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
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RIVERSOURCE DIVERSIFIED INCOME SERIES, INC.
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(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
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(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
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(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-1947
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Date of fiscal year end: 8/31
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Date of reporting period: 2/28
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Semiannual Report
RIVERSOURCE [LOGO](R)
INVESTMENTS
RIVERSOURCE(R)
DIVERSIFIED BOND FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
FEB. 28, 2007
> RIVERSOURCE DIVERSIFIED BOND
FUND SEEKS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL
OF CURRENT INCOME WHILE
CONSERVING THE VALUE OF THE
INVESTMENT FOR THE LONGEST
PERIOD OF TIME.
TABLE OF CONTENTS
Fund Snapshot .......................................................... 3
Performance Summary .................................................... 5
Questions & Answers with Portfolio Management .......................... 8
Fund Expenses Example .................................................. 11
Investments in Securities .............................................. 14
Financial Statements ................................................... 33
Notes to Financial Statements .......................................... 39
Proxy Voting ........................................................... 62
[LOGO]
DALBAR RATED
2007
FOR COMMUNICATION
The RiverSource mutual fund shareholder reports have been awarded the
Communications Seal from Dalbar Inc., an independent financial services
research firm. The Seal recognizes communications demonstrating a level of
excellence in the industry.
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2 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
FUND SNAPSHOT AT FEB. 28, 2007
FUND OVERVIEW
RiverSource Diversified Bond Fund combines securities from all fixed income
sectors including U.S. government bonds, corporate bonds and mortgage-backed
securities. Although the Fund emphasizes high and medium quality bonds, it may
add exposure to high yield bonds and foreign investments in an effort to
achieve higher yield and/or capital appreciation. The Fund targets an
intermediate-term portfolio duration.
SECTOR BREAKDOWN
Percentage of portfolio assets
Mortgage-Backed 41.7%
Corporate Bonds(1) 19.8%
Commercial Mortgage-Backed 15.9%
U.S. Government Obligations & Agencies 14.2% [PIE CHART]
Cash & Cash Equivalents(2) 5.4%
Asset-Backed 2.8%
Foreign Government 0.2%
(1) Includes Financials 5.2%, Utilities 4.4%, Telecommunication 4.2%,
Consumer Discretionary 1.5%, Consumer Staples 1.3%, Health Care 1.3%,
Energy 1.2%, Industrials 0.4% and Materials 0.3%.
(2) Of the 5.4%, 2.4% is due to security lending activity and 3.0% is the
Fund's cash equivalent position.
QUALITY BREAKDOWN
Percentage of bond portfolio assets
AAA bonds 77.6%
AA bonds 1.2%
A bonds 6.4% [PIE CHART]
BBB bonds 10.6%
Non-investment grade bonds 4.1%
Non-rated bonds 0.1%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself.
Whenever possible, the Standard and Poor's rating is used to determine the
credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories. Ratings for 0.2% of the bond portfolio assets were determined
through internal analysis.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund.
In general, bonds prices rise when interest rates fall and vice versa. This
effect is usually more pronounced for longer-term securities. Non-investment
grade securities, commonly called "high-yield" or "junk" bonds, generally have
more volatile prices and carry more risk to principal and income than
investment grade securities.
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RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 3
FUND SNAPSHOT AT FEB. 28, 2007
STYLE MATRIX
[chart] Shading within the style matrix indicates areas in which the Fund
generally invests.
DURATION
SHORT INT. LONG
X HIGH
X MEDIUM QUALITY
LOW
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any
financial institution, and involve investment risks including possible loss of
principal and fluctuation in value.
