UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-2503
RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-1947
Date of fiscal year end: 8/31
Date of reporting period: 8/31
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE(R)
DIVERSIFIED BOND FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
AUGUST 31, 2007
(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.
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.
TABLE OF CONTENTS
<Table>
Fund Snapshot....................... 3
Performance Summary................. 5
Questions & Answers
with Portfolio Management........ 8
The Fund's Long-term Performance ... 12
Fund Expenses Example............... 14
Investments in Securities........... 17
Financial Statements................ 36
Notes to Financial Statements....... 42
Report of Independent Registered
Public Accounting Firm........... 69
Federal Income Tax Information...... 70
Board Members and Officers.......... 75
Approval of Investment Management
Services Agreement............... 79
Proxy Voting........................ 81
Change in Independent Registered
Public Accounting Firm........... 82
</Table>
(DALBAR LOGO)
The RiverSource mutual fund
shareholder reports have been
awarded the Communications Seal
from Dalbar Inc., an independent
financial services research firm.
The Seal recognizes communications
demonstrating a level of
excellence in the industry.
- --------------------------------------------------------------------------------
2 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
FUND SNAPSHOT AT AUG. 31, 2007
FUND OBJECTIVE
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.
SECTOR BREAKDOWN
Percentage of portfolio assets
(PIE CHART)
<Table>
Mortgage-Backed 45.0%
Corporate Bonds(1) 22.8%
U.S. Government Obligations & Agencies 16.7%
Commercial Mortgage-Backed 11.8%
Asset-Backed 2.3%
Cash & Cash Equivalents(2) 1.4%
</Table>
(1) Includes Telecommunications 5.6%, Financials 4.9%, Utilities 3.4%, Consumer
Discretionary 2.9%, Consumer Staples 2.4%, Health Care 1.3%, Energy 0.9%,
Materials 0.9% and Industrials 0.5%.
(2) Due to security lending activity.
QUALITY BREAKDOWN
Percentage of bond portfolio assets
(PIE CHART)
<Table>
AAA Bonds 75.8%
BBB Bonds 12.3%
Non-Investment Grade Bonds 6.1%
A Bonds 4.2%
AA Bonds 1.6%
Non-Rated Bonds 0.0%
</Table>
Bond ratings apply to underlying holdings of the Fund and not the Fund itself.
Whenever possible, the Standard and Poor's rating is used to determine the
credit quality of a security. Standard and Poor's rates the creditworthiness of
corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest).
Ratings from AA to CCC may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories. If
Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating. Ratings
for 0.2% of the bond portfolio assets were determined through internal analysis.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is usually more pronounced for longer-term securities. Non-investment grade
securities, commonly called "high-yield" or "junk" bonds, generally have more
volatile prices and carry more risk to principal and income than investment
grade securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 3
FUND SNAPSHOT AT AUG. 31, 2007
STYLE MATRIX
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
X MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund generally
invests.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO MANAGERS
<Table>
<Caption>
YEARS IN INDUSTRY
Jamie Jackson, CFA 19
Scott Kirby 28
Tom Murphy, CFA 21
Nicholas Pifer, CFA 17
Jennifer Ponce de Leon 18
</Table>
FUND FACTS
<Table>
<Caption>
TICKER SYMBOL INCEPTION DATE
Class A INBNX 10/03/74
Class B ININX 03/20/95
Class C AXBCX 06/26/00
Class I RDBIX 03/04/04
Class R2 -- 12/11/06
Class R3 RSDBX 12/11/06
Class R4(1) IDBYX 03/20/95
Class R5 RSVBX 12/11/06
Class W RVBWX 12/01/06
(1) Effective Dec. 11, 2006, Class Y was renamed Class
R4.
Total net assets $2.944 billion
Number of holdings 492
Weighted average life(2) 7.72 years
Effective duration(3) 4.43 years
Weighted average bond rating(4) AA
</Table>
(2) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(3) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(4) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
- --------------------------------------------------------------------------------
4 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
PERFORMANCE SUMMARY
PERFORMANCE COMPARISON
For the year ended Aug. 31, 2007
(BAR CHART)
<Table>
RiverSource Diversified Bond fund Class A
(excluding sales charges) +5.54
Lehman Brothers Aggregate Bond Index (unmanaged) +5.26
Lipper Intermediate Investment Grade Index +4.44
</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 institution or
visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
<Table>
<Caption>
TOTAL NET EXPENSES(A)
Class A 0.97% 0.89%
Class B 1.73% 1.65%
Class C 1.73% 1.65%
Class I 0.56% 0.53%
Class R2(b) 1.36% 1.33%
Class R3(b) 1.11% 1.08%
Class R4(c) 0.86% 0.77%
Class R5(b) 0.61% 0.58%
Class W(d) 1.01% 0.98%
</Table>
(a) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until Aug. 31, 2008,
unless sooner terminated at the discretion of the Fund's Board. Any amounts
waived will not be reimbursed by the Fund. Under this agreement, net fund
expenses will not exceed 0.89% for Class A, 1.65% for Class B, 1.65% for
Class C, 0.53% for Class I, 1.33% for Class R2, 1.08% for Class R3, 0.77%
for Class R4, 0.58% for Class R5 and 0.98% for Class W.
(b) Inception date for Class R2, Class R3 and Class R5 was Dec. 11, 2006.
(c) Effective Dec. 11, 2006, Class Y was renamed Class R4.
(d) Inception date for Class W is Dec. 1, 2006.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 5
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
AT AUG. 31, 2007
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
Class A (inception 10/3/74) +5.54% +3.84% +4.39% +4.81% +9.07%
Class B (inception 3/20/95) +4.74% +2.99% +3.61% +4.02% +5.26%
Class C (inception 6/26/00) +4.73% +2.98% +3.60% N/A +4.49%
Class I (inception 3/4/04) +5.90% +4.20% N/A N/A +4.02%
Class R2 (inception 12/11/06) N/A N/A N/A N/A +2.70%*
Class R3 (inception 12/11/06) N/A N/A N/A N/A +2.90%*
Class R4** (inception 3/20/95) +5.49% +3.87% +4.52% +4.94% +6.20%
Class R5 (inception 12/11/06) N/A N/A N/A N/A +3.25%*
Class W (inception 12/01/06) N/A N/A N/A N/A +2.71%*
WITH SALES CHARGE
Class A (inception 10/3/74) +0.52% +2.17% +3.38% +4.30% +8.91%
Class B (inception 3/20/95) -0.26% +1.74% +3.26% +4.02% +5.26%
Class C (inception 6/26/00) +3.73% +2.98% +3.60% N/A +4.49%
</Table>
- --------------------------------------------------------------------------------
6 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
PERFORMANCE SUMMARY
<Table>
<Caption>
AT SEPT. 30, 2007
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
Class A (inception 10/3/74) +5.73% +4.00% +4.42% +4.74% +9.08%
Class B (inception 3/20/95) +4.94% +3.22% +3.63% +3.95% +5.30%
Class C (inception 6/26/00) +4.93% +3.14% +3.62% N/A +4.57%
Class I (inception 3/4/04) +6.10% +4.43% N/A N/A +4.21%
Class R2 (inception 12/11/06) N/A N/A N/A N/A +3.67%*
Class R3 (inception 12/11/06) N/A N/A N/A N/A +3.90%*
Class R4** (inception 3/20/95) +5.69% +4.10% +4.54% +4.87% +6.24%
Class R5 (inception 12/11/06) N/A N/A N/A N/A +4.29%*
Class W (inception 12/01/06) N/A N/A N/A N/A +3.71%*
WITH SALES CHARGE
Class A (inception 10/3/74) +0.71% +2.33% +3.40% +4.23% +8.92%
Class B (inception 3/20/95) -0.06% +1.97% +3.28% +3.95% +5.30%
Class C (inception 6/26/00) +3.93% +3.14% +3.62% N/A +4.57%
</Table>
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I, Class R2, Class R3, Class R4, Class R5 and Class W shares.
Class I, Class R2, Class R3, Class R4 and Class R5 are available to
institutional investors only. Class W shares are offered through qualifying
discretionary accounts.
* Not annualized.
** Effective Dec. 11, 2006, Class Y was renamed Class R4.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 7
QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT
Below, the portfolio management team for RiverSource Diversified Bond Fund
discusses the Fund's results and positioning for the 12 months ended Aug. 31,
2007.
Q: How did RiverSource Diversified Bond Fund perform for the annual period?
A: RiverSource Diversified Bond Fund's Class A shares (excluding sales charge)
returned 5.54% for the 12 months ended Aug. 31, 2007. The Fund outperformed
its benchmark, the unmanaged Lehman Brothers Aggregate Bond Index (Lehman
Index), which gained 5.26%. The Fund also outperformed its peer group, as
represented by the Lipper Intermediate Investment Grade Index, which returned
4.44% during the same period.
Q: What factors most significantly affected the Fund's performance?
A: The Fund outperformed its benchmark and peer group due primarily to
effective issue selection within mortgage-backed securities, investment grade
corporate bonds and U.S. agency securities. Strategic duration positioning
also contributed positively to the Fund's results, especially in early 2007
when its shorter duration than the Lehman Index enabled the Fund to take
advantage of rising interest rates. Duration is a measure of the Fund's
sensitivity to interest rate changes.
Fixed income market returns, in general, were bolstered by a decline in
interest rates across the yield curve, or range of maturities, during the
last three months of the period. The boost to the fixed income market was
partially offset by the lagging performance of non-Treasury securities, as
investors became increasingly risk averse given their concerns about subprime
mortgage loan losses and signs of a less favorable economic environment for
businesses. All told, the yield on the 10-year U.S. Treasury declined
approximately 19 points (0.19%) over the 12 months. Shorter maturity
Treasuries fell even more; longer maturity Treasuries fell slightly less.
THE FUND OUTPERFORMED ITS BENCHMARK AND PEER GROUP DUE PRIMARILY TO
EFFECTIVE ISSUE SELECTION WITHIN MORTGAGE-BACKED SECURITIES, INVESTMENT
GRADE CORPORATE BONDS AND U.S. AGENCY SECURITIES.
- --------------------------------------------------------------------------------
8 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
QUESTIONS & ANSWERS
Given investors' reduced appetite for risk as the period progressed, the
Fund's significant allocations to mortgage-backed securities and commercial
mortgage-backed securities (CMBS) hurt its performance, as these sectors --
regardless of the quality of the individual securities' underlying mortgage
loans -- suffered from subprime mortgage fears and underperformed the broader
fixed income market. Similarly, an exposure to high yield corporate bonds,
including bank loans, detracted from the Fund's results. Having posted
positive returns earlier in the fiscal year, this sector slipped
significantly during the last three months of the period.
Q: What changes did you make to the Fund's portfolio during the period?
A: As indicated above, we strategically adjusted the Fund's duration positioning
during the period, shifting between a neutral-to-the-Lehman Index and a
shorter-than-the-Lehman Index stance as interest rates moved within a wide
range during the 12 months. The Fund ended the period with a shorter duration
than the Lehman Index.
We increased the Fund's allocations to mortgage-backed securities, CMBS and
agency securities during the fiscal year. We also added to the Fund's
exposure to high yield corporate bonds, particularly bank loans. Although
this exposure detracted from the Fund's results during the period, we expect
such positioning to ultimately prove prudent as the markets calm and the
strong underlying economic and credit fundamentals prevail over near-term
uncertainties. The Fund's portfolio turnover rate for the annual period was
295%.*
* A significant portion of the turnover was the result of "roll" transactions in
the liquid derivatives and Treasury securities. In derivative transactions,
positions in expiring contracts are liquidated and simultaneously replaced
with positions in new contracts with equivalent characteristics. In 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 transaction costs. The remaining turnover resulted from strategic
reallocations and relative value trading. We expect this activity to enhance
the returns of the Fund.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 9
QUESTIONS & ANSWERS
WE ALSO BELIEVE INTEREST RATES ARE LIKELY TO RISE SOMEWHAT OVER THE NEXT
SEVERAL QUARTERS, INCREASING TO LEVELS SEEN EARLIER IN 2007.
Q: What is the Fund's tactical view and strategy for the months ahead?
A: The lagging performance by non-Treasury sectors toward the end of the period
has led, in our view, to compelling potential value in a number of these
sectors, especially given our belief that recent concerns over liquidity and
financial market stability may subside over the near term. We also believe
interest rates are likely to rise somewhat over the next several quarters,
increasing to levels seen earlier in 2007. Following this move, we expect
that interest rates may re-settle during 2008, with the yield on the 10-year
U.S. Treasury ranging between 4.75% and 5.25%.
Given this view, we intend to maintain the Fund's comparatively shorter
duration stance for the near term. We also intend to increase the Fund's
exposure to non-Treasury sectors, as their spreads -- or the difference in
yields between these sectors and equivalent-duration U.S. Treasuries -- have
widened to offer more attractive yield compensation than U.S. Treasuries. We
expect to increase the Fund's allocations to CMBS, mortgage-backed
securities, agency securities, high yield corporate bonds and bank loans. As
always, we will maintain a disciplined focus on individual security
selection.
Of course, given the volatility of the current fixed income market, we will
continue to closely monitor Fed policy shifts, economic data releases,
supply/demand factors and interest rate movements, and adjust the portfolio's
holdings and duration stance if necessary.
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource Fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource Fund.
- --------------------------------------------------------------------------------
10 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 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 9/1/97 to
8/31/07) as compared to the performance of two widely cited performance indices,
the Lehman Brothers Aggregate Bond Index and the Lipper Intermediate Investment
Grade Index. In comparing the Fund's Class A shares to these indices, you should
take into account the fact that the Fund's performance reflects the maximum
sales charge of 4.75%, while such charges are not reflected in the performance
of the indices. Returns for the Fund include the reinvestment of any
distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The 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 institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
<Table>
<Caption>
SINCE
Results at Aug. 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(3)
RIVERSOURCE DIVERSIFIED BOND FUND (INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $10,052 $10,665 $11,808 $15,233 $165,915
Average annual total return +0.52% +2.17% +3.38% +4.30% +8.91%
LEHMAN BROTHERS AGGREGATE BOND INDEX(1)
Cumulative value of $10,000 $10,526 $11,152 $12,349 $17,982 N/A
Average annual total return +5.26% +3.70% +4.31% +6.04% N/A
LIPPER INTERMEDIATE INVESTMENT GRADE INDEX(2)
Cumulative value of $10,000 $10,444 $11,078 $12,390 $17,267 N/A
Average annual total return +4.44% +3.47% +4.38% +5.61% N/A
</Table>
Results for other share classes can be found on page 6.
- --------------------------------------------------------------------------------
12 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE DIVERSIFIED BOND FUND
LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE DIVERSIFIED
BOND FUND CLASS A LEHMAN BROTHERS AGGREGATE LIPPER INTERMEDIATE
(INCLUDES SALES CHARGE) BOND INDEX(1) INVESTMENT GRADE INDEX(2)
----------------------- ------------------------- -------------------------
'97 $ 9,525 $10,000 $10,000
'98 10,135 11,057 10,950
'99 10,303 11,145 10,998
'00 10,784 11,988 11,722
'01 11,914 13,469 13,165
'02 12,287 14,561 13,935
'03 12,890 15,196 14,685
'04 13,604 16,127 15,586
'05 14,200 16,797 16,269
'06 14,433 17,084 16,533
'07 15,233 17,982 17,267
</Table>
(1) The Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of
a representative list of government, corporate, asset-backed and
mortgage-backed securities. The index is frequently used as a general
measure of bond market performance. The index reflects reinvestment of all
distributions and changes in market prices.
(2) The Lipper Intermediate Investment Grade Index includes the 30 largest
investment grade funds tracked by Lipper Inc. The index's returns include
net reinvested dividends.
(3) Fund data is from Oct. 3, 1974. The Fund began operating before the
inception of the Lehman Brothers Aggregate Bond Index and Lipper peer
group.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 13
FUND EXPENSES EXAMPLE
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the acquired funds expense ratio as of the most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Aug. 31, 2007.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
14 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2007 AUG. 31, 2007 THE PERIOD(A) EXPENSE RATIO
Class A
Actual(b) $1,000 $1,007.80 $4.50(c) .89%
Hypothetical $1,000 $1,020.72 $4.53(c) .89%
(5% return before
expenses)
Class B
Actual(b) $1,000 $1,003.90 $8.33(c) 1.65%
Hypothetical $1,000 $1,016.89 $8.39(c) 1.65%
(5% return before
expenses)
Class C
Actual(b) $1,000 $1,003.90 $8.28(c) 1.64%
Hypothetical $1,000 $1,016.94 $8.34(c) 1.64%
(5% return before
expenses)
Class I
Actual(b) $1,000 $1,011.60 $2.74(c) .54%
Hypothetical $1,000 $1,022.48 $2.75(c) .54%
(5% return before
expenses)
Class R2
Actual(b) $1,000 $1,005.40 $6.67(c) 1.32%
Hypothetical $1,000 $1,018.55 $6.72(c) 1.32%
(5% return before
expenses)
Class R3
Actual(b) $1,000 $1,006.90 $5.36(c) 1.06%
Hypothetical $1,000 $1,019.86 $5.40(c) 1.06%
(5% return before
expenses)
Class R4*
Actual(b) $1,000 $1,008.50 $3.70(c) .73%
Hypothetical $1,000 $1,021.53 $3.72(c) .73%
(5% return before
expenses)
Class R5
Actual(b) $1,000 $1,009.30 $2.89(c) .57%
Hypothetical $1,000 $1,022.33 $2.91(c) .57%
(5% return before
expenses)
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 15
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2007 AUG. 31, 2007 THE PERIOD(A) EXPENSE RATIO
Class W
Actual(b) $1,000 $1,007.00 $4.91(c) .97%
Hypothetical $1,000 $1,020.32 $4.94(c) .97%
(5% return before
expenses)
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2007: +0.78%
for Class A, +0.39% for Class B, +0.39% for Class C, +1.16% for Class I,
+0.54% for Class R2, +0.69% for Class R3, +0.85% for Class R4, +0.93% for
Class R5 and +0.70% for Class W.
