWAPS TOTAL
- --------------------------------------------------------------------------------
Credit contracts $ -- $ -- $216,409 $ 216,409
- --------------------------------------------------------------------------------
Foreign exchange
contracts 1,738,107 -- -- $ 1,738,107
- --------------------------------------------------------------------------------
Interest rate
contracts -- (33,595,241) -- $(33,595,241)
- --------------------------------------------------------------------------------
Total $1,738,107 $(33,595,241) $216,409 $(31,640,725)
- --------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
64 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
CHANGE IN UNREALIZED APPRECIATION OR (DEPRECIATION) ON DERIVATIVES RECOGNIZED IN
INCOME
- -------------------------------------------------------------------------------------
FORWARD FOREIGN
RISK EXPOSURE CATEGORY CURRENCY CONTRACTS FUTURES SWAPS TOTAL
- -------------------------------------------------------------------------------------
Credit contracts $ -- $ -- $(350,319) $ (350,319)
- -------------------------------------------------------------------------------------
Foreign exchange
contracts 365,841 -- -- $ 365,841
- -------------------------------------------------------------------------------------
Interest rate contracts -- 3,169,954 -- $3,169,954
- -------------------------------------------------------------------------------------
Total $365,841 $3,169,954 $(350,319) $3,185,476
- -------------------------------------------------------------------------------------
</Table>
VOLUME OF DERIVATIVES
FORWARD FOREIGN CURRENCY CONTRACTS
The gross notional amount of forward foreign currency contracts was $79.0
million at Aug. 31, 2009. The monthly average gross notional amount for these
contracts was $70.0 million for the year ended Aug. 31, 2009. The fair value of
these contracts at Aug. 31, 2009 is set forth in the table above.
FUTURES
The gross notional amount of long futures contracts was $213.2 million at Aug.
31, 2009. The monthly average gross notional amounts for long and short
contracts were $129.6 million and $422.9 million, respectively, for the year
ended Aug. 31, 2009. The fair value of such contracts at Aug. 31, 2009 is set
forth in the table above.
SWAPS
The gross notional amount of swap contracts was $3.9 million at Aug. 31, 2009.
The monthly average gross notional amount for these contracts was $17.1 million
for the year ended Aug. 31, 2009. The fair value of such contracts at Aug. 31,
2009 is set forth in the table above.
4. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is an annual fee that is equal to a percentage of the Fund's average daily net
assets that declines from 0.48% to 0.29% as the Fund's net assets increase. The
management fee for the year ended Aug. 31, 2009 was 0.45% of the Fund's average
daily net assets.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial
an annual fee for administration and accounting services equal to a percentage
of the Fund's average daily net assets that declines from 0.07% to 0.04% as the
Fund's net assets increase. The fee for the year ended Aug. 31, 2009 was 0.06%
of the Fund's average daily net assets.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 65
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended Aug. 31,
2009, other expenses paid to this company were $19,107.
COMPENSATION OF BOARD MEMBERS
Under a Deferred Compensation Plan (the Plan), the board members who are not
"interested persons" of the Fund under the 1940 Act 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 funds in the RiverSource Family
of Funds. The Fund's liability for these amounts is adjusted for market value
changes and remains in the funds until distributed in accordance with the Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains Fund shareholder accounts and records and provides Fund
shareholder services. The Fund pays the Transfer Agent an annual account-based
fee at a rate equal to $20.50 for Class A, $21.50 for Class B and $21.00 for
Class C for this service. The Transfer Agent also charges an annual fee of $3
per account serviced directly by the Fund or its designated agent for Class A,
Class B and Class C shares. The Fund also pays the Transfer Agent an annual
asset-based fee at a rate of 0.05% of the Fund's average daily net assets
attributable to Class R2, Class R3, Class R4 and Class R5 shares and an annual
asset-based fee at a rate of 0.20% of the Fund's average daily net assets
attributable to Class W shares. The Transfer Agent charges an annual fee of $5
per inactive account, charged on a pro rata basis for the 12 month period from
the date the account becomes inactive. These fees are included in the transfer
agency fees in the Statement of Operations.