PORTFOLIO MANAGERS
YEARS IN INDUSTRY
Jamie Jackson, CFA 19
Scott Kirby 28
Tom Murphy, CFA 21
Nicholas Pifer, CFA 17
Jennifer Ponce de Leon 18
FUND FACTS
TICKER SYMBOL INCEPTION DATE
Class A INBNX 10/3/74
Class B ININX 3/20/95
Class C AXBCX 6/26/00
Class I RDBIX 3/4/04
Class R2 -- 12/11/06
Class R3 -- 12/11/06
Class R4(1) IDBYX 3/20/95
Class R5 -- 12/11/06
Class W -- 12/1/06
Total net assets $2.754 billion
Number of holdings 497
Weighted average life(2) 6.0 years
Effective duration(3) 4.2 years
Weighted average bond rating(4) AA+
(1) Effective Dec. 11, 2006, Class Y was renamed Class R4.
(2) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before
its maturity date.
(3) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the
levels of interest rates from two years out to 30 years). Positive
duration means that as rates rise, the price decreases, and negative
duration means that as rates rise, the price increases.
(4) WEIGHTED AVERAGE BOND RATING represents the average credit quality of
the underlying bonds in the portfolio.
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4 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
PERFORMANCE SUMMARY
PERFORMANCE COMPARISON
For the six-month period ended Feb. 28, 2007
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RiverSource Diversified Bond Fund Class A (excluding sales charge) +4.72%
Lehman Brothers Aggregate Bond Index(1) (unmanaged) +3.66%
Lipper Intermediate Investment Grade Index(2) +3.76%
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth
more or less than their original cost. Current performance may be lower or
higher than the performance information shown. You may obtain performance
information current to the most recent month-end by contacting your financial
institution or visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not
reflected in the bar chart. If reflected, returns would be lower than those
shown. The performance of other classes may vary from that shown because of
differences in expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
(1) Lehman Brothers Aggregate Bond Index, an unmanaged index, is made up of
a representative list of government, corporate, asset-backed and
mortgage-backed securities. The index is frequently used as a general
measure of bond market performance. The index reflects reinvestment of
all distributions and changes in market prices, but excludes brokerage
commissions or other fees.
(2) The Lipper Intermediate Investment Grade Index includes the 30 largest
investment grade funds tracked by Lipper Inc. The index's returns
include net reinvested dividends.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(a)
Class A 0.97% 0.89%
Class B 1.74% 1.65%
Class C 1.74% 1.66%
Class I 0.53% 0.53%
Class R2(b) 1.35% 1.32%
Class R3(b) 1.10% 1.07%
Class R4(b) 0.85% 0.73%
Class R5(b) 0.60% 0.57%
Class W(b) 1.00% 0.97%
(a) The investment manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until Aug. 31, 2007,
unless sooner terminated at the discretion of the Fund's Board. Any
amounts waived will not be reimbursed by the Fund. Under this agreement,
net expenses will not exceed 0.89% for Class A; 1.65% for Class B; 1.66%
for Class C; 0.54% for Class I; 1.32% for Class R2; 1.07% for Class R3;
0.73% for Class R4; 0.57% for Class R5; and 0.97% for Class W.
(b) Effective Dec. 11, 2006, Class Y was renamed Class R4. Inception date
for Class R2, Class R3 and Class R5 is Dec. 11, 2006. Inception date for
Class W is Dec. 1, 2006. For Class R2, Class R3, Class R5 and Class W,
expenses are based on estimated amounts for the current fiscal year.