(c) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until Aug. 31, 2008,
unless sooner terminated at the discretion of the Fund's Board, such that
net expenses (excluding fees and expenses of acquired funds), will not
exceed 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.53% for
Class I, 1.33% for Class R2, 1.08% for Class R3, 0.77% for Class R4, 0.58%
for Class R5 and 0.98% for Class W. Any amounts waived will not be
reimbursed by the Fund. This change was effective Sept. 1, 2007. If this
change had been in place for the entire six month period ended Aug. 31,
2007, the actual expenses paid would have been $8.33 for Class C, $2.69 for
Class I, $3.90 for Class R4, $2.94 for Class R5 and $4.96 for Class W; the
hypothetical expenses paid would have been $8.39 for Class C, $2.70 for
Class I, $3.92 for Class R4, $2.96 for Class R5 and $4.99 for Class W. The
actual and hypothetical expenses paid for Class A, Class B, Class R2 and
Class R3 would have been the same as those expenses presented in the table
above.
- --------------------------------------------------------------------------------
16 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
INVESTMENTS IN SECURITIES
AUG. 31, 2007
(Percentages represent value of investments compared to net assets)
<Table>
<Caption>
BONDS (105.1%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (18.3%)
Federal Farm Credit Bank
10-10-08 4.25% $13,285,000 $13,190,743
Federal Home Loan Bank
06-18-08 5.13 14,675,000 14,678,405
12-29-08 5.13 11,285,000 11,321,010
Federal Home Loan Mtge Corp
03-15-09 5.75 4,385,000 4,441,273
07-15-09 4.25 10,000,000 9,908,120
03-15-31 6.75 16,550,000 19,605,196
04-16-37 6.00 43,260,000 43,250,180
Federal Natl Mtge Assn
08-15-08 3.25 86,170,000 85,001,536
02-16-12 5.00 30,185,000 30,454,039
05-18-12 4.88 20,165,000 20,281,755
11-15-30 6.63 72,815,000 84,954,134
07-15-37 5.63 14,730,000 15,280,018
Overseas Private Investment
U.S. Govt Guaranty Series 1996A
09-15-08 6.99 1,666,667 1,695,183
U.S. Treasury
06-30-09 4.88 57,550,000(q) 58,228,917
07-31-09 4.63 6,565,000(q) 6,618,853
05-15-10 4.50 1,185,000 1,195,184
07-31-12 4.63 14,715,000 14,950,675
08-15-17 4.75 24,035,000 24,429,318
02-15-26 6.00 19,083,000 21,672,620
U.S. Treasury Inflation-Indexed Bond
01-15-14 2.00 57,785,913(s) 56,416,999
---------------
Total 537,574,158
- ----------------------------------------------------------------------------------
ASSET-BACKED (2.5%)
Capital Auto Receivables Asset Trust
Series 2004-1 Cl CTFS
09-15-10 2.84 4,200,000 4,194,593
Capital Auto Receivables Asset Trust
Series 2006-SN1A Cl D
04-20-11 6.15 2,500,000(d) 2,498,572
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
ASSET-BACKED (CONT.)
College Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-1 Cl AIO
07-25-08 5.62% $14,700,000(g) $1,259,262
Countrywide Asset-backed Ctfs
Series 2005-10 Cl AF6
02-25-36 4.92 1,865,000 1,744,449
Countrywide Asset-Backed Ctfs
Series 2006-15 Cl A3
10-25-46 5.69 5,175,000 5,057,717
Countrywide Asset-backed Ctfs
Series 2006-4 Cl 1A1M
07-25-36 5.77 2,268,423(i) 2,200,055
Countrywide Asset-backed Ctfs
Series 2007-7 Cl 2A2
10-25-37 5.67 8,500,000(i) 8,371,174
Dunkin Securitization
Series 2006-1 Cl A2 (AMBAC)
06-20-31 5.78 8,900,000(d,e) 8,957,591
Hertz Vehicle Financing LLC
Series 2004-1A Cl A3 (MBIA)
05-25-09 2.85 2,600,000(d,e) 2,572,811
Keycorp Student Loan Trust
Series 2003-A Cl 2A2 (MBIA)
10-25-25 5.67 967,830(e,i) 970,249
Master Asset Backed Securities Trust
Series 2006-HE1 Cl A2
01-25-36 5.65 8,400,000(i) 8,352,750
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-2 Cl AIO
08-25-11 5.89 8,875,000(g) 1,803,941
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-3 Cl AIO
01-25-12 5.88 13,900,000(g) 3,616,224
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 17
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
ASSET-BACKED (CONT.)
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-4 Cl AIO
02-27-12 5.88% $11,700,000(g) $2,881,359
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-2 Cl AIO
07-25-12 5.90 6,250,000(g) 1,759,000
Popular ABS Mtge Pass-Through Trust
Series 2005-A Cl AF2
06-25-35 4.49 117,301 116,823
Renaissance Home Equity Loan Trust
Series 2005-4 Cl A3
02-25-36 5.57 4,670,000 4,613,540
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M4
06-25-37 6.31 1,380,000 1,026,902
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M5
06-25-37 6.66 900,000 674,645
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M6
06-25-37 7.01 1,320,000 967,365
Residential Asset Securities
Series 2006-KS1 Cl A2
02-25-36 5.65 7,225,000(i) 7,148,234
SBA CMBS Trust
Series 2006-1A Cl B
11-15-36 5.45 4,075,000(d) 4,094,103
WFS Financial Owner Trust
Series 2004-1 Cl D
08-22-11 3.17 19,940 19,912
---------------
Total 74,901,271
- ----------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (13.0%)(f)
Banc of America Commercial Mtge
Series 2005-1 Cl A4
11-10-42 5.02 4,850,000 4,789,819
Banc of America Commercial Mtge
Series 2007-1 Cl A3
01-15-49 5.45 5,825,000 5,694,820
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
COMMERCIAL MORTGAGE-BACKED (CONT.)
Bear Stearns Commercial Mtge Securities
Series 2003-T10 Cl A1
03-13-40 4.00% $1,983,533 $1,921,310
Bear Stearns Commercial Mtge Securities
Series 2007-T26 Cl A4
01-12-45 5.47 5,950,000 5,794,765
CDC Commercial Mtge Trust
Series 2002-FX1 Cl A2
11-15-30 5.68 11,775,000 11,863,109
Citigroup Commercial Mtge Trust
Series 2005-EMG Cl A1
09-20-51 4.15 3,487,857(d) 3,443,896
Citigroup Commercial Mtge Trust
Series 2006-C5 Cl A4
10-15-49 5.43 2,850,000 2,783,126
Citigroup Commercial Mtge Trust
Series 2007-C6 Cl A4
12-10-49 5.89 11,550,000 11,549,555
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2005-CD1 Cl ASB
07-15-44 5.40 3,050,000 3,011,088
Commercial Mtge Acceptance
Series 1999-C1 Cl A2
06-15-31 7.03 8,567,660 8,723,709
Commercial Mtge Pass-Through Ctfs
Series 2006-CN2A Cl BFL
02-05-19 5.64 2,550,000(d,i) 2,557,051
Commercial Mtge Pass-Through Ctfs
Series 2007-C9 Cl A4
12-10-49 6.01 12,600,000 12,738,881
Commercial Mtge Pass-Through Ctfs
Series 2007-FL14 Cl MKL1
06-15-22 6.30 9,850,000(d,i) 9,800,750
Credit Suisse Mtge Capital Ctfs
Series 2006-C2 Cl A3
03-15-39 5.85 5,025,000 5,045,327
Credit Suisse Mtge Capital Ctfs
Series 2007-C3 Cl A4
06-15-39 5.91 5,750,000 5,767,253
CS First Boston Mtge Securities
Series 2001-CP4 Cl A4
12-15-35 6.18 7,400,000 7,541,743
CS First Boston Mtge Securities
Series 2003-CPN1 Cl A2
03-15-35 4.60 3,525,000 3,371,172
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
18 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
COMMERCIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #385683
02-01-13 4.83% $6,116,277 $6,022,463
Federal Natl Mtge Assn #385815
01-01-13 4.77 7,011,956 6,856,249
Federal Natl Mtge Assn #555806
10-01-13 5.26 471,690 465,686
General Electric Capital Assurance
Series 2003-1 Cl A3
05-12-35 4.77 10,350,000(d) 10,225,021
GMAC Commercial Mtge Securities
Series 1999-C1 Cl B
05-15-33 6.30 8,000,000 8,067,490
Greenwich Capital Commercial Funding
Series 2004-GG1 Cl A5
06-10-36 4.88 3,400,000 3,348,659
Greenwich Capital Commercial Funding
Series 2007-GG9 Cl A4
03-10-39 5.44 16,350,000 16,027,140
GS Mtge Securities II
Series 2004-GG2 Cl A4
08-10-38 4.96 5,900,000 5,828,205
GS Mtge Securities II
Series 2007-EOP Cl J
03-06-20 6.18 8,400,000(d,i) 8,232,281
GS Mtge Securities II
Series 2007-GG10 Cl A4
08-10-45 5.99 11,900,000 11,989,255
GS Mtge Securities II
Series 2007-GG10 Cl F
08-10-45 5.99 4,425,000 4,377,653
JPMorgan Chase Commercial Mtge Securities
Series 2003-LN1 Cl A1
10-15-37 4.13 3,751,021 3,635,332
JPMorgan Chase Commercial Mtge Securities
Series 2003-ML1A Cl A1
03-12-39 3.97 3,562,855 3,475,363
JPMorgan Chase Commercial Mtge Securities
Series 2003-ML1A Cl A2
03-12-39 4.77 6,894,000 6,639,747
JPMorgan Chase Commercial Mtge Securities
Series 2004-CBX Cl A3
01-12-37 4.18 4,000,000 3,903,640
JPMorgan Chase Commercial Mtge Securities
Series 2004-LN2 Cl A1
07-15-41 4.48 8,570,883 8,348,315
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
COMMERCIAL MORTGAGE-BACKED (CONT.)
JPMorgan Chase Commercial Mtge Securities
Series 2005-LDP5 Cl A4
12-15-44 5.34% $5,200,000 $5,056,740
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP6 Cl A4
04-15-43 5.48 4,275,000 4,222,294
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP6 Cl ASB
04-15-43 5.49 6,475,000 6,431,032
JPMorgan Chase Commercial Mtge Securities
Series 2007-LDPX Cl A3
01-15-49 5.42 16,000,000 15,580,181
LB-UBS Commercial Mtge Trust
Series 2002-C4 Cl A4
09-15-26 4.56 7,000,000 6,836,054
LB-UBS Commercial Mtge Trust
Series 2002-C4 Cl A5
09-15-31 4.85 6,000,000 5,809,769
LB-UBS Commercial Mtge Trust
Series 2004-C2 Cl A3
03-15-29 3.97 4,475,000 4,259,663
LB-UBS Commercial Mtge Trust
Series 2005-C5 Cl AAB
09-15-30 4.93 7,325,000 7,193,077
LB-UBS Commercial Mtge Trust
Series 2006-C4 Cl AAB
06-15-32 6.06 4,125,000 4,194,353
LB-UBS Commercial Mtge Trust
Series 2006-C6 Cl A4
09-15-39 5.37 4,900,000 4,773,782
LB-UBS Commercial Mtge Trust
Series 2007-C1 Cl A4
02-15-40 5.42 4,875,000 4,756,949
LB-UBS Commercial Mtge Trust
Series 2007-C6 Cl A4
07-15-40 5.86 6,350,000 6,381,746
Morgan Stanley Capital I
Series 2003-T11 Cl A2
06-13-41 4.34 4,575,000 4,509,425
Morgan Stanley Capital I
Series 2004-HQ4 Cl A5
04-14-40 4.59 4,950,000 4,821,053
Morgan Stanley Capital I
Series 2006-T23 Cl AAB
08-12-41 5.97 3,425,000 3,472,257
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 19
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
COMMERCIAL MORTGAGE-BACKED (CONT.)
