UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-2503
RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-1947
Date of fiscal year end: 8/31
Date of reporting period: 8/31
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
DIVERSIFIED BOND FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
AUGUST 31, 2008
(Prospectus also enclosed)
RIVERSOURCE DIVERSIFIED BOND FUND SEEKS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME
WHILE CONSERVING THE VALUE OF THE INVESTMENT FOR THE
LONGEST PERIOD OF TIME.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective,
investment strategy, risks, sales charges,
fees and other matters of interest. Please
read the prospectus carefully before you
invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 2
Manager Commentary................. 6
The Fund's Long-term Performance... 12
Fund Expenses Example.............. 14
Portfolio of Investments........... 17
Financial Statements............... 40
Notes to Financial Statements...... 46
Report of Independent Registered
Public Accounting Firm........... 73
Federal Income Tax Information..... 75
Board Members and Officers......... 76
Approval of Investment Management
Services Agreement............... 79
Proxy Voting....................... 81
</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.
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RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Diversified Bond Fund (the Fund) Class A shares increased 0.93%
(excluding sales charge) for the 12 months ended Aug. 31, 2008.
> The Fund underperformed its benchmark, the unmanaged Lehman Brothers Aggregate
Bond Index, which gained 5.86%.
> The Fund also underperformed its peer group, as represented by the Lipper
Intermediate Investment Grade Index, which returned 1.78% during the same
period.
ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------
RiverSource Diversified Bond
Fund
Class A (excluding sales
charge) +0.93% +2.68% +3.59% +4.26%
- --------------------------------------------------------------------
Lehman Brothers Aggregate Bond
Index (unmanaged) +5.86% +4.26% +4.61% +5.58%
- --------------------------------------------------------------------
Lipper Intermediate Investment
Grade Index +1.78% +2.61% +3.66% +4.84%
- --------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the 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.
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2 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
STYLE MATRIX
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<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
X MEDIUM QUALITY
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) 7.52 years
- --------------------------------------
Effective duration(2) 4.45 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 0.95% 0.83%
- ----------------------------------------
Class B 1.71% 1.59%
- ----------------------------------------
Class C 1.70% 1.58%
- ----------------------------------------
Class I 0.55% 0.47%
- ----------------------------------------
Class R2 1.34% 1.27%
- ----------------------------------------
Class R3 1.08% 1.02%
- ----------------------------------------
Class R4 0.85% 0.77%
- ----------------------------------------
Class R5 0.59% 0.52%
- ----------------------------------------
Class W 0.99% 0.92%
- ----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until Aug. 31, 2009, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding fees and expenses of acquired funds) will not exceed 0.83% for
Class A, 1.59% for Class B, 1.58% for Class C, 0.47% for Class I, 1.27% for
Class R2, 1.02% for Class R3, 0.77% for Class R4, 0.52% for Class R5 and
0.92% for Class W.
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is more pronounced for longer-term securities. Non-investment grade securities,
commonly called "high-yield" or "junk" bonds, have more volatile prices and
carry more risk to principal and income than investment grade securities.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT AUG. 31, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
10/3/74) +0.93% +2.68% +3.59% +4.26% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +0.16% +1.91% +2.81% +3.47% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +0.16% +1.83% +2.80% N/A +3.95%
- ---------------------------------------------------------------------------
Class I (inception 3/4/04) +1.07% +3.03% N/A N/A +3.35%
- ---------------------------------------------------------------------------
Class R2 (inception
12/11/06) +0.84% N/A N/A N/A +2.05%
- ---------------------------------------------------------------------------
Class R3 (inception
12/11/06) +1.11% N/A N/A N/A +2.33%
- ---------------------------------------------------------------------------
Class R4 (inception
3/20/95) +1.03% +2.76% +3.70% +4.39% N/A
- ---------------------------------------------------------------------------
Class R5 (inception
12/11/06) +1.22% N/A N/A N/A +2.59%
- ---------------------------------------------------------------------------
Class W (inception
12/01/06) +0.82% N/A N/A N/A +2.02%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
10/3/74) -3.87% +1.06% +2.58% +3.72% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -4.67% +0.67% +2.45% +3.47% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -0.81% +1.83% +2.80% N/A +3.95%
- ---------------------------------------------------------------------------
</Table>
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4 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT SEPT. 30, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
10/3/74) -1.59% +2.47% +2.78% +3.88% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -2.35% +1.70% +2.01% +3.10% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -2.35% +1.62% +1.96% N/A +3.71%
- ---------------------------------------------------------------------------
Class I (inception 3/4/04) -1.24% +2.90% N/A N/A +3.00%
- ---------------------------------------------------------------------------
Class R2 (inception
12/11/06) -1.66% N/A N/A N/A +1.08%
- ---------------------------------------------------------------------------
Class R3 (inception
12/11/06) -1.40% N/A N/A N/A +1.35%
- ---------------------------------------------------------------------------
Class R4 (inception
3/20/95) -1.50% +2.54% +2.90% +4.01% N/A
- ---------------------------------------------------------------------------
Class R5 (inception
12/11/06) -1.31% N/A N/A N/A +1.61%
- ---------------------------------------------------------------------------
Class W (inception
12/01/06) -1.69% N/A N/A N/A +1.06%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
10/3/74) -6.24% +0.83% +1.80% +3.35% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -7.06% +0.46% +1.66% +3.10% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -3.29% +1.62% +1.96% N/A +3.71%
- ---------------------------------------------------------------------------
</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.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 5
MANAGER COMMENTARY -------------------------------------------------------------
Dear Shareholders,
RiverSource Diversified Bond Fund (the Fund) Class A shares increased 0.93%
(excluding sales charge) for the 12 months ended Aug. 31, 2008. The Fund
underperformed its benchmark, the unmanaged Lehman Brothers Aggregate Bond Index
(Lehman Index), which gained 5.86%. The Fund also underperformed its peer group,
as represented by the Lipper Intermediate Investment Grade Index, which returned
1.78% during the same period.
SIGNIFICANT PERFORMANCE FACTORS
Impacting the Fund's performance most was the dominating sentiment of risk-
aversion among fixed income investors during the annual period. The Fund's
fiscal year began just following the advent of the credit crisis in 2007, which
centered on the subprime mortgage market. As the market transitioned into 2008,
ongoing declines in housing prices expanded concerns into higher quality loan
segments, which eventually led to further restricted credit availability. Fixed
income investors were simultaneously facing deterioration in underlying economic
fundamentals
SECTOR DIVERSIFICATION (at Aug. 31, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
Asset-Backed 1.5%
- ------------------------------------------------
Commercial Mortgage-Backed 8.4%
- ------------------------------------------------
Consumer Discretionary 1.6%
- ------------------------------------------------
Consumer Staples 2.2%
- ------------------------------------------------
Energy 2.7%
- ------------------------------------------------
Financials 5.4%
- ------------------------------------------------
Foreign Government 0.8%
- ------------------------------------------------
Health Care 0.7%
- ------------------------------------------------
Industrials 1.5%
- ------------------------------------------------
Materials 0.4%
- ------------------------------------------------
Mortgage-Backed 38.7%
- ------------------------------------------------
Telecommunication 7.2%
- ------------------------------------------------
U.S. Agency Debt 6.6%
- ------------------------------------------------
U.S. Treasuries 9.9%
- ------------------------------------------------
Utilities 4.3%
- ------------------------------------------------
Other(1) 8.1%
- ------------------------------------------------
</Table>
(1) Cash & Cash Equivalents. Of the 8.1%, 0.8% is due to security lending
activity and 7.3% is the Fund's cash equivalent position.
- --------------------------------------------------------------------------------
6 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
as well as the ongoing asset write-downs at commercial and investment banks.
Investors sought the relative safety of Treasuries, driving Treasury prices up
and yields down in dramatic fashion. Bond yields and prices move in opposite
directions. Treasury Inflation-Protected Securities (TIPS) also performed well,
given elevated inflation during the annual period. Agency securities fared
comparatively well as higher quality assets outperformed lower quality assets
during the 12 months.
The performance of higher quality fixed income securities was supported by
falling interest rates. During the 12-month period, the Federal Reserve (the
Fed) lowered the targeted federal funds rate by a significant 325 basis points,
or 3.25%, in an attempt to ease pressure in the short-term financing markets. At
the end of the annual period, the targeted federal funds rate stood at 2.00%. In
addition, the Fed attempted to restore confidence in the financial markets by
implementing an unprecedented series of measures to provide liquidity to banks
and brokers.
The Fund's exposure to TIPS helped its performance, as interest rates fell while
realized inflation was even higher than market expectations. This led to
enhanced income being generated by the TIPS. Effective issue selection within
the investment grade corporate bond sector also contributed positively to Fund
results. The Fund was positioned rather defensively with only a modest weighting
in financials-related corporate bonds, which continued to be pressured by
mounting losses and write-downs.
QUALITY BREAKDOWN
(at Aug. 31, 2008; % of portfolio assets excluding cash equivalents and
equities)
- ------------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 67.6%
- ---------------------------------------------------
AA bonds 3.9%
- ---------------------------------------------------
A bonds 7.3%
- ---------------------------------------------------
BBB bonds 18.0%
- ---------------------------------------------------
Non-investment grade bonds 3.2%
- ---------------------------------------------------
</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 0.1% of the bond portfolio assets were determined through internal analysis.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
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), residential mortgage securities and investment-grade
corporate bonds detracted from Fund performance, as these sectors lagged the
Lehman Index for the 12 months. Indeed, many formerly AAA-rated structured
assets were downgraded multiple notches during the period, experiencing severe
downward pricing adjustments as assets tied to the housing market were
reassessed by the rating agencies. The Fund's positions, though modest, in high
yield corporate bonds and emerging market debt also detracted from results.
Lower quality sectors overall lagged with investors' aversion to risk.
CHANGES TO THE FUND'S PORTFOLIO
We materially reduced the Fund's still-sizable position in CMBS. After initially
being tainted by the poor performance of the residential mortgage market and
price declines in associated residential mortgage-backed securities, CMBS
rebounded somewhat toward the end of the period. We used that opportunity to
reduce the Fund's exposure to CMBS and to redeploy the proceeds into what we
viewed as attractive opportunities in investment grade corporate bonds and U.S.
agency securities. We increased our allocation to agency securities, including
subordinated debt, given recent developments in the government-sponsored
enterprises (GSEs), such as mortgage lenders Fannie Mae and Freddie Mac. With
the wide publicity these developments have received, we should note here that
GSE debt represented approximately 10% of the Fund's assets at the end of the
annual period, with the majority consisting of senior debt, or debt that takes
priority over other debt securities sold by the issuer. In the event the issuer
goes bankrupt, senior debt must be repaid before other creditors receive any
payment. The Fund's portfolio turnover rate for the 12-month period, including
mortgage dollar rolls, was 226%.*
OUR FUTURE STRATEGY
At the end of the annual period, prices of many securities in the non-Treasury
sectors of the fixed income market were trading at distressed levels. However,
during the 12-month period, both Congress and the Fed took meaningful policy
actions that, in our view, will begin to improve economic prospects during the
remainder of 2008.
- --------------------------------------------------------------------------------
8 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
The highest quality assets of the fixed income market, i.e. Treasuries, appeared
overpriced at the end of August, as credit fears and the consequent flight to
quality drove yields to very low levels. At the other end of the spectrum, low-
quality high yield corporate bonds were much cheaper than they were a year
prior, but were not exceedingly compelling considering the elevated credit risk
for highly leveraged companies. We believe that the best opportunities for
investment may be in the middle of the credit spectrum. Specifically,
investment-grade corporate bonds and mortgage-backed securities appeared to
offer notably attractive yields on a risk-adjusted basis at the end of the
annual period.
We intend to maintain the Fund's exposure to TIPS, which should perform well
given current inflationary pressures. We expect to maintain the Fund's emphasis
on non-Treasury sectors of the fixed income market over Treasuries. We intend to
maintain the Fund's allocation to residential mortgage-backed securities and
CMBS, as we believe prices of these high-quality mortgage assets at the end of
the annual period represented significant value to the portfolio going forward.
U.S. agency bonds also remained attractive, as recent federal actions signal
strong support of the U.S. Treasury behind these institutions and their debt. We
further intend to maintain the Fund's sizable position in investment grade
corporate bonds overall, but with only modest exposure to the financial sector.
We intend to maintain the Fund's defensive position in the lower-quality high
yield sectors of the fixed income market in favor of opportunities in the
investment grade market. Given current market conditions, our goal is to
maintain an attractive yield profile, with an
Investors sought the relative safety of Treasuries, driving Treasury prices up
and yields down in dramatic fashion.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
emphasis on high-quality assets. As always, we will maintain a disciplined focus
on individual security selection.
As we expect volatility within the fixed income markets to continue through the
remainder 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.
* 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.
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10 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
(PHOTO - JAMIE JACKSON) (PHOTO - SCOTT KIRBY) (PHOTO - TOM MURPHY)
Jamie Jackson, CFA(R) Scott Kirby Tom Murphy, CFA(R)
Portfolio Manager Portfolio Manager Portfolio Manager
</Table>
<Table>
(PHOTO - NICOLAS PIFER) (PHOTO - JENNIFER PONCE de LEON)
Nicolas Pifer, CFA(R) Jennifer Ponce de Leon
Portfolio Manager 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.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 11
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Diversified Bond Fund Class A shares (from 9/1/98 to
8/31/08) as compared to the performance of two widely cited performance indices,
the Lehman Brothers Aggregate Bond Index and the Lipper Intermediate Investment
Grade Index. In comparing the Fund's Class A shares to these indices, you should
take into account the fact that the Fund's performance reflects the maximum
sales charge of 4.75%, while such charges are not reflected in the performance
of the indices. Returns for the Fund include the reinvestment of any
distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Aug. 31, 2008
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE DIVERSIFIED BOND FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,613 $10,321 $11,358 $14,450
- ------------------------------------------------------------------------------------------
Average annual total return -3.87% +1.06% +2.58% +3.72%
- ------------------------------------------------------------------------------------------
LEHMAN BROTHERS AGGREGATE BOND INDEX(1)
Cumulative value of $10,000 $10,586 $11,333 $12,528 $17,216
- ------------------------------------------------------------------------------------------
Average annual total return +5.86% +4.26% +4.61% +5.58%
- ------------------------------------------------------------------------------------------
LIPPER INTERMEDIATE INVESTMENT GRADE INDEX(2)
Cumulative value of $10,000 $10,178 $10,804 $11,969 $16,049
- ------------------------------------------------------------------------------------------
Average annual total return +1.78% +2.61% +3.66% +4.84%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 4.
- --------------------------------------------------------------------------------
12 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE DIVERSIFIED BOND FUND
<Table>
<Caption>
RIVERSOURCE DIVERSIFIED
BOND FUND
CLASS A LEHMAN BROTHERS LIPPER INTERMEDIATE
(INCLUDES SALES AGGREGATE BOND INVESTMENT GRADE
CHARGE) ($14,450) INDEX(1) ($17,216) INDEX(2) ($16,049)
----------------------- ------------------ -------------------
'98 $ 9,525 $10,000 $10,000
'99 9,683 10,080 10,044
'00 10,135 10,842 10,705
'01 11,197 12,181 12,023
'02 11,548 13,169 12,726
'03 12,115 13,743 13,411
'04 12,786 14,586 14,234
'05 13,346 15,191 14,858
'06 13,565 15,451 15,098
'07 14,317 16,263 15,769
'08 14,450 17,216 16,049
</Table>
(1) The Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of
a representative list of government, corporate, asset-backed and mortgage-
backed securities. The index is frequently used as a general measure of bond
market performance. The index reflects reinvestment of all distributions and
changes in market prices.