In connection with the acquisition of the Seligman Core Fixed Income Fund (see
Note 10), the Fund assumed the obligations of the Seligman Core Fixed Income
Fund, which, together with certain other associated investment companies
(together, the Guarantors), has severally, but not jointly, guaranteed the
performance and observance of all terms and conditions of a lease entered into
by Seligman Data Corp. (SDC), the former transfer agent of the Seligman Core
Fixed Income Fund, including the payment of rent by SDC (the Guaranty). The
lease and the Guaranty expire in January 2019. As of Aug. 31, 2009, the Fund's
total potential future obligation over the life of the Guaranty is $27,600. The
Seligman Core Fixed Income Fund expensed $15,416 related to the Guaranty
- --------------------------------------------------------------------------------
66 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
prior to acquisition by the Fund. This amount is included within other accrued
expenses in the Fund's Statement of Assets and Liabilities.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R2, Class R3 and Class R4 shares for the provision of
various administrative, recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has an agreement with RiverSource Fund Distributors, Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an
annual rate 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. For Class B and Class C shares, of
the 1.00% fee, up to 0.75% is reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed (unreimbursed expense) was approximately $8,045,000 and $228,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of July 31, 2009, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
SALES CHARGES
Sales charges, including front-end and CDSCs, received by the Distributor for
distributing Fund shares were $1,775,669 for Class A, $131,276 for Class B and
$16,004 for Class C for the year ended Aug. 31, 2009.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended Aug. 31, 2009, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*) were as follows:
<Table>
Class A............................................. 0.83%
Class B............................................. 1.59
Class C............................................. 1.58
Class I............................................. 0.47
Class R2............................................ 1.21
Class R3............................................ 0.91
Class R4............................................ 0.77
Class R5............................................ 0.52
Class W............................................. 0.92
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 67
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A.......................................... $839,376
Class B.......................................... 102,287
Class C.......................................... 17,572
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R2.......................................... $ 10
Class R3.......................................... 10
Class R4.......................................... 1,140
</Table>
The management fees waived/reimbursed at the Fund level were $2,316,524.
Under an agreement which was effective until Aug. 31, 2009, the Investment
Manager and its affiliates contractually agreed to waive certain fees and
expenses such that net expenses (excluding fees and expenses of acquired funds*)
would not exceed the following percentage of the class' average daily net
assets:
<Table>
Class A............................................. 0.83%
Class B............................................. 1.59
Class C............................................. 1.58
Class I............................................. 0.47
Class R2............................................ 1.27
Class R3............................................ 1.02
Class R4............................................ 0.77
Class R5............................................ 0.52
Class W............................................. 0.92
</Table>
Effective Sep. 1, 2009, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until Oct. 31, 2010,
unless sooner terminated at the discretion of the Board, such that net expenses
(excluding fees and expenses of acquired funds*), will not exceed the following
percentage of the class' average daily net assets:
<Table>
Class A............................................. 0.85%
Class B............................................. 1.61
Class C............................................. 1.60
Class I............................................. 0.49
Class R2............................................ 1.29
Class R3............................................ 1.04
Class R4............................................ 0.79
Class R5............................................ 0.54
Class W............................................. 0.94
</Table>
* 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"),
- --------------------------------------------------------------------------------
68 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
including affiliated and non-affiliated pooled investment vehicles
(including mutual funds and exchange traded funds). Because the acquired
funds have varied expense and fee levels and the Fund may own different
proportions of acquired funds at different times, the amount of fees and
expenses incurred indirectly by the Fund will vary.
EARNINGS AND BANK FEE CREDITS
During the year ended Aug. 31, 2009, the Fund's custodian and transfer agency
fees were reduced by $8,655 as a result of earnings and bank fee credits from
overnight cash balances. Effective Dec. 15, 2008, the Fund pays custodian fees
to JPMorgan Chase Bank, N.A. For the period from Sept. 1, 2008 to Dec. 15, 2008,
the Fund paid custodian fees amounting to $17,995 to Ameriprise Trust Company, a
subsidiary of Ameriprise Financial.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations, but including mortgage dollar rolls) aggregated $14,561,816,029
(including $11,588,641* from Seligman Core Fixed Income Fund that was acquired
in the fund merger as described in Note 10) and $14,024,847,740, respectively,
for the year ended Aug. 31, 2009. Realized gains and losses are determined on an
identified cost basis.
* This purchase amount is excluded for purposes of calculating the Fund's
portfolio turnover rate.
6. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
YEAR ENDED AUG. 31, 2009 2008
- -------------------------------------------------------------------
CLASS A
Sold 177,639,922 71,856,624
Converted from Class B shares* 12,026,422 8,471,695
Fund merger 1,176,850 10,921,606
Reinvested distributions 16,887,199 14,809,220
Redeemed (115,359,046) (95,553,562)
- -------------------------------------------------------------------
Net increase (decrease) 92,371,347 10,505,583
- -------------------------------------------------------------------
CLASS B
Sold 15,511,457 16,633,194
Fund merger 284,690 2,743,904
Reinvested distributions 1,862,327 2,076,386
Converted to Class A shares* (12,026,422) (8,471,695)
Redeemed (20,110,399) (21,310,095)
- -------------------------------------------------------------------
Net increase (decrease) (14,478,347) (8,328,306)
- -------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 69
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
<Table>
<Caption>
YEAR ENDED AUG. 31, 2009 2008
- -------------------------------------------------------------------
CLASS C
Sold 5,598,507 4,270,266
Fund merger 643,818 260,158
Reinvested distributions 276,438 156,349
Redeemed (2,261,573) (1,369,182)
- -------------------------------------------------------------------
Net increase (decrease) 4,257,190 3,317,591
- -------------------------------------------------------------------
CLASS I
Sold 62,793,894 40,548,778
Fund merger -- 52,110,117
Reinvested distributions 6,933,962 4,637,299
Redeemed (53,308,213) (28,465,148)
- -------------------------------------------------------------------
Net increase (decrease) 16,419,643 68,831,046
- -------------------------------------------------------------------
CLASS R2
Sold 26,201 --
Fund merger 32,051 1,027
Reinvested distributions 109 --
- -------------------------------------------------------------------
Net increase (decrease) 58,361 1,027
- -------------------------------------------------------------------
CLASS R3
Fund merger -- 1,027
- -------------------------------------------------------------------
Net increase (decrease) -- 1,027
- -------------------------------------------------------------------
CLASS R4
Sold 5,947,185 6,464,647
Fund merger -- 2,309
Reinvested distributions 712,141 736,110
Redeemed (7,634,086) (7,142,397)
- -------------------------------------------------------------------
Net increase (decrease) (974,760) 60,669
- -------------------------------------------------------------------
CLASS R5
Fund merger 60,341 1,027
- -------------------------------------------------------------------
Net increase (decrease) 60,341 1,027
- -------------------------------------------------------------------
CLASS W
Sold 44,273,622 110,115,534
Fund merger -- 1,020
Reinvested distributions 5,831,507 3,800,802
Redeemed (69,416,918) (19,306,233)
- -------------------------------------------------------------------
Net increase (decrease) (19,311,789) 94,611,123
- -------------------------------------------------------------------
</Table>
* Automatic conversion of Class B shares to Class A shares based on the
original purchase.
- --------------------------------------------------------------------------------
70 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
7. LENDING OF PORTFOLIO SECURITIES
Effective Dec. 1, 2008, the Fund has entered into a Master Securities Lending
Agreement (the Agreement) with JPMorgan Chase Bank, National Association
(JPMorgan). The Agreement authorizes JPMorgan as lending agent to lend
securities to authorized borrowers in order to generate additional income on
behalf of the Fund. Pursuant to the Agreement, the securities loaned are secured
by cash or U.S. government securities equal to at least 100% of the market value
of the loaned securities. Any additional collateral required to maintain those
levels due to market fluctuations of the loaned securities is delivered the
following business day. Cash collateral received is invested by the lending
agent on behalf of the Fund into authorized investments pursuant to the
Agreement. The investments made with the cash collateral are listed in the
Portfolio of Investments. The values of such investments and any uninvested cash
collateral balance are disclosed in the Statement of Assets and Liabilities
along with the related obligation to return the collateral upon the return of
the securities loaned. At Aug. 31, 2009, securities valued at $466,722,174 were
on loan, secured by U.S. government securities valued at $55,609,277 and by cash
collateral of $418,626,283 invested in short-term securities or in cash
equivalents.
Risks of delay in recovery of securities or even loss of rights in the
securities may occur should the borrower of the securities fail financially.
Risks may also arise to the extent that the value of the securities loaned
increases above the value of the collateral received. JPMorgan will indemnify
the Fund from losses resulting from a borrower's failure to return a loaned
security when due. Such indemnification does not extend to losses associated
with declines in the value of cash collateral investments. Loans are subject to
termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments.
Pursuant to the Agreement, the Fund receives income for lending its securities
either in the form of fees or by earning interest on invested cash collateral,
net of negotiated rebates paid to borrowers and fees paid to the lending agent
for services provided and any other securities lending expenses. Income of
$1,122,505 earned from securities lending from Dec. 1, 2008 through Aug. 31,
2009 is included in the Statement of Operations. The Fund also continues to earn
interest and dividends on the securities loaned.
Prior to Dec. 1, 2008, the Investment Manager served as securities lending agent
for the Fund under the Securities Lending Agency Agreement pursuant to which the
Fund agreed to reimburse the Investment Manager for expenses incurred by it in
connection with the lending program. Expenses paid to the Investment Manager as
securities lending agent were $1,161 through Nov. 30, 2008 and are included in
other expenses in the Statement of Operations. Cash collateral
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 71
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
received on loaned securities had been invested in an affiliated money market
fund. Income of $4,493 earned from securities lending from Sept. 1, 2008 through
Nov. 30, 2008 is included in the Statement of Operations.