Morgan Stanley Capital I
Series 2007-IQ15 Cl A4
06-11-49 6.08% $5,600,000 $5,663,840
TIAA Retail Commercial Trust
Series 2007-C4 Cl A3
08-15-39 6.10 8,500,000(c) 8,535,241
Wachovia Bank Commercial Mtge Trust
Series 2003-C7 Cl A2
10-15-35 5.08 14,550,000(d) 14,160,801
Wachovia Bank Commercial Mtge Trust
Series 2005-C18 Cl A4
04-15-42 4.94 4,815,000 4,624,074
Wachovia Bank Commercial Mtge Trust
Series 2005-C20 Cl A5
07-15-42 5.09 4,667,000 4,574,808
Wachovia Bank Commercial Mtge Trust
Series 2006-C27 Cl A3
07-15-45 5.77 11,950,372 11,953,069
Wachovia Bank Commercial Mtge Trust
Series 2006-C27 Cl APB
07-15-45 5.73 5,075,000 5,034,875
Wachovia Bank Commercial Mtge Trust
Series 2006-C29 Cl A4
11-15-48 5.31 8,900,000 8,648,747
Wachovia Bank Commercial Mtge Trust
Series 2007-C31 Cl A4
04-15-47 5.51 17,350,000 16,998,308
---------------
Total 382,332,011
- ----------------------------------------------------------------------------------
MORTGAGE-BACKED (49.5%)(f,n)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2005-12 Cl 2A1
03-25-36 5.69 7,580,646(k) 7,581,474
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2006-1 Cl 2A1
03-25-36 5.94 8,634,712(k) 8,623,832
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-1 Cl 3A21
03-25-37 6.19 6,766,652(k) 6,840,918
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 1A1
01-25-34 6.00% $6,816,612 $6,691,868
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 4A1
01-25-19 4.75 3,729,443 3,583,764
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-3 Cl 1A1
04-25-34 6.00 8,654,252 8,589,345
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00 16,660,970 16,401,807
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-2 Cl N1
11-25-46 7.25 632,069(d) 595,725
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-A Cl 3A2
02-20-36 5.89 6,140,551(k) 6,139,507
Banc of America Mtge Securities
Collateralized Mtge Obligation
Series 2005-9 Cl 3A3
10-25-20 5.00 27,132,255 26,300,240
Bear Stearns Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2005-8 Cl A4
08-25-35 5.10 6,025,000(d,k) 5,756,163
Bear Stearns Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-5 Cl 3A1
08-25-47 6.00 13,600,000(k) 13,319,500
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50 2,001,690 2,023,585
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-8CB Cl A13
05-25-37 7.73 6,218,487(g) 1,050,738
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
20 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11T1 Cl A1
07-25-18 4.75% $3,818,061 $3,668,920
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-20CB Cl 1A1
10-25-33 5.50 14,928,280 14,371,375
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-54CB Cl 2A3
11-25-35 5.50 5,813,231 5,842,996
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-54CB Cl 3A7
11-25-35 5.50 5,890,080 5,920,217
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-64CB Cl 1A1
12-25-35 5.50 10,013,264 10,004,880
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 5,308,276 5,502,702
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-85CB Cl 2A2
02-25-36 5.50 2,708,330 2,699,051
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-22R Cl 1A2
05-25-36 6.00 7,988,368 8,029,342
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00 8,310,985 8,132,753
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-31CB Cl A16
11-25-36 6.00 10,000,000 10,095,600
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-43CB Cl 1A4
02-25-37 6.00 12,356,857 12,389,479
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
10-25-37 6.50% $20,000,000(j) $19,646,875
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 6.01 15,967,790(i) 14,637,770
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-27 Cl 2A1
12-25-35 5.50 13,361,552 12,862,689
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 6,574,642(d) 6,909,833
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.36 3,756,789(k) 3,753,784
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-17 Cl 2A1
10-25-37 6.50 18,000,000 17,907,188
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-HY3 Cl 4A1
06-25-47 6.00 10,335,386(k) 10,121,814
CS First Boston Mtge Securities
Collateralized Mtge Obligation
Series 2003-29 Cl 8A1
11-25-18 6.00 2,027,217 2,029,162
Downey Savings & Loan Assn Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR5 Cl X1
08-19-45 9.55 42,924,289(g) 382,294
Federal Home Loan Mtge Corp
09-01-37 6.50 61,000,000(j) 61,914,999
Federal Home Loan Mtge Corp #170216
03-01-17 8.50 7,682 8,171
Federal Home Loan Mtge Corp #1J1445
01-01-37 5.90 13,124,315(k) 13,200,534
Federal Home Loan Mtge Corp #284190
01-01-17 8.00 341 358
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 21
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #290970
04-01-17 8.00% $9,885 $10,344
Federal Home Loan Mtge Corp #295114
06-01-17 8.50 3,693 3,929
Federal Home Loan Mtge Corp #540861
09-01-19 8.50 33,499 35,747
Federal Home Loan Mtge Corp #A00304
04-01-21 9.00 46,970 50,357
Federal Home Loan Mtge Corp #A62544
06-01-37 6.00 8,106,420 8,100,509
Federal Home Loan Mtge Corp #B11835
01-01-19 5.50 502,437 500,613
Federal Home Loan Mtge Corp #C00103
03-01-22 8.50 122,079 130,795
Federal Home Loan Mtge Corp #C00144
08-01-22 8.50 111,358 119,412
Federal Home Loan Mtge Corp #C00356
08-01-24 8.00 390,728 413,838
Federal Home Loan Mtge Corp #C00666
10-01-28 7.00 46,602 48,203
Federal Home Loan Mtge Corp #C02951
07-01-37 6.50 24,963,125 25,340,171
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 1,617,997 1,588,691
Federal Home Loan Mtge Corp #C62993
01-01-32 6.50 1,135,757 1,161,398
Federal Home Loan Mtge Corp #C63552
01-01-32 6.50 1,735,467 1,780,106
Federal Home Loan Mtge Corp #C64703
03-01-32 6.50 991,391 1,014,556
Federal Home Loan Mtge Corp #C67723
06-01-32 7.00 797,346 826,555
Federal Home Loan Mtge Corp #C78031
04-01-33 5.50 8,896,394 8,721,585
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 7,723,071 7,565,174
Federal Home Loan Mtge Corp #C90767
12-01-23 6.00 7,307,024 7,375,724
Federal Home Loan Mtge Corp #D96300
10-01-23 5.50 5,004,713 4,945,549
Federal Home Loan Mtge Corp #E01127
02-01-17 6.50 1,138,468 1,163,268
Federal Home Loan Mtge Corp #E01419
05-01-18 5.50 4,247,554 4,235,794
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #E79810
11-01-14 7.50% $952,062 $990,711
Federal Home Loan Mtge Corp #E90216
05-01-17 6.00 1,320,121 1,336,218
Federal Home Loan Mtge Corp #E98725
08-01-18 5.00 9,615,590 9,429,100
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 9,634,698 9,446,483
Federal Home Loan Mtge Corp #G00286
02-01-25 8.00 153,612 162,698
Federal Home Loan Mtge Corp #G01108
04-01-30 7.00 2,957,443 3,059,353
Federal Home Loan Mtge Corp #G01441
07-01-32 7.00 2,685,445 2,769,253
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 10,192,550 10,259,085
Federal Home Loan Mtge Corp #G02757
06-01-36 5.00 26,392,109 25,135,440
Federal Home Loan Mtge Corp #G11302
07-01-17 7.00 3,189,876 3,296,532
Federal Home Loan Mtge Corp #G30225
02-01-23 6.00 10,088,513 10,195,293
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 237 Cl IO
05-15-36 8.64 4,230,664(g) 1,131,703
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2590 Cl BI
02-15-14 10.67 1,504,506(g) 39,767
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2718 Cl IA
10-15-22 20.00 3,332,378(g) 73,048
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2817 Cl SA
06-15-32 9.13 6,831,038(g) 381,443
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
22 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 1241 Cl K
03-15-22 7.00% $570,583 $568,998
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2576 Cl KJ
02-15-33 5.50 10,213,966 10,268,501
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2641 Cl KC
01-15-18 6.50 3,584,188 3,690,279
Federal Natl Mtge Assn
09-01-37 5.50 34,500,000(j) 33,691,388
09-01-37 6.00 41,500,000(j) 41,448,124
09-01-37 7.00 56,000,000(j) 57,557,471
10-01-37 6.00 48,000,000(j) 47,925,023
Federal Natl Mtge Assn #125479
04-01-27 7.50 236,065 247,416
Federal Natl Mtge Assn #190899
04-01-23 8.50 371,661 392,144
Federal Natl Mtge Assn #190944
05-01-24 6.00 5,759,455 5,786,298
Federal Natl Mtge Assn #190988
06-01-24 9.00 332,477 354,447
Federal Natl Mtge Assn #231309
09-01-23 6.50 151,085 154,501
Federal Natl Mtge Assn #231310
09-01-23 6.50 379,461 388,039
Federal Natl Mtge Assn #250330
09-01-25 8.00 246,521 260,661
Federal Natl Mtge Assn #250495
03-01-26 7.00 596,810 619,041
Federal Natl Mtge Assn #250765
12-01-26 8.00 230,929 244,296
Federal Natl Mtge Assn #251116
08-01-27 8.00 251,494 266,167
Federal Natl Mtge Assn #252498
06-01-29 7.00 5,772 5,990
Federal Natl Mtge Assn #253883
08-01-16 6.00 2,772,025 2,807,905
Federal Natl Mtge Assn #254236
03-01-17 6.50 1,649,152 1,683,180
Federal Natl Mtge Assn #254383
06-01-32 7.50 354,545 369,739
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #254802
07-01-18 4.50% $2,844,873 $2,737,441
Federal Natl Mtge Assn #254916
09-01-23 5.50 9,754,235 9,638,128
Federal Natl Mtge Assn #255788
06-01-15 5.50 2,870,981 2,900,432
Federal Natl Mtge Assn #268071
01-01-24 6.50 103,967 106,317
Federal Natl Mtge Assn #303226
02-01-25 8.00 114,443 120,939
Federal Natl Mtge Assn #313049
08-01-11 8.50 696,950 727,849
Federal Natl Mtge Assn #323933
09-01-29 7.00 3,824,956 3,969,786
Federal Natl Mtge Assn #408207
01-01-28 6.50 145,213 149,108
Federal Natl Mtge Assn #455791
01-01-29 6.50 532,019 544,838
Federal Natl Mtge Assn #489888
05-01-29 6.50 2,018,616 2,065,600
Federal Natl Mtge Assn #496029
01-01-29 6.50 2,369,919 2,431,209
Federal Natl Mtge Assn #50700
03-01-08 7.00 198,293 199,693
Federal Natl Mtge Assn #545008
06-01-31 7.00 2,408,108 2,504,103
Federal Natl Mtge Assn #545342
04-01-13 7.00 1,073,319 1,080,895
Federal Natl Mtge Assn #545684
05-01-32 7.50 303,366 317,198
Federal Natl Mtge Assn #545869
07-01-32 6.50 2,136,329 2,186,657
Federal Natl Mtge Assn #545885
08-01-32 6.50 3,774,242 3,916,909
Federal Natl Mtge Assn #545910
08-01-17 6.00 4,768,777 4,836,062
Federal Natl Mtge Assn #555343
08-01-17 6.00 4,632,714 4,690,762
Federal Natl Mtge Assn #555375
04-01-33 6.00 22,600,396 22,734,627
Federal Natl Mtge Assn #555458
05-01-33 5.50 20,422,396 20,014,152
Federal Natl Mtge Assn #555528
04-01-33 6.00 14,854,511 14,913,146
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 23
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #555734
07-01-23 5.00% $7,982,726 $7,720,003
Federal Natl Mtge Assn #555740
08-01-18 4.50 9,704,041 9,357,955
Federal Natl Mtge Assn #555794
09-01-28 7.50 776,184 813,807
Federal Natl Mtge Assn #567840
10-01-30 7.00 1,235,140 1,281,908
Federal Natl Mtge Assn #587859
12-01-16 5.50 4,352,732 4,344,096
Federal Natl Mtge Assn #597374
09-01-31 7.00 671,534 698,920
Federal Natl Mtge Assn #606882
10-01-31 7.00 931,403 966,140
Federal Natl Mtge Assn #634650
04-01-32 7.50 161,171 168,077
Federal Natl Mtge Assn #638969
03-01-32 5.50 1,461,588 1,436,014
Federal Natl Mtge Assn #643362
04-01-17 6.50 695,230 709,575
Federal Natl Mtge Assn #646147
06-01-32 7.00 2,326,228 2,419,678
Federal Natl Mtge Assn #646446
06-01-17 6.50 1,061,298 1,083,197
Federal Natl Mtge Assn #649068
06-01-17 6.50 1,808,865 1,851,210
Federal Natl Mtge Assn #649263
08-01-17 6.50 1,840,466 1,880,523
Federal Natl Mtge Assn #654208
10-01-32 6.50 1,911,644 1,952,926
Federal Natl Mtge Assn #654682
10-01-32 6.00 1,274,448 1,279,679
Federal Natl Mtge Assn #654689
11-01-32 6.00 1,355,865 1,360,673
Federal Natl Mtge Assn #656908
09-01-32 6.50 1,783,790 1,829,712
Federal Natl Mtge Assn #662061
09-01-32 6.50 1,609,997 1,644,765
Federal Natl Mtge Assn #667787
02-01-18 5.50 1,694,185 1,688,069
Federal Natl Mtge Assn #670382
09-01-32 6.00 10,674,149 10,716,283
Federal Natl Mtge Assn #670387
08-01-32 7.00 1,368,542 1,420,550
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #678028
09-01-17 6.00% $5,336,031 $5,402,891
Federal Natl Mtge Assn #678065
02-01-33 6.50 377,284 386,835
Federal Natl Mtge Assn #678937
01-01-18 5.50 2,673,148 2,667,448
Federal Natl Mtge Assn #678941
02-01-18 5.50 3,304,914 3,297,821
Federal Natl Mtge Assn #679095
04-01-18 5.00 5,180,011 5,074,530
Federal Natl Mtge Assn #680961
01-01-33 6.00 552,356 555,642
Federal Natl Mtge Assn #681400
03-01-18 5.50 4,852,612 4,840,650
Federal Natl Mtge Assn #682825
01-01-33 6.00 1,769,545 1,776,530
Federal Natl Mtge Assn #683274
02-01-18 5.50 2,210,392 2,204,700
Federal Natl Mtge Assn #684586
03-01-33 6.00 3,160,173 3,175,854
Federal Natl Mtge Assn #686172
02-01-33 6.00 2,763,574 2,774,482
Federal Natl Mtge Assn #686528
02-01-33 6.00 3,509,276 3,531,370
Federal Natl Mtge Assn #687051
01-01-33 6.00 10,563,262 10,543,456
Federal Natl Mtge Assn #689093
07-01-28 5.50 3,299,941 3,242,200
Federal Natl Mtge Assn #694628
04-01-33 5.50 6,514,264 6,388,136
Federal Natl Mtge Assn #694795
04-01-33 5.50 7,911,592 7,757,919
Federal Natl Mtge Assn #694988
03-01-33 5.50 11,017,160 10,799,582
Federal Natl Mtge Assn #695202
03-01-33 6.50 4,144,718 4,228,328
Federal Natl Mtge Assn #695909
05-01-18 5.50 2,185,816 2,179,956
Federal Natl Mtge Assn #699424
04-01-33 5.50 4,447,211 4,360,288
Federal Natl Mtge Assn #702427
04-01-33 5.50 4,235,697 4,153,614
Federal Natl Mtge Assn #704049
05-01-18 5.50 2,633,722 2,626,737
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
24 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #710823
05-01-33 5.50% $642,725 $630,299
Federal Natl Mtge Assn #720070
07-01-23 5.50 2,571,009 2,540,406
Federal Natl Mtge Assn #720378
06-01-18 4.50 5,987,721 5,761,605
Federal Natl Mtge Assn #723687
08-01-28 5.50 4,027,298 3,956,829
Federal Natl Mtge Assn #725232
03-01-34 5.00 17,912,257 17,086,761
Federal Natl Mtge Assn #725424
04-01-34 5.50 18,710,807 18,326,764
Federal Natl Mtge Assn #725425
04-01-34 5.50 24,235,824 23,742,274
Federal Natl Mtge Assn #725684
05-01-18 6.00 9,712,655 9,842,789
Federal Natl Mtge Assn #725719
07-01-33 4.85 6,851,569(k) 6,670,893
Federal Natl Mtge Assn #725813
12-01-33 6.50 10,195,718 10,401,393
Federal Natl Mtge Assn #730153
08-01-33 5.50 1,157,023 1,133,274
Federal Natl Mtge Assn #735212
12-01-34 5.00 19,847,099 18,913,399
Federal Natl Mtge Assn #735224
02-01-35 5.50 34,296,906 33,592,952
Federal Natl Mtge Assn #738921
11-01-32 6.50 788,277 807,330
Federal Natl Mtge Assn #743262
10-01-18 5.00 3,429,389 3,362,716
Federal Natl Mtge Assn #745355
03-01-36 5.00 14,145,539 13,467,154
Federal Natl Mtge Assn #747642
11-01-28 5.50 2,607,614 2,561,987
Federal Natl Mtge Assn #753074
12-01-28 5.50 7,004,277 6,881,718
Federal Natl Mtge Assn #753091
12-01-33 5.50 4,402,938 4,312,566
Federal Natl Mtge Assn #753919
12-01-33 4.95 5,758,451(k) 5,645,203
Federal Natl Mtge Assn #759342
01-01-34 6.50 1,629,744 1,663,809
Federal Natl Mtge Assn #765183
01-01-19 5.50 595,602 593,721
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #765759
12-01-18 5.00% $3,517,988 $3,446,351
Federal Natl Mtge Assn #766641
03-01-34 5.00 6,667,469 6,353,800
Federal Natl Mtge Assn #776962
04-01-29 5.00 16,977,928 16,227,156
Federal Natl Mtge Assn #804442
12-01-34 6.50 1,255,828 1,279,151
Federal Natl Mtge Assn #837258
09-01-35 4.93 2,710,141(k) 2,698,108
Federal Natl Mtge Assn #882063
06-01-36 6.50 3,842,858 3,913,141
Federal Natl Mtge Assn #886291
07-01-36 7.00 6,945,957 7,160,276
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-24 Cl PI
12-25-12 20.00 482,725(g) 2,965
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 12.86 14,982,101(g) 3,477,449
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 10.85 2,878,962(g) 522,216
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 9.48 773,245(g) 111,624
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2005-92 CL SC
10-25-35 15.94 25,263,829(g) 964,573
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 367 Cl 2
01-01-36 8.59 14,407,307(g) 3,853,955
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 25
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series 43 Cl 1
09-01-18 5.77% $19,379(h) $15,804
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 3,411,789 3,619,474
Govt Natl Mtge Assn #345538
02-15-24 8.00 135,245 143,452
Govt Natl Mtge Assn #398831
08-15-26 8.00 129,921 137,949
Govt Natl Mtge Assn #423782
05-15-26 7.50 437,532 459,056
Govt Natl Mtge Assn #425004
10-15-33 5.50 3,678,115 3,620,417
Govt Natl Mtge Assn #426170
06-15-26 8.00 107,855 114,520
Govt Natl Mtge Assn #595256
12-15-32 6.00 6,182,445 6,227,680
Govt Natl Mtge Assn #604580
08-15-33 5.00 3,742,717 3,612,110
Govt Natl Mtge Assn #604708
10-15-33 5.50 9,923,822 9,768,150
Govt Natl Mtge Assn #606844
09-15-33 5.00 9,063,479 8,747,197
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-70 Cl IC
08-20-32 11.73 7,891,946(g) 1,556,411
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-80 Cl CI
01-20-32 12.47 1,364,184(g) 142,851
Harborview Nim
Collateralized Mtge Obligation
Series 2006-10 Cl N1
11-19-36 6.41 530,358(d) 527,707
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 4.50% $102,422,089(g) $640,138
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-AR25 Cl 1A21
12-25-35 5.85 6,148,290(k) 5,999,746
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Series 2007-AR5 Cl 1A1
05-25-37 6.36 11,899,514(k) 12,049,091
IndyMac Index Nim
Collateralized Mtge Obligation
Series 2006-AR6 Cl N1
06-25-46 6.65 594,989(d) 591,270
Lehman XS Net Interest Margin Nts
Collateralized Mtge Obligation
Series 2006-2N Cl A1
02-27-46 7.00 571,927(d) 571,838
Lehman XS Net Interest Margin Nts
Collateralized Mtge Obligation
Series 2006-GPM6 Cl A1
10-28-46 6.25 1,185,241(d) 1,166,722
Lehman XS Net Interest Margin Nts
Series 2006-AR8 Cl A1
10-28-46 6.25 360,757(d) 359,711
Lehman XS Trust
Collateralized Mtge Obligation
Series 2007-5H Cl 1A1
05-25-37 6.50 19,549,641 19,761,004
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-2 Cl 4A1
02-25-19 5.00 5,827,888 5,653,069
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 2A1
05-25-34 6.00 3,341,527 3,303,567
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00 4,678,416 4,601,784
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
26 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00% $6,513,119 $6,268,551
Morgan Stanley Mtge Loan Trust
Collateralized Mtge Obligation
Series 2007-12 Cl 3A22
08-25-37 6.00 16,988,485 16,611,510
Rali NIM
Collateralized Mtge Obligation
Series 2006-QO4 Cl N1
04-25-46 6.05 553,910(d) 548,371
Residential Accredit Loans
Collateralized Mtge Obligation
Series 2006-QS3 Cl 1A10
03-25-36 6.00 6,008,788 6,100,265
Residential Funding Mtge Securities I
Collateralized Mtge Obligation
Series 2005-S6 Cl A8
08-25-35 5.25 19,499,904 18,524,852
Structured Asset Securities
Collateralized Mtge Obligation
Series 2003-33H Cl 1A1
10-25-33 5.50 13,088,921 12,600,309
Washington Mutual Alternative Mtge Loan Trust
Pass-Through Ctfs
Collateralized Mtge Obligation
Interest Only
Series 2005-AR1 Cl X2
12-25-35 7.10 38,521,818(g) 264,838
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2004-CB2 Cl 6A
07-25-19 4.50 4,495,809 4,260,049
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2005-AR14 Cl 2A1
12-25-35 5.29 5,256,421(k) 5,191,576
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR10 Cl 1A1
09-25-36 5.95 5,026,762(k) 5,012,621
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR3 Cl A1A
02-25-46 6.02% $7,800,707(k) $7,561,849
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 17,397,295 16,470,715
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 11,715,569 11,369,596
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-16 Cl 1A1
12-25-18 4.75 15,965,609 15,339,242
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 1A1
09-25-36 6.03 4,800,062(k) 4,782,671
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR6 Cl 5A1
03-25-36 5.11 11,035,958(k) 10,798,084
---------------
Total 1,453,480,309
- ----------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.2%)
Communications & Power Inds
02-01-12 8.00 185,000 185,925
DRS Technologies
11-01-13 6.88 1,535,000 1,504,300
02-01-18 7.63 1,925,000 1,886,499
L-3 Communications
01-15-15 5.88 1,565,000 1,482,838
L-3 Communications
Series B
10-15-15 6.38 1,675,000 1,620,563
TransDigm
07-15-14 7.75 195,000 195,975
---------------
Total 6,876,100
- ----------------------------------------------------------------------------------
BANKING (3.2%)
Bank of America
Sub Nts
03-15-17 5.30 20,295,000 19,552,162
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 27
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
BANKING (CONT.)