(2) The Lipper Intermediate Investment Grade Index includes the 30 largest
investment grade funds tracked by Lipper Inc. The index's returns include
net reinvested dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 13
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Aug. 31, 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.
- --------------------------------------------------------------------------------
14 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2008 AUG. 31, 2008 THE PERIOD(A) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 976.60 $4.39(c) .89%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.49 $4.48(c) .89%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 972.90 $8.12(c) 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30(c) 1.65%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 972.90 $8.07(c) 1.64%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.75 $8.25(c) 1.64%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 976.30 $2.61(c) .53%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.29 $2.67(c) .53%
- ------------------------------------------------------------------------------------------
Class R2
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 975.90 $6.60(c) 1.34%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.25 $6.74(c) 1.34%
- ------------------------------------------------------------------------------------------
Class R3
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 977.10 $5.42(c) 1.10%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,019.45 $5.54(c) 1.10%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 977.10 $3.80(c) .77%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.09 $3.88(c) .77%
- ------------------------------------------------------------------------------------------
Class R5
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 978.10 $2.86(c) .58%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.04 $2.92(c) .58%
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 15
FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2008 AUG. 31, 2008 THE PERIOD(A) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class W
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 976.10 $4.83(c) .98%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.04 $4.94(c) .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 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2008: -2.34%
for Class A, -2.71% for Class B, -2.71% for Class C, -2.37% for Class I,
-2.41% for Class R2, -2.29% for Class R3, -2.29% for Class R4, -2.19% for
Class R5 and -2.39% for Class W.
(c) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until Aug. 31, 2009, unless
sooner terminated at the discretion of Fund's Board, such that net expenses
(excluding interest and fee expenses related to the Fund's participation in
certain inverse floater programs and fees and expenses of acquired funds),
will not exceed 0.83% for Class A, 1.59% for Class B, 1.58% for Class C,
0.47% for Class I, 1.27% for Class R2, 1.02% for Class R3, 0.77% for Class
R4, 0.52% for Class R5 and 0.92% for Class W. Any amounts waived will not be
reimbursed by the Fund. This change was effective Sept. 1, 2008. Had this
change been in place the entire six month period ended Aug. 31, 2008, the
actual expenses paid would have been $4.09 for Class A, $7.82 for Class B,
$7.77 for Class C, $2.32 for Class I, $6.26 for Class R2, $5.03 for Class
R3, $2.56 for Class R5 and $4.53 for Class W; the hypothetical expenses paid
would have been $4.18 for Class A, $8.00 for Class B, $7.95 for Class C,
$2.37 for Class I, $6.39 for Class R2, $5.14 for Class R3, $2.62 for Class
R5 and $4.63 for Class W. The actual and hypothetical expenses paid for
Class R4 would have been the same as those expenses presented in the table
above.
- --------------------------------------------------------------------------------
16 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
AUG. 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (102.1%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
FOREIGN AGENCIES (0.2%)(C)
Pemex Project Funding Master Trust
03-01-18 5.75% $1,790,000(d) $1,758,593
06-15-35 6.63 2,543,000 2,510,342
Petroleos de Venezuela
04-12-17 5.25 3,534,000 2,373,965
------------
Total 6,642,900
- -------------------------------------------------------------------------------------
SOVEREIGN (0.7%)(C)
Govt of Ukraine
Sr Unsecured
11-14-17 6.75 1,670,000(d) 1,403,451
Republic of Argentina
09-12-13 7.00 2,762,000 2,078,405
Republic of Argentina
Sr Unsecured
12-15-35 0.00 3,350,000(e) 328,300
Republic of Colombia
01-27-17 7.38 1,495,000 1,644,500
09-18-37 7.38 1,320,000 1,446,720
Republic of El Salvador
06-15-35 7.65 1,313,000(d) 1,352,390
Republic of Indonesia
Sr Unsecured
01-17-18 6.88 742,000(d) 742,928
10-12-35 8.50 987,000(d) 1,058,558
01-17-38 7.75 850,000(d) 841,500
Republic of Philippines
01-15-16 8.00 425,000 468,563
01-14-31 7.75 1,979,000 2,167,004
Republic of Turkey
09-26-16 7.00 450,000 460,688
04-03-18 6.75 1,429,000 1,425,428
03-17-36 6.88 3,506,000 3,264,962
Republic of Uruguay
05-17-17 9.25 678,000 796,650
Republic of Venezuela
02-26-16 5.75 714,000 551,565
05-07-23 9.00 1,600,000 1,386,400
Republic of Venezuela
Sr Unsecured
10-08-14 8.50 715,000 664,950
Republica Orient Uruguay
Sr Unsecured
03-21-36 7.63 1,592,000 1,611,900
Russian Federation
03-31-30 7.50 973,180(d) 1,083,879
------------
Total 24,778,741
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (18.4%)
Federal Farm Credit Bank
10-10-08 4.25 660,000 661,286
10-17-12 4.50 1,060,000 1,086,026
Federal Home Loan Bank
09-12-08 4.25 2,215,000 2,216,473
Federal Home Loan Mtge Corp
03-15-09 5.75 170,000 172,429
05-28-10 2.38 1,160,000 1,145,631
07-17-15 4.38 75,935,000 76,163,337
12-14-18 5.00 31,666,000 25,780,621
03-15-31 6.75 13,360,000 16,344,718
04-16-37 6.00 46,875,000 46,144,172
Federal Natl Mtge Assn
01-02-14 5.13 46,467,000 42,096,546
04-15-15 5.00 37,060,000 38,549,627
07-15-37 5.63 16,325,000 17,210,185
Overseas Private Investment
Series 1996A
(U.S. Govt Guaranty)
09-15-08 6.99 555,555 557,675
U.S. Treasury
06-30-10 2.88 6,195,000 6,260,339
07-31-10 2.75 10,395,000(p) 10,479,459
08-31-10 2.38 30,135,000(g) 30,139,701
07-31-13 3.38 38,800,000(p) 39,330,474
08-31-13 3.13 69,060,000(g) 69,151,712
08-15-18 4.00 41,010,000 41,634,746
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 17
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (CONT.)
02-15-26 6.00% $10,300,000 $12,251,366
02-15-38 4.38 11,950,000 11,865,047
U.S. Treasury Inflation-Indexed Bond
01-15-14 2.00 65,880,367(m) 68,362,554
01-15-15 1.63 112,195,300(m) 113,880,016
------------
Total 671,484,140
- -------------------------------------------------------------------------------------
ASSET-BACKED (1.7%)
AmeriCredit Automobile Receivables Trust
Series 2007-DF Cl A3A (FSA)
07-06-12 5.49 7,000,000(h) 6,857,816
Capital Auto Receivables Asset Trust
Series 2006-SN1A Cl D
04-20-11 6.15 4,775,000(d) 4,434,940
Countrywide Asset-backed Ctfs
Series 2005-10 Cl AF6
02-25-36 4.92 1,960,000 1,639,016
Countrywide Asset-backed Ctfs
Series 2006-15 Cl A3
10-25-46 5.69 5,750,000 4,648,034
Countrywide Asset-backed Ctfs
Series 2006-4 Cl 1A1M
07-25-36 2.73 1,701,109(i) 1,445,565
Countrywide Asset-backed Ctfs
Series 2007-7 Cl 2A2
10-25-37 2.63 9,250,000(i) 7,155,744
CPS Auto Trust
Series 2007-A Cl A3 (MBIA)
09-15-11 5.04 4,149,997(d,h) 3,972,525
Dunkin Securitization
Series 2006-1 Cl A2 (AMBAC)
06-20-31 5.78 9,650,000(d,h) 8,445,004
Keycorp Student Loan Trust
Series 2003-A Cl 2A2 (MBIA)
10-25-25 3.11 1,421,555(h,i) 1,388,238
MASTR Asset Backed Securities Trust
Series 2006-HE1 Cl A2
01-25-36 2.61 1,425,467(i) 1,411,435
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-2 Cl AIO
08-25-11 6.00 9,525,000(k) 1,572,016
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-3 Cl AIO
01-25-12 5.88 15,000,000(k) 2,990,625
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-4 Cl AIO
02-27-12 6.35 11,700,000(k) 1,608,750
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-2 Cl AIO
07-25-12 29.69 6,800,000(k) 1,062,160
Renaissance Home Equity Loan Trust
Series 2005-4 Cl A3
02-25-36 5.57 3,908,601 3,814,198
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M4
06-25-37 6.31 1,500,000 154,899
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M5
06-25-37 6.66 980,000 89,275
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M6
06-25-37 7.01 1,435,000 115,951
Residential Asset Securities
Series 2006-KS1 Cl A2
02-25-36 2.61 226,514(i) 225,665
Residential Asset Securities
Series 2007-KS3 Cl AI2
04-25-37 2.65 1,050,000(i) 907,034
SBA CMBS Trust
Series 2006-1A Cl B
11-15-36 5.45 4,400,000(d) 4,360,127
Triad Auto Receivables Owner Trust
Series 2007-B Cl A3A (FSA)
10-12-12 5.24 2,135,000(h) 2,118,915
------------
Total 60,417,932
- -------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (9.4%)(F)
Banc of America Commercial Mtge
Series 2007-1 Cl A3
01-15-49 5.45 13,425,000 12,498,974
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
18 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
COMMERCIAL MORTGAGE-BACKED (CONT.)
Bear Stearns Commercial Mtge Securities
Series 2003-T10 Cl A1
03-13-40 4.00% $1,830,278 $1,788,309
Bear Stearns Commercial Mtge Securities
Series 2004-PWR5 Cl A3
07-11-42 4.57 325,000 316,484
Bear Stearns Commercial Mtge Securities
Series 2007-PW16 Cl A1
06-11-40 5.59 13,408,696 13,201,506
Bear Stearns Commercial Mtge Securities
Series 2007-T26 Cl A4
01-12-45 5.47 6,425,000 5,793,043
CDC Commercial Mtge Trust
Series 2002-FX1 Cl A2
11-15-30 5.68 12,775,000 12,826,883
Citigroup Commercial Mtge Trust
Series 2006-C5 Cl A4
10-15-49 5.43 3,150,000 2,876,949
Citigroup Commercial Mtge Trust
Series 2007-C6 Cl A4
12-10-49 5.89 12,800,000 11,583,795
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2005-CD1 Cl ASB
07-15-44 5.40 3,225,000 3,136,137
Commercial Mtge Acceptance
Series 1999-C1 Cl A2
06-15-31 7.03 5,647,317 5,698,094
Commercial Mtge Pass-Through Ctfs
Series 2006-CN2A Cl BFL
02-05-19 2.77 2,700,000(d,i) 2,608,717
Credit Suisse Mtge Capital Ctfs
Series 2007-C3 Cl A4
06-15-39 5.91 6,400,000 5,831,624
CS First Boston Mtge Securities
Series 2001-CP4 Cl A4
12-15-35 6.18 7,400,000 7,598,291
CS First Boston Mtge Securities
Series 2003-CPN1 Cl A2
03-15-35 4.60 3,800,000 3,634,508
CS First Boston Mtge Securities
Series 2004-C2 Cl A1
05-15-36 3.82 1,606,734 1,552,066
Federal Natl Mtge Assn #386558
10-01-10 4.85 466,887 469,912
Federal Natl Mtge Assn #555806
10-01-13 5.10 441,334 442,158
Federal Natl Mtge Assn #725217
02-01-14 4.78 1,010,110 998,293
Federal Natl Mtge Assn #735029
09-01-13 5.32 356,235 359,452
GE Capital Commercial Mtge
Series 2005-C1 Cl A5
06-10-48 4.77 400,000 370,701
General Electric Capital Assurance
Series 2003-1 Cl A3
05-12-35 4.77 2,994,395(d) 2,988,762
General Electric Capital Assurance
Series 2003-1 Cl A4
05-12-35 5.25 3,100,000(d) 3,044,774
GMAC Commercial Mtge Securities
Series 1999-C1 Cl B
05-15-33 6.30 8,000,000 8,023,968
Greenwich Capital Commercial Funding
Series 2004-GG1 Cl A5
06-10-36 4.88 3,550,000 3,497,645
Greenwich Capital Commercial Funding
Series 2007-GG9 Cl A4
03-10-39 5.44 16,350,000 14,638,560
Greenwich Capital Commercial Funding
Series 2007-GG9 Cl AM
03-10-39 5.48 5,950,000 4,972,426
GS Mtge Securities II
Series 2006-GG6 Cl A4
04-10-38 5.55 375,000 348,594
GS Mtge Securities II
Series 2007-EOP Cl J
03-06-20 3.31 9,050,000(d,i) 8,296,660
GS Mtge Securities II
Series 2007-GG10 Cl F
08-10-45 5.99 9,800,000 4,402,346
JPMorgan Chase Commercial Mtge Securities
Series 2003-LN1 Cl A1
10-15-37 4.13 3,074,315 2,981,696
JPMorgan Chase Commercial Mtge Securities
Series 2003-ML1A Cl A1
03-12-39 3.97 1,674,178 1,607,008
JPMorgan Chase Commercial Mtge Securities
Series 2003-ML1A Cl A2
03-12-39 4.77 7,419,000 7,130,997
JPMorgan Chase Commercial Mtge Securities
Series 2004-C2 Cl A2
05-15-41 5.25 425,000 419,008
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 19
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
COMMERCIAL MORTGAGE-BACKED (CONT.)
JPMorgan Chase Commercial Mtge Securities
Series 2004-CBX Cl A3
01-12-37 4.18% $4,150,000 $4,111,276
JPMorgan Chase Commercial Mtge Securities
Series 2004-LN2 Cl A1
07-15-41 4.48 8,626,883 8,417,795
JPMorgan Chase Commercial Mtge Securities
Series 2005-LDP4 Cl AM
10-15-42 5.00 14,900,000 13,301,109
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP6 Cl A4
04-15-43 5.48 5,200,000 4,793,065
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP6 Cl ASB
04-15-43 5.49 9,225,000 8,837,758
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP8 Cl A4
05-15-45 5.40 50,000 45,624
JPMorgan Chase Commercial Mtge Securities
Series 2007-CB20 Cl A4
02-12-51 5.79 6,000,000 5,449,132
JPMorgan Chase Commercial Mtge Securities
Series 2007-CB20 Cl AM
02-12-51 6.11 11,225,000 9,670,134
JPMorgan Chase Commercial Mtge Securities
Series 2007-CB20 Cl E
02-12-51 6.40 4,725,000(d) 2,409,300
LB-UBS Commercial Mtge Trust
Series 2004-C2 Cl A3
03-15-29 3.97 4,700,000 4,514,021
LB-UBS Commercial Mtge Trust
Series 2006-C4 Cl AAB
06-15-32 6.06 5,100,000 4,949,500
LB-UBS Commercial Mtge Trust
Series 2006-C6 Cl A4
09-15-39 5.37 5,500,000 5,018,693
LB-UBS Commercial Mtge Trust
Series 2007-C1 Cl A4
02-15-40 5.42 5,300,000 4,702,596
LB-UBS Commercial Mtge Trust
Series 2007-C7 Cl A3
09-15-45 5.87 6,950,000 6,305,182
LB-UBS Commercial Mtge Trust
Series 2008-C1 Cl A1
04-15-41 5.61 1,207,163 1,207,815
LB-UBS Commercial Mtge Trust
Series 2008-C1 Cl A2
04-15-41 6.32 4,450,000 4,145,629
Merrill Lynch Mtge Trust
Series 2005-CKI1 Cl A1
11-12-37 5.08 1,012,516 1,011,487
Merrill Lynch Mtge Trust
Series 2008-C1 Cl A1
02-12-51 4.71 2,527,550 2,485,489
Morgan Stanley Capital I
Series 2003-T11 Cl A2
06-13-41 4.34 2,444,282 2,427,599
Morgan Stanley Capital I
Series 2004-HQ4 Cl A5
04-14-40 4.59 5,200,000 5,053,953
Morgan Stanley Capital I
Series 2006-T23 Cl AAB
08-12-41 5.97 3,675,000 3,568,412
Morgan Stanley Capital I
Series 2007-IQ15 Cl A4
06-11-49 6.08 6,200,000 5,768,424
TIAA Seasoned Commercial Mtge Trust
Series 2007-C4 Cl A3
08-15-39 6.09 9,475,000 9,395,438
Wachovia Bank Commercial Mtge Trust
Series 2003-C7 Cl A2
10-15-35 5.08 15,750,000(d) 15,217,560
Wachovia Bank Commercial Mtge Trust
Series 2003-C8 Cl A2
11-15-35 3.89 870,000 867,847
Wachovia Bank Commercial Mtge Trust
Series 2005-C20 Cl A5
07-15-42 5.09 5,017,000 4,914,957
Wachovia Bank Commercial Mtge Trust
Series 2006-C24 Cl A3
03-15-45 5.56 29,675,000 27,571,981
Wachovia Bank Commercial Mtge Trust
Series 2006-C24 Cl APB
03-15-45 5.58 3,200,000 3,063,492
Wachovia Bank Commercial Mtge Trust
Series 2006-C27 Cl APB
07-15-45 5.73 5,475,000 5,251,792
Wachovia Bank Commercial Mtge Trust
Series 2006-C29 Cl A4
11-15-48 5.31 1,575,000 1,421,539
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
COMMERCIAL MORTGAGE-BACKED (CONT.)