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RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 5
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS
AT FEB. 28, 2007
SINCE
6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
Without sales charge
Class A (inception 10/3/74) +4.72% +6.53% +3.87% +4.49% +5.20% +9.19%
Class B (inception 3/20/95) +4.34% +5.72% +3.09% +3.70% +4.41% +5.45%
Class C (inception 6/26/00) +4.33% +5.49% +3.08% +3.69% N/A +4.78%
Class I (inception 3/4/04) +4.90% +6.68% N/A N/A N/A +4.31%
Class R2 (inception 12/11/06) N/A N/A N/A N/A N/A +2.14%*
Class R3 (inception 12/11/06) N/A N/A N/A N/A N/A +2.20%*
Class R4** (inception 3/20/95) +4.60% +6.49% +3.97% +4.61% +5.33% +6.39%
Class R5 (inception 12/11/06) N/A N/A N/A N/A N/A +2.30%*
Class W (inception 12/1/06) N/A N/A N/A N/A N/A +2.00%*
With sales charge
Class A (inception 10/3/74) -0.25% +1.46% +2.20% +3.48% +4.69% +9.03%
Class B (inception 3/20/95) -0.66% +0.72% +1.83% +3.35% +4.41% +5.45%
Class C (inception 6/26/00) +3.33% +4.49% +3.08% +3.69% N/A +4.78%
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6 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS
AT MARCH 31, 2007
SINCE
6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
Without sales charge
Class A (inception 10/3/74) +3.83% +7.40% +3.59% +4.73% +5.33% +9.16%
Class B (inception 3/20/95) +3.44% +6.60% +2.81% +3.94% +4.53% +5.40%
Class C (inception 6/26/00) +3.43% +6.59% +2.81% +3.89% N/A +4.70%
Class I (inception 3/4/04) +4.01% +7.78% +4.02% N/A N/A +4.24%
Class R2 (inception 12/11/06) N/A N/A N/A N/A N/A +2.03%*
Class R3 (inception 12/11/06) N/A N/A N/A N/A N/A +2.11%*
Class R4** (inception 3/20/95) +3.70% +7.36% +3.69% +4.86% +5.45% +6.34%
Class R5 (inception 12/11/06) N/A N/A N/A N/A N/A +2.26%*
Class W (inception 12/1/06) N/A N/A N/A N/A N/A +1.90%*
With sales charge
Class A (inception 10/3/74) -1.11% +2.30% +1.93% +3.72% +4.81% +9.00%
Class B (inception 3/20/95) -1.56% +1.60% +1.56% +3.60% +4.53% +5.40%
Class C (inception 6/26/00) +2.43% +5.59% +2.81% +3.89% N/A +4.70%
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied
as follows: first year 5%; second and third years 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be
subject to a 1% CDSC if shares are sold within one year after purchase. Sales
charges do not apply to Class I, Class R2, Class R3, Class R4, Class R5 and
Class W shares. Class I, Class R2, Class R3, Class R4 and Class R5 are
available to institutional investors only. Class W shares are offered through
qualifying discretionary accounts.
* Not annualized.
** Effective Dec. 11, 2006, Class Y was renamed Class R4.
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RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 7
QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT
Below, the portfolio management team for RiverSource Diversified Bond Fund
discusses the Fund's results and positioning for the six months ended Feb. 28,
2007.
Q: How did RiverSource Diversified Bond Fund perform for the semiannual
period?
A: RiverSource Diversified Bond Fund's Class A shares (excluding sales
charge) returned 4.72% for the six months ended Feb. 28, 2007. The Fund
outperformed its benchmark, the Lehman Brothers Aggregate Bond Index
(Lehman Index), which gained 3.66%. The Fund also outperformed its peer
group, as represented by the Lipper Intermediate Investment Grade Index,
which returned 3.76% during the same period.
THE FUND OUTPERFORMED ITS BENCHMARK AND PEER GROUP DUE PRIMARILY TO
ISSUE SELECTION WITHIN COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS),
MORTGAGE-BACKED SECURITIES AND INVESTMENT GRADE CORPORATE BONDS.
Q: What factors most significantly affected the Fund's performance?
A: The Fund outperformed its benchmark and peer group due primarily to
issue selection within commercial mortgage-backed securities (CMBS),
mortgage-backed securities and investment grade corporate bonds. The
Fund's exposure to high yield corporate bonds, including bank loans,
supported the Fund's results as well, as this sector outpaced the Lehman
Index during the period. The Fund also benefited significantly from the
payment it received during the period as part of the settlement of the
WorldCom class action case.
Interest rates fell in near unison across the yield curve, or range of
maturities, as the market reacted to mixed economic data releases. Also
supporting the fixed income market rally was the growing concern that
weakness in the housing market might spread into the broader economy.