Citigroup
Sub Nts
02-15-17 5.50% $13,810,000 $13,476,047
JPMorgan Chase & Co
Sub Nts
10-01-15 5.15 2,760,000 2,631,889
06-27-17 6.13 7,535,000 7,648,884
Manufacturers & Traders Trust
Sub Nts
12-01-21 5.63 17,095,000 16,450,624
Popular North America
Sr Nts
10-01-08 3.88 28,122,000 27,537,260
Regions Bank
Sub Nts
06-26-37 6.45 7,245,000 7,325,057
---------------
Total 94,621,923
- ----------------------------------------------------------------------------------
BROKERAGE (1.3%)
Discover Financial Services
06-12-17 6.45 3,985,000(d,o) 3,959,217
Lehman Brothers Holdings
Sr Nts
07-19-12 6.00 22,700,000 22,673,032
Morgan Stanley
Sr Unsecured
08-31-12 5.75 10,675,000 10,666,759
---------------
Total 37,299,008
- ----------------------------------------------------------------------------------
CHEMICALS (0.2%)
NALCO
Sr Unsecured
11-15-11 7.75 4,605,000 4,685,588
NewMarket
12-15-16 7.13 1,815,000 1,724,250
---------------
Total 6,409,838
- ----------------------------------------------------------------------------------
CONSUMER PRODUCTS (--%)
Jarden
05-01-17 7.50 635,000 593,725
Visant
10-01-12 7.63 285,000 285,713
---------------
Total 879,438
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
DIVERSIFIED MANUFACTURING (0.1%)
Baldor Electric
02-15-17 8.63% $2,985,000 $3,082,013
- ----------------------------------------------------------------------------------
ELECTRIC (2.5%)
Consumers Energy
1st Mtge Series F
05-15-10 4.00 1,040,000 1,004,968
Consumers Energy
1st Mtge Series H
02-17-09 4.80 13,520,000 13,413,463
Edison Mission Energy
Sr Nts
05-15-17 7.00 2,855,000(d) 2,712,250
Entergy Gulf States
1st Mtge
06-01-08 3.60 5,500,000 5,391,304
Exelon
06-15-10 4.45 13,085,000 12,732,228
Indiana Michigan Power
Sr Nts
03-15-37 6.05 3,825,000 3,629,405
IPALCO Enterprises
Secured
11-14-08 8.38 400,000 405,000
11-14-11 8.63 3,680,000 3,781,200
Metropolitan Edison
Sr Nts
03-15-10 4.45 1,810,000(o) 1,777,485
Midwest Generation LLC
Pass-Through Ctfs Series B
01-02-16 8.56 163,621 174,052
Northern States Power
Sr Nts
08-01-09 6.88 5,730,000 5,909,641
NRG Energy
02-01-14 7.25 695,000 688,050
01-15-17 7.38 800,000 786,000
Oncor Electric Delivery
Sr Unsecured
01-15-15 6.38 830,000 846,095
Portland General Electric
03-15-10 7.88 2,935,000(o) 3,121,889
Potomac Electric Power
Secured
06-01-35 5.40 3,040,000(o) 2,687,102
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
28 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
ELECTRIC (CONT.)
Public Service Company of Colorado
Sr Nts Series A
07-15-09 6.88% $2,005,000 $2,066,415
Sierra Pacific Power
Series M
05-15-16 6.00 8,280,000 8,145,690
Sierra Pacific Power
Series P
07-01-37 6.75 915,000 893,552
Xcel Energy
Sr Nts
07-01-08 3.40 3,315,000 3,257,385
---------------
Total 73,423,174
- ----------------------------------------------------------------------------------
ENTERTAINMENT (0.2%)
United Artists Theatre Circuit
Pass-Through Ctfs
07-01-15 9.30 5,706,707(p) 5,934,975
- ----------------------------------------------------------------------------------
ENVIRONMENTAL (--%)
Allied Waste North America
06-01-17 6.88 1,320,000 1,280,400
- ----------------------------------------------------------------------------------
FOOD AND BEVERAGE (1.7%)
Cadbury Schweppes US Finance LLC
10-01-08 3.88 31,950,000(d) 31,465,703
Cott Beverages USA
12-15-11 8.00 1,740,000 1,722,600
Del Monte
02-15-15 6.75 220,000 209,000
HJ Heinz
12-01-08 6.43 5,920,000(d) 5,982,515
Molson Coors Capital Finance
09-22-10 4.85 12,180,000(c) 11,937,849
---------------
Total 51,317,667
- ----------------------------------------------------------------------------------
GAMING (--%)
Mohegan Tribal Gaming Authority
Sr Sub Nts
04-01-12 8.00 750,000 760,313
Wynn Las Vegas LLC/Capital
1st Mtge
12-01-14 6.63 690,000 667,575
---------------
Total 1,427,888
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
GAS DISTRIBUTORS (0.1%)
Atmos Energy
Sr Unsub
10-15-09 4.00% $4,005,000 $3,920,074
- ----------------------------------------------------------------------------------
GAS PIPELINES (1.1%)
CenterPoint Energy Resources
02-15-11 7.75 3,685,000 3,910,920
Colorado Interstate Gas
Sr Nts
11-15-15 6.80 10,510,000 10,845,720
Northern Natural Gas
Sr Unsecured
02-15-37 5.80 1,535,000(d) 1,448,553
Northwest Pipeline
Sr Unsecured
04-15-17 5.95 1,615,000 1,566,550
Southern Natural Gas
04-01-17 5.90 5,925,000(d) 5,759,171
Southern Star Central
Sr Nts
03-01-16 6.75 1,460,000 1,401,600
Transcontinental Gas Pipe Line
Series B
08-15-11 7.00 1,915,000 1,996,388
Transcontinental Gas Pipe Line
Sr Unsecured
04-15-16 6.40 2,221,000 2,237,658
Williams Companies
Sr Nts
07-15-19 7.63 2,079,000 2,208,938
---------------
Total 31,375,498
- ----------------------------------------------------------------------------------
HEALTH CARE (0.2%)
Coventry Health Care
Sr Unsecured
08-15-14 6.30 3,040,000 3,035,540
Omnicare
12-15-13 6.75 2,370,000 2,204,100
12-15-15 6.88 355,000 331,038
---------------
Total 5,570,678
- ----------------------------------------------------------------------------------
HEALTH CARE INSURANCE (0.5%)
UnitedHealth Group
06-15-37 6.50 5,700,000(d) 5,924,522
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 29
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
HEALTH CARE INSURANCE (CONT.)
WellPoint
Sr Unsub
01-15-36 5.85% $5,920,000 $5,381,440
06-15-37 6.38 2,910,000 2,848,483
---------------
Total 14,154,445
- ----------------------------------------------------------------------------------
HOME CONSTRUCTION (0.2%)
DR Horton
Sr Unsub
04-15-16 6.50 6,875,000 6,035,205
- ----------------------------------------------------------------------------------
INDEPENDENT ENERGY (0.8%)
Anadarko Petroleum
Sr Unsecured
09-15-16 5.95 4,015,000 3,992,809
Canadian Natural Resources
03-15-38 6.25 6,845,000(c) 6,567,332
Chesapeake Energy
01-15-16 6.63 4,892,000 4,733,010
01-15-18 6.25 925,000 866,031
Denbury Resources
04-01-13 7.50 250,000 249,375
Denbury Resources
Sr Sub Nts
12-15-15 7.50 180,000 179,100
EnCana
Sr Unsecured
08-15-37 6.63 3,035,000(c) 3,085,008
Forest Oil
Sr Nts
06-15-19 7.25 265,000(d) 255,063
Range Resources
03-15-15 6.38 425,000 408,000
05-15-16 7.50 180,000 181,800
XTO Energy
Sr Unsecured
08-01-37 6.75 3,245,000 3,325,995
---------------
Total 23,843,523
- ----------------------------------------------------------------------------------
MEDIA CABLE (1.1%)
Comcast
03-15-37 6.45 17,105,000 16,517,066
Comcast MO of Delaware LLC
09-01-08 9.00 9,500,000 9,799,060
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MEDIA CABLE (CONT.)
CSC Holdings
Sr Nts Series B
07-15-09 8.13% $3,200,000 $3,224,000
EchoStar DBS
10-01-13 7.00 225,000 222,188
10-01-14 6.63 363,000 351,203
02-01-16 7.13 940,000 918,850
Videotron Ltee
01-15-14 6.88 1,310,000(c) 1,247,775
---------------
Total 32,280,142
- ----------------------------------------------------------------------------------
MEDIA NON CABLE (1.4%)
British Sky Broadcasting Group
02-23-09 6.88 6,270,000(c) 6,430,155
Dex Media West LLC/Finance
Sr Unsecured Series B
08-15-10 8.50 560,000 567,000
Idearc
11-15-16 8.00 1,530,000 1,510,875
News America
12-15-35 6.40 13,160,000(o) 12,580,328
Rainbow Natl Services LLC
Sr Nts
09-01-12 8.75 1,565,000(d) 1,602,169
RH Donnelley
Sr Disc Nts Series A-1
01-15-13 6.88 680,000 640,900
RH Donnelley
Sr Disc Nts Series A-2
01-15-13 6.88 1,800,000 1,696,500
RR Donnelley & Sons
Sr Unsecured
01-15-17 6.13 15,800,000 15,704,252
Sinclair Broadcast Group
03-15-12 8.00 338,000 341,380
---------------
Total 41,073,559
- ----------------------------------------------------------------------------------
METALS (0.2%)
Freeport-McMoRan Copper & Gold
Sr Unsecured
04-01-15 8.25 3,600,000 3,816,000
04-01-17 8.38 535,000 569,775
Peabody Energy
11-01-16 7.38 1,885,000 1,899,138
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
30 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
METALS (CONT.)
Peabody Energy
Series B
03-15-13 6.88% $560,000 $558,600
---------------
Total 6,843,513
- ----------------------------------------------------------------------------------
NON CAPTIVE CONSUMER (0.1%)
SLM
01-15-13 5.38 2,125,000(o) 1,881,853
10-01-13 5.00 2,460,000 2,148,564
---------------
Total 4,030,417
- ----------------------------------------------------------------------------------
OIL FIELD SERVICES (0.1%)
OPTI Canada
Secured
12-15-14 7.88 2,585,000(c,d) 2,597,925
- ----------------------------------------------------------------------------------
PACKAGING (0.2%)
Ball
03-15-18 6.63 240,000 229,800
Crown Americas LLC/Capital
11-15-13 7.63 680,000 683,400
11-15-15 7.75 1,685,000(o) 1,701,850
Owens-Brockway Glass Container
05-15-13 8.25 3,345,000 3,428,625
---------------
Total 6,043,675
- ----------------------------------------------------------------------------------
PAPER (0.2%)
Cascades
Sr Nts
02-15-13 7.25 905,000(c) 864,275
NewPage
05-01-12 10.00 2,090,000 2,163,150
Smurfit-Stone Container Enterprises
Sr Unsecured
03-15-17 8.00 1,900,000 1,812,125
---------------
Total 4,839,550
- ----------------------------------------------------------------------------------
PROPERTY & CASUALTY (0.2%)
Travelers Companies
Sr Unsecured
06-15-37 6.25 5,810,000 5,629,309
- ----------------------------------------------------------------------------------
RAILROADS (0.2%)
Burlington Northern Santa Fe
05-01-37 6.15 6,205,000 6,015,232
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
REITS (0.4%)
Brandywine Operating Partnership LP
05-01-17 5.70% $4,635,000 $4,407,143
ERP Operating LP
06-15-17 5.75 6,955,000 6,801,921
---------------
Total 11,209,064
- ----------------------------------------------------------------------------------
RETAILERS (1.0%)
Home Depot
Sr Unsecured
12-16-36 5.88 15,650,000 13,485,621
Macys Retail Holdings
07-15-09 4.80 16,219,000 15,992,501
Neiman Marcus Group
10-15-15 10.38 600,000 645,000
---------------
Total 30,123,122
- ----------------------------------------------------------------------------------
TRANSPORTATION SERVICES (0.1%)
Hertz
01-01-14 8.88 1,925,000 1,992,375
- ----------------------------------------------------------------------------------
WIRELESS (--%)
American Tower
Sr Nts
10-15-12 7.13 220,000 220,000
- ----------------------------------------------------------------------------------
WIRELINES (4.3%)
AT&T
03-15-11 6.25 11,786,000(o) 12,088,653
AT&T
Sr Unsub
09-15-09 4.13 1,090,000 1,066,289
Citizens Communications
Sr Unsecured
03-15-19 7.13 425,000 404,813
Telecom Italia Capital
11-15-13 5.25 11,405,000(c) 10,988,056
11-15-33 6.38 7,175,000(c) 6,846,385
Telefonica Europe
09-15-10 7.75 17,311,000(c) 18,452,885
TELUS
06-01-11 8.00 35,878,500(c) 38,917,624
Verizon New York
Series A
04-01-12 6.88 22,863,000 24,089,463
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 31
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
WIRELINES (CONT.)
Verizon Pennsylvania
Series A
11-15-11 5.65% $8,000,000 $8,083,040
Windstream
08-01-16 8.63 4,915,000 5,136,175
03-15-19 7.00 420,000 395,850
---------------
Total 126,469,233
- ----------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $3,109,869,469) $3,095,106,712
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MUNICIPAL BONDS (0.4%)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE RATE AMOUNT VALUE(A)
TOBACCO
Tobacco Settlement Financing Corporation
Revenue Bonds
Series 2007A-1
06-01-46 6.71% $13,850,000 $12,539,236
- ----------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $13,848,615) $12,539,236
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SENIOR LOANS (2.5%)(l)
COUPON PRINCIPAL
BORROWER RATE AMOUNT VALUE(A)
CHEMICALS (0.1%)
Celanese
Tranche B Term Loan
04-06-14 5.32-7.11% $2,939,125(c) $2,838,695
- ----------------------------------------------------------------------------------
CONSUMER PRODUCTS (0.2%)
Jarden
Tranche B3 Term Loan
01-24-12 2.50 5,940,000(j) 5,836,050
- ----------------------------------------------------------------------------------
FOOD AND BEVERAGE (0.2%)
Aramark
Letter of Credit
01-26-14 7.36 226,462 217,888
Aramark
Tranche B Term Loan
01-20-14 7.36 3,218,915 3,097,047
</Table>
<Table>
<Caption>
SENIOR LOANS (CONTINUED)
COUPON PRINCIPAL
BORROWER RATE AMOUNT VALUE(A)
FOOD AND BEVERAGE (CONT.)