Wachovia Bank Commercial Mtge Trust
Series 2006-C29 Cl AM
11-15-48 5.34% $11,755,000 $10,103,131
------------
Total 341,940,070
- -------------------------------------------------------------------------------------
MORTGAGE-BACKED (43.3%)(F,O)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2005-12 Cl 2A1
03-25-36 5.68 7,225,443(j) 5,255,905
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2006-1 Cl 2A1
03-25-36 5.91 8,041,424(j) 6,885,007
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-1 Cl 3A21
03-25-37 6.18 6,133,351(j) 4,951,350
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 2.64 830,216(j) 322,415
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 1A1
01-25-34 6.00 6,249,047 5,216,253
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-3 Cl 1A1
04-25-34 6.00 7,998,107 6,475,972
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00 16,095,378 11,116,500
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-2 Cl N1
11-25-46 7.25 329,513(d,n) 65,594
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-A Cl 3A2
02-20-36 5.86 5,739,705(j) 4,484,579
Banc of America Funding
Collateralized Mtge Obligation
Series 2007-8 Cl 1A1
10-25-37 6.00 1,957,522 1,351,990
Banc of America Mtge Securities
Collateralized Mtge Obligation
Series 2005-9 Cl 3A3
10-25-20 5.00 26,354,564 24,852,560
Banc of America Mtge Securities
Collateralized Mtge Obligation
Series 2007-3 Cl 1A2
09-25-37 6.00 5,286,520 4,016,106
Barclays Capital LLC Trust
Collateralized Mtge Obligation
Series 2007-AA4 Cl 11A1
06-25-47 6.21 5,472,462(j) 4,057,126
Bear Stearns Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2005-8 Cl A4
08-25-35 5.10 6,475,000(d,j) 5,885,411
Bear Stearns Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-5 Cl 3A1
08-25-47 5.98 13,700,961(j) 11,551,167
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50 1,788,676 1,571,241
Citicorp Mtge Securities
Collateralized Mtge Obligation
Series 2005-5 Cl 3A1
08-25-35 5.00 7,320,888 6,177,285
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-8CB Cl A13
05-25-37 7.73 5,786,544(k) 862,773
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11T1 Cl A1
07-25-18 4.75 3,337,137 3,141,080
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-20CB Cl 1A1
10-25-33 5.50 15,169,510 12,428,332
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-50CB Cl 2A1
11-25-35 6.00 11,517,903 7,379,107
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 21
<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 2A3
11-25-35 5.50% $5,296,534 $5,032,013
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-54CB Cl 3A7
11-25-35 5.50 5,167,624 4,924,655
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-64CB Cl 1A1
12-25-35 5.50 8,683,943 7,718,531
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 4,785,587 4,453,322
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-85CB Cl 2A2
02-25-36 5.50 2,407,638 2,055,056
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-22R Cl 1A2
05-25-36 6.00 6,965,812 6,389,492
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00 8,067,865 5,322,274
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-31CB Cl A16
11-25-36 6.00 9,660,000 8,168,385
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-43CB Cl 1A4
02-25-37 6.00 11,107,879 10,076,704
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-45T1 Cl 2A5
02-25-37 6.00 14,510,888 9,572,659
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-22 Cl 2A16
09-25-37 6.50 16,317,597 11,070,478
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
11-25-37 6.50 18,169,853 12,865,108
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 2.82 920,990(i) 395,098
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 2.97 16,016,234(i) 5,203,221
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-27 Cl 2A1
12-25-35 5.50 14,561,423 12,658,200
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-HYB8 Cl 4A1
12-20-35 5.61 1,302,977(j) 854,477
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 5,967,831(d) 5,556,349
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.34 3,827,080(j) 2,545,847
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 2A1
03-20-36 5.33 6,356,221(j) 4,727,698
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-17 Cl 2A1
10-25-37 6.50 17,817,334 15,644,455
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-HY3 Cl 4A1
06-25-47 6.00 10,890,722(j) 9,495,871
CS First Boston Mtge Securities
Collateralized Mtge Obligation
Series 2003-29 Cl 8A1
11-25-18 6.00 1,677,373 1,463,508
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
22 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Deutsche Bank Alternate Mtge Loan Trust
Collateralized Mtge Obligation
Series 2007-AR3 Cl 2A1
06-25-37 2.58% $312,401(i) $296,439
Downey Savings & Loan Assn Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR5 Cl X1
08-19-45 15.32 28,071,048(k) 100,880
Federal Home Loan Mtge Corp
09-01-38 6.00 30,000,000(g) 30,243,750
09-01-38 6.50 56,000,000(g) 57,522,527
Federal Home Loan Mtge Corp #170216
03-01-17 8.50 6,391 6,950
Federal Home Loan Mtge Corp #1J1445
01-01-37 5.89 13,154,138(j) 13,403,751
Federal Home Loan Mtge Corp #284190
01-01-17 8.00 223 240
Federal Home Loan Mtge Corp #290970
04-01-17 8.00 8,364 8,954
Federal Home Loan Mtge Corp #295114
06-01-17 8.50 3,450 3,752
Federal Home Loan Mtge Corp #540861
09-01-19 8.50 31,870 34,843
Federal Home Loan Mtge Corp #A00304
04-01-21 9.00 38,637 42,395
Federal Home Loan Mtge Corp #A12692
10-01-32 6.00 69,153 70,433
Federal Home Loan Mtge Corp #A13854
09-01-33 6.00 119,650 121,679
Federal Home Loan Mtge Corp #B10254
10-01-18 5.50 357,460 363,508
Federal Home Loan Mtge Corp #B12280
02-01-19 5.50 200,846 204,244
Federal Home Loan Mtge Corp #C00103
03-01-22 8.50 96,020 105,593
Federal Home Loan Mtge Corp #C00144
08-01-22 8.50 81,489 89,682
Federal Home Loan Mtge Corp #C00356
08-01-24 8.00 318,281 344,630
Federal Home Loan Mtge Corp #C00666
10-01-28 7.00 40,403 42,604
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 1,444,617 1,435,183
Federal Home Loan Mtge Corp #C59161
10-01-31 6.00 114,946 116,710
Federal Home Loan Mtge Corp #C62993
01-01-32 6.50 855,411 886,471
Federal Home Loan Mtge Corp #C63552
01-01-32 6.50 1,489,778 1,552,099
Federal Home Loan Mtge Corp #C64703
03-01-32 6.50 828,376 863,078
Federal Home Loan Mtge Corp #C67723
06-01-32 7.00 672,674 711,178
Federal Home Loan Mtge Corp #C77372
03-01-33 6.00 231,132 235,097
Federal Home Loan Mtge Corp #C78031
04-01-33 5.50 8,051,783 7,997,992
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 6,716,636 6,660,181
Federal Home Loan Mtge Corp #C90767
12-01-23 6.00 6,238,226 6,368,786
Federal Home Loan Mtge Corp #D96300
10-01-23 5.50 4,604,618 4,609,999
Federal Home Loan Mtge Corp #E01127
02-01-17 6.50 906,795 946,899
Federal Home Loan Mtge Corp #E01419
05-01-18 5.50 3,420,444 3,480,548
Federal Home Loan Mtge Corp #E74288
12-01-13 6.00 99,845 102,245
Federal Home Loan Mtge Corp #E79810
11-01-14 7.50 736,046 773,115
Federal Home Loan Mtge Corp #E90216
05-01-17 6.00 1,110,595 1,137,380
Federal Home Loan Mtge Corp #E98725
08-01-18 5.00 8,020,426 8,025,732
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 8,340,405 8,352,522
Federal Home Loan Mtge Corp #G00286
02-01-25 8.00 132,383 143,342
Federal Home Loan Mtge Corp #G01108
04-01-30 7.00 2,468,995 2,598,391
Federal Home Loan Mtge Corp #G01410
04-01-32 7.00 262,085 275,372
Federal Home Loan Mtge Corp #G01441
07-01-32 7.00 2,332,139 2,450,368
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 9,004,806 9,162,377
Federal Home Loan Mtge Corp #G02757
06-01-36 5.00 26,313,253 25,365,636
Federal Home Loan Mtge Corp #G03419
07-01-37 6.00 9,110,161 9,193,016
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 23
<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% $2,552,190 $2,675,732
Federal Home Loan Mtge Corp #G30225
02-01-23 6.00 8,606,539 8,794,701
Federal Home Loan Mtge Corp #H01724
09-01-37 6.00 1,659,558 1,665,197
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 237 Cl IO
05-15-36 6.60 4,053,993(k) 1,094,895
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2795 Cl IY
07-15-17 20.00 308,309(k) 25,447
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2817 Cl SA
06-15-32 45.20 6,354,332(k) 626,431
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 1241 Cl K
03-15-22 7.00 252,612 252,612
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2576 Cl KJ
02-15-33 5.50 8,434,992 8,581,319
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2641 Cl KC
01-15-18 6.50 3,112,941 3,255,520
Federal Natl Mtge Assn
09-01-23 4.50 9,000,000(g) 8,715,942
09-01-38 5.00 46,500,000(g) 44,698,124
09-01-38 5.50 134,000,000(g) 132,324,999
09-01-38 6.00 67,400,000(g) 68,052,970
09-01-38 6.50 30,500,000(g) 31,367,358
09-01-38 7.00 30,000,000(g) 31,378,139
Federal Natl Mtge Assn #125479
04-01-27 7.50 199,176 214,970
Federal Natl Mtge Assn #190899
04-01-23 8.50 289,289 310,684
Federal Natl Mtge Assn #190944
05-01-24 6.00 4,840,231 4,920,189
Federal Natl Mtge Assn #190988
06-01-24 9.00 239,146 259,338
Federal Natl Mtge Assn #231309
09-01-23 6.50 68,322 71,134
Federal Natl Mtge Assn #231310
09-01-23 6.50 359,234 374,018
Federal Natl Mtge Assn #250330
09-01-25 8.00 219,832 238,855
Federal Natl Mtge Assn #250495
03-01-26 7.00 487,682 516,305
Federal Natl Mtge Assn #250765
12-01-26 8.00 176,256 191,321
Federal Natl Mtge Assn #251116
08-01-27 8.00 221,974 241,001
Federal Natl Mtge Assn #252440
05-01-29 7.00 170,125 179,365
Federal Natl Mtge Assn #252498
06-01-29 7.00 4,951 5,220
Federal Natl Mtge Assn #253883
08-01-16 6.00 2,225,407 2,290,875
Federal Natl Mtge Assn #254236
03-01-17 6.50 1,307,539 1,360,094
Federal Natl Mtge Assn #254383
06-01-32 7.50 309,364 332,064
Federal Natl Mtge Assn #254587
12-01-22 5.50 487,513 489,016
Federal Natl Mtge Assn #254802
07-01-18 4.50 2,393,097 2,359,521
Federal Natl Mtge Assn #254916
09-01-23 5.50 8,928,742 8,953,354
Federal Natl Mtge Assn #255788
06-01-15 5.50 2,760,856 2,818,044
Federal Natl Mtge Assn #256135
02-01-36 5.50 3,478,954 3,404,052
Federal Natl Mtge Assn #257016
12-01-37 7.00 1,728,291 1,809,700
Federal Natl Mtge Assn #268071
01-01-24 6.50 99,740 103,844
Federal Natl Mtge Assn #303226
02-01-25 8.00 90,305 98,055
Federal Natl Mtge Assn #313049
08-01-11 8.50 349,200 364,056
Federal Natl Mtge Assn #323715
05-01-29 6.00 385,236 392,592
Federal Natl Mtge Assn #323933
09-01-29 7.00 3,425,402 3,611,447
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
24 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #408207
01-01-28 6.50% $117,023 $122,223
Federal Natl Mtge Assn #455791
01-01-29 6.50 408,167 424,041
Federal Natl Mtge Assn #489888
05-01-29 6.50 1,720,368 1,786,198
Federal Natl Mtge Assn #493945
04-01-29 6.50 75,944 78,974
Federal Natl Mtge Assn #496029
01-01-29 6.50 1,823,075 1,893,974
Federal Natl Mtge Assn #518159
09-01-14 7.00 306,337 321,307
Federal Natl Mtge Assn #545008
06-01-31 7.00 2,137,570 2,266,607
Federal Natl Mtge Assn #545216
03-01-09 5.89 84,321 84,122
Federal Natl Mtge Assn #545342
04-01-13 7.00 346,683 349,198
Federal Natl Mtge Assn #545684
05-01-32 7.50 259,194 279,000
Federal Natl Mtge Assn #545868
08-01-32 7.00 88,255 93,406
Federal Natl Mtge Assn #545869
07-01-32 6.50 1,833,132 1,908,598
Federal Natl Mtge Assn #545885
08-01-32 6.50 3,261,641 3,416,568
Federal Natl Mtge Assn #545910
08-01-17 6.00 3,770,004 3,883,931
Federal Natl Mtge Assn #555340
04-01-33 5.50 247,592 246,338
Federal Natl Mtge Assn #555343
08-01-17 6.00 3,633,709 3,739,470
Federal Natl Mtge Assn #555375
04-01-33 6.00 19,873,068 20,247,571
Federal Natl Mtge Assn #555458
05-01-33 5.50 18,213,354 18,008,453
Federal Natl Mtge Assn #555528
04-01-33 6.00 14,084,461 14,313,789
Federal Natl Mtge Assn #555734
07-01-23 5.00 7,252,550 7,107,824
Federal Natl Mtge Assn #555794
09-01-28 7.50 728,307 786,404
Federal Natl Mtge Assn #567840
10-01-30 7.00 1,109,525 1,169,788
Federal Natl Mtge Assn #582154