8. 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 funds in the
RiverSource Family of Funds and other institutional clients of RiverSource
Investments. The cost of the Fund's purchases and proceeds from sales of shares
of RiverSource Short-Term Cash Fund aggregated $2,377,133,517 and
$1,934,972,211, respectively, for the year ended Aug. 31, 2009. The income
distributions received with respect to the Fund's investment in RiverSource
Short-Term Cash Fund can be found in the Statement of Operations and the Fund's
invested balance in RiverSource Short-Term Cash Fund at Aug. 31, 2009, can be
found in the Portfolio of Investments.
9. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund
may borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility became effective on Oct.
16, 2008, replacing a prior credit facility. The credit facility agreement,
which is a collective agreement between the Fund and certain other funds in the
RiverSource Family of Funds, severally and not jointly, permits collective
borrowings up to $475 million. The borrowers shall have the right, upon written
notice to the Administrative Agent to request an increase of up to $175 million
in the aggregate amount of the credit facility from new or existing lenders,
provided that the aggregate amount of the credit facility shall at no time
exceed $650 million. Participation in such increase by any existing lender shall
be at such lender's sole discretion. Interest is charged to each Fund based on
its borrowings at a rate equal to the federal funds rate plus 0.75%. Each
borrowing under the credit facility matures no later than 60 days after the date
of borrowing. The Fund also pays a commitment fee equal to its pro rata share of
the amount of the credit facility at a rate of 0.06% per annum, in addition to
an upfront fee equal to its pro rata share of 0.02% of the amount of the credit
facility. The Fund had no borrowings during the year ended Aug. 31, 2009.
Under the prior credit facility which was effective until Oct. 15, 2008, the
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A., whereby the Fund was permitted to borrow
for the temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The credit facility agreement, which was a collective
- --------------------------------------------------------------------------------
72 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permitted collective borrowings up to $500 million. Interest was
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matured no later
than 60 days after the date of borrowing. The Fund also paid a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum.
10. FUND MERGERS
At the close of business on Aug. 28, 2009, RiverSource Diversified Bond Fund
acquired the assets and assumed the identified liabilities of Seligman Core
Fixed Income Fund. The reorganization was completed after shareholders approved
the plan on June 2, 2009.
The aggregate net assets of RiverSource Diversified Bond Fund immediately before
the acquisition were $4,064,386,305 and the combined net assets immediately
after the acquisition were $4,074,808,638.
The merger was accomplished by a tax-free exchange of 1,510,167 shares of
Seligman Core Fixed Income Fund valued at $10,422,333.
In exchange for the Seligman Core Fixed Income Fund shares and net assets,
RiverSource Diversified Bond Fund issued the following number of shares:
<Table>
<Caption>
SHARES
- ------------------------------------------------------------
Class A.......................................... 1,176,850
Class B.......................................... 284,690
Class C.......................................... 643,818
Class R2*........................................ 32,051
Class R5*........................................ 60,341
</Table>
* Effective Aug. 29, 2009, Class R and Class I shares were redesignated as
Class R2 and Class R5 shares, respectively.
The components of Seligman Core Fixed Income Fund's net assets after adjustments
for any permanent book-to-tax differences at the merger date were as follows:
<Table>
<Caption>
EXCESS OF
DISTRIBUTIONS OVER
TOTAL CAPITAL UNREALIZED ACCUMULATED NET NET INVESTMENT
NET ASSETS STOCK DEPRECIATION REALIZED LOSS INCOME
- -----------------------------------------------------------------------------------------------
Seligman Core
Fixed Income
Fund............ $10,422,333 $12,500,877 $(451,697) $(1,618,941) $(7,906)
</Table>
At the close of business on March 14, 2008, RiverSource Diversified Bond Fund
acquired the assets and assumed the identified liabilities of RiverSource Core
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 73
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
Bond Fund. The reorganization was completed after shareholders approved the plan
on Jan. 29, 2008.
The aggregate net assets of RiverSource Diversified Bond Fund immediately before
the acquisition were $3,162,732,908 and the combined net assets immediately
after the acquisition were $3,479,595,851.
The merger was accomplished by a tax-free exchange of 33,460,754 shares of
RiverSource Core Bond Fund valued at $316,862,943.