Pinnacle Foods Finance
Term Loan
04-02-14 8.11% $2,560,000 $2,438,400
---------------
Total 5,753,335
- ----------------------------------------------------------------------------------
GAMING (0.1%)
Fontainebleau Las Vegas
Delayed Draw Term Loan
06-05-14 0.00 959,355(j,m) 889,802
Fontainebleau Las Vegas
Term Loan
06-05-14 8.61 1,918,711 1,779,604
---------------
Total 2,669,406
- ----------------------------------------------------------------------------------
HEALTH CARE (0.7%)
Community Health
Delayed Draw Term Loan
06-28-14 0.00 447,641(j,m) 429,176
Community Health
Term Loan
06-28-14 7.76 6,787,359 6,507,380
HCA
Tranche B Term Loan
01-21-13 7.61 12,984,750 12,479,513
Vanguard Health Holding II
Term Loan
09-23-11 7.61 2,970,000(j) 2,840,063
---------------
Total 22,256,132
- ----------------------------------------------------------------------------------
LIFE INSURANCE (0.1%)
Asurion
Term Loan
07-03-14 8.36 4,090,000(j) 3,844,600
- ----------------------------------------------------------------------------------
MEDIA CABLE (0.4%)
Charter Communications
Term Loan
03-06-14 7.36 6,130,000 5,792,850
Univision Communications
Delayed Draw Term Loan
09-23-14 0.00 351,242(j,m) 324,681
Univision Communications
Tranche B Term Loan
09-23-14 7.61 5,463,758 5,050,589
---------------
Total 11,168,120
- ----------------------------------------------------------------------------------
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
32 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
SENIOR LOANS (CONTINUED)
COUPON PRINCIPAL
BORROWER RATE AMOUNT VALUE(A)
MEDIA NON CABLE (0.2%)
Idearc
Tranche B Term Loan
11-17-14 2.00% $1,485,000(j) $1,434,881
VNU
Tranche B Term Loan
08-09-13 7.36 5,442,569(c) 5,184,047
---------------
Total 6,618,928
- ----------------------------------------------------------------------------------
OIL FIELD SERVICES (0.1%)
Dresser
1st Lien Term Loan
05-04-14 8.01-8.04 2,059,000 1,973,201
- ----------------------------------------------------------------------------------
PAPER (0.1%)
Domtar
Tranche B Term Loan
03-07-14 6.93 1,539,000(c) 1,473,593
- ----------------------------------------------------------------------------------
RETAILERS (0.1%)
Michaels Stores
Term Loan
10-31-13 7.63-7.69 1,201,206 1,130,131
Neiman Marcus Group
Tranche B Term Loan
04-27-13 7.09-7.11 1,677,574 1,624,444
---------------
Total 2,754,575
- ----------------------------------------------------------------------------------
TECHNOLOGY (0.1%)
West Corp
Tranche B Term Loan
10-24-13 7.74-7.88 2,687,952 2,585,138
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SENIOR LOANS (CONTINUED)
COUPON PRINCIPAL
BORROWER RATE AMOUNT VALUE(A)
WIRELINES (0.1%)
Level 3 Communications
Tranche B Term Loan
03-13-14 7.61% $3,340,000 $3,178,578
- ----------------------------------------------------------------------------------
TOTAL SENIOR LOANS
(Cost: $76,112,324) $72,950,351
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COMMON STOCKS (--%)
ISSUER SHARES VALUE(A)
PAPER & FOREST PRODUCTS (--%)
Crown Paper Escrow 6,950,000(b) $7
- ----------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $--) $7
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (1.6%)(r)
SHARES VALUE(A)
RiverSource Short-Term
Cash Fund 45,885,729(t) $45,885,729
- ------------------------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $45,885,729) $45,885,729
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $3,245,716,137)(u) $3,226,482,035
======================================================================================================
</Table>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in U.S. dollar currency unless otherwise
noted. At Aug. 31, 2007, the value of foreign securities represented 4.3%
of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At Aug. 31,
2007, the value of these securities amounted to $145,277,305 or 4.9% of net
assets.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 33
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(e) The following abbreviations are used in the portfolio security descriptions
to identify the insurer of the issue:
<Table>
AMBAC -- Ambac Assurance Corporation
MBIA -- MBIA Insurance Corporation
</Table>
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. The principal
amount shown is the notional amount of the underlying mortgages. Interest
rate disclosed represents yield based upon the estimated timing and amount
of future cash flows at Aug, 31, 2007.
(h) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments may
have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents yield based upon the estimated timing of future cash
flows at Aug. 31, 2007.
(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,
2007.
(j) At Aug. 31, 2007, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$277,561,571.
(k) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Aug 31, 2007.
(l) Senior loans have rates of interest that float periodically based primarily
on the London Interbank Offered Rate ("LIBOR") and other short-term rates.
Remaining maturities of senior loans may be less than the stated maturities
shown as a result of contractual or optional prepayments by the borrower.
Such prepayments cannot be predicted with certainty.
(m) At Aug. 31, 2007, the Fund had unfunded senior loan commitments pursuant to
the term of the loan agreement. The Fund receives a stated coupon rate
until the borrower draws on the loan commitment, at which time the rate
will become the stated rate in the loan agreement.
<Table>
<Caption>
UNFUNDED
BORROWER COMMITMENT
- -----------------------------------------------------------------------------
Community Health $447,641
Fontainebleau Las Vegas 956,957
Univision Communications 351,242
- -----------------------------------------------------------------------------
Total $1,775,840
- -----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
34 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(n) Comparable securities are held to satisfy future delivery requirements of
the following open forward sale commitments at Aug. 31, 2007:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
- -------------------------------------------------------------------------------------
Federal Natl Mtge Assn
09-01-22 5.50% $10,000,000 09-18-07 $9,884,375 $9,940,620
</Table>
(o) Partially pledged as initial margin deposit on the following open interest
rate futures contracts (see Note 6 to the financial statements):
<Table>
<Caption>
TYPE OF SECURITY NOTIONAL AMOUNT
- -------------------------------------------------------------------------------
SALE CONTRACTS
U.S. Long Bond, Dec. 2007, 20-year $27,500,000
U.S. Treasury Note, Dec. 2007, 2-year 22,400,000
U.S. Treasury Note, Dec. 2007, 5-year 81,100,000
U.S. Treasury Note, Dec. 2007, 10-year 47,100,000
</Table>
(p) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). These securities may be valued at fair
value according to procedures approved, in good faith, by the Fund's Board
of Directors. Information concerning such security holdings at Aug. 31,
2007, is as follows:
<Table>
<Caption>
ACQUISITION
SECURITY DATES COST
- ----------------------------------------------------------------------------------
United Artists Theatre Circuit
9.30% Pass-Through Ctfs 2015 02-23-96 thru 08-12-96 $5,520,575
</Table>
(q) At Aug. 31, 2007, security was partially or fully on loan. See Note 5 to
the financial statements.
(r) Cash collateral received from security lending activity is invested in an
affiliated money market fund. See Note 5 to the financial statements.
(s) Inflation-indexed bonds are securities in which the principal amount is
adjusted for inflation and the semiannual interest payments equal a fixed
percentage of the inflation-adjusted principal amount.
(t) Affiliated Money Market Fund -- See Note 8 to the financial statements.
(u) At Aug. 31, 2007, the cost of securities for federal income tax purposes
was $3,254,248,273 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $18,710,761
Unrealized depreciation (46,476,999)
- ------------------------------------------------------------------------------
Net unrealized depreciation $(27,766,238)
- ------------------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 35
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUG. 31, 2007
<Table>
ASSETS
Investments in securities, at value (Note 1)
Unaffiliated issuers* (identified cost $3,199,830,408) $3,180,596,306
Affiliated money market fund (identified cost
$45,885,729) (Note 8) 45,885,729
- ------------------------------------------------------------------------------
Total investments in securities (identified cost
$3,245,716,137) 3,226,482,035
Cash in bank on demand deposit 27,052
Foreign currency holdings (identified cost $1,022) (Note 1) 1,035
Capital shares receivable 11,081,420
Accrued interest receivable 25,647,494
Receivable for investment securities sold 163,119,499
Unrealized appreciation on swap transactions, at value (Note
7) 526,101
Variation margin receivable 712,678
- ------------------------------------------------------------------------------
Total assets 3,427,597,314
- ------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 2,614,030
Capital shares payable 2,846,093
Payable for investment securities purchased 132,764,420
Payable for securities purchased on a forward-commitment
basis (Note 1) 277,561,571
Payable upon return of securities loaned (Note 5) 54,427,500
Unrealized depreciation on swap transactions, at value (Note
7) 2,248,872
Accrued investment management services fee 36,751
Accrued distribution fee 542,794
Accrued transfer agency fee 8,066
Accrued administrative services fee 5,047
Accrued plan administration services fee 16,925
Other accrued expenses 283,602
Forward sale commitments, at value (proceeds receivable
$9,884,375) (Note 1) 9,940,620
- ------------------------------------------------------------------------------
Total liabilities 483,296,291
- ------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $2,944,301,023
==============================================================================
</Table>
- --------------------------------------------------------------------------------
36 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
AUG. 31, 2007
<Table>
REPRESENTED BY
Capital stock -- $.01 par value (Note 1) $ 6,119,286
Additional paid-in capital 3,125,529,521
Excess of distributions over net investment income (1,432,632)
Accumulated net realized gain (loss) (Note 11) (164,897,645)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (Notes 6 and 7) (21,017,507)
- ------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $2,944,301,023
==============================================================================
</Table>
<Table>
Net assets applicable to outstanding
shares: Class A $1,936,988,090
Class B $ 303,507,236
Class C $ 16,840,412
Class I $ 386,010,354
Class R2 $ 4,993
Class R3 $ 4,993
Class R4 $ 77,835,688
Class R5 $ 4,993
Class W $ 223,104,264
Net asset value per share of outstanding Class A
capital stock: shares(1) 402,638,195 $ 4.81
Class B shares 63,093,643 $ 4.81
Class C shares 3,499,861 $ 4.81
Class I shares 80,134,097 $ 4.82
Class R2 shares 1,040 $ 4.80
Class R3 shares 1,040 $ 4.80
Class R4 shares 16,200,659 $ 4.80
Class R5 shares 1,040 $ 4.80
Class W shares 46,359,028 $ 4.81
- -------------------------------------------------------------------------------------------
* Including securities on loan, at value
(Note 5) $ 53,596,150
- -------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $5.05. The offering
price is calculated by dividing the net asset value by 1.0 minus the
maximum sales charge of 4.75%.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 37
STATEMENT OF OPERATIONS
YEAR ENDED AUG. 31, 2007
<Table>
INVESTMENT INCOME
Income:
Interest $142,326,750
Income distributions from affiliated money market fund (Note
8) 5,748,763
Fee income from securities lending (Note 5) 395,879
- ----------------------------------------------------------------------------
Total income 148,471,392
- ----------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 12,770,016
Distribution fee
Class A 4,860,209
Class B 3,704,597
Class C 168,420
Class R2 18
Class R3 8
Class W 128,130
Transfer agency fee
Class A 3,090,229
Class B 631,378
Class C 28,318
Class R2 2
Class R3 2
Class R4 79,526
Class R5 2
Class W 102,504
Service fee -- Class R4 36,188
Administrative services fee 1,752,212
Plan administration services fee
Class R2 8
Class R3 8
Class R4 148,364
Compensation of board members 52,475
Custodian fees 249,190
Printing and postage 483,505
Registration fees 166,240
Professional fees 65,771
Other 87,435
- ----------------------------------------------------------------------------
Total expenses 28,604,755
Expenses waived/reimbursed by the Investment Manager and
its affiliates (Note 2) (2,004,697)
- ----------------------------------------------------------------------------
26,600,058
Earnings and bank fee credits on cash balances (Note 2) (229,404)
- ----------------------------------------------------------------------------
Total net expenses 26,370,654
- ----------------------------------------------------------------------------
Investment income (loss) -- net 122,100,738
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
38 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED AUG. 31, 2007
<Table>
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (Note 3) 26,879,708
Foreign currency transactions 145,184
Futures contracts (2,400,100)
Swap transactions (3,756,544)
- ----------------------------------------------------------------------------
Net realized gain (loss) on investments 20,868,248
Net change in unrealized appreciation (depreciation) on
investments
and on translation of assets and liabilities in foreign
currencies 6,273,301
- ----------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies 27,141,549
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $149,242,287
============================================================================
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 39
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED AUG. 31, 2007 2006
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 122,100,738 $ 103,147,373
Net realized gain (loss) on investments 20,868,248 (39,151,119)
Net change in unrealized appreciation (depreciation)
on investments and on translation of assets and
liabilities in foreign currencies 6,273,301 (17,503,759)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 149,242,287 46,492,495
- ---------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (86,827,158) (76,604,597)
Class B (13,755,846) (15,585,869)
Class C (626,596) (591,217)
Class I (15,257,999) (4,560,444)
Class R2 (141) N/A
Class R3 (151) N/A
Class R4 (4,383,933) (6,737,531)
Class R5 (167) N/A
Class W (2,150,062) N/A
Tax return of capital
Class A (1,969,457) --
Class B (312,017) --
Class C (14,213) --
Class I (346,089) --
Class R2 (3) N/A
Class R3 (3) N/A
Class R4 (99,439) --
Class R5 (4) N/A
Class W (48,769) N/A
- ---------------------------------------------------------------------------------------
Total distributions (125,792,047) (104,079,658)
- ---------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
40 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<Table>
<Caption>
YEAR ENDED AUG. 31, 2007 2006
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 341,978,156 316,729,749
Class B shares 73,778,423 79,990,744
Class C shares 4,309,754 3,579,299
Class I shares 162,095,736 109,101,564
Class R2 shares 5,000 N/A
Class R3 shares 5,000 N/A
Class R4 shares 29,755,649 19,247,047
Class R5 shares 5,000 N/A
Class W shares 267,590,689 N/A
Fund Merger (Note 10)
Class A shares N/A 482,178,674
Class B shares N/A 84,180,791
Class C shares N/A 3,014,375
Class I shares N/A 161,023,234
Class R4 shares N/A 43,644,789
Reinvestment of distributions at net asset value
Class A shares 71,340,780 60,868,805
Class B shares 12,481,391 13,634,050
Class C shares 558,059 518,063
Class I shares 15,346,042 4,443,417
Class R4 shares 4,481,258 6,613,878
Class W shares 2,006,618 N/A
Payments for redemptions
Class A shares (507,058,109) (578,402,371)
Class B shares (Note 2) (187,649,959) (247,147,060)
Class C shares (Note 2) (5,462,345) (7,432,273)
Class I shares (69,529,553) (1,248,255)
Class R4 shares (129,682,278) (95,308,639)
Class W shares (46,272,210) N/A
- ---------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions 40,083,101 459,229,881
- ---------------------------------------------------------------------------------------
Total increase (decrease) in net assets 63,533,341 401,642,718
Net assets at beginning of year 2,880,767,682 2,479,124,964
- ---------------------------------------------------------------------------------------
Net assets at end of year $2,944,301,023 $2,880,767,682
=======================================================================================
Undistributed (excess of distributions over) net
investment income $ (1,432,632) $ 4,503,837
- ---------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 41
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of RiverSource Diversified Income Series, Inc. and is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. RiverSource Diversified
Income Series, Inc. has 10 billion authorized shares of capital stock that can
be allocated among the separate series as designated by the Board. The Fund
invests primarily in bonds and other debt securities including securities issued
by the U.S. government, corporate bonds and mortgage- and asset-backed
securities.
The Fund offers Class A, Class B, Class C, Class I and Class R4 shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares have no sales charge and are offered only to
qualifying institutional investors.
Effective Dec. 11, 2006, the Board approved renaming Class Y as Class R4,
terminating the shareholder servicing agreement, revising the fee structure
under the transfer agent agreement from account-based to asset-based, and
adopting a plan administration services agreement.
At Aug. 31, 2007, Ameriprise Financial, Inc. (Ameriprise Financial), the parent
company of RiverSource Investments, LLC (the Investment Manager) and the
affiliated funds-of-funds owned 100% of Class I shares.
Effective Dec. 11, 2006, the Fund offers additional classes of shares, Class R2,
Class R3 and Class R5, to certain institutional investors. These shares are sold
without a front-end sales charge or CDSC. At Aug. 31, 2007, Ameriprise Financial
owned 100% of Class R2, Class R3 and Class R5 shares.
Effective Dec. 1, 2006, the Fund offers an additional class of shares, Class W,
through qualifying discretionary accounts. Class W shares are sold without a
front-end sales charge or CDSC. At Aug. 31, 2007, Ameriprise Financial owned
100% of Class W 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 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.
- --------------------------------------------------------------------------------
42 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Foreign securities are valued based on quotations from the principal market in
which such securities are normally traded. The procedures adopted by the Board
of Directors of the funds 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 equities) that is not reflected
in price quotations or valuations from other sources. A fair value price is a
good faith estimate of the value of a security at a given point in time. Many
securities markets and exchanges outside the U.S. close prior to the close of
the New York Stock Exchange and therefore the closing prices for securities in
such markets or on such exchanges may not fully reflect events that occur after
such close but before the close of the New York Stock Exchange, including
significant movements in the U.S. market after foreign exchanges have closed.