05-01-31 6.50 93,059 96,533
Federal Natl Mtge Assn #587859
12-01-16 5.50 3,407,989 3,474,166
Federal Natl Mtge Assn #597374
09-01-31 7.00 702,853 745,229
Federal Natl Mtge Assn #606882
10-01-31 7.00 822,492 866,906
Federal Natl Mtge Assn #611831
02-01-31 7.50 31,889 34,405
Federal Natl Mtge Assn #615135
11-01-16 6.00 230,505 237,286
Federal Natl Mtge Assn #634650
04-01-32 7.50 131,733 141,399
Federal Natl Mtge Assn #638969
03-01-32 5.50 1,416,263 1,409,670
Federal Natl Mtge Assn #643362
04-01-17 6.50 572,298 595,301
Federal Natl Mtge Assn #646147
06-01-32 7.00 2,701,496 2,864,236
Federal Natl Mtge Assn #646446
06-01-17 6.50 917,280 954,149
Federal Natl Mtge Assn #649068
06-01-17 6.50 1,564,646 1,640,137
Federal Natl Mtge Assn #649263
08-01-17 6.50 1,586,631 1,663,020
Federal Natl Mtge Assn #650009
09-01-31 7.50 79,187 85,434
Federal Natl Mtge Assn #654208
10-01-32 6.50 1,853,529 1,922,137
Federal Natl Mtge Assn #654682
10-01-32 6.00 1,159,594 1,182,628
Federal Natl Mtge Assn #654689
11-01-32 6.00 1,163,411 1,185,953
Federal Natl Mtge Assn #656908
09-01-32 6.50 1,506,693 1,570,693
Federal Natl Mtge Assn #661815
10-01-32 6.00 121,029 123,317
Federal Natl Mtge Assn #662061
09-01-32 6.50 2,377,736 2,465,748
Federal Natl Mtge Assn #667604
10-01-32 5.50 253,161 251,508
Federal Natl Mtge Assn #667787
02-01-18 5.50 1,343,533 1,367,103
Federal Natl Mtge Assn #670382
09-01-32 6.00 9,050,237 9,197,596
Federal Natl Mtge Assn #670387
08-01-32 7.00 1,136,925 1,198,280
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 25
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #677089
01-01-33 5.50% $542,305 $538,764
Federal Natl Mtge Assn #678028
09-01-17 6.00 4,506,465 4,637,629
Federal Natl Mtge Assn #678065
02-01-33 6.50 370,007 385,684
Federal Natl Mtge Assn #678937
01-01-18 5.50 2,180,741 2,222,299
Federal Natl Mtge Assn #678941
02-01-18 5.50 2,665,197 2,715,753
Federal Natl Mtge Assn #679095
04-01-18 5.00 4,443,271 4,456,629
Federal Natl Mtge Assn #680961
01-01-33 6.00 487,822 497,022
Federal Natl Mtge Assn #681080
02-01-18 5.00 858,032 860,612
Federal Natl Mtge Assn #681166
04-01-32 6.50 321,601 333,605
Federal Natl Mtge Assn #681400
03-01-18 5.50 4,143,275 4,218,021
Federal Natl Mtge Assn #682825
01-01-33 6.00 1,420,062 1,443,184
Federal Natl Mtge Assn #683100
02-01-18 5.50 148,229 151,002
Federal Natl Mtge Assn #683116
02-01-33 6.00 228,340 232,058
Federal Natl Mtge Assn #684586
03-01-33 6.00 2,896,308 2,950,999
Federal Natl Mtge Assn #686172
02-01-33 6.00 2,389,394 2,428,299
Federal Natl Mtge Assn #686528
02-01-33 6.00 2,924,254 2,979,481
Federal Natl Mtge Assn #687051
01-01-33 6.00 9,390,480 9,476,374
Federal Natl Mtge Assn #689026
05-01-33 5.50 1,088,845 1,083,340
Federal Natl Mtge Assn #689093
07-01-28 5.50 3,033,055 3,018,936
Federal Natl Mtge Assn #694628
04-01-33 5.50 5,947,981 5,918,141
Federal Natl Mtge Assn #694795
04-01-33 5.50 7,038,002 7,002,437
Federal Natl Mtge Assn #694988
03-01-33 5.50 9,577,308 9,529,223
Federal Natl Mtge Assn #695202
03-01-33 6.50 3,270,247 3,387,207
Federal Natl Mtge Assn #695909
05-01-18 5.50 1,799,013 1,832,315
Federal Natl Mtge Assn #699424
04-01-33 5.50 3,968,127 3,948,132
Federal Natl Mtge Assn #702427
04-01-33 5.50 3,661,890 3,642,324
Federal Natl Mtge Assn #704005
05-01-33 5.50 916,586 910,314
Federal Natl Mtge Assn #705655
05-01-33 5.00 441,125 427,031
Federal Natl Mtge Assn #709093
06-01-33 6.00 157,152 159,515
Federal Natl Mtge Assn #709901
06-01-18 5.00 432,827 433,714
Federal Natl Mtge Assn #710823
05-01-33 5.50 601,846 598,872
Federal Natl Mtge Assn #711503
06-01-33 5.50 105,410 105,112
Federal Natl Mtge Assn #720070
07-01-23 5.50 2,233,937 2,240,095
Federal Natl Mtge Assn #723687
08-01-28 5.50 3,719,220 3,701,907
Federal Natl Mtge Assn #725232
03-01-34 5.00 17,362,915 16,808,163
Federal Natl Mtge Assn #725424
04-01-34 5.50 1,633,164 1,621,989
Federal Natl Mtge Assn #725425
04-01-34 5.50 24,336,649 24,168,624
Federal Natl Mtge Assn #725431
08-01-15 5.50 110,191 112,297
Federal Natl Mtge Assn #725684
05-01-18 6.00 8,092,327 8,361,662
Federal Natl Mtge Assn #725813
12-01-33 6.50 8,583,326 8,890,309
Federal Natl Mtge Assn #726940
08-01-23 5.50 72,587 73,103
Federal Natl Mtge Assn #730153
08-01-33 5.50 1,049,262 1,042,082
Federal Natl Mtge Assn #735212
12-01-34 5.00 18,296,083 17,682,928
Federal Natl Mtge Assn #735224
02-01-35 5.50 30,441,454 30,233,154
Federal Natl Mtge Assn #735841
11-01-19 4.50 1,585,025 1,558,329
Federal Natl Mtge Assn #738921
11-01-32 6.50 773,619 805,414
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
26 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #743262
10-01-18 5.00% $2,874,627 $2,880,322
Federal Natl Mtge Assn #743347
10-01-33 6.00 85,496 87,042
Federal Natl Mtge Assn #743579
11-01-33 5.50 272,015 270,153
Federal Natl Mtge Assn #745355
03-01-36 5.00 17,375,832(u) 16,760,937
Federal Natl Mtge Assn #745563
08-01-34 5.50 1,340,274 1,331,103
Federal Natl Mtge Assn #747642
11-01-28 5.50 2,356,754 2,345,783
Federal Natl Mtge Assn #753074
12-01-28 5.50 6,939,183 6,906,880
Federal Natl Mtge Assn #753091
12-01-33 5.50 3,916,118 3,889,321
Federal Natl Mtge Assn #757581
01-01-19 5.50 841,591 856,356
Federal Natl Mtge Assn #759342
01-01-34 6.50 1,347,542 1,403,537
Federal Natl Mtge Assn #765759
12-01-18 5.00 2,829,647 2,838,155
Federal Natl Mtge Assn #766641
03-01-34 5.00 6,038,838 5,836,459
Federal Natl Mtge Assn #776962
04-01-29 5.00 15,746,589 15,275,956
Federal Natl Mtge Assn #779676
06-01-34 5.00 2,092,531 2,022,404
Federal Natl Mtge Assn #804442
12-01-34 6.50 1,130,024 1,167,615
Federal Natl Mtge Assn #831870
11-01-36 6.50 1,627,213 1,675,749
Federal Natl Mtge Assn #844445
12-01-35 5.50 14,168,329 14,038,173
Federal Natl Mtge Assn #845109
05-01-36 6.00 24,956,353 25,234,019
Federal Natl Mtge Assn #878661
02-01-36 5.50 1,617,499 1,586,968
Federal Natl Mtge Assn #881629
02-01-36 5.50 1,093,990 1,073,341
Federal Natl Mtge Assn #882063
06-01-36 6.50 3,172,516 3,287,808
Federal Natl Mtge Assn #886291
07-01-36 7.00 6,406,896 6,743,897
Federal Natl Mtge Assn #915770
03-01-37 6.50 2,848,783 2,933,150
Federal Natl Mtge Assn #928860
11-01-37 8.00 1,357,653 1,446,014
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 7.52 14,025,922(k) 3,887,934
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 9.86 2,649,411(k) 481,207
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 10.56 757,372(k) 106,273
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 367 Cl 2
01-01-36 6.57 14,203,335(k) 3,793,430
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 379 Cl 2
05-01-37 6.52 22,174,034(k) 5,961,003
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series 43 Cl 1
09-01-18 2.72 13,144(l) 11,598
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 2,893,173 3,093,138
Govt Natl Mtge Assn
09-01-38 5.50 19,000,000(g) 18,845,625
09-01-38 6.00 20,000,000(g) 20,293,760
Govt Natl Mtge Assn #345538
02-15-24 8.00 98,330 107,484
Govt Natl Mtge Assn #398831
08-15-26 8.00 121,323 132,734
Govt Natl Mtge Assn #423782
05-15-26 7.50 333,192 358,627
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 27
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Govt Natl Mtge Assn #425004
10-15-33 5.50% $3,304,374 $3,313,386
Govt Natl Mtge Assn #426170
06-15-26 8.00 104,876 114,740
Govt Natl Mtge Assn #567717
06-15-32 7.50 15,284 16,399
Govt Natl Mtge Assn #595256
12-15-32 6.00 5,357,233 5,460,573
Govt Natl Mtge Assn #604580
08-15-33 5.00 3,328,296 3,263,385
Govt Natl Mtge Assn #604708
10-15-33 5.50 8,733,946 8,757,766
Govt Natl Mtge Assn #606844
09-15-33 5.00 8,000,403 7,844,373
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-70 Cl IC
08-20-32 15.22 6,427,361(k) 1,172,639
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-80 Cl CI
01-20-32 40.88 948,415(k) 71,642
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-16 Cl 3A1B
01-19-36 2.81 271,624(j) 122,029
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2006-8 Cl 2A1B
08-21-36 2.72 952,478(j) 430,265
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 20.00 68,154,511(k) 74,544
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-AR25 Cl 3A3
09-25-36 0.00 30,542,818(k) 312,062
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-AR25 Cl 1A21
12-25-35 5.83 5,828,062(j) 3,750,450
Lehman Mortgage Trust
Collateralized Mtge Obligation
Series 2008-2 Cl 1A2
03-25-38 6.00 7,442,853 5,289,368
Lehman XS Trust
Collateralized Mtge Obligation
Series 2007-5H Cl 1A1
05-25-37 6.50 19,187,317 13,017,405
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-2 Cl 4A1
02-25-19 5.00 5,203,266 4,793,508
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 2A1
05-25-34 6.00 3,124,874 2,871,417
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00 4,197,350 3,784,789
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00 5,806,220 5,330,730
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-3 Cl 1A2
04-25-35 5.50 950,000 788,776
Merrill Lynch Alternative Note Asset
Collateralized Mtge Obligation
Series 2007-OAR2 Cl A1
04-25-37 2.65 955,568(i) 589,643
Morgan Stanley Mtge Loan Trust
Collateralized Mtge Obligation
Series 2007-12 Cl 3A22
08-25-37 6.00 17,595,299 14,352,406
Residential Accredit Loans
Collateralized Mtge Obligation
Series 2006-QS3 Cl 1A10
03-25-36 6.00 5,348,114 4,864,748
Residential Funding Mtge Securities I
Collateralized Mtge Obligation
Series 2005-S6 Cl A8
08-25-35 5.25 20,380,247 17,456,558
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
28 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Structured Adjustable Rate Mtge Loan Trust
Collateralized Mtge Obligation
Series 2006-5 Cl 4A1
06-25-36 5.93% $657,198(j) $476,736
Structured Asset Securities
Collateralized Mtge Obligation
Series 2003-33H Cl 1A1
10-25-33 5.50 12,370,053 10,876,949
Washington Mutual Alternative Mtge Loan Trust
Pass-Through Ctfs
Collateralized Mtge Obligation
Interest Only
Series 2005-AR1 Cl X2
12-25-35 20.00 25,617,770(k) 40,028
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2005-AR14 Cl 2A1
12-25-35 5.29 5,200,019(j) 4,739,187
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR10 Cl 1A1
09-25-36 5.93 4,932,195(j) 4,397,328
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR3 Cl A1A
02-25-46 4.08 6,509,645(j) 4,096,286
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 25,846,145 23,034,718
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-14 Cl 2A1
12-25-35 5.50 1,912,908 1,720,272
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 10,561,525 9,373,353
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 1A1
09-25-36 6.02 4,758,801(j) 4,198,550
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR6 Cl 5A1
03-25-36 5.11 10,919,669(j) 10,105,511
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-11 Cl A68
08-25-37 6.00 16,788,485 15,820,132
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-14 Cl 1A2
10-25-37 6.00 7,147,965 5,079,802
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-15 Cl A1
11-25-37 6.00 14,653,816 12,612,014
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-AR9 Cl A2
12-28-37 6.39 9,503,436(j) 5,073,725
------------
Total 1,576,187,074
- -------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (--%)
DRS Technologies
11-01-13 6.88 462,000 467,775
Moog
Sr Sub Nts
06-15-18 7.25 915,000(d) 896,700
------------
Total 1,364,475
- -------------------------------------------------------------------------------------
BANKING (3.6%)
Banco Nacional de Desenvolvimento Economico e Social
Sr Unsecured
06-16-18 6.37 975,000(c,d) 982,313
Bank of America
Sr Unsecured
05-01-18 5.65 30,150,000 27,868,418
Citigroup
Sr Unsecured
02-14-11 5.13 4,235,000 4,182,270
04-11-13 5.50 8,475,000 8,173,104
05-15-18 6.13 17,065,000 15,954,956
Credit Suisse New York
Sub Nts
02-15-18 6.00 4,800,000 4,591,057
JPMorgan Chase & Co
Sr Nts
01-15-18 6.00 16,555,000 16,062,237
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 29
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
BANKING (CONT.)