In exchange for the RiverSource Core Bond Fund shares and net assets,
RiverSource Diversified Bond Fund issued the following number of shares:
<Table>
<Caption>
SHARES
- ------------------------------------------------------------
Class A......................................... 10,921,606
Class B......................................... 2,743,904
Class C......................................... 260,158
Class I......................................... 52,110,117
Class R2........................................ 1,027
Class R3........................................ 1,027
Class R4........................................ 2,309
Class R5........................................ 1,027
Class W......................................... 1,020
</Table>
The components of RiverSource Core Bond Fund's net assets after adjustments for
any permanent book-to-tax differences at the merger date were as follows:
<Table>
<Caption>
EXCESS OF
DISTRIBUTIONS OVER
TOTAL CAPITAL UNREALIZED ACCUMULATED NET NET INVESTMENT
NET ASSETS STOCK DEPRECIATION REALIZED LOSS INCOME
- --------------------------------------------------------------------------------------------------
RiverSource Core
Bond Fund........ $316,862,943 $322,093,199 $(3,350,834) $(1,764,611) $(114,811)
</Table>
11. FEDERAL TAX INFORMATION
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures and options
contracts, foreign currency transactions, recognition of unrealized appreciation
(depreciation) for certain derivative investments, post-October losses, market
discount and losses deferred due to wash sales. The character of distributions
made during the year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax purposes. Also, due
to the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains (losses)
were recorded by the Fund.
- --------------------------------------------------------------------------------
74 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
In the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, excess of distributions over net investment income has been
decreased by $1,241,736 and accumulated net realized loss has been decreased by
$55,005,835 resulting in a net reclassification adjustment to decrease paid-in
capital by $56,247,571.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED AUG. 31,
----------------------------------------------------------------------
2009 2008
---------------------------------- ----------------------------------
LONG-TERM CAPITAL LONG-TERM CAPITAL
ORDINARY INCOME GAIN ORDINARY INCOME GAIN
- -------------------------------------------------------------------------------------------
Class A............ $90,380,371 $-- $84,539,939 $--
Class B............ 9,169,639 -- 10,768,502 --
Class C............ 1,472,729 -- 828,277 --
Class I............ 31,440,870 -- 22,019,428 --
Class R2........... 1,352 -- 290 --
Class R3........... 427 -- 308 --
Class R4........... 3,205,438 -- 3,476,394 --
Class R5........... 1,163 -- 328 --
Class W............ 26,235,706 -- 18,133,130 --
</Table>
At Aug. 31, 2009, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income................... $ 1,208,037
Undistributed accumulated long-term gain........ $ --
Accumulated realized loss....................... $(248,546,506)
Unrealized appreciation (depreciation).......... $ 76,557,605
</Table>
For federal income tax purposes, the Fund had a capital loss carry-over of
$72,303,513 at Aug. 31, 2009 that if not offset by capital gains will expire as
follows:
<Table>
<Caption>
2010 2012 2013 2014 2017
$49,658,521 $5,227,159 $3,354,885 $10,357,129 $3,705,819
</Table>
Because the measurement periods for a regulated investment company's income are
different for excise tax purposes versus income tax purposes, special rules are
in place to protect the amount of earnings and profits needed to support excise
tax distributions. As a result, the Fund is permitted to treat net capital
losses realized between Nov. 1, 2008 and its fiscal year end (post-October loss)
as occurring on the first day of the following tax year. At Aug. 31, 2009, the
Fund had a post-October loss of $176,242,993 that is treated for income tax
purposes as occurring on Sept. 1, 2009.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 75
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
For the year ended Aug. 31, 2009, $56,247,571 of capital loss carry-over expired
unused. 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. There is no assurance that the Fund will be able to utilize
all of its capital loss carry-over before it expires.
12. SUBSEQUENT EVENTS
Management has evaluated Fund related events and transactions that occurred
during the period from the date of the Statement of Assets and Liabilities
through Oct. 21, 2009, the date of issuance of the Fund's financial statements.
There were no events or transactions that occurred during the period that
materially impacted the amounts or disclosures in the Fund's financial
statements.
