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