The Federal Reserve Board (the Fed) kept the targeted federal funds
rate, an interest rate that affects short-term rates, on hold at 5.25%
throughout the period. The late-February equity market sell-off saw
investors shed riskier assets across all markets. All told, the yield on
the 10-year U.S. Treasury declined approximately 17 basis points (0.17%)
over the six months, and most other maturity Treasuries fell by a
similar amount.
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8 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
QUESTIONS & ANSWERS
Given the declining interest rate environment during the six months, the
Fund's defensive posture on duration detracted from returns. We
implemented this duration strategy because in the months after Fed
policy went on hold, we believed rates declined to levels that appeared
too low given our view that the economy would slow. Rather than rising
as we had anticipated, rates continued to fall through the period.
Duration is a measure of the Fund's sensitivity to interest rate
changes.
Q: What changes did you make to the Fund's portfolio during the period?
A: We moderately reduced the Fund's sizable position in mortgage-backed
securities during the period, while maintaining its emphasis on prime
adjustable rate mortgages (ARMs) and prime agency pass-through
mortgages. Pass-through mortgages consist of a pool of residential
mortgage loans, where homeowners' monthly payments of principal,
interest and prepayments pass from the original bank through a
government agency or investment bank to investors.
We modestly increased the Fund's exposure to high yield corporate bonds,
including bank loans. We expect high yield corporate bonds to perform
well during the coming months, as we expect that default rates should
remain low and the demand for yield should remain rather high. We also
increased the Fund's allocation of investment grade corporate bonds, as
we viewed the recent volatility within the fixed income sector as a
buying opportunity. The Fund's portfolio turnover rate for the
semiannual period was 134%.*
* A significant portion of the turnover was the result of "roll"
transactions in the liquid derivatives and Treasury securities. In the
derivative transactions, positions in expiring contracts are liquidated
and simultaneously replaced with positions in new contracts with
equivalent characteristics. In the Treasury transactions, existing
holdings are sold to purchase newly issued securities with slightly
longer maturity dates. Although these transactions affect the turnover
rate of the portfolio, they do not change the risk exposure or result in
material transactions costs. The remaining turnover resulted from
strategic reallocations and relative value trading. After transaction
costs, we expect this activity to enhance the returns on the overall
Fund.
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RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 9
QUESTIONS & ANSWERS
WE EXPECT HIGH YIELD CORPORATE BONDS TO PERFORM WELL DURING THE COMING
MONTHS, AS WE EXPECT THAT DEFAULT RATES SHOULD REMAIN LOW AND THE DEMAND
FOR YIELD SHOULD REMAIN RATHER HIGH.
Q: What is the Fund's tactical view and strategy for the months ahead?
A: We believe the primary questions facing the fixed income market at the
end of February centered on the strength of the economy and the
direction of Fed policy going forward. Until there is more clarity
surrounding these questions, volatility within the U.S. bond market will
likely remain high. At the same time, as long as the equity market also
remains volatile, we believe the heightened risk aversion among
investors will continue to benefit the higher quality segments of the
fixed income market. While there are some concerns over whether and how
the problems in subprime mortgages might impact the broader mortgage
sector, or indeed the broader economy, for the time being, the problems
seem largely contained within the subprime mortgage sector, which
represents only about 15% of the total mortgage securities market.
Given our view that rates are too low and will ultimately move higher,
we intend to maintain the Fund's current short duration positioning
compared to the Lehman Index for the near term. In the non-Treasury
sectors, we intend to maintain the Fund's significant allocation to CMBS
and to favor select higher quality industries within the investment
grade bond sector. We further expect to maintain the Fund's exposure to
mortgage-backed securities but to stay defensively positioned in ARMs
and premium coupon securities, which are expected to perform well in a
rising rate environment. At the end of February, the Fund had no
exposure to emerging market bonds. As always, we will maintain a
disciplined focus on individual security selection.