13. 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 (now known as
RiverSource) mutual funds and they purport to bring the action derivatively on
behalf of those funds under the Investment Company Act of 1940. The plaintiffs
allege that fees allegedly paid to the defendants by the funds for investment
advisory and administrative services are excessive. The plaintiffs seek remedies
including restitution and rescission of investment advisory and distribution
agreements. The plaintiffs voluntarily agreed to transfer this case to the
United States District Court for the District of Minnesota. In response to
defendants' motion to dismiss the complaint, the Court dismissed one of
plaintiffs' four claims and granted plaintiffs limited discovery. Defendants
moved for summary judgment in April 2007. Summary judgment was granted in the
defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with
the Eighth Circuit Court of Appeals on August 8, 2007. On August 6, 2009,
defendants filed a writ of certiorari with the U.S. Supreme Court, asking the
U.S. Supreme Court to stay the District Court proceedings while the U.S. Supreme
Court considers and rules in a case captioned Jones v. Harris Associates, which
involves issues of law similar to those presented in the Gallus case.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was
- --------------------------------------------------------------------------------
76 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
censured and ordered to cease and desist from committing or causing any
violations of certain provisions of the Investment Advisers Act of 1940, the
Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to retain an independent distribution consultant to assist in developing
a plan for distribution of all disgorgement and civil penalties ordered by the
SEC in accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co. Incorporated (Seligman). In
late 2003, Seligman conducted an extensive internal review concerning mutual
fund trading practices. Seligman's review, which covered the period 2001-2003,
noted one arrangement that permitted frequent trading in certain open-end
registered investment companies managed by Seligman (the Seligman Funds); this
arrangement was in the process of being closed down by Seligman before September
2003. Seligman identified three other arrangements that permitted frequent
trading, all of which had been terminated by September 2002. In January 2004,
Seligman, on a voluntary basis, publicly disclosed these four arrangements to
its clients and to shareholders of the Seligman Funds. Seligman also provided
information concerning mutual fund trading practices to the SEC and the Office
of the Attorney General of the State of New York (NYAG).
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc. (now known as RiverSource Fund
Distributors), Seligman Data Corp. and Brian T. Zino (collectively, the Seligman
Parties), alleging, in substance, that the Seligman Parties permitted various
persons to engage in frequent trading and, as a result, the prospectus
disclosure used by the registered investment companies then managed by Seligman
was and had been misleading. The NYAG included other related claims and also
claimed that the fees charged by Seligman to the Seligman Funds were excessive.
On March 13, 2009, without admitting or denying any violations of law or
wrongdoing, the Seligman Parties entered into a stipulation of settlement with
the NYAG and settled the claims made by the NYAG. Under the terms of the
settlement, Seligman paid $11.3 million to four Seligman Funds. This settlement
resolved all outstanding matters between the Seligman Parties and the NYAG. In
addition to the foregoing matter, the New York staff of the SEC indicated in
September 2005 that it was considering recommending to the Commissioners of the
SEC the instituting of a formal
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 77
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
action against Seligman and Seligman Advisors, Inc. relating to frequent trading
in the Seligman Funds. Seligman responded to the staff in October 2005 that it
believed that any action would be both inappropriate and unnecessary, especially
in light of the fact that Seligman had previously resolved the underlying issue
with the Independent Directors of the Seligman Funds and made recompense to the
affected Seligman Funds. There have been no further developments with the SEC on
this matter.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts 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.
- --------------------------------------------------------------------------------
78 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE DIVERSIFIED BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource Diversified Bond Fund (the Fund) of
the RiverSource Diversified Income Series, Inc. as of August 31, 2009, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the three years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the Fund for the periods presented through August 31, 2006, were
audited by other auditors whose report dated October 20, 2006, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of August 31, 2009, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) ------------
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of RiverSource Diversified Bond Fund of the RiverSource Diversified
Income Series, Inc. at August 31, 2009, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 21, 2009
- --------------------------------------------------------------------------------
80 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
FEDERAL INCOME TAX INFORMATION -------------------------------------------------
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
Fiscal year ended Aug. 31, 2009
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals.................... 0.00%
Dividends Received Deduction for corporations................ 0.00%
U.S. Government Obligations.................................. 100.00%
</Table>
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 81
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board. The following is a list of the Fund's Board members.
The RiverSource Family of Funds that each Board member oversees consists of 132
funds, which includes 100 RiverSource funds and 32 Seligman funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the Board.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
Kathleen Blatz Board member since Chief Justice, Minnesota Supreme Court, 1998-2006; None
901 S. Marquette Ave. 2006 Attorney
Minneapolis, MN 55402
Age 55
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Family of Funds, 1999-2006; former None
901 S. Marquette Ave. 1999 Governor of Minnesota
Minneapolis, MN 55402
Age 75
- ------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None
901 S. Marquette Ave. 2007 Leadership (consulting company)
Minneapolis, MN 55402
Age 55
- ------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None
901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley University
Age 58
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Chair of the Board President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. since 2007, College Inc. (manufactures
Minneapolis, MN 55402 Board member since irrigation systems)
Age 70 2002
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
82 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
John F. Maher Board member since Retired President and Chief Executive Officer and None
901 S. Marquette Ave. 2008 former Director, Great Western Financial Corporation
Minneapolis, MN 55402 (financial services), 1986-1997
Age 66
- ------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None
901 S. Marquette Ave. 2004 real estate and asset management company)
Minneapolis, MN 55402
Age 57
- ------------------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Board member since Counsel, Lewis & Munday, P.C. since 1987; Vice Digital Ally, Inc.