JPMorgan Chase Bank
Sub Nts
10-01-17 6.00% $8,595,000 $8,319,926
Manufacturers & Traders Trust
Sub Nts
12-01-21 5.63 15,595,000 11,952,139
Popular North America
10-01-08 3.88 32,427,000 32,407,648
------------
Total 130,494,068
- -------------------------------------------------------------------------------------
BROKERAGE (1.2%)
Lehman Brothers Holdings
Sr Unsecured
05-02-18 6.88 13,460,000(w) 12,531,597
Merrill Lynch & Co
02-05-13 5.45 4,315,000 4,004,769
04-25-18 6.88 10,665,000 9,897,009
Morgan Stanley
Sr Unsecured
04-01-18 6.63 18,215,000 16,923,975
------------
Total 43,357,350
- -------------------------------------------------------------------------------------
CHEMICALS (0.2%)
Airgas
10-01-18 7.13 2,695,000(d) 2,698,369
INVISTA
Sr Unsecured
05-01-12 9.25 4,096,000(d) 4,070,399
NALCO
11-15-11 7.75 1,415,000 1,432,688
------------
Total 8,201,456
- -------------------------------------------------------------------------------------
CONSUMER PRODUCTS (0.5%)
Clorox
Sr Unsecured
10-15-12 5.45 3,280,000 3,305,657
03-01-13 5.00 15,125,000 14,895,618
------------
Total 18,201,275
- -------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING (0.3%)
Tyco Electronics Group
10-01-12 6.00 1,720,000(c) 1,706,947
01-15-14 5.95 7,850,000(c) 7,854,825
------------
Total 9,561,772
- -------------------------------------------------------------------------------------
ELECTRIC (3.2%)
Consumers Energy
1st Mtge Series H
02-17-09 4.80 14,685,000 14,732,578
Duke Energy Carolinas LLC
Sr Unsecured Series D
03-01-10 7.38 9,880,000 10,356,404
Duke Energy Indiana
1st Mtge
08-15-38 6.35 3,925,000 3,922,581
Exelon
Sr Unsecured
06-15-10 4.45 11,905,000 11,871,642
FirstEnergy
Sr Unsecured Series B
11-15-11 6.45 5,945,000 6,101,881
Florida Power
1st Mtge
06-15-38 6.40 4,900,000 4,986,176
Indiana Michigan Power
Sr Unsecured
03-15-37 6.05 10,870,000 9,519,859
Majapahit Holding
10-17-16 7.75 480,000(c,d) 458,400
Midwest Generation LLC
Pass-Through Ctfs Series B
01-02-16 8.56 163,621 168,939
Nevada Power
08-01-18 6.50 7,145,000 7,260,867
Nevada Power
Series M
03-15-16 5.95 3,460,000 3,395,468
NiSource Finance
03-01-13 6.15 3,890,000 3,863,715
Northern States Power
Sr Unsecured
08-01-09 6.88 6,245,000 6,408,251
PacifiCorp
1st Mtge
09-15-13 5.45 5,095,000 5,202,127
07-15-38 6.35 5,395,000 5,376,963
Portland General Electric
03-15-10 7.88 3,165,000 3,318,351
Potomac Electric Power
Sr Secured
06-01-35 5.40 3,160,000 2,697,515
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
30 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ELECTRIC (CONT.)
Progress Energy Carolinas
1st Mtge
04-01-38 6.30% $1,735,000 $1,745,448
Sierra Pacific Power
Series M
05-15-16 6.00 13,555,000 13,337,578
------------
Total 114,724,743
- -------------------------------------------------------------------------------------
ENTERTAINMENT (0.1%)
United Artists Theatre Circuit
Pass-Through Ctfs
07-01-15 9.30 5,209,587(n) 5,157,491
- -------------------------------------------------------------------------------------
ENVIRONMENTAL (0.1%)
Allied Waste North America
Sr Secured
02-15-14 6.13 875,000 850,938
06-01-17 6.88 1,525,000 1,498,312
------------
Total 2,349,250
- -------------------------------------------------------------------------------------
FOOD AND BEVERAGE (1.5%)
Cadbury Schweppes US Finance LLC
10-01-08 3.88 2,935,000(d) 2,934,251
ConAgra Foods
Sr Unsecured
09-15-11 6.75 3,895,000 4,037,752
Cott Beverages USA
12-15-11 8.00 2,650,000 2,226,000
Dr Pepper Snapple Group
Sr Nts
05-01-18 6.82 7,760,000(d) 7,901,736
Kraft Foods
Sr Unsecured
01-26-39 6.88 7,620,000 7,467,687
Molson Coors Capital Finance
09-22-10 4.85 13,415,000(c) 13,562,726
SABMiller
01-15-14 5.70 14,775,000(c,d) 14,770,901
------------
Total 52,901,053
- -------------------------------------------------------------------------------------
GAMING (--%)
Mohegan Tribal Gaming Authority
Sr Sub Nts
04-01-12 8.00 750,000 637,500
- -------------------------------------------------------------------------------------
GAS PIPELINES (1.6%)
CenterPoint Energy Resources
Sr Unsecured
02-15-11 7.75 5,775,000 6,025,277
Colorado Interstate Gas
Sr Unsecured
11-15-15 6.80 13,003,000 13,138,024
Kinder Morgan Energy Partners LP
Sr Unsecured
03-15-11 6.75 2,345,000 2,432,264
Northern Natural Gas
Sr Unsecured
02-15-37 5.80 1,700,000(d) 1,563,369
Northwest Pipeline
Sr Unsecured
04-15-17 5.95 7,625,000 7,411,298
Southern Natural Gas
Sr Unsecured
04-01-17 5.90 7,011,000(d) 6,643,049
Southern Star Central
Sr Nts
03-01-16 6.75 1,460,000 1,361,450
Transcontinental Gas Pipe Line
Sr Unsecured
04-15-16 6.40 11,329,000 11,420,187
Transcontinental Gas Pipe Line
Sr Unsecured Series B
08-15-11 7.00 7,965,000 8,302,788
------------
Total 58,297,706
- -------------------------------------------------------------------------------------
HEALTH CARE (0.2%)
Cardinal Health
Sr Unsecured
06-15-12 5.65 3,860,000 3,855,153
Omnicare
12-15-13 6.75 2,370,000 2,221,875
12-15-15 6.88 355,000 333,700
------------
Total 6,410,728
- -------------------------------------------------------------------------------------
HEALTH CARE INSURANCE (0.3%)
Coventry Health Care
Sr Unsecured
08-15-14 6.30 3,370,000 3,173,263
03-15-17 5.95 1,685,000 1,480,935
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 31
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
HEALTH CARE INSURANCE (CONT.)
UnitedHealth Group
Sr Unsecured
11-15-37 6.63% $4,425,000 $3,935,059
02-15-38 6.88 1,025,000 940,072
------------
Total 9,529,329
- -------------------------------------------------------------------------------------
INDEPENDENT ENERGY (2.3%)
Anadarko Petroleum
Sr Unsecured
09-15-09 3.18 2,175,000(i) 2,156,784
09-15-16 5.95 13,215,000 12,878,004
Canadian Natural Resources
Sr Unsecured
02-01-39 6.75 4,270,000(c) 4,147,766
EnCana Holdings Finance
05-01-14 5.80 1,790,000(c) 1,782,688
EnCana
Sr Nts
10-15-13 4.75 1,410,000(c) 1,361,842
EnCana
Sr Unsecured
11-01-11 6.30 17,330,000(c) 17,886,345
Nexen
11-20-13 5.05 3,275,000(c) 3,185,519
Quicksilver Resources
08-01-15 8.25 3,830,000 3,705,525
SandRidge Energy
Sr Nts
06-01-18 8.00 770,000(d) 723,800
XTO Energy
Sr Unsecured
02-01-14 4.90 21,995,000 21,059,860
01-31-15 5.00 6,965,000 6,581,249
06-30-15 5.30 7,115,000 6,840,126
------------
Total 82,309,508
- -------------------------------------------------------------------------------------
INTEGRATED ENERGY (0.7%)
Marathon Oil
Sr Unsecured
03-15-18 5.90 11,760,000 11,242,801
Petro-Canada
Sr Unsecured
05-15-38 6.80 11,560,000(c) 10,997,421
Suncor Energy
Sr Unsecured
06-01-39 6.85 3,320,000(c) 3,320,681
TNK-BP Finance
03-13-18 7.88 545,000(c,d) 504,806
------------
Total 26,065,709
- -------------------------------------------------------------------------------------
LIFE INSURANCE (1.1%)
MetLife
Sr Unsecured Series A
08-15-18 6.82 7,800,000 7,794,217
Metropolitan Life Global Funding I
Sr Secured
04-10-13 5.13 12,760,000(d) 12,549,626
Pricoa Global Funding I
Secured
10-18-12 5.40 11,265,000(d) 11,127,602
Principal Life Income Funding Trusts
Sr Secured
12-14-12 5.30 8,140,000 8,103,924
------------
Total 39,575,369
- -------------------------------------------------------------------------------------
MEDIA CABLE (0.9%)
Comcast
03-15-11 5.50 12,280,000 12,409,354
03-15-37 6.45 14,400,000 13,281,048
05-15-38 6.40 3,980,000 3,661,863
CSC Holdings
Sr Unsecured Series B
07-15-09 8.13 1,970,000 1,997,088
------------
Total 31,349,353
- -------------------------------------------------------------------------------------
MEDIA NON CABLE (2.7%)
British Sky Broadcasting Group
02-23-09 6.88 16,285,000(c) 16,476,365
02-15-18 6.10 7,940,000(c,d) 7,683,284
DIRECTV Holdings LLC/Financing
05-15-16 7.63 3,505,000(d) 3,491,856
EchoStar DBS
10-01-13 7.00 225,000 213,750
10-01-14 6.63 363,000 333,960
02-01-16 7.13 940,000 864,800
News America
12-15-35 6.40 9,565,000 8,850,734
11-15-37 6.65 2,370,000 2,284,765
Reed Elsevier Capital
08-01-11 6.75 7,680,000 7,987,658
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
32 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MEDIA NON CABLE (CONT.)
RR Donnelley & Sons
Sr Unsecured
01-15-17 6.13% $16,305,000 $14,966,653
Thomson Reuters
08-15-09 4.25 6,430,000(c) 6,405,579
10-01-14 5.70 16,650,000(c) 16,586,747
07-15-18 6.50 10,170,000(c) 10,298,864
------------
Total 96,445,015
- -------------------------------------------------------------------------------------
NON CAPTIVE CONSUMER (--%)
American Express
Sr Unsecured
03-19-38 8.15 975,000 985,379
- -------------------------------------------------------------------------------------
OIL FIELD SERVICES (0.1%)
Gaz Capital
Sr Unsecured
11-22-16 6.21 1,255,000(c,d) 1,126,362
KazMunaiGaz Finance
07-02-18 9.13 720,000(c,d) 740,907
------------
Total 1,867,269
- -------------------------------------------------------------------------------------
PACKAGING (0.2%)
Owens-Brockway Glass Container
05-15-13 8.25 4,320,000 4,449,600
Vitro
02-01-17 9.13 1,640,000(c) 1,271,000
------------
Total 5,720,600
- -------------------------------------------------------------------------------------
PAPER (--%)
Smurfit-Stone Container Enterprises
Sr Unsecured
03-15-17 8.00 890,000 712,000
- -------------------------------------------------------------------------------------
RAILROADS (0.7%)
CSX
Sr Unsecured
03-15-12 6.30 4,400,000 4,424,930
03-15-13 5.75 10,785,000 10,545,779
04-01-15 6.25 9,760,000 9,563,121
------------
Total 24,533,830
- -------------------------------------------------------------------------------------
REITS (0.2%)
Brandywine Operating Partnership LP
05-01-17 5.70 1,905,000 1,614,632
ERP Operating LP
Sr Unsecured
06-15-17 5.75 4,285,000 3,786,841
Simon Property Group LP
Sr Unsecured
12-01-16 5.25 915,000 821,723
------------
Total 6,223,196
- -------------------------------------------------------------------------------------
RETAILERS (0.6%)
Home Depot
Sr Unsecured
03-01-11 5.20 2,060,000 2,056,156
Kohl's
Sr Unsecured
12-15-17 6.25 3,785,000 3,590,644
Macys Retail Holdings
07-15-09 4.80 17,954,000 17,709,736
------------
Total 23,356,536
- -------------------------------------------------------------------------------------
SUPERMARKETS (0.1%)
Kroger
04-15-12 6.75 3,790,000 3,960,147
- -------------------------------------------------------------------------------------
TECHNOLOGY (--%)
Communications & Power Inds
02-01-12 8.00 110,000 106,150
- -------------------------------------------------------------------------------------
TOBACCO (0.2%)
Philip Morris Intl
Sr Unsecured
05-16-18 5.65 7,910,000 7,781,905
- -------------------------------------------------------------------------------------
TRANSPORTATION SERVICES (0.5%)
Erac USA Finance
10-15-17 6.38 23,290,000(d) 19,957,936
- -------------------------------------------------------------------------------------
TREASURY (--%)
Govt of Indonesia
(Indonesian Rupiah)
07-15-22 10.25 15,000,000,000(c) 1,414,462
- -------------------------------------------------------------------------------------
WIRELESS (0.2%)
Nextel Communications
Series D
08-01-15 7.38 4,480,000 3,640,000
Nextel Communications
Series E
10-31-13 6.88 310,000 254,975
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 33
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
WIRELESS (CONT.)