Any specific securities mentioned are for illustrative purposes only and are
not a complete list of securities that have increased or decreased in value.
The views expressed in this statement reflect those of the portfolio
manager(s) only through the end of the period of the report as stated on the
cover and do not necessarily represent the views of RiverSource Investments,
LLC (RiverSource) or any subadviser to the Fund or any other person in the
RiverSource or subadviser organizations. Any such views are subject to change
at any time based upon market or other conditions and RiverSource disclaims
any responsibility to update such views. These views may not be relied on as
investment advice and, because investment decisions for a RiverSource Fund are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any RiverSource Fund.
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10 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
FUND EXPENSES EXAMPLE
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1)
fees; and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests
(also referred to as "acquired funds"), including affiliated and
non-affiliated pooled investment vehicles (including mutual funds and exchange
traded funds). The Fund's indirect expense from investing in the acquired
funds is based on the Fund's pro rata portion of the cumulative expenses
charged by the acquired funds using the acquired funds expense ratio as of the
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the six months ended Feb. 28, 2007.
ACTUAL EXPENSES
The first line of the table provides information about actual account values
and actual expenses. You may use the information in this line, together with
the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading titled "Expenses paid during the period"
to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transactional
costs were included, your costs would have been higher.
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RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 11
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO
Class A
Actual(b) $ 1,000 $ 1,047.20 $ 4.52 .89%
Hypothetical
(5% return before expenses) $ 1,000 $ 1,020.38 $ 4.46 .89%
Class B
Actual(b) $ 1,000 $ 1,043.40 $ 8.36 1.65%
Hypothetical
(5% return before expenses) $ 1,000 $ 1,016.61 $ 8.25 1.65%
Class C
Actual(b) $ 1,000 $ 1,043.30 $ 8.36 1.65%
Hypothetical
(5% return before expenses) $ 1,000 $ 1,016.61 $ 8.25 1.65%
Class I
Actual(b) $ 1,000 $ 1,049.00 $ 2.74 .54%
Hypothetical
(5% return before expenses) $ 1,000 $ 1,022.12 $ 2.71 .54%
Class R2
Actual(c) N/A N/A N/A N/A
Hypothetical
(5% return before expenses) $ 1,000 $ 1,018.25 $ 6.61 1.32%
Class R3
Actual(c) N/A N/A N/A N/A
Hypothetical
(5% return before expenses) $ 1,000 $ 1,019.49 $ 5.36 1.07%
Class R4
Actual(b) $ 1,000 $ 1,046.00 $ 3.70(d) .73%
Hypothetical
(5% return before expenses) $ 1,000 $ 1,021.17 $ 3.66(d) .73%
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12 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO
Class R5
Actual(c) N/A N/A N/A N/A
Hypothetical
(5% return before expenses) $ 1,000 $ 1,021.97 $ 2.86 .57%
Class W
Actual(c) N/A N/A N/A N/A
Hypothetical
(5% return before expenses) $ 1,000 $ 1,020.08 $ 4.76 .95%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period,
multiplied by 181/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Feb. 28, 2007:
+4.72% for Class A, +4.34% for Class B, +4.33% for Class C, +4.90% for
Class I and 4.60% Class R4.
(c) The actual values and expenses paid are not presented because Class R2,
Class R3, Class R5 and Class W do not have a full six months of history.
The inception date of Class R2, Class R3 and Class R5 is Dec. 11, 2006.
The inception date of Class W is Dec. 1, 2006.
(d) In September 2006, the Board approved renaming Class Y as Class R4,
terminating the shareholder servicing agreement, revising the fee
structure under the transfer agent agreement from an account-based fee
to an asset-based fee, and adopting a plan administration services
agreement. In addition, the investment manager and its affiliates have
contractually agreed to waive certain fees and to absorb certain
expenses until Aug. 31, 2007, unless sooner terminated at the discretion
of the Fund's Board, such that net expenses, (excluding fees and
expenses of acquired funds), will not exceed 0.73% for Class R4. Any
amounts waived will not be reimbursed by the Fund. These changes were
effective Dec. 11, 2006. If these changes had been in place for the
six-month period ended Feb. 28, 2007, the actual and hypothetical
expenses paid for Class R4 would have been the same as presented in the
table above.