901 S. Marquette Ave. 2008 President and General Counsel, Automotive Legal (digital imaging);
Minneapolis, MN 55402 Affairs, Chrysler Corporation, 1990-1997 Infinity, Inc. (oil
Age 68 and gas exploration
and production); OGE
Energy Corp. (energy
and energy services)
- ------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera
901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceuticals,
Minneapolis, MN 55402 Biotech Inc.
Age 65 (biotechnology);
Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 83
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
William F. Truscott Board member since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. since 2005;
Financial Center Vice President since President, Chairman of the Board and Chief Investment
Minneapolis, MN 55474 2002 Officer, RiverSource Investments, LLC since 2001;
Age 49 Director, President and Chief Executive Officer,
Ameriprise Certificate Company since 2006; Chairman of
the Board and Chief Executive Officer, RiverSource
Distributors, Inc. since 2006 and of RiverSource Fund
Distributors, Inc. since 2008; Senior Vice
President -- Chief Investment Officer, Ameriprise
Financial, Inc., 2001-2005
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments or Ameriprise Financial.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling the RiverSource Family of
Funds at 1(800) 221-2450; contacting your financial intermediary; or visiting
riversource.com/funds.
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management,
172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC
Center and Director and Vice President -- Asset Management,
Minneapolis, MN 55474 Products and Marketing, RiverSource Distributors, Inc.
Age 43 since 2006 and of RiverSource Fund Distributors, Inc.
since 2008; Managing Director and Global Head of
Product, Morgan Stanley Investment Management, 2004-
2006; President, Touchstone Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
84 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income,
172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments,
Center LLC since 2006; Vice President -- Investments,
Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice
Age 45 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Chief Administrative Officer, RiverSource Investments,
5228 Ameriprise Financial 2006 LLC since 2009; Vice President -- Asset Management and
Center Minneapolis, MN Trust Company Services, RiverSource Investments, LLC,
55474 2006-2009; Vice President -- Operations and Compliance,
Age 44 RiverSource Investments, LLC, 2004-2006; Director of
Product Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- --------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise
105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer,
Center RiverSource Distributors, Inc. since 2006 and of
Minneapolis, MN 55474 RiverSource Fund Distributors, Inc. since 2008
Age 54
- --------------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management,
5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel,
Center Secretary since 2006 RiverSource Distributors, Inc. and Chief Legal Officer
Minneapolis, MN 55474 and Assistant Secretary, RiverSource Investments, LLC
Age 50 since 2006; Chief Counsel, RiverSource Fund
Distributors, Inc. since 2008; Vice President, General
Counsel and Secretary, Ameriprise Certificate Company
since 2005; Vice President -- Asset Management
Compliance, Ameriprise Financial, Inc., 2004-2005;
Senior Vice President and Chief Compliance Officer,
USBancorp Asset Management, 2002-2004
- --------------------------------------------------------------------------------------------------------
Eleanor T.M. Hoagland Chief Compliance Chief Compliance Officer, RiverSource Investments, LLC,
100 Park Avenue Officer since 2009 Kenwood Capital Management LLC, Ameriprise Certificate
New York, NY 10010 Company and RiverSource Service Corporation since 2009;
Age 58 Chief Compliance Officer for each of the Seligman funds
since 2004; Anti-Money Laundering Prevention Officer
and Identity Theft Prevention Officer for each of the
Seligman funds since 2008; Managing Director, J. & W.
Seligman & Co. Incorporated and Vice-President for each
of the Seligman funds, 2004-2008
- --------------------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Vice President -- Compliance, Ameriprise Financial,
2934 Ameriprise Financial Prevention Officer Inc. since 2008; Anti-Money Laundering Officer,
Center since 2004 Ameriprise Financial, Inc. since 2004; Compliance
Minneapolis, MN 55474 Director, Ameriprise Financial, Inc., 2004-2008
Age 45
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 85
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the Fund. Under an investment
management services agreement (the "IMS Agreement"), RiverSource Investments
provides investment advice and other services to the Fund and all funds in the
RiverSource Family of Funds (collectively, the "Funds").
On an annual basis, the Fund's Board of Directors (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2009, including reports
based on data provided by independent organizations to assist the Board in
making this determination. In addition, throughout the year, the Board (or its
committees) reviews information prepared by RiverSource Investments addressing
the services RiverSource Investments provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts, Investment Review and Compliance Committees in determining whether to
continue the IMS Agreement. At the April 7-8, 2009 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the Fund's operations, most notably, the large
investment made in the acquisition of J. & W. Seligman & Co. Incorporated,
including its portfolio management operations, personnel and infrastructure
(including the addition of two new offices in New York City and Palo Alto).