Rogers Communications
08-15-18 6.80% $4,900,000(c) $4,998,000
------------
Total 8,892,975
- -------------------------------------------------------------------------------------
WIRELINES (5.1%)
AT&T
Sr Unsecured
03-15-11 6.25 14,811,000 15,380,364
01-15-38 6.30 10,435,000 9,869,661
05-15-38 6.40 10,815,000 10,338,213
Frontier Communications
Sr Unsecured
01-15-13 6.25 1,770,000 1,690,350
Telecom Italia Capital
11-15-13 5.25 31,965,000(c) 29,886,284
Telefonica Europe
09-15-10 7.75 19,171,000(c) 20,209,857
TELUS
Sr Unsecured
06-01-11 8.00 42,581,000(c) 45,583,515
Verizon Communications
04-15-38 6.90 9,795,000 9,702,933
Verizon New York
Sr Unsecured Series A
04-01-12 6.88 30,213,000 31,323,116
Verizon Pennsylvania
Sr Unsecured Series A
11-15-11 5.65 7,725,000 7,829,042
Windstream
08-01-16 8.63 1,535,000 1,519,650
03-15-19 7.00 235,000 205,625
------------
Total 183,538,610
- -------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $3,867,551,404) $3,707,435,002
- -------------------------------------------------------------------------------------
<Caption>
MUNICIPAL BONDS (0.2%)
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% $9,445,000 $7,553,450
- -------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $9,431,628) $7,553,450
- -------------------------------------------------------------------------------------
<Caption>
SENIOR LOANS (0.7%)(r)
COUPON PRINCIPAL
BORROWER RATE AMOUNT VALUE(a)
CONSTRUCTION MACHINERY (--%)
Manitowoc
Tranche B Term Loan
TBD TBD $1,630,000(g,t) $1,625,420
- -------------------------------------------------------------------------------------
CONSUMER CYCLICAL SERVICES (0.1%)
West Corp
Tranche B2 Term Loan
10-24-13 4.84-5.17% 2,674,360 2,335,385
- -------------------------------------------------------------------------------------
FOOD AND BEVERAGE (--%)
Wrigley
Tranche B Term Loan
TBD TBD 820,000(g,t) 823,698
- -------------------------------------------------------------------------------------
HEALTH CARE (0.4%)
Community Health Systems
Delayed Draw Term Loan
TBD TBD 253,243(g,s,t) 239,315
Community Health Systems
Term Loan
07-25-14 4.72-5.06 4,951,634 4,679,294
HCA
Tranche B Term Loan
11-17-13 5.05 7,228,560 6,772,293
------------
Total 11,690,902
- -------------------------------------------------------------------------------------
MEDIA CABLE (0.1%)
Charter Communications
Term Loan
09-06-14 4.67-4.80 4,237,705 3,701,635
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
34 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
SENIOR LOANS (CONTINUED)
COUPON PRINCIPAL
BORROWER RATE AMOUNT VALUE(a)
MEDIA NON CABLE (0.1%)
Idearc
Tranche B Term Loan
11-17-14 4.47-4.80% $2,618,056 $1,836,200
Nielsen Finance
Term Loan
08-09-13 4.80 2,943,197(c) 2,719,249
------------
Total 4,555,449
- -------------------------------------------------------------------------------------
PAPER (--%)
Georgia-Pacific
Tranche B Term Loan
12-20-12 4.45-4.55 7,209 6,806
- -------------------------------------------------------------------------------------
TECHNOLOGY (--%)
Flextronics Intl
Term Loan
10-01-14 5.04 3,033 2,782
- -------------------------------------------------------------------------------------
TOTAL SENIOR LOANS
(Cost: $27,304,282) $24,742,077
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
COMMON STOCKS (--%)
ISSUER SHARES VALUE(a)
PAPER & FOREST PRODUCTS
Crown Paper Escrow 6,950,000(b,n) $7
- -------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost: $--) $7
- -------------------------------------------------------------------------------------
<Caption>
MONEY MARKET FUND (9.1%)(q)
SHARES VALUE(a)
RiverSource Short-Term
Cash Fund, 2.57% 329,852,708(v) $329,852,708
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $329,852,708) $329,852,708
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $4,234,140,022)(x) $4,069,583,244
=====================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT AUG. 31, 2008
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- ----------------------------------------------------------------------------------------
U.S. Long Bond, 20-year 919 $107,810,188 Dec. 2008 $446,156
U.S. Treasury Note, 2-year 484 102,744,125 Jan. 2009 82,338
U.S. Treasury Note, 5-year (579) (65,110,362) Oct. 2008 (749,016)
U.S. Treasury Note, 5-year (2,112) (236,412,000) Jan. 2009 (273,561)
U.S. Treasury Note, 10-year (733) (85,531,938) Sept. 2008 (1,990,951)
U.S. Treasury Note, 10-year (1,775) (205,012,500) Dec. 2008 293,665
- ----------------------------------------------------------------------------------------
Total $(2,191,369)
- ----------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 35
CREDIT DEFAULT SWAP CONTRACTS OUTSTANDING AT AUG. 31, 2008
<Table>
<Caption>
REFERENCED BUY/SELL PAY/RECEIVE EXPIRATION NOTIONAL UNREALIZED UNREALIZED
COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE AMOUNT APPRECIATION DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Home Depot Buy .50% March 20, 2011 $1,920,000 $41,547 $--
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Kinder Morgan Buy .41 March 20, 2011 2,345,000 23,737 --
Special Financing Energy Partners
- -------------------------------------------------------------------------------------------------------------------------
Citibank Reed Elsevier Buy .26 Sept. 20, 2011 1,915,000 9,783 --
Capital
- -------------------------------------------------------------------------------------------------------------------------
Goldman Sachs ConAgra Foods Buy .18 Sept. 20, 2011 3,895,000 23,354 --
- -------------------------------------------------------------------------------------------------------------------------
Goldman Sachs FirstEnergy Buy .60 Dec. 20, 2011 1,750,000 -- (5,701)
- -------------------------------------------------------------------------------------------------------------------------
JP Morgan Chase Bank Kroger Buy .36 March 20, 2012 3,790,000 22,599 --
- -------------------------------------------------------------------------------------------------------------------------
JP Morgan Chase Bank Cardinal Health Buy .225 June 20, 2012 3,860,000 45,912 --
- -------------------------------------------------------------------------------------------------------------------------
Citibank Clorox Buy .31 Dec. 20, 2012 3,110,000 59,561 --
- -------------------------------------------------------------------------------------------------------------------------
JP Morgan Chase Bank NiSource Finance Buy .55 Dec. 20, 2012 3,890,000 140,249 --
- -------------------------------------------------------------------------------------------------------------------------
Total $366,742 $(5,701)
- -------------------------------------------------------------------------------------------------------------------------
</Table>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT AUG. 31, 2008
<Table>
<Caption>
CURRENCY TO CURRENCY TO UNREALIZED UNREALIZED
EXCHANGE DATE BE DELIVERED BE RECEIVED APPRECIATION DEPRECIATION
- ----------------------------------------------------------------------------------------------
Oct. 1, 2008 19,022,000 18,151,491 $245,847 $--
Canadian Dollar U.S. Dollar
- ----------------------------------------------------------------------------------------------
Oct. 1, 2008 797,373,000 7,286,204 -- (53,333)
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
Oct. 1, 2008 11,937,000 10,900,116 55,396 --
Swiss Fanc U.S. Dollar
- ----------------------------------------------------------------------------------------------
Oct. 1, 2008 10,872,720 5,880,000 -- (176,180)
U.S. Dollar British Pound
- ----------------------------------------------------------------------------------------------
Oct. 1, 2008 7,220,928 10,257,000 -- (72,824)
U.S. Dollar New Zealand Dollar
- ----------------------------------------------------------------------------------------------
Oct. 1, 2008 18,098,503 97,398,000 -- (184,754)
U.S. Dollar Norwegian Krone
- ----------------------------------------------------------------------------------------------
Total $301,243 $(487,091)
- ----------------------------------------------------------------------------------------------
</Table>
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 Aug. 31, 2008, the value of foreign securities represented 7.7%
of net assets.
- --------------------------------------------------------------------------------
36 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At Aug. 31,
2008, the value of these securities amounted to $176,352,688 or 4.9% of net
assets.
(e) This is a variable rate security that entitles holders to receive only
interest payments. Interest is paid annually. The interest payment is based
on the Gross Domestic Product (GDP) level of the previous year for the
respective country. To the extent that the previous year's GDP exceeds the
'base case GDP', an interest payment is made equal to 0.012225 of the
difference.
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) At Aug. 31, 2008, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$540,119,805. See Note 1 to the financial statements.
(h) The following abbreviations are used in the portfolio security descriptions
to identify the insurer of the issue:
<Table>
AMBAC -- Ambac Assurance Corporation
FSA -- Financial Security Assurance
MBIA -- MBIA Insurance Corporation
</Table>
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Aug. 31,
2008.
(j) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Aug. 31, 2008.
(k) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. The principal
amount shown is the notional amount of the underlying mortgages. Interest
rate disclosed represents yield based upon the estimated timing and amount
of future cash flows at Aug. 31, 2008.
(l) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments may
have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents yield based upon the estimated timing of future cash
flows at Aug. 31, 2008.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 37
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(m) 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.
(n) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). These securities may be valued at fair
value according to procedures approved, in good faith, by the Fund's Board
of Directors. Information concerning such security holdings at Aug. 31,
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 thru 07-22-08 $326,739
Crown Paper Escrow
Common 04-16-07 --
United Artists Theatre Circuit
Pass-Through Ctfs
9.30% 2015 02-23-96 thru 08-12-96 5,041,037
</Table>
* Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended.
(o) Represents comparable securities held to satisfy future delivery
requirements of the following open forward sale commitments at Aug. 31,
2008:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
--------------------------------------------------------------------------
Federal Natl Mtge Assn
09-01-23 5.00% $8,725,000 09-16-08 $8,515,055 $8,643,203
09-01-23 5.50 14,700,000 09-16-08 14,668,418 14,819,438
</Table>
(p) At Aug. 31, 2008, security was partially or fully on loan. See Note 5 to
the financial statements.
(q) Cash collateral received from security lending activity is invested in an
affiliated money market fund and represents 0.8% of net assets. See Note 5
to the financial statements. The Fund's cash equivalent position is 8.3% of
net assets.
(r) 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.
(s) At Aug. 31, 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
</Table>
- --------------------------------------------------------------------------------
38 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(t) 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.
(u) At Aug. 31, 2008, investments in securities included securities valued at
$9,260,276 that were partially pledged as collateral to cover initial
margin deposits on open interest rate futures contracts.
(v) Affiliated Money Market Fund -- See Note 6 to the financial statements. The
rate shown is the seven-day current annualized yield at Aug. 31, 2008.
(w) Subsequent to Aug. 31, 2008, Lehman Brothers Holdings filed a Chapter 11
bankruptcy petition. As a result, this security has been determined to be
non-income producing.
(x) At Aug. 31, 2008, the cost of securities for federal income tax purposes
was $4,261,588,854 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $26,069,097
Unrealized depreciation (218,074,707)
------------------------------------------------------------
Net unrealized depreciation $(192,005,610)
------------------------------------------------------------
</Table>
The industries identified above are based on the Global Industry Classification
Standard (GICS), which was developed by and is the exclusive property of Morgan
Stanley Capital International Inc. and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 39
FINANCIAL STATEMENTS -----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AUG. 31, 2008
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers* (identified cost $3,904,287,314) $3,739,730,536
Affiliated money market fund (identified cost $329,852,708) 329,852,708
- -----------------------------------------------------------------------------
Total investments in securities (identified cost
$4,234,140,022) 4,069,583,244
Cash 98,772
Foreign currency holdings (identified cost $1,022) 962
Capital shares receivable 6,048,489
Dividends and accrued interest receivable 32,749,564
Receivable for investment securities sold 149,853,061
Unrealized appreciation on forward foreign currency contracts 301,243
Unrealized appreciation on swap contracts 366,742
- -----------------------------------------------------------------------------
Total assets 4,259,002,077
- -----------------------------------------------------------------------------
LIABILITIES
Forward sale commitments, at value (proceeds receivable
$23,183,473) 23,462,641
Dividends payable to shareholders 915,186
Capital shares payable 7,832,782
Payable for investment securities purchased 23,994,040
Payable for securities purchased on a forward-commitment
basis 540,119,805
Payable upon return of securities loaned 30,850,000
Variation margin payable 119,068
Unrealized depreciation on forward foreign currency contracts 487,091
Unrealized depreciation on swap contracts 5,701
Accrued investment management services fees 44,397
Accrued distribution fees 595,331
Accrued transfer agency fees 7,771
Accrued administrative services fees 6,000
Accrued plan administration services fees 15,547
Other accrued expenses 358,062
- -----------------------------------------------------------------------------
Total liabilities 628,813,422
- -----------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $3,630,188,655
- -----------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 7,809,294
Additional paid-in capital 3,940,889,083
Undistributed net investment income 1,974,902
Accumulated net realized gain (loss) (153,632,424)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign
currencies (166,852,200)
- -----------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $3,630,188,655
- -----------------------------------------------------------------------------
*Including securities on loan, at value $ 30,354,600
- -----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
40 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
AUG. 31, 2008
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $1,920,027,558 413,143,778 $4.65(1)
Class B $ 254,464,345 54,765,337 $4.65
Class C $ 31,688,522 6,817,452 $4.65
Class I $ 693,189,044 148,965,143 $4.65
Class R2 $ 9,610 2,067 $4.65
Class R3 $ 9,610 2,067 $4.65
Class R4 $ 75,478,505 16,261,328 $4.64
Class R5 $ 9,588 2,067 $4.64
Class W $ 655,311,873 140,970,151 $4.65
- -------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $4.88. The offering
price is calculated by dividing the net asset value by 1.0 minus the maximum
sales charge of 4.75%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 41
STATEMENT OF OPERATIONS
YEAR ENDED AUG. 31, 2008
<Table>
<Caption>
INVESTMENT INCOME
Income:
Interest $ 177,627,137
Income distributions from affiliated money market fund 4,708,945
Fee income from securities lending 41,168
Less foreign taxes withheld (16,715)
- ----------------------------------------------------------------------------
Total income 182,360,535
- ----------------------------------------------------------------------------
Expenses:
Investment management services fees 14,772,880
Distribution fees
Class A 4,896,633
Class B 3,027,276
Class C 237,190
Class R2 36
Class R3 18
Class W 1,101,584
Transfer agency fees
Class A 2,887,276
Class B 475,869
Class C 35,998
Class R2 4
Class R3 4
Class R4 39,140
Class R5 4
Class W 881,267
Administrative services fees 2,012,548
Plan administration services fees
Class R2 18
Class R3 18
Class R4 195,702
Compensation of board members 65,833
Custodian fees 268,176
Printing and postage 457,290
Registration fees 193,994
Professional fees 84,542
Other 116,505
- ----------------------------------------------------------------------------
Total expenses 31,749,805
Expenses waived/reimbursed by the Investment Manager and
its affiliates (1,540,535)
Earnings and bank fee credits on cash balances (107,103)
- ----------------------------------------------------------------------------
Total net expenses 30,102,167
- ----------------------------------------------------------------------------
Investment income (loss) -- net 152,258,368
- ----------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
42 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED AUG. 31, 2008
<Table>
<Caption>
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions $ 22,750,963
Foreign currency transactions (2,006,493)
Futures contracts (10,131,132)
Swap transactions (6,552,933)
- ----------------------------------------------------------------------------
Net realized gain (loss) on investments 4,060,405
Net change in unrealized appreciation (depreciation) on
investments and on translation of assets and liabilities in
foreign currencies (142,483,859)
- ----------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies (138,423,454)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 13,834,914
- ----------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 43
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED AUG. 31 2008 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 152,258,368 $ 122,100,738
Net realized gain (loss) on investments 4,060,405 20,868,248
Net change in unrealized appreciation (depreciation) on
investments
and on translation of assets and liabilities in foreign
currencies (142,483,859) 6,273,301
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 13,834,914 149,242,287
- --------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (84,539,939) (86,827,158)
Class B (10,768,502) (13,755,846)
Class C (828,277) (626,596)
Class I (22,019,428) (15,257,999)
Class R2 (290) (141)
Class R3 (308) (151)
Class R4 (3,476,394) (4,383,933)
Class R5 (328) (167)
Class W (18,133,130) (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 (139,766,596) (125,792,047)
- --------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
44 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<Table>
<Caption>
YEAR ENDED AUG. 31 2008 2007
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares $ 386,502,419 $ 341,978,156
Class B shares 80,268,108 73,778,423
Class C shares 20,510,381 4,309,754
Class I shares 193,548,806 162,095,736
Class R2 shares -- 5,000
Class R3 shares -- 5,000
Class R4 shares 31,152,017 29,755,649
Class R5 shares -- 5,000
Class W shares 529,049,476 267,590,689
Fund merger (Note 8)
Class A shares 52,349,504 N/A
Class B shares 13,151,218 N/A
Class C shares 1,247,150 N/A
Class I shares 250,084,366 N/A
Class R2 shares 4,925 N/A
Class R3 shares 4,925 N/A
Class R4 shares 11,052 N/A
Class R5 shares 4,913 N/A
Class W shares 4,890 N/A
Reinvestment of distributions at net asset value
Class A shares 71,053,046 71,340,780
Class B shares 9,967,093 12,481,391
Class C shares 747,742 558,059
Class I shares 22,202,710 15,346,042
Class R4 shares 3,527,696 4,481,258
Class W shares 18,163,448 2,006,618
Payments for redemptions
Class A shares (458,212,241) (507,058,109)
Class B shares (142,424,544) (187,649,959)
Class C shares (6,555,566) (5,462,345)
Class I shares (137,684,266) (69,529,553)
Class R4 shares (34,245,276) (129,682,278)
Class W shares (92,614,678) (46,272,210)
- --------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions 811,819,314 40,083,101
- --------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 685,887,632 63,533,341
Net assets at beginning of year 2,944,301,023 2,880,767,682
- --------------------------------------------------------------------------------------------
Net assets at end of year $3,630,188,655 $2,944,301,023
- --------------------------------------------------------------------------------------------
Undistributed (excess of distributions over) net investment
income $ 1,974,902 $ (1,432,632)
- --------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 45
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
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 Aug. 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of
Class I shares and the Investment Manager owned 100% of Class 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.
- --------------------------------------------------------------------------------
46 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
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.
When market quotes are not readily available, the pricing service, in
determining fair values of debt securities, takes into consideration such
factors as current quotations by broker/dealers, coupon, maturity, quality, type
of issue, trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. Foreign securities are valued based on
quotations from the principal market in which such securities are normally
traded. The procedures adopted by the Board generally contemplate the use of
fair valuation in the event that price quotations or valuations are not readily
available, price quotations or valuations from other sources are not reflective
of market value and thus deemed unreliable, or a significant event has occurred
in relation to a security or class of securities (such as foreign securities)
that is not reflected in price quotations or valuations from other sources. A
fair value price is a good faith estimate of the value of a security at a given
point in time.
Many securities markets and exchanges outside the U.S. close prior to the close
of the New York Stock Exchange and therefore the closing prices for securities
in such markets or on such exchanges may not fully reflect events that occur
after such close but before the close of the New York Stock Exchange, including
significant movements in the U.S. market after foreign exchanges have closed.
Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise
Financial), parent company of the Investment Manager, as administrator to the
Fund, will fair value foreign securities pursuant to procedures adopted by the
Board, including utilizing a third party pricing service to determine these fair
values. These procedures take into account multiple factors, including movements
in the U.S. securities markets, to determine a good faith estimate that
reasonably reflects the current market conditions as of the close of the New
York Stock Exchange. Swap transactions are valued through an authorized pricing
service, broker, or an internal model.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
ILLIQUID SECURITIES
At Aug. 31, 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 Aug. 31, 2008 was
$5,223,092 representing 0.14% of net assets. These securities may be valued at
fair value according to procedures approved, in good faith, by the Board.
According to Board
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 47
guidelines, certain unregistered securities are determined to be liquid and are
not included within the 15% limitation specified above. Assets are liquid if
they can be sold or disposed of in the ordinary course of business within seven
days at approximately the value at which the asset is valued by the Fund.
SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS AND UNFUNDED LOAN COMMITMENTS
Delivery and payment for securities that have been purchased by the Fund on a
forward-commitment basis, including when-issued securities and other forward-
commitments, can take place one month or more after the transaction date. During
this period, such securities are subject to market fluctuations, and they may
affect the Fund's net assets the same as owned securities. The Fund designates
cash or liquid securities at least equal to the amount of its forward-
commitments. At Aug. 31, 2008, the Fund has outstanding when-issued securities
of $540,119,805.
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 Aug. 31, 2008, the Fund has entered into unfunded loan
commitments of $253,243.
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.
- --------------------------------------------------------------------------------
48 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
The risk in buying an option is that the Fund pays a premium whether or not the
option is exercised. The Fund also has the additional risk of being unable to
enter into a closing transaction if a liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Fund will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost or a
security for a purchased put or call option is adjusted by the amount or premium
received or paid. At Aug. 31, 2008, and for the year then ended, the Fund had no
outstanding option contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts traded on any U.S. or foreign exchange. The
Fund also may buy and write put and call options on these futures contracts.
Risks of entering into futures contracts and related options include the
possibility of an illiquid market and that a change in the value of the contract
or option may not correlate with changes in the value of the underlying
securities.
Futures are valued daily based upon the last sale price at the close of market
on the principal exchange on which they are traded. Upon entering into a futures
contract, the Fund is required to deposit either cash or securities in an amount
(initial margin) equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the Fund each day. The
variation margin payments are equal to the daily changes in the contract value
and are recorded as unrealized gains and losses. The Fund recognizes a realized
gain or loss when the contract is closed or expires.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses. In the Statement of Operations, net realized
gains or losses from foreign currency transactions, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date on securities transactions, and other
translation gains or losses on dividends, interest income and foreign
withholding taxes. At Aug. 31, 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
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 49
U.S. dollar value of foreign currency underlying all contractual commitments
held by the Fund and the resulting unrealized appreciation or depreciation are
determined using foreign currency exchange rates from an independent pricing
service. The Fund is subject to the credit risk that the other party will not
complete its contract obligations.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are used
to satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the Notes to 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
- --------------------------------------------------------------------------------
50 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
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 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 Aug. 31, 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
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 51
Fund. At Aug. 31, 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 contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of the future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes," clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB Statement 109,
"Accounting for Income Taxes." FIN 48 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. Management
of the Fund has concluded that there are no significant uncertain tax positions
that would require recognition in the financial statements. Generally, the tax
authorities can examine all the tax returns filed for the last three years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures and options
contracts, foreign currency transactions, recognition of unrealized appreciation
(depreciation) for certain derivative investments, post-October losses, market
discount and losses deferred due to wash sales. The character of distributions
made during the year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax purposes. Also, due
to the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains (losses)
were recorded by the Fund.
On the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by
$9,648,830 and accumulated net realized loss has been decreased by $9,541,299
- --------------------------------------------------------------------------------
52 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
resulting in a net reclassification adjustment to increase paid-in capital by
$107,531.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED AUG. 31, 2008 2007*
- -----------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income.................... $84,539,939 $86,827,158
Long-term capital gain............. -- --
Tax return of capital.............. -- 1,969,457
CLASS B
Distributions paid from:
Ordinary income.................... 10,768,502 13,755,846
Long-term capital gain............. -- --
Tax return of capital.............. -- 312,017
CLASS C
Distributions paid from:
Ordinary income.................... 828,277 626,596
Long-term capital gain............. -- --
Tax return of capital.............. -- 14,213
CLASS I
Distributions paid from:
Ordinary income.................... 22,019,428 15,257,999
Long-term capital gain............. -- --
Tax return of capital.............. -- 346,089
CLASS R2
Distributions paid from:
Ordinary income.................... 290 141
Long-term capital gain............. -- --
Tax return of capital.............. -- 3
CLASS R3
Distributions paid from:
Ordinary income.................... 308 151
Long-term capital gain............. -- --
Tax return of capital.............. -- 3
CLASS R4
Distributions paid from:
Ordinary income.................... 3,476,394 4,383,933
Long-term capital gain............. -- --
Tax return of capital.............. -- 99,439
CLASS R5
Distributions paid from:
Ordinary income.................... 328 167
Long-term capital gain............. -- --
Tax return of capital.............. -- 4
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 53
<Table>
<Caption>
YEAR ENDED AUG. 31, 2008 2007*
- -----------------------------------------------------------------
CLASS W
Distributions paid from:
Ordinary income.................... $18,133,130 $ 2,150,062
Long-term capital gain............. -- --
Tax return of capital.............. -- 48,769
</Table>
* Class R2, Class R3, and Class R5 are for the period from Dec. 11, 2006
(inception date) to Aug. 31, 2007. Class W is for the period from Dec. 1,
2006 (inception date) to Aug. 31, 2007.
At Aug. 31, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income................. $ 4,412,056
Undistributed accumulated long-term gain...... $ --
Accumulated realized loss..................... $(125,823,517)
Unrealized appreciation (depreciation)........ $(196,183,075)
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No. 133," which requires enhanced
disclosures about a fund's derivative and hedging activities. Funds are required
to provide enhanced disclosures about (a) how and why a fund uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect a fund's financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
Nov. 15, 2008. As of Aug. 31, 2008, management does not believe the adoption of
SFAS 161 will impact the financial statement amounts; however, additional
footnote disclosures may be required about the use of derivative instruments and
hedging items.
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 hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. The application of SFAS 157
will be effective for the Fund's fiscal year beginning Sept. 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on the Fund's
financial statements; however, additional disclosures will be required 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.
- --------------------------------------------------------------------------------
54 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
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
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.48%
to 0.29% annually as the Fund's assets increase. The management fee for the year
ended Aug. 31, 2008 was 0.45% of the Fund's average daily net assets.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.07% to 0.04% annually as the
Fund's assets increase. The fee for the year ended Aug. 31, 2008 was 0.06% of
the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended Aug. 31,
2008, other expenses paid to this company were $4,110.
COMPENSATION OF BOARD MEMBERS
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 DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 55
RiverSource funds. The Fund's liability for these amounts is adjusted for market
value changes and remains in the Fund until distributed in accordance with the
Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50
for Class B and $21.00 for Class C for this service. The Fund also pays the
Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's
average daily net assets attributable to Class R2, Class R3, Class R4 and Class
R5 shares and an annual asset-based fee at a rate of 0.20% of the Fund's average
daily net assets attributable to Class W shares.
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of Operations.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R2, Class R3 and Class R4 shares for the provision of
various administrative, recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has 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. For Class B
and Class C shares, up to 0.75% of the fee is reimbursed for distribution
expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed expense") was approximately $7,263,000 and $231,000
for Class B and Class C shares, respectively. These amounts are based on the
most recent information available as of July 31, 2008, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
- --------------------------------------------------------------------------------
56 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$1,805,400 for Class A, $182,205 for Class B and $4,617 for Class C for the year
ended Aug. 31, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended Aug. 31, 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 as follows:
<Table>
Class A............................................. 0.89%
Class B............................................. 1.65
Class C............................................. 1.65
Class I............................................. 0.53
Class R2............................................ 1.08
Class R3............................................ 0.83
Class R4............................................ 0.76
Class R5............................................ 0.58
Class W............................................. 0.98
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A.......................................... $740,715
Class B.......................................... 116,929
Class C.......................................... 8,946
Class R4......................................... 39,140
Class W.......................................... 1,237
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R2.......................................... $18
Class R3.......................................... 18
Class R4.......................................... 12,771
</Table>
The management fees waived/reimbursed at the Fund level were $620,761.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 57
Under an agreement which was effective until Aug. 31, 2008, the Investment
Manager and its affiliates contractually agreed to waive certain fees and
expenses such that net expenses (excluding fees and expenses of acquired
funds*), would not exceed the following percentage of the Fund's average daily
net assets:
<Table>
Class A............................................. 0.89%
Class B............................................. 1.65
Class C............................................. 1.65
Class I............................................. 0.53
Class R2............................................ 1.33
Class R3............................................ 1.08
Class R4............................................ 0.77
Class R5............................................ 0.58
Class W............................................. 0.98
</Table>
Effective Sept. 1, 2008, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until Aug. 31, 2009,
unless sooner terminated at the discretion of the Board, such that net expenses
(excluding fees and expenses of acquired funds*), will not exceed the following
percentage of the Fund's average daily net assets:
<Table>
Class A............................................. 0.83%
Class B............................................. 1.59
Class C............................................. 1.58
Class I............................................. 0.47
Class R2............................................ 1.27
Class R3............................................ 1.02
Class R4............................................ 0.77
Class R5............................................ 0.52
Class W............................................. 0.92
</Table>
* In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in
which it invests (also referred to as "acquired funds"), including
affiliated and non-affiliated pooled investment vehicles (including mutual
funds and exchange traded funds). Because the acquired funds have varied
expense and fee levels and the Fund may own different proportions of
acquired funds at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
EARNINGS AND BANK FEE CREDITS
During the year ended Aug. 31, 2008, the Fund's custodian and transfer agency
fees were reduced by $107,103 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, but including mortgage dollar rolls) aggregated $8,313,095,004
(including $290,967,914 from RiverSource Core Bond Fund that was acquired in the
fund merger as described in Note 8) and $7,648,960,216, respectively, for the
- --------------------------------------------------------------------------------
58 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
year ended Aug. 31, 2008. Realized gains and losses are determined on an
identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<Table>
<Caption>
YEAR ENDED AUG. 31, 2008
ISSUED FOR
REINVESTED NET
SOLD FUND MERGER DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ------------------------------------------------------------------------------------------
Class A 80,328,319 10,921,606 14,809,220 (95,553,562) 10,505,583
Class B 16,633,194 2,743,904 2,076,386 (29,781,790) (8,328,306)
Class C 4,270,266 260,158 156,349 (1,369,182) 3,317,591
Class I 40,548,778 52,110,117 4,637,299 (28,465,148) 68,831,046
Class R2 -- 1,027 -- -- 1,027
Class R3 -- 1,027 -- -- 1,027
Class R4 6,464,647 2,309 736,110 (7,142,397) 60,669
Class R5 -- 1,027 -- -- 1,027
Class W 110,115,534 1,020 3,800,802 (19,306,233) 94,611,123
- ------------------------------------------------------------------------------------------
<Caption>
YEAR ENDED AUG. 31, 2007
ISSUED FOR
REINVESTED NET
SOLD FUND MERGER DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ------------------------------------------------------------------------------------------
Class A 71,107,119 N/A 14,806,791 (105,297,428) (19,383,518)
Class B 15,312,266 N/A 2,590,288 (39,059,052) (21,156,498)
Class C 893,514 N/A 115,836 (1,134,124) (124,774)
Class I 33,643,276 N/A 3,181,732 (14,430,925) 22,394,083
Class R2* 1,040 N/A -- -- 1,040
Class R3* 1,040 N/A -- -- 1,040
Class R4 6,169,567 N/A 931,416 (27,102,344) (20,001,361)
Class R5* 1,040 N/A -- -- 1,040
Class W** 55,562,189 N/A 417,986 (9,621,147) 46,359,028
- ------------------------------------------------------------------------------------------
</Table>
* For the period from Dec. 11, 2006 (inception date) to Aug. 31, 2007.
** 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
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 59
securities lending agent for the Fund under the Investment Management Services
Agreement pursuant to which the Fund has agreed to reimburse the Investment
Manager for expenses incurred by it in connection with the lending program, and
pursuant to guidelines adopted by and under the oversight of the Board. At Aug.
31, 2008, securities valued at $30,354,600 were on loan to brokers. For
collateral, the Fund received $30,850,000 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 Portfolio of Investments. Income from securities lending
amounted to $41,168 for the year ended Aug. 31, 2008. Expenses paid to the
Investment Manager as securities lending agent were $5,455 for the year ended
Aug. 31, 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
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 $1,538,322,151 and $1,254,355,172, respectively, for the
year ended Aug. 31, 2008. The income distributions received with respect to the
Fund's investment in RiverSource Short-Term Cash Fund can be found on the
Statement of Operations and the Fund's invested balance in RiverSource Short-
Term Cash Fund at Aug. 31, 2008, can be found in the Portfolio of Investments.
7. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
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 year ended Aug. 31, 2008.
- --------------------------------------------------------------------------------
60 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
8. FUND MERGER
At the close of business on March 14, 2008, RiverSource Diversified Bond Fund
acquired the assets and assumed the identified liabilities of RiverSource Core
Bond Fund. The reorganization was completed after shareholders approved the plan
on Jan. 29, 2008.
The aggregate net assets of RiverSource Diversified Bond Fund immediately before
the acquisition were $3,162,732,908 and the combined net assets immediately
after the acquisition were $3,479,595,851.
The merger was accomplished by a tax-free exchange of 33,460,754 shares of
RiverSource Core Bond Fund valued at $316,862,943.
In exchange for the RiverSource Core Bond Fund shares and net assets,
RiverSource Diversified Bond Fund issued the following number of shares:
<Table>
<Caption>
SHARES
- ------------------------------------------------------------
Class A......................................... 10,921,606
Class B......................................... 2,743,904
Class C......................................... 260,158
Class I......................................... 52,110,117
Class R2........................................ 1,027
Class R3........................................ 1,027
Class R4........................................ 2,309
Class R5........................................ 1,027
Class W......................................... 1,020
</Table>
RiverSource Core Bond Fund's net assets after adjustments for any permanent
book-to-tax differences at the merger date were as follows, which include the
following amounts of capital stock, unrealized depreciation, accumulated net
realized loss and undistributed net income.
<Table>
<Caption>
ACCUMULATED UNDISTRIBUTED
TOTAL CAPITAL UNREALIZED NET NET
NET ASSETS STOCK DEPRECIATION REALIZED LOSS INVESTMENT INCOME
- --------------------------------------------------------------------------------------------
RiverSource Core
Bond Fund $316,862,943 $322,093,199 $(3,350,834) $(1,764,611) $(114,811)
</Table>
9. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS
For federal income tax purposes, the Fund had a capital loss carry-over of
$123,970,058 at Aug. 31, 2008, that if not offset by capital gains will expire
as follows:
<Table>
<Caption>
2009 2010 2012 2013 2014
$56,247,571 $49,658,521 $5,227,159 $2,996,287 $9,840,520
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 61
Because the measurement periods for a regulated investment company's income are
different for excise tax purposes versus income tax purposes, special rules are
in place to protect the amount of earnings and profits needed to support excise
tax distributions. As a result, the Fund is permitted to treat net capital
losses realized between Nov. 1 2007 and its fiscal year end ("post-October
loss") as occurring on the first day of the following tax year. At Aug. 31,
2008, the Fund had a post-October loss of $1,853,459 that is treated for income
tax purposes as occurring on Sept. 1, 2008.