Accordingly, in those situations, Ameriprise Financial will fair value foreign
equity securities pursuant to procedures adopted by the Board of Directors of
the funds, including utilizing a third party pricing service to determine these
fair values. These procedures take into account multiple factors, including
movements in the U.S. securities markets, to determine a good faith estimate
that reasonably reflects the current market conditions as of the close of the
New York Stock Exchange. Swap transactions are valued through an authorized
pricing service, broker, or an internal model. Short-term securities maturing in
more than 60 days from the valuation date are valued at the market price or
approximate market value based on current interest rates; those maturing in 60
days or less are valued at amortized cost.
ILLIQUID SECURITIES
At Aug. 31, 2007, 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. Prior to July 12, 2007, the Fund limited the percent held in
securities and other instruments that were illiquid to 10% of the Fund's net
assets. The aggregate value of such securities at Aug. 31, 2007 was $5,934,975
representing 0.20% of net assets. These securities may be valued at fair value
according to procedures approved, in good faith, by the Board. According to
board guidelines,
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 43
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 AND UNFUNDED LOAN COMMITMENTS
Delivery and payment for securities that have been purchased by the Fund on a
forward-commitment basis, including when-issued securities and other forward-
commitments, can take place one month or more after the transaction date. During
this period, such securities are subject to market fluctuations, and they may
affect the Fund's net assets the same as owned securities. The Fund designates
cash or liquid securities at least equal to the amount of its
forward-commitments. At Aug. 31, 2007, the Fund has entered into outstanding
when-issued securities of $277,561,571.
The fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrower's discretion. These commitments are disclosed in the accompanying
"Investments in securities." At Aug. 31, 2007, the Fund has entered into
unfunded loan commitments of $1,755,840.
The Fund also enters into transactions to sell purchase commitments to third
parties at current market values and concurrently acquires other purchase
commitments for similar securities at later dates. As an inducement for the Fund
to "roll over" its purchase commitments, the Fund receives negotiated amounts in
the form of reductions of the purchase price of the commitment. The amounts
received, in the form of reductions of the purchase price, are recorded as an
adjustment to interest income on the Statement of Operations. Losses may arise
due to changes in the value of the securities or if the counterparty does not
perform under the terms of the agreement. If the counterparty files for
bankruptcy or becomes insolvent, a fund's right to repurchase or sell securities
may be limited.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options traded
on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends upon the credit standing of the other party.
Cash collateral may be collected by the Fund to secure certain over-the-counter
options trades. Cash collateral held by the Fund for such option trades must be
returned to the counterparty upon closure, exercise or expiration of the
contract. The Fund also may buy and sell put and call options and write covered
call options on portfolio securities as well as write cash-secured put options.
The risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the security
decreases and the option is exercised. The
- --------------------------------------------------------------------------------
44 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
risk in buying an option is that the Fund pays a premium whether or not the
option is exercised. The Fund also has the additional risk of being unable to
enter into a closing transaction if a liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Fund will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid. At Aug. 31, 2007, the fund had no outstanding option
contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Futures are valued daily based upon the last sale price at the close of market
on the principal exchange on which they are traded. Upon entering into a futures
contract, the Fund is required to deposit either cash or securities in an amount
(initial margin) equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the Fund each day. The
variation margin payments are equal to the daily changes in the contract value
and are recorded as unrealized gains and losses. The Fund recognizes a realized
gain or loss when the contract is closed or expires.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the statement of operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes. At Aug. 31, 2007, foreign currency holdings consisted of
European monetary units and British pounds.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 45
held by the Fund and the resulting unrealized appreciation or depreciation are
determined using foreign currency exchange rates from an independent pricing
service. The Fund is subject to the credit risk that the other party will not
complete its contract obligations. At Aug. 31, 2007 the Fund had no outstanding
forward foreign currency contracts.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are used
to satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the "Notes to investments in
securities."
CREDIT DEFAULT SWAP TRANSACTIONS
The Fund may enter into credit default swap contracts to increase or decrease
its credit exposure to an issuer, obligation, portfolio, or index of issuers or
obligations, to hedge its exposure on an obligation that it owns or in lieu of
selling such obligations. As the purchaser of a credit default swap contract,
the Fund purchases protection by paying a periodic interest rate on the notional
amount to the counterparty. The interest amount is accrued daily as a component
of unrealized appreciation (depreciation) and is recorded as a realized gain
(loss) upon payment. If the credit event specified in the contract occurs, the
Fund will be required to deliver either the referenced obligation or an
equivalent cash amount to the protection seller and in exchange the Fund will
receive the notional amount from the seller. The difference between the value of
the obligation delivered and the notional amount received will be recorded as a
realized gain (loss). As the seller of a credit default swap contract, the Fund
sells protection to a buyer and will generally receive a periodic interest rate
on the notional amount. The interest amount is accrued daily as a component of
unrealized appreciation (depreciation) and is recorded as a realized gain (loss)
upon receipt of the payment. If the credit event specified in the contract
occurs, the Fund will receive the referenced obligation or an equivalent cash
amount in exchange for the payment of the notional amount to the protection
buyer. The difference between the value of the
- --------------------------------------------------------------------------------
46 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
obligation received and the notional amount paid will be recorded as a realized
gain (loss). As a protection seller, the maximum amount of the payment made by
the Fund may equal the notional amount, at par, of the underlying index or
security as a result of the related credit event.
The notional amounts of credit default swap contracts are not recorded in the
financial statements; however any up front payment paid or received by the Fund
is recorded as an asset or liability and amortized daily as a component of
realized gain (loss) on the statement of operations. At Aug. 31, 2007, there
were no credit default swap contracts outstanding which had up front payments
paid or received by the Fund. Credit default swap contracts are valued daily,
and the change in value is recorded as unrealized appreciation (depreciation)
until the termination of the swap, at which time a realized gain (loss) is
recorded.
Credit default swap contracts can involve greater risks than if a fund had
invested in the reference obligation directly since, in addition to general
market risks, credit default swaps are subject to counterparty credit risk,
leverage risk, hedging risk, correlation risk and liquidity risk. The Fund will
enter into credit default swap agreements only with counterparties that meet
certain standards of creditworthiness.
CMBS TOTAL RETURN SWAP TRANSACTIONS
The Fund may enter into swap agreements to earn the total return on a specified
security or index of fixed income securities. CMBS total return swaps are
bilateral financial contracts designed to replicate synthetically the total
returns of collateralized mortgage-backed securities. Under the terms of the
swaps, the Fund either receives or pays the total return on a reference security
or index applied to a notional principal amount. In return, the Fund agrees to
pay or receive from the counterparty a floating rate, which is reset
periodically based on short-term interest rates, applied to the same notional
amount.
The notional amounts of swap contracts are not recorded in the financial
statements. Swaps are valued daily, and the change in value is recorded as
unrealized appreciation (depreciation) until the termination of the swap, at
which time realized gain (loss) is recorded. Payments received or made are
recorded as realized gains (losses).
Swap agreements may be subject to liquidity risk, which exists when a particular
swap is difficult to purchase or sell. It may not be possible for the Fund to
initiate a transaction or liquidate a position at an advantageous time or price,
which may result in significant losses. Total return swaps are subject to the
risk that the counterparty will default on its obligation to pay net amounts due
to the Funds.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 47
to the Fund. In addition, certain of the Fund's contracts with its service
providers contain general indemnification clauses. The Fund's maximum exposure
under these arrangements is unknown since the amount of any future claims that
may be made against the Fund cannot be determined and the Fund has no historical
basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the deferred losses on
certain futures contracts, the recognition of certain foreign currency gains
(losses) as ordinary income (loss) for tax purposes and losses deferred due to
"wash sale" transactions. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains (losses) were recorded by
the Fund.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by
$5,035,154 and accumulated net realized loss has been decreased by $5,035,964
resulting in a net reclassification adjustment to decrease paid-in capital by
$810.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED AUG. 31, 2007 2006
- ----------------------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income......................... $86,827,158 $76,604,597
Long-term capital gain.................. -- --
Tax return of capital................... 1,969,457 --
CLASS B
Distributions paid from:
Ordinary income......................... 13,755,846 15,585,869
Long-term capital gain.................. -- --
Tax return of capital................... 312,017 --
CLASS C
Distributions paid from:
Ordinary income......................... 626,596 591,217
Long-term capital gain.................. -- --
Tax return of capital................... 14,213 --
</Table>
- --------------------------------------------------------------------------------
48 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
<Table>
<Caption>
YEAR ENDED AUG. 31, 2007 2006
- ----------------------------------------------------------------------------
CLASS I
Distributions paid from:
Ordinary income......................... 15,257,999 4,560,444
Long-term capital gain.................. -- --
Tax return of capital................... 346,089 --
CLASS R2(A)
Distributions paid from:
Ordinary income......................... 141 N/A
Long-term capital gain.................. -- N/A
Tax return of capital................... 3 N/A
CLASS R3(A)
Distributions paid from:
Ordinary income......................... 151 N/A
Long-term capital gain.................. -- N/A
Tax return of capital................... 3 N/A
CLASS R4(B)
Distributions paid from:
Ordinary income......................... 4,383,933 6,737,531
Long-term capital gain.................. -- --
Tax return of capital................... 99,439 --
CLASS R5(A)
Distributions paid from:
Ordinary income......................... 167 N/A
Long-term capital gain.................. -- N/A
Tax return of capital................... 4 N/A
CLASS W(C)
Distributions paid from:
Ordinary income......................... 2,150,062 N/A
Long-term capital gain.................. -- N/A
Tax return of capital................... 48,769 N/A
</Table>
(a) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007.
(b) Effective Dec. 11, 2006, Class Y was renamed R4.
(c) For the period from Dec. 1, 2006 (inception date) to Aug. 31, 2007.
At Aug. 31, 2007, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income............................ $ --
Undistributed accumulated long-term gain................. $ --
Accumulated realized loss................................ $(154,484,363)
Unrealized appreciation (depreciation)................... $ (30,249,391)
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
On Sept. 20, 2006, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 157 "Fair Value Measurements"
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 49
(SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional disclosures
about fair-value measurements. The application of SFAS 157 is required for
fiscal years beginning after Nov. 15, 2007 and interim periods within those
fiscal years. The impact of SFAS 157 on the Fund's financial statements is being
evaluated.
In June 2006, the FASB issued FASB Interpretation 48 (FIN 48), "Accounting for
Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in accordance with FASB Statement 109, "Accounting for
Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a
tax position taken or expected to be taken in a tax return. The first step is to
determine whether a tax position has met the more-likely-than-not recognition
threshold and the second step is to measure a tax position that meets the
threshold to determine the amount of benefit to recognize. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. FIN 48 is effective for fiscal
years beginning after Dec. 15, 2006. As a result, the Fund will incorporate FIN
48 in their semiannual report on Feb 29, 2008. Tax positions of the Fund are
being evaluated to determine the impact, if any, to the Fund. The adoption of
FIN 48 is not anticipated to have a material impact on the Fund.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income, if any, is recognized on the ex-dividend date or upon
receipt of ex-dividend notification in the case of certain foreign securities.
Interest income, including amortization of premium, market discount and original
issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.48%
to 0.29% annually as the Fund's assets increase. The management fee for the year
ended Aug. 31, 2007, was 0.46% of the Fund's average daily net assets.
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.07% to 0.04% annually as the
Fund's
- --------------------------------------------------------------------------------
50 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
assets increase. The fee for the year ended Aug. 30, 2007, was 0.06% of the
Fund's average daily net assets.
Other expenses in the amount of $22,780 are for, among other things, certain
expenses of the Fund or the Board including: Fund boardroom and office expense,
employee compensation, employee health and retirement benefits, and certain
other expenses. Payment of these Fund and Board expenses is facilitated by a
company providing limited administrative services to the Fund and the Board.
Compensation of Board members includes, for a former Board Chair, compensation
as well as retirement benefits. Certain other aspects of a former Board Chair's
compensation, including health benefits and payment of certain other expenses,
are included under other expenses.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
RiverSource funds. The Fund's liability for these amounts is adjusted for market
value changes and remains in the Fund until distributed in accordance with the
Plan.
Professional fees include fees paid by the Fund for legal services and
independent registered public accounting firm services.
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual fee per shareholder account for this service as follows:
- - Class A $20.50
- - Class B $21.50
- - Class C $21.00
Effective Dec. 11, 2006, as part of the Board's approval to rename Class Y as
Class R4, the fee structure under the Transfer Agency Agreement was revised from
an account-based fee for Class Y to an asset-based fee for Class R4. The Fund
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 R4 shares. Prior to Dec.
11, 2006, the Fund paid the Transfer Agent an annual account-based fee of $18.50
per shareholder account.
In addition, the Fund 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 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.
Prior to Dec. 11, 2006, Class I paid a transfer agency fee at an annual rate per
shareholder account of $1. Effective Dec. 11, 2006, this fee was eliminated.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 51
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the statement of operations.
The Fund has agreements with Ameriprise Financial Services, Inc. and RiverSource
Distributors, Inc. (collectively, the Distributor) for distribution and
shareholder services. As of Oct. 1, 2007, RiverSource Distributors serves as the
sole principal and distributor to the Funds. 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.
Effective Dec. 11, 2006, a Plan Administration Services Agreement, a fee for the
provision of various administrative, recordkeeping, communication and
educational services, was adopted for the restructured Class R4 and the
introduction of Class R2 and Class R3. The fee is calculated at a rate of 0.25%
of the Fund's average daily net assets attributable to Class R2, Class R3 and
Class R4 shares.
Prior to Dec. 11, 2006, under a Shareholder Service Agreement, the Fund paid the
Distributor a fee for service provided to shareholders by the Distributor and
other servicing agents with respect to Class Y shares. The fee was calculated at
a rate of 0.10% of the Fund's average daily net assets attributable to Class Y
shares. Effective Dec. 11, 2006, this agreement was terminated.
Sales charges received by the Distributor for distributing Fund shares were
$2,007,768 for Class A, $329,350 for Class B and $3,133 for Class C for the year
ended Aug. 31, 2007.
In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in which
it invests (also referred to as "acquired funds"), including affiliated and non-
affiliated pooled investment vehicles (including mutual funds and exchange
traded funds). Because the acquired funds have varied expense and fee levels and
the Fund may own different proportions of acquired funds at different times, the
amount of fees and expenses incurred indirectly by the Fund will vary.
For the year ended Aug. 31, 2007, the Investment Manager and its affiliates
waived certain fees and expenses such that net expenses (excluding fees and
expenses of acquired funds) were 0.89% for Class A, 1.65% for Class B, 1.65% for
Class C, 0.54% for Class I, 1.32% for Class R2, 1.06% for Class R3, 0.73% for
Class R4, 0.57% for Class R5 and 0.97% for Class W. Of these waived fees and
expenses, the transfer agency fees waived for Class A, Class B, Class C and
Class W were $1,146,146, $223,872, $9,929 and $6,612, respectively, and the
- --------------------------------------------------------------------------------
52 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
transfer agency and plan administration service fees waived for Class R4 were
$82,565 and the management fees waived at the Fund level were $535,573. Under an
agreement, which was effective until Aug. 31, 2007, 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
0.89% for Class A, 1.65% for Class B, 1.66% for Class C, 0.54% for Class I,
1.32% for Class R2, 1.07% for Class R3, 0.73% for Class R4, 0.57% for Class R5
and 0.97% for Class W of the Fund's average daily net assets. Effective Sept. 1,
2007, the Investment Manager and its affiliates have contractually agreed to
waive certain fees and expenses such that net expenses (excluding fees and
expenses of acquired funds) will not exceed 0.89% for Class A, 1.65% for Class
B, 1.65% for Class C, 0.53% for Class I, 1.33% for Class R2, 1.08% for Class R3,
0.77% for Class R4, 0.58% for Class R5 and 0.98% for Class W of the Fund's
average daily net assets, until Aug. 31, 2008, unless sooner terminated at the
discretion of the Board.
During the year ended Aug. 31, 2007, the Fund's custodian and transfer agency
fees were reduced by $229,404 as a result of earnings and bank fee credits from
overnight cash balances.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $8,543,779,920 and $8,345,887,467, respectively, for the
year ended Aug. 31, 2007. Realized gains and losses are determined on an
identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<Table>
<Caption>
YEAR ENDED AUG. 31, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- -------------------------------------------------------------------------------------------
Class A 71,107,119 14,806,791 (105,297,428) (19,383,518)
Class B 15,312,266 2,590,288 (39,059,052) (21,156,498)
Class C 893,514 115,836 (1,134,124) (124,774)
Class I 33,643,276 3,181,732 (14,430,925) 22,394,083
Class R2(a) 1,040 -- -- 1,040
Class R3(a) 1,040 -- -- 1,040
Class R4(b) 6,169,567 931,416 (27,102,344) (20,001,361)
Class R5(a) 1,040 -- -- 1,040
Class W(c) 55,562,189 417,986 (9,621,147) 46,359,028
- -------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 53
<Table>
<Caption>
YEAR ENDED AUG. 31, 2006
ISSUED FOR
FUND REINVESTED NET
SOLD MERGER DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------------------------------
Class A 66,603,100 101,470,543 12,810,045 (121,661,365) 59,222,323
Class B 16,761,356 17,711,859 2,867,046 (52,093,450) (14,753,189)
Class C 749,835 633,369 108,893 (1,561,227) (69,130)
Class I 23,207,815 33,851,639 941,851 (263,328) 57,737,977
Class R4(b) 4,039,333 9,182,696 1,392,410 (19,763,678) (5,149,239)
- ----------------------------------------------------------------------------------------------------------
</Table>
(a) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007.