Further, in connection with the Board's evaluation of the overall package of
services provided by RiverSource Investments, the Board considered the quality
of the administrative and transfer agency services provided by RiverSource
Investments' affiliates to the Fund. The Board also reviewed the financial
condition of RiverSource Investments (and its affiliates) and each entity's
ability
- --------------------------------------------------------------------------------
86 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
to carry out its responsibilities under the IMS Agreement. Further, the Board
considered RiverSource Investments' ability to retain key personnel and its
expectations in this regard. The Board also discussed the acceptability of the
terms of the IMS Agreement (including the relatively broad scope of services
required to be performed by RiverSource Investments). The Board concluded that
the services being performed under the IMS Agreement were of a reasonably high
quality, particularly in light of recent market conditions.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods, recent Fund inflows (and outflows) and
a comparison of the Fund's net assets from December 2007 to December 2008. The
Board observed that the Fund's investment performance was appropriate in light
of the particular management style and the exceptionally challenging market
conditions involved. Further, the Board noted that appropriate measures have
been taken to remove and add certain portfolio managers.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with the
Fund: The Board reviewed comparative fees and the costs of services to be
provided under the IMS Agreement. The Board members considered detailed
comparative information set forth in an annual report on fees and expenses,
including, among other things, data (prepared by an independent organization)
showing a comparison of the Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing the Fund's contribution to
RiverSource Investments' profitability. They also reviewed information in the
report comparing the fees charged to the Fund by RiverSource Investments to fees
charged to other client accounts (with similar investment strategies to those of
the Fund).
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 87
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio of each fund (excluding the effect of a performance incentive
adjustment, if applicable), with few exceptions, is at or below the median
expense ratio of funds in the same comparison group). The Board took into
account that the Fund's total expense ratio (after considering proposed expense
caps/waivers) approximated the peer group's median expense ratio.
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating the Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the Funds on portfolio transactions. The
Board noted that the fees paid by the Fund should permit the investment manager
to offer competitive compensation to its personnel, make necessary investments
in its business and earn an appropriate profit. The Board concluded that
profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 8, 2009, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement for an additional annual period.
- --------------------------------------------------------------------------------
88 RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling the RiverSource Family of Funds at 1(800) 221-2450; contacting your
financial intermediary; visiting riversource.com/funds; or searching the website
of the Securities and Exchange Commission (SEC) at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio
securities is filed with the SEC by August 31 for the most recent 12-month
period ending June 30 of that year, and is available without charge by visiting
riversource.com/funds; or searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2009 ANNUAL REPORT 89
RIVERSOURCE DIVERSIFIED BOND FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus. RiverSource(R) mutual funds are
distributed by RiverSource Fund Distributors, Inc., Member
FINRA, and managed by RiverSource Investments, LLC.
RiverSource is part of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C)2009 RiverSource Investments, LLC. S-6495 AD (10/09)
</Table>
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Pamela G. Carlton, Jeffrey Laikind, John F. Maher and Anne
P. Jones, each qualify as audit committee financial experts.
Item 4. Principal Accountant Fees and Services
Fund - Related Fees
(a) Audit Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for
professional services rendered for the audit of the annual financial
statements for RiverSource Diversified Income Series, Inc. were as follows:
2009 - $26,431 2008 - $26,125
(b) Audit-Related Fees. The fees for the year ended Aug. 31, to Ernst & Young
LLP for additional audit-related services rendered for RiverSource
Diversified Income Series, Inc. were as follows:
2009 - $375 2008 - $375
(c) Tax Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for tax
compliance related services rendered for RiverSource Diversified Income
Series, Inc. were as follows:
2009 - $4,257 2008 - $3,498
(d) All Other Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP
for additional professional services rendered for RiverSource Diversified
Income Series, Inc. were as follows:
2009 - $0 2008 - $0
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by Ernst & Young
LLP for the registrant and to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant must be
pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above during
2009 and 2008 were pre-approved by the audit committee.
(f) Not applicable.
(g) Non-Audit Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP
by the registrant for non-audit fees and by the registrant's investment
adviser, and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant were as
follows:
2009 - $827,118 2008 - $617,073
(h) 100% of the services performed in item (g) above during 2009 and 2008 were
pre-approved by the Ameriprise Financial Audit Committee and/or the
RiverSource Mutual Funds Audit Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. Investments.
(a) The complete schedule of investments is included in Item 1 of this
Form N-CSR.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing date
of this Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal executive
officer and principal financial officer, as required by Section 302 of
the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Diversified Income Series, Inc.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date November 4, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date November 4, 2009
By /s/ Jeffrey P. Fox
----------------------------------
Jeffrey P. Fox
Treasurer and Principal
Financial Officer
Date November 4, 2009