It is unlikely the Board will authorize a distribution of any net realized
capital gains until the available capital loss carry-over has been offset or
expires.
10. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. 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
- --------------------------------------------------------------------------------
62 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
proceedings, and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the consolidated financial
condition or results of operations of Ameriprise Financial.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 63
11. 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 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) .22(b) .21(b) .19 .18 .18
Net gains (losses) (both realized and
unrealized) (.17) .05 (.11) .03 .08
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .26 .08 .21 .26
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.21) (.20) (.19) (.17)
Tax return of capital -- (.01) -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.22) (.20) (.19) (.17)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.65 $4.81 $4.77 $4.89 $4.87
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1,920 $1,937 $2,013 $1,774 $1,933
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .95% .97% .99% 1.02% 1.00%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .89% .89% .89% .94% .98%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.68% 4.43% 4.09% 3.67% 3.55%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 226% 295% 281% 300% 279%
- --------------------------------------------------------------------------------------------------------------
Total return(h) .93% 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) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(g) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
(h) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
64 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Aug. 31, 2008 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) .19(b) .18(b) .16 .15 .14
Net gains (losses) (both realized and
unrealized) (.18) .04 (.12) .01 .09
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .22 .04 .16 .23
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.17) (.18) (.16) (.15) (.13)
Tax return of capital -- (.00)(c) -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.18) (.16) (.15) (.13)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.65 $4.81 $4.77 $4.89 $4.88
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $254 $304 $402 $484 $628
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.71% 1.73% 1.76% 1.78% 1.75%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(f),(g) 1.65% 1.65% 1.65% 1.70% 1.73%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.91% 3.66% 3.31% 2.92% 2.78%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(h) 226% 295% 281% 300% 279%
- --------------------------------------------------------------------------------------------------------------
Total return(i) .16% 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) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(h) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
(i) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 65
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Aug. 31, 2008 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) .19(b) .18(b) .16 .15 .14
Net gains (losses) (both realized and
unrealized) (.18) .04 (.13) .02 .09
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .22 .03 .17 .23
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.17) (.18) (.16) (.15) (.13)
Tax return of capital -- (.00)(c) -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.18) (.16) (.15) (.13)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.65 $4.81 $4.77 $4.90 $4.88
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $32 $17 $17 $18 $21
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.70% 1.73% 1.76% 1.79% 1.75%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(f),(g) 1.65% 1.65% 1.66% 1.70% 1.73%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.93% 3.67% 3.31% 2.93% 2.79%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(h) 226% 295% 281% 300% 279%
- --------------------------------------------------------------------------------------------------------------
Total return(i) .16% 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) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(h) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
(i) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
66 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Aug. 31, 2008 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) .24(c) .23(c) .21 .20 .11
Net gains (losses) (both realized and
unrealized) (.18) .04 (.11) .02 (.04)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .06 .27 .10 .22 .07
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.23) (.22) (.21) (.21) (.10)
Tax return of capital -- (.01) -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.23) (.21) (.21) (.10)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.65 $4.82 $4.78 $4.89 $4.88
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $693 $386 $276 $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .55% .56% .55% .60% .59%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .53% .54% .54% .60% .59%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 5.09% 4.80% 4.59% 4.01% 3.13%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(i) 226% 295% 281% 300% 279%
- --------------------------------------------------------------------------------------------------------------
Total return 1.07% 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/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(i) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
(j) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 67
CLASS R2
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Aug. 31, 2008 2007(b)
Net asset value, beginning of period $4.80 $4.81
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .21 .14
Net gains (losses) (both realized and
unrealized) (.16) (.02)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .12
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.13)
Total return of capital -- (.00)(d)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.13)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.65 $4.80
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(e),(f) 1.34% 1.32%(g)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(f),(h),(i) 1.08% 1.32%(g)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.53% 4.06%(g)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(j) 226% 295%
- --------------------------------------------------------------------------------------------------------------
Total return .84% 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/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(i) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
(k) Not annualized.
- --------------------------------------------------------------------------------
68 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
CLASS R3
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Aug. 31, 2008 2007(b)
Net asset value, beginning of period $4.80 $4.81
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .23 .15
Net gains (losses) (both realized and
unrealized) (.17) (.02)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .06 .13
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.14)
Total return of capital -- (.00)(d)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.14)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.65 $4.80
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(e),(f) 1.08% 1.06%(g)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(f),(h),(i) .83% 1.06%(g)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.79% 4.33%(g)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(j) 226% 295%
- --------------------------------------------------------------------------------------------------------------
Total return 1.11% 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/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(i) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
(k) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 69
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Aug. 31, 2008 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) .23(b) .22(b) .20 .19 .18
Net gains (losses) (both realized and
unrealized) (.17) .04 (.12) .02 .10
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .06 .26 .08 .21 .28
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.22) (.20) (.20) (.18)
Tax return of capital -- (.01) -- -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.23) (.20) (.20) (.18)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.64 $4.80 $4.77 $4.89 $4.88
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $75 $78 $173 $202 $203
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .85% .83% .82% .86% .83%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .76% .73% .73% .78% .81%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.81% 4.53% 4.24% 3.85% 3.70%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 226% 295% 281% 300% 279%
- --------------------------------------------------------------------------------------------------------------
Total return 1.03% 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) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(g) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
- --------------------------------------------------------------------------------
70 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
CLASS R5
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Aug. 31, 2008 2007(b)
Net asset value, beginning of period $4.80 $4.81
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .24 .17
Net gains (losses) (both realized and
unrealized) (.18) (.02)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .06 .15
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.16)
Total return of capital -- (.00)(d)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.64 $4.80
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(e),(f) .59% .59%(g)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(f),(h),(i) .58% .57%(g)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 5.02% 4.81%(g)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(j) 226% 295%
- --------------------------------------------------------------------------------------------------------------
Total return 1.22% 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/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(i) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
(k) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 71
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(A)
Fiscal period ended Aug. 31, 2008 2007(b)
Net asset value, beginning of period $4.81 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(c) .22 .15
Net gains (losses) (both realized and
unrealized) (.17) --
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .15
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.16)
Total return of capital -- (.00)(d)
- --------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.65 $4.81
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $655 $223
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(e),(f) .99% .98%(g)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(f),(h),(i) .98% .97%(g)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.56% 4.32%(g)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(j) 226% 295%
- --------------------------------------------------------------------------------------------------------------
Total return .82% 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/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(i) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended Aug. 31, 2008
were less than 0.01% of average net assets.
(j) Includes mortgage dollar rolls. If mortgage dollar rolls transactions were
excluded, the portfolio turnover would have been 122% for the year ended
Aug. 31, 2008.
(k) Not annualized.
- --------------------------------------------------------------------------------
72 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE DIVERSIFIED BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource Diversified Bond Fund (the Fund),
of the RiverSource Diversified Income Series, Inc. as of August 31, 2008, and
the related statement of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for each of the two years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights of the Fund for the periods presented
through August 31, 2006, were audited by other auditors whose report dated
October 20, 2006 expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2008, by correspondence with the custodian
and brokers, or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 73
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of RiverSource Diversified Bond Fund of the RiverSource Diversified
Income Series, Inc. at August 31, 2008, the results of its operations for the
year then ended, and changes in its net assets and the financial highlights for
each of the two years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 21, 2008
- --------------------------------------------------------------------------------
74 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
FEDERAL INCOME TAX INFORMATION -------------------------------------------------
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
Fiscal year ended Aug. 31, 2008
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals.................... 0.00%
Dividends Received Deduction for corporations................ 0.00%
U.S. Government Obligations.................................. 15.89%
</Table>
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 75
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board members. Each member oversees 104
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
Kathleen Blatz Board member since Chief Justice, Minnesota Supreme Court, 1998-2006; None
901 S. Marquette Ave. 2006 Attorney
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Funds, 1999-2006; former Governor of None
901 S. Marquette Ave. 1999 Minnesota
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None
901 S. Marquette Ave. 2007 Leadership (consulting company)
Minneapolis, MN 55402
Age 53
- ------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None
901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley College
Age 57
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 72
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member since President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. 2002 and Chair of College Inc. (manufactures
Minneapolis, MN 55402 the Board since 2007 irrigation systems)
Age 69
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
76 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None
901 S. Marquette Ave. 2004 real estate and asset management company)
Minneapolis, MN 55402
Age 55
- ------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera
901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceutical, Inc.
Minneapolis, MN 55402 Biotech (biotechnology);
Age 64 Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
William F. Truscott Board member since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. and President,
Financial Center Vice President since Chairman of the Board and Chief Investment Officer,
Minneapolis, MN 55474 2002 RiverSource Investments, LLC since 2005; Director,
Age 47 President and Chief Executive Officer, Ameriprise
Certificate Company since 2006; Chairman of the Board,
Chief Executive Officer and President, RiverSource
Distributors, Inc. since 2006; Senior Vice
President -- Chief Investment Officer, Ameriprise
Financial, Inc. and Chairman of the Board and Chief
Investment Officer, RiverSource Investments, LLC, 2001-
2005
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling RiverSource Funds at (888)
791-3380; contacting your financial institution; or visiting
riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 77
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management,
172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC
Center since 2006; Director and Vice President -- Asset
Minneapolis, MN 55474 Management, Products and Marketing, RiverSource
Age 42 Distributors, Inc. since 2006; Managing Director and
Global Head of Product, Morgan Stanley Investment
Management, 2004-2006; President, Touchstone
Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income,
172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments,
Center LLC since 2006; Vice President -- Investments,
Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice
Age 44 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company
5228 Ameriprise Financial 2006 Services, RiverSource Investments, LLC since 2006; Vice
Center Minneapolis, MN President -- Operations and Compliance, RiverSource
55474 Investments, LLC, 2004-2006; Director of Product
Age 42 Development -- Mutual Funds, Ameriprise Financial,
Inc., 2001-2004
- --------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise
105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer,
Center RiverSource Distributors, Inc. since 2006
Minneapolis, MN 55474
Age 53
- --------------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management,
5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel,
Center Secretary since 2006 RiverSource Distributors, Inc. since 2006; Vice
Minneapolis, MN 55474 President, General Counsel and Secretary, Ameriprise
Age 49 Certificate Company since 2005; Vice President -- Asset
Management Compliance, Ameriprise Financial, Inc.,
2004-2005; Senior Vice President and Chief Compliance
Officer, USBancorp Asset Management, 2002-2004
- --------------------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance Officer,
172 Ameriprise Financial Officer since 2006 RiverSource Investments, LLC since 2006;
Center Director -- Mutual Funds, Voyageur Asset Management,
Minneapolis, MN 55474 2003-2006; Director of Finance, Voyageur Asset
Age 47 Management, 2000-2003
- --------------------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering Officer,
2934 Ameriprise Financial Prevention Officer Ameriprise Financial, Inc. since 2004; Manager Anti-
Center since 2004 Money Laundering, Ameriprise Financial, Inc., 2003-
Minneapolis, MN 55474 2004; Compliance Director and Bank Secrecy Act Officer,
Age 44 American Express Centurion Bank, 2000-2003
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
78 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the Fund. Under an investment
management services agreement (the "IMS Agreement") RiverSource Investments
provides investment advice and other services to the Fund and all RiverSource
funds (collectively, the "Funds").
On an annual basis, the Fund's Board of Directors (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2008, including reports
based on data provided by independent organizations to assist the Board in
making this determination. In addition, throughout the year, the Board (or its
committees) reviews information prepared by RiverSource Investments addressing
the services RiverSource Investments provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts, Investment Review and Compliance Committees in determining whether to
continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the Fund's operations, particularly in the areas of
trading systems, new product initiatives, legal and compliance. Further, in
connection with the Board's evaluation of the overall package of services
provided by RiverSource Investments, the Board considered the quality of the
administrative and transfer agency services provided by RiverSource Investments'
affiliates to the Fund. The Board also reviewed the financial condition of
RiverSource Investments (and its affiliates) and each entity's ability to carry
out its responsibilities under the IMS Agreement. The Board also discussed the
acceptability of the terms of the IMS Agreement (including the relatively broad
scope of services required to be performed by RiverSource Investments). The
Board concluded that the services
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 79
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
being performed under the IMS Agreement were of a reasonably high quality,
particularly in light of recent market conditions.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods (including since inception), recent Fund
inflows (and outflows) and a comparison of the Fund's net assets from December
2006 to December 2007. The Board observed that the Fund's investment performance
was appropriate in light of the particular management style and market
conditions involved.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with the
Fund: The Board reviewed comparative fees and the costs of services to be
provided under the IMS Agreement. The Board members considered detailed
comparative information set forth in an annual report on fees and expenses,
including, among other things, data (prepared by an independent organization)
showing a comparison of the Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing the Fund's contribution to
RiverSource Investments' profitability.
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio of each fund, with few exceptions, is at or below the median
expense ratio of funds in the same comparison group). The Board observed that
the Fund's expense ratio (after considering proposed expense caps/waivers)
approximated the peer group's median expense ratio. Based on its review, the
Board concluded that
- --------------------------------------------------------------------------------
80 RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
the Fund's management fee was fair and reasonable in light of the extent and
quality of services that the Fund receives.
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating the Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the Funds on portfolio transactions. The
Board noted that the fees paid by the Fund should permit the investment manager
to offer competitive compensation to its personnel, make necessary investments
in its business and earn an appropriate profit. The Board concluded that
profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 10, 2008, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement.
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities is filed
with the SEC by August 31 for the most recent 12-month period ending June 30 of
that year, and is available without charge by visiting riversource.com/funds; or
searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND -- 2008 ANNUAL REPORT 81
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-6495 AC (10/08)
</Table>
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Pamela G. Carlton, Jeffrey Laikind and Anne P. Jones, each
qualify as audit committee financial experts.
Item 4. Principal Accountant Fees and Services
Fund - Related Fees
(a) Audit Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for
professional services rendered for the audit of the annual financial
statements for RiverSource Diversified Income Series, Inc. were as follows:
2008 - $26,125 2007 - $24,650
(b) Audit - Related Fees. The fees for the year ended Aug. 31, to Ernst & Young
LLP for additional professional services rendered in connection with the
registrant's semiannual financial statement review for RiverSource
Diversified Income Series, Inc. were as follows:
2008 - $375 2007 - $350
(c) Tax Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for tax
compliance related services for RiverSource Diversified Income Series, Inc.
were as follows:
2008 - $3,498 2007 - $3,300
(d) All Other Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP
for additional professional services rendered for RiverSource Diversified
Income Series, Inc. were as follows:
2008 - $0 2007 - $0
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by Ernst &
Young LLP for the registrant and to the registrant's investment adviser
and any entity controlling, controlled by, or under common control with
the investment adviser that provides ongoing services to the registrant
must be pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above during
2008 and 2007 were pre-approved by the audit committee.
(f) Not applicable.
(g) Non-Audit Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP
by the registrant for non-audit fees and by the registrant's investment
adviser, and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant were as
follows:
2008 - $617,073 2007 - $511,730
(h) 100% of the services performed in item (g) above during 2008 and 2007 were
pre-approved by the Ameriprise Financial Audit Committee and/or the
RiverSource Mutual Funds Audit Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not
applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure controls
and procedures as conducted within 90 days of the filing date of this
Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal executive
officer and principal financial officer, as required by Section 302 of
the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Diversified Income Series, Inc.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date November 4, 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 November 4, 2008
By /s/ Jeffrey P. Fox
----------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial
Officer
Date November 4, 2008