(b) Effective Dec. 11, 2006, Class Y was renamed Class R4.
(c) For the period from Dec. 1, 2006 (inception date) to Aug. 31, 2007.
5. LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend securities
representing up to one-third of the value of its total assets (which includes
collateral for securities on loan) to broker-dealers, banks, or other
institutional borrowers of securities. The Fund receives collateral in the form
of cash and U.S. government securities, equal to at least 100% of the value of
securities loaned, which is marked to the market value of the loaned securities
daily until the securities are returned, e.g., if the value of the securities on
loan increases, additional cash collateral is provided by the borrower. The
Investment Manager serves as securities lending agent for the Fund under the
Investment Management Services Agreement pursuant to which the Fund has agreed
to reimburse the Investment Manager for expenses incurred by it in connection
with the lending program, and pursuant to guidelines adopted by and under the
oversight of the Board. At Aug. 31, 2007, securities valued at $53,596,150 were
on loan to brokers. For collateral, the Fund received $54,427,500 in cash. Cash
collateral received is invested in an affiliated money market fund and
short-term securities, including U.S. government securities or other high-grade
debt obligations, which are included in the "Investments in securities." From
Aug. 31, 2007 to Sept. 4, 2007, the Fund temporarily held less cash in short
term investments than the amount of collateral received from securities on loan.
Income from securities lending amounted to $395,879 for the year ended Aug. 31,
2007. Expenses paid to the Investment Manager were $12,365 for the year ended
Aug. 31, 2007, which are included in other expenses on the statement of
operations. The risks to the Fund of securities lending are that the borrower
may not provide additional collateral when required or return the securities
when due.
6. INTEREST RATE FUTURES CONTRACTS
At Aug. 31, 2007, investments in securities included securities valued at
$1,893,987 that were pledged as collateral to cover initial margin deposits on
1,669 open sale contracts. The notional market value of the open sale contracts
at Aug. 31, 2007 was $191,666,506 with a net unrealized loss of $4,402. See
"Summary of significant accounting policies" and "Notes to investments in
securities."
- --------------------------------------------------------------------------------
54 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
7. SWAP CONTRACTS
At Aug. 31, 2007, the Fund had the following open CBMS total return swap
contracts:
<Table>
<Caption>
TERMINATION NOTIONAL UNREALIZED UNREALIZED
DATE AMOUNT APPRECIATION DEPRECIATION
- ---------------------------------------------------------------------------------------
Receive total return on
Lehman Brothers Aaa 8.5+
Commercial Mortgage-Backed
Securities Index and pay a
floating rate based on
1-month LIBOR plus 0.25%.
Counterparty: Wachovia Oct. 1, 2007 $37,500,000 $508,013 $ --
Receive total return on
Lehman Brothers Baa 8.5+
Commercial Mortgage-Backed
Securities Index and pay a
floating rate based on
1-month LIBOR plus 1.20%.
Counterparty: Citibank NA Nov. 1, 2007 7,500,000 -- 501,510
Receive total return on
Lehman Brothers Baa 8.5+
Commercial Mortgage-Backed
Securities Index and pay a
floating rate based on
1-month LIBOR plus 1.05%.
Counterparty: Wachovia Dec. 1, 2007 6,725,000 -- 449,758
Receive total return on
Lehman Brothers Baa 8.5+
Commercial Mortgage-Backed
Securities Index and pay a
floating rate based on
1-month LIBOR plus 1.10%.
Counterparty: Citibank NA Dec. 1, 2007 7,525,000 -- 503,830
Receive total return on
Lehman Brothers Baa 8.5+
Commercial Mortgage-Backed
Securities Index and pay a
floating rate based on
1-month LIBOR plus 1.10%.
Counterparty: Wachovia Jan. 1, 2008 7,500,000 -- 501,277
Receive total return on
Lehman Brothers Baa 8.5+
Commercial Mortgage-Backed
Securities Index and pay a
floating rate based on
1-month LIBOR plus 1.00%.
Counterparty: Citibank NA Jan. 1, 2008 2,400,000 -- 223,243
- ---------------------------------------------------------------------------------------
Total $508,013 $2,179,618
- ---------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 55
At Aug. 31, 2007, the Fund had the following open credit default swap contracts:
<Table>
<Caption>
REFERENCED BUY/SELL NOTIONAL FIXED TERMINATION UNREALIZED UNREALIZED
COUNTERPARTY ENTITY PROTECTION AMOUNT RATE DATE APPRECIATION DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------
Goldman Lehman Brothers Sell $10,675,000 1.22% Sept. 20, 2012 $ -- $69,254
Sachs Holdings Inc.
Goldman Morgan Stanley Buy 10,675,000 0.72% Sept. 20, 2012 18,088 --
Sachs
- ------------------------------------------------------------------------------------------------------------------------
Total $18,088 $69,254
- ------------------------------------------------------------------------------------------------------------------------
</Table>
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 RiverSource funds
and other institutional clients of RiverSource Investments. Cost of purchases
and proceeds from sales of securities aggregated $1,655,721,359 and
$1,609,835,630, respectively, for the year ended Aug. 31, 2007.
9. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary
funding of shareholder redemptions or for other temporary or emergency purposes.
The agreement went into effect Sept. 19, 2006. The Fund must maintain asset
coverage for borrowings of at least 300%. The agreement, which enables the Fund
to participate with other RiverSource funds, permits borrowings up to $500
million, collectively. Interest is charged to each Fund based on its borrowings
at a rate equal to either the higher of the Federal Funds Effective Rate plus
0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within
60 days after such loan is executed. The Fund also pays a commitment fee equal
to its pro rata share of the amount of the credit facility at a rate of 0.06%
per annum. Prior to this agreement, the Fund paid a commitment fee equal to its
pro rata share of the amount of the credit facility at a rate of 0.07% per
annum. The Fund had no borrowings under the facility during the year ended Aug.
31, 2007.
10. FUND MERGER
At the close of business on March 10, 2006, RiverSource Diversified Bond Fund
acquired the assets and assumed the identified liabilities of RiverSource
Selective Fund. The reorganization was completed after shareholders approved the
plan on Feb. 15, 2006.
The aggregate net assets of RiverSource Diversified Bond Fund immediately before
the acquisition were $2,230,540,317 and the combined net assets immediately
after the acquisition were $3,004,582,180.
- --------------------------------------------------------------------------------
56 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
The merger was accomplished by a tax-free exchange of 91,783,512 shares of
RiverSource Selective Fund valued at $774,041,863.
In exchange for the RiverSource Selective Fund shares and net assets,
RiverSource Diversified Bond Fund issued the following number of shares:
<Table>
<Caption>
SHARES
- --------------------------------------------------------------------------
Class A.................................................... 101,470,543
Class B.................................................... 17,711,859
Class C.................................................... 633,369
Class I.................................................... 33,851,639
Class Y.................................................... 9,182,696
- --------------------------------------------------------------------------
</Table>
RiverSource Selective Fund's net assets after adjustments for any permanent
book-to-tax differences at the merger date were as follows, which include the
following amounts of capital stock, unrealized depreciation, accumulated net
realized loss and temporary book-to-tax differences.
<Table>
<Caption>
TEMPORARY
TOTAL CAPITAL UNREALIZED ACCUMULATED BOOK-TO-TAX
NET ASSETS STOCK DEPRECIATION NET REALIZED LOSS DIFFERENCES
- -----------------------------------------------------------------------------------------------------
RiverSource Selective
Fund $774,041,863 $826,804,340 $(18,618,938) $(34,129,421) $(14,118)
- -----------------------------------------------------------------------------------------------------
</Table>
11. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS
For federal income tax purposes, the Fund had a capital loss carry-over of
$143,554,285 at Aug. 31, 2007, that if not offset by capital gains will expire
as follows:
<Table>
<Caption>
2009 2010 2012 2014
$75,831,798 $49,658,521 $5,227,159 $12,836,807
</Table>
The Fund also had a post-October loss of $10,930,078 at Aug. 31, 2007.
Because the measurement periods for a regulated investment company's income are
different for excise tax purposes versus income tax purposes special rules are
in place to protect the amount of earnings and profits needed to support excise
tax distributions. As a result, the Funds are permitted to treat net capital
losses realized between November 1 and its fiscal year end ("post-October loss")
as occurring on the first day of the following tax year. At Aug. 31, 2007, the
Fund had a post-October loss of $10,930,078 that is treated as occurring on
Sept. 1, 2007.
RiverSource Diversified Bond Fund acquired $31,763,053 of capital loss
carry-overs in connection with the RiverSource Selective Fund merger (Note 10).
In addition to the acquired capital loss carry-overs, the Fund also acquired
unrealized capital gains as a result of the mergers. The yearly utilization of
the acquired capital losses as well as the utilization of the acquired
unrealized losses is limited by the Internal Revenue Code. It is unlikely the
Board will authorize a distribution of any net realized capital gains until the
available capital loss carry-over has been offset or expires.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 57
12. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendants' motion to dismiss the
complaint, the Court dismissed one of plaintiffs' four claims and granted
plaintiffs limited discovery. Defendants moved for summary judgment in April
2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The
plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on
August 8, 2007.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), the parent company of RiverSource Investments, LLC
(RiverSource Investments), entered into settlement agreements with the
Securities and Exchange Commission (SEC) and Minnesota Department of Commerce
(MDOC) related to market timing activities. In connection with these matters,
the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain
provisions of the federal and Minnesota securities laws by failing to adequately
disclose market timing activities by allowing certain identified market timers
to continue to market time contrary to disclosures in mutual fund and variable
annuity product prospectuses. The Orders also alleged that AEFC failed to
implement procedures to detect and prevent market timing in 401(k) plans for
employees of AEFC and related companies and failed to adequately disclose that
there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged
that AEFC allowed inappropriate market timing to occur by failing to have
written policies and procedures and failing to properly supervise its employees.
As a result of the Orders, AEFC was censured and ordered to cease and desist
from committing or causing any violations of certain provisions of the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and various
Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to make presentations at least annually to its board of directors and the
relevant mutual funds' board that include an overview of policies and procedures
to prevent market timing, material changes to these policies and procedures and
whether disclosures related to market timing are consistent with the SEC order
and
- --------------------------------------------------------------------------------
58 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
federal securities laws. AEFC also agreed to retain an independent distribution
consultant to assist in developing a plan for distribution of all disgorgement
and civil penalties ordered by the SEC in accordance with various undertakings
detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In addition, AEFC
agreed to complete and submit to the MDOC a compliance review of its procedures
regarding market timing within one year of the MDOC Order, including a summary
of actions taken to ensure compliance with applicable laws and regulations and
certification by a senior officer regarding compliance and supervisory
procedures.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Funds' Boards of Directors/Trustees.
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.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 59
13. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007 2006 2005 2004 2003
Net asset value, beginning of period $4.77 $4.89 $4.87 $4.78 $4.75
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .21(b) .19 .18 .18 .20
Net gains (losses) (both realized and
unrealized) .05 (.11) .03 .08 .03
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .26 .08 .21 .26 .23
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.20) (.19) (.17) (.20)
Tax return of capital (.01) -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions (.22) (.20) (.19) (.17) (.20)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.81 $4.77 $4.89 $4.87 $4.78
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $1,937 $2,013 $1,774 $1,933 $2,280
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) .89%(e) .89%(e) .94%(e) .98%(e) .97%
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.43% 4.09% 3.67% 3.55% 4.16%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295% 281% 300% 279% 256%
- -----------------------------------------------------------------------------------------------------------
Total return(f) 5.54% 1.64% 4.38% 5.54% 4.91%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using average shares outstanding
method.
(c) Expense ratio is based on total expenses of the Fund after Investment
Manager waiver/reimbursement and before reduction of earnings and bank fee
credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.97%, 0.99%, 1.02% and 1.00% for the years ended
Aug. 31, 2007, 2006, 2005 and 2004, respectively.
(f) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
60 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007 2006 2005 2004 2003
Net asset value, beginning of period $4.77 $4.89 $4.88 $4.78 $4.75
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18(b) .16 .15 .14 .16
Net gains (losses) (both realized and
unrealized) .04 (.12) .01 .09 .03
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .22 .04 .16 .23 .19
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.16) (.15) (.13) (.16)
Tax return of capital (.00) -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions (.18) (.16) (.15) (.13) (.16)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.81 $4.77 $4.89 $4.88 $4.78
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $304 $402 $484 $628 $902
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) 1.65%(e) 1.65%(e) 1.70%(e) 1.73%(e) 1.73%
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.66% 3.31% 2.92% 2.78% 3.40%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295% 281% 300% 279% 256%
- -----------------------------------------------------------------------------------------------------------
Total return(f) 4.74% .88% 3.39% 4.95% 4.12%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using average shares outstanding
method.
(c) Expense ratio is based on total expenses of the Fund after Investment
Manager waiver/reimbursement and before reduction of earnings and bank fee
credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.73%, 1.76%, 1.78% and 1.75% for the years ended
Aug. 31, 2007, 2006, 2005 and 2004, respectively.
(f) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 61
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007 2006 2005 2004 2003
Net asset value, beginning of period $4.77 $4.90 $4.88 $4.78 $4.75
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18(b) .16 .15 .14 .16
Net gains (losses) (both realized and
unrealized) .04 (.13) .02 .09 .03
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .22 .03 .17 .23 .19
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.16) (.15) (.13) (.16)
Tax return of capital (.00) -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions (.18) (.16) (.15) (.13) (.16)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.81 $4.77 $4.90 $4.88 $4.78
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $17 $17 $18 $21 $27
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) 1.65%(e) 1.66%(e) 1.70%(e) 1.73%(e) 1.74%
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.67% 3.31% 2.93% 2.79% 3.34%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295% 281% 300% 279% 256%
- -----------------------------------------------------------------------------------------------------------
Total return(f) 4.73% .66% 3.60% 4.95% 4.11%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using average shares outstanding
method.
(c) Expense ratio is based on total expenses of the Fund after Investment
Manager waiver/reimbursement and before reduction of earnings and bank fee
credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.73%, 1.76%, 1.79% and 1.75% for the years ended
Aug. 31, 2007, 2006, 2005 and 2004, respectively.
(f) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
62 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007 2006 2005 2004(B)
Net asset value, beginning of period $4.78 $4.89 $4.88 $4.91
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23(c) .21 .20 .11
Net gains (losses) (both realized and
unrealized) .04 (.11) .02 (.04)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .27 .10 .22 .07
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.21) (.21) (.10)
Tax return of capital (.01) -- -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions (.23) (.21) (.21) (.10)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.82 $4.78 $4.89 $4.88
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $386 $276 $-- $--
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(d),(e) .54%(f) .54%(f) .60% .59%(g)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.80% 4.59% 4.01% 3.13%(g)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295% 281% 300% 279%
- -----------------------------------------------------------------------------------------------------------
Total return(h) 5.90% 2.19% 4.53% 1.43%(i)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (inception date) to Aug. 31, 2004.
(c) Per share amount has been calculated using average shares outstanding
method.
(d) Expense ratio is based on total expenses of the Fund after Investment
Manager waiver/reimbursement and before reduction of earnings and bank fee
credits on cash balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class I would have been 0.56% and 0.55% for the years ended Aug. 31, 2007
and 2006, respectively.
(g) Adjusted to an annual basis.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 63
CLASS R2
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(B)
Net asset value, beginning of period $4.81
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14(c)
Net gains (losses) (both realized and
unrealized) (.02)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .12
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.13)
Tax return of capital (.00)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.13)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.80
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $--
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(d),(e) 1.32%(f)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.06%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 2.70%(h)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007.
(c) Per share amount has been calculated using average shares outstanding
method.
(d) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- --------------------------------------------------------------------------------
64 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
CLASS R3
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(B)
Net asset value, beginning of period $4.81
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15(c)
Net gains (losses) (both realized and
unrealized) (.02)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .13
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14)
Tax return of capital (.00)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.14)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.80
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $--
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(d),(e) 1.06%(f)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.33%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 2.90%(h)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007.
(c) Per share amount has been calculated using average shares outstanding
method.
(d) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 65
CLASS R4*
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007 2006 2005 2004 2003
Net asset value, beginning of period $4.77 $4.89 $4.88 $4.78 $4.75
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .22(b) .20 .19 .18 .21
Net gains (losses) (both realized and
unrealized) .04 (.12) .02 .10 .03
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .26 .08 .21 .28 .24
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.20) (.20) (.18) (.21)
Tax return of capital (.01) -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions (.23) (.20) (.20) (.18) (.21)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.80 $4.77 $4.89 $4.88 $4.78
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $78 $173 $202 $203 $268
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(c),(d) .73%(e) .73%(e) .78%(e) .81%(e) .81%
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.53% 4.24% 3.85% 3.70% 4.34%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295% 281% 300% 279% 256%
- -----------------------------------------------------------------------------------------------------------
Total return(f) 5.49% 1.81% 4.34% 5.92% 5.08%
- -----------------------------------------------------------------------------------------------------------
</Table>
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using average shares outstanding
method.
(c) Expense ratio is based on total expenses of the Fund after Investment
Manager waiver/reimbursement and before reduction of earnings and bank fee
credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class R4 would have been 0.83%, 0.82%, 0.86% and 0.83% for the years ended
Aug. 31, 2007, 2006, 2005 and 2004, respectively.
(f) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
66 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
CLASS R5
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(B)
Net asset value, beginning of period $4.81
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17(c)
Net gains (losses) (both realized and
unrealized) (.02)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .15
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16)
Tax return of capital (.00)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.16)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.80
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $--
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(d),(e),(f) .57%(g)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.81%(g)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295%
- -----------------------------------------------------------------------------------------------------------
Total return(h) 3.25%(i)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007.
(c) Per share amount has been calculated using average shares outstanding
method.
(d) Expense ratio is based on total expenses of the Fund after Investment
Manager waiver/reimbursement and before reduction of earnings and bank fee
credits on cash balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class R5 would have been 0.59% for the period ended Aug. 31, 2007.
(g) Adjusted to an annual basis.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 67
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED AUG. 31, 2007(B)
Net asset value, beginning of period $4.82
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15(c)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16)
Tax return of capital (.00)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.16)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.81
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $223
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily
net assets(d),(e),(f) .97%(g)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.32%(g)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 295%
- -----------------------------------------------------------------------------------------------------------
Total return(h) 2.71%(i)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to Aug. 31, 2007.
(c) Per share amount has been calculated using average shares outstanding
method.
(d) Expense ratio is based on total expenses of the Fund after Investment
Manager waiver/reimbursement and before reduction of earnings and bank fee
credits on cash balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class W would have been 0.98% for the period ended Aug. 31, 2007.
(g) Adjusted to an annual basis.
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
- --------------------------------------------------------------------------------
68 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 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 schedule of investments in securities, of RiverSource Diversified Bond Fund
(the Fund), one of the portfolios constituting the RiverSource Diversified
Income Series, Inc, as of August 31, 2007, and the related statements of
operations, changes in net assets, and financial highlights for the year 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
audit. The financial statements and 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 statements and financial highlights.
We conducted our audit 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 audit 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, 2007, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2007 financial statements and financial highlights 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, 2007, the results of its operations, changes in its net
assets and the financial highlights for the year then ended, in conformity with
U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 18, 2007
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 69
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, 2007
CLASS A
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 25, 2006.............................................. $0.01750
Oct. 26, 2006............................................... 0.01750
Nov. 27, 2006............................................... 0.01800
Dec. 18, 2006............................................... 0.02100
Jan. 23, 2007............................................... 0.02100
Feb. 23, 2007............................................... 0.01700
March 26, 2007.............................................. 0.01700
April 25, 2007.............................................. 0.01700
May 25, 2007................................................ 0.01700
June 25, 2007............................................... 0.01700
July 25, 2007............................................... 0.01870
Aug. 24, 2007............................................... 0.01870
Total distributions(a)...................................... $0.21740
</Table>
- --------------------------------------------------------------------------------
70 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
CLASS B
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 25, 2006.............................................. $0.01472
Oct. 26, 2006............................................... 0.01441
Nov. 27, 2006............................................... 0.01480
Dec. 18, 2006............................................... 0.01889
Jan. 23, 2007............................................... 0.01737
Feb. 23, 2007............................................... 0.01388
March 26, 2007.............................................. 0.01385
April 25, 2007.............................................. 0.01396
May 25, 2007................................................ 0.01397
June 25, 2007............................................... 0.01390
July 25, 2007............................................... 0.01563
Aug. 24, 2007............................................... 0.01571
Total distributions(b)...................................... $0.18109
</Table>
CLASS C
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 25, 2006.............................................. $0.01468
Oct. 26, 2006............................................... 0.01438
Nov. 27, 2006............................................... 0.01476
Dec. 18, 2006............................................... 0.01886
Jan. 23, 2007............................................... 0.01730
Feb. 23, 2007............................................... 0.01393
March 26, 2007.............................................. 0.01387
April 25, 2007.............................................. 0.01393
May 25, 2007................................................ 0.01399
June 25, 2007............................................... 0.01396
July 25, 2007............................................... 0.01573
Aug. 24, 2007............................................... 0.01573
Total distributions(b)...................................... $0.18112
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 71
CLASS I
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 25, 2006.............................................. $0.01881
Oct. 26, 2006............................................... 0.01895
Nov. 27, 2006............................................... 0.01950
Dec. 18, 2006............................................... 0.02200
Jan. 23, 2007............................................... 0.02270
Feb. 23, 2007............................................... 0.01846
March 26, 2007.............................................. 0.01847
April 25, 2007.............................................. 0.01842
May 25, 2007................................................ 0.01842
June 25, 2007............................................... 0.01845
July 25, 2007............................................... 0.02010
Aug. 24, 2007............................................... 0.02010
Total distributions(a)...................................... $0.23438
</Table>
CLASS R2
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 18, 2006............................................... $0.00587
Jan. 23, 2007............................................... 0.01889
Feb. 23, 2007............................................... 0.01516
March 26, 2007.............................................. 0.01523
April 25, 2007.............................................. 0.01521
May 25, 2007................................................ 0.01523
June 25, 2007............................................... 0.01522
July 25, 2007............................................... 0.01685
Aug. 24, 2007............................................... 0.01684
Total distributions(c)...................................... $0.13450
</Table>
- --------------------------------------------------------------------------------
72 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
CLASS R3
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 18, 2006............................................... $0.00608
Jan. 23, 2007............................................... 0.02018
Feb. 23, 2007............................................... 0.01631
March 26, 2007.............................................. 0.01631
April 25, 2007.............................................. 0.01635
May 25, 2007................................................ 0.01637
June 25, 2007............................................... 0.01629
July 25, 2007............................................... 0.01789
Aug. 24, 2007............................................... 0.01789
Total distributions(c)...................................... $0.14367
</Table>
CLASS R4*
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Sept. 25, 2006.............................................. $0.01808
Oct. 26, 2006............................................... 0.01807
Nov. 27, 2006............................................... 0.01866
Dec. 18, 2006............................................... 0.02167
Jan. 23, 2007............................................... 0.02185
Feb. 23, 2007............................................... 0.01763
March 26, 2007.............................................. 0.01764
April 25, 2007.............................................. 0.01762
May 25, 2007................................................ 0.01762
June 25, 2007............................................... 0.01763
July 25, 2007............................................... 0.01928
Aug. 24, 2007............................................... 0.01932
Total distributions(a)...................................... $0.22507
</Table>
* Effective Dec. 11, 2006, Class Y was reamed Class R4.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 73
CLASS R5
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 18, 2006............................................... $0.00627
Jan. 23, 2007............................................... 0.02240
Feb. 23, 2007............................................... 0.01826
March 26, 2007.............................................. 0.01846
April 25, 2007.............................................. 0.01820
May 25, 2007................................................ 0.01818
June 25, 2007............................................... 0.01821
July 25, 2007............................................... 0.01980
Aug. 24, 2007............................................... 0.01979
Total distributions(b)...................................... $0.15957
</Table>
CLASS W
<Table>
<Caption>
INCOME DISTRIBUTIONS - taxable as dividend income:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
Dec. 18, 2006............................................... $0.01734
Jan. 23, 2007............................................... 0.01952
Feb. 23, 2007............................................... 0.01663
March 26, 2007.............................................. 0.01543
April 25, 2007.............................................. 0.01637
May 25, 2007................................................ 0.01649
June 25, 2007............................................... 0.01654
July 25, 2007............................................... 0.01835
Aug. 24, 2007............................................... 0.01835
Total distributions(c)...................................... $0.15502
</Table>
(a) $0.005 per share represents a tax return of capital.
(b) $0.004 per share represents a tax return of capital.
(c) $0.003 per share represents a tax return of capital.
- --------------------------------------------------------------------------------
74 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
BOARD MEMBERS AND OFFICERS
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board members. Each member oversees 104
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
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 Chief Justice, Minnesota Supreme
901 S. Marquette Ave. since 2006 Court, 1998-2005
Minneapolis, MN 55402
Age 53
- -----------------------------------------------------------------------------------------------------
Arne H. Carlson Board member Chair, RiverSource Funds,
901 S. Marquette Ave. since 1999 1999-2006; former Governor of
Minneapolis, MN 55402 Minnesota
Age 73
- -----------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member President, Springboard -- Partners
901 S. Marquette Ave. since 2007 in Cross Cultural Leadership
Minneapolis, MN 55402 (consulting company)
Age 52
- -----------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and
901 S. Marquette Ave. since 2004 Management, Bentley College; former
Minneapolis, MN 55402 Dean, McCallum Graduate School of
Age 56 Business, Bentley College
- -----------------------------------------------------------------------------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 72
- -----------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive
901 S. Marquette Ave. since 2005 Asset Management Insurance
Minneapolis, MN 55402
Age 72
- -----------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries,
901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures
Minneapolis, MN 55402 Chair of the irrigation systems)
Age 68 Board since 2007
- -----------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 75
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
- -----------------------------------------------------------------------------------------------------
Catherine James Paglia Board member Director, Enterprise Asset Strategic
901 S. Marquette Ave. since 2004 Management, Inc. (private real Distribution, Inc.
Minneapolis, MN 55402 estate and asset management (transportation,
Age 55 company) distribution and
logistics
consultants)
- -----------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member Chief Executive Officer, RiboNovix, Hybridon, Inc.
901 S. Marquette Ave. since 2002 Inc. since 2003 (biotechnology); (biotechnology);
Minneapolis, MN 55402 former President, Forester Biotech American Healthways,
Age 63 Inc. (health
management programs)
- -----------------------------------------------------------------------------------------------------
</Table>
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 President -- U.S. Asset Management
53600 Ameriprise since 2001, and Chief Investment Officer,
Financial Center Vice President Ameriprise Financial, Inc. and
Minneapolis, MN 55474 since 2002 President, Chairman of the Board
Age 47 and Chief Investment Officer,
RiverSource Investments, LLC since
2005; President, Ameriprise
Certificate Company since 2006;
Senior Vice President -- Chief
Investment Officer, Ameriprise
Financial, Inc. and Chairman of the
Board and Chief Investment Officer,
RiverSource Investments, LLC,
2001-2005
- -----------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling RiverSource Funds at (888)
791-3380; contacting your financial institution; or visiting
riversource.com/funds.
- --------------------------------------------------------------------------------
76 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Patrick T. Bannigan President since Senior Vice President -- Asset Management,
172 Ameriprise 2006 RiverSource Investments, LLC since 2006;
Financial Center Managing Director and Global Head of Product,
Minneapolis, MN 55474 Morgan Stanley Investment Management,
Age 41 2004-2006; President, Touchstone Investments,
2002-2004; Director of Strategic Planning,
Evergreen Investments, 1995-2002
- ------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed
172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and
Financial Center RiverSource Investments, LLC since 2006; Vice
Minneapolis, MN 55474 President -- Investments, Ameriprise
Age 43 Certificate Company since 2003; Senior Vice
President -- Fixed Income, Ameriprise
Financial, Inc., 2002-2006 and RiverSource
Investments, LLC, 2004-2006; Managing
Director, Zurich Global Assets, 2001-2002
- ------------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President -- Asset Management and Trust
5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC
Financial Center since 2006; Vice President -- Operations and
Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC,
Age 42 2004-2006; Director of Product
Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- ------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting,
105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Vice
Financial Center President -- Finance, American Express
Minneapolis, MN 55474 Company, 2000-2002
Age 52
- ------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset
5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since
Financial Center and Secretary 2005; Vice President, General Counsel and
Minneapolis, MN 55474 since 2006 Secretary, Ameriprise Certificate Company
Age 48 since 2005; Vice President -- Asset Management
Compliance, Ameriprise Financial, Inc.,
2004-2005; Senior Vice President and Chief
Compliance Officer, U.S. Bancorp Asset
Management, 2002-2004; Second Vice President
and Assistant General Counsel, Hartford Life,
2001-2002
- ------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance
172 Ameriprise Officer since Officer, RiverSource Investments, LLC since
Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset
Minneapolis, MN 55474 Management, 2003-2006; Director of Finance,
Age 46 Voyageur Asset Management, 2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 77
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since
Financial Center Officer since 2004; Manager Anti-Money Laundering,
Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004;
Age 43 Compliance Director and Bank Secrecy Act
Officer, American Express Centurion Bank,
2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
78 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT
RiverSource Investments, LLC ("RiverSource"), 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 provides investment advice and other services to the
Fund and all RiverSource funds (collectively, the "Funds"). The Fund's Board of
Directors (the "Board") and the Board's Investment Review and Contracts
Committees monitor these services throughout the year.
On an annual basis, the Board, including the independent Board members (the
"Independent Directors"), considers renewal of the IMS Agreement. RiverSource
prepares detailed reports for the Board and its Contracts Committee in March and
April, 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
addressing the services RiverSource provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts and Investment Review Committees in determining whether to continue
the IMS Agreement. At the April 11-12, 2007 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: The Board
analyzed various reports and presentations it had received detailing the
services performed by RiverSource, as well as its expertise, resources and
capabilities. The Board specifically considered many developments during the
past year concerning the services provided by RiverSource, including, in
particular, the growing strength and capabilities of many RiverSource offices
and the increased investment and resources dedicated to the Fund's operations,
particularly in the areas of trading systems, legal and compliance. Further, in
connection with the Board's evaluation of the overall package of services
provided by RiverSource, the Board considered the quality of the administrative,
custody and transfer agency services provided by RiverSource affiliates to the
Fund. The Board also reviewed the financial condition of RiverSource and the
entity's ability to carry out its responsibilities under the IMS Agreement. 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). The Board concluded that the services being performed under the
IMS Agreement were of a reasonably high quality.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 79
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 determined that RiverSource was 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 (including since inception), recent Fund
inflows (and outflows) and a comparison of the Fund's net assets from December
2006 to December 2005. The Board observed that the Fund's investment performance
met expectations.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource 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's profitability. 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, 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) was below the peer group's median expense ratio shown in the
reports. Based on its review, the Board concluded that the Fund's management fee
was fair and reasonable in light of the extent and quality of services that the
Fund receives.
The Board also considered the expected profitability of RiverSource and its
affiliates in connection with RiverSource providing investment management
services to the Fund. In this regard, the Board referred to a detailed
profitability report, discussing the profitability to RiverSource and Ameriprise
Financial from managing and operating the Fund, including data showing
comparative profitability. 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
- --------------------------------------------------------------------------------
80 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
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 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 12, 2007, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement.
PROXY VOTING
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities is filed
with the SEC by August 31 for the most recent 12-month period ending June 30 of
that year, and is available without charge by visiting riversource.com/funds; or
searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT 81
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On April 12, 2007, Ernst & Young LLP was selected as the Fund's independent
registered public accounting firm for the 2007 fiscal year. A majority of the
Fund's Board of Directors, including a majority of the Independent Directors,
approved the appointment of Ernst & Young LLP. The predecessor independent
registered public accounting firm's reports on the Fund's financial statements
for the year ended Aug. 31, 2006 and the year ended Aug. 31, 2005 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. During such fiscal periods
and through April 12, 2007 there were no disagreements between the Fund and the
predecessor independent registered public accounting firm on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which such disagreements, if not resolved to the
satisfaction of the predecessor independent registered public accounting firm,
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports on the financial statements for
such fiscal periods.
- --------------------------------------------------------------------------------
82 RIVERSOURCE DIVERSIFIED BOND FUND -- 2007 ANNUAL REPORT
RIVERSOURCE(R) 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
Distributors, Inc., Member FINRA, and managed
by RiverSource Investments, LLC. These
companies are part of Ameriprise Financial,
(RIVERSOURCE INVESTMENTS LOGO) Inc. (C)2007 RiverSource Distributors, Inc. S-6495 AA (10/07)
</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 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:
2007 - $24,650
(b) Audit - Related Fees. The fees for the year ended Aug. 31, to Ernst & Young
LLP for additional professional services rendered in connection with the
registrant's semiannual financial statement review for RiverSource
Diversified Income Series, Inc. were as follows:
2007 - $350
(c) Tax Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for tax
compliance related services for RiverSource Diversified Income Series, Inc.
were as follows:
2007 - $3,300
(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:
2007 - $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
2007 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:
2007 - $511,730
(h) 100% of the services performed in item (g) above during 2007 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. The complete schedule of investments is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure controls
and procedures as conducted within 90 days of the filing date of this
Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal executive
officer and principal financial officer, as required by Section 302 of
the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Diversified Income Series,
Inc.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date November 2, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date November 2, 2007
By /s/ Jeffrey P. Fox
----------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial
Officer
Date November 2, 2007