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RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 13
INVESTMENTS IN SECURITIES
FEB. 28, 2007 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
BONDS (97.9%)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
SOVEREIGN (0.2%)
United Mexican States
09-27-34 6.75% $ 5,310,000(c) $ 5,795,865
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U.S. GOVERNMENT OBLIGATIONS &
AGENCIES (15.0%)
Federal Farm Credit Bank
10-10-08 4.25 13,285,000 13,173,712
Federal Home Loan Bank
02-13-08 5.25 29,685,000 29,742,619
06-18-08 5.13 37,180,000 37,289,159
Federal Home Loan Mtge Corp
06-15-08 3.88 29,840,000 29,419,853
10-15-08 5.13 25,085,000 25,195,725
03-15-09 5.75 9,385,000 9,547,032
07-15-09 4.25 10,000,000 9,868,240
Federal Natl Mtge Assn
09-15-07 4.25 24,930,000 24,802,608
01-15-08 4.63 15,565,000 15,502,510
08-15-08 3.25 86,170,000 84,097,611
10-15-08 4.50 19,250,000 19,158,409
Overseas Private Investment
U.S. Govt Guaranty Series 1996A
09-15-08 6.99 2,222,222 2,252,489
U.S. Treasury
01-31-09 4.88 3,365,000 3,378,144
02-15-10 4.75 6,650,000 6,686,369
02-29-12 4.63 9,500,000(b) 9,547,500
02-15-17 4.63 57,570,000(o) 57,902,811
02-15-26 6.00 27,538,000(m) 31,696,679
---------------
Total 409,261,470
- ---------------------------------------------------------------------------------------
ASSET-BACKED (2.9%)
Capital Auto Receivables Asset Trust
Series 2004-1 Cl CTFS
09-15-10 2.84 4,200,000 4,153,698
Capital Auto Receivables Asset Trust
Series 2006-SN1A Cl D
04-20-11 6.15 2,500,000(d) 2,552,345
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
ASSET-BACKED (CONT.)
College Loan Corporation Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-1 Cl AIO
07-25-08 5.62% $ 14,700,000(g) $ 1,951,770
Countrywide Asset-backed Ctfs
Series 2005-10 Cl AF6
02-25-36 4.91 1,865,000 1,833,387
Countrywide Asset-backed Ctfs
Series 2006-4 Cl 1A1M
07-25-36 5.58 2,999,298(i) 3,002,661
Drive Auto Receivables Trust
Series 2006-2 Cl A2 (MBIA)
07-15-11 5.30 6,525,000(d,e) 6,544,771
Dunkin Securitization
Series 2006-1 Cl A2 (AMBAC)
06-20-31 5.78 8,875,000(d,e) 9,074,324
Ford Credit Floorplan Master Owner Trust
Series 2006-3 Cl A
06-15-11 5.50 22,200,000(i) 22,216,343
Hertz Vehicle Financing LLC
Series 2004-1A Cl A3 (MBIA)
05-25-09 2.85 2,600,000(d,e) 2,543,890
Metris Master Trust
Series 2005-1A Cl D
03-21-11 7.22 1,375,000(d,i) 1,376,367
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-2 Cl AIO
08-25-11 5.89 8,875,000(g) 2,058,121
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-3 Cl AIO
01-25-12 0.00 13,900,000(g) 4,033,919
Natl Collegiate Student Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-4 Cl AIO
02-27-12 5.45 11,700,000(g) 3,167,775
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
14 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
ASSET-BACKED (CONT.)
Popular ABS Mtge Pass-Through Trust
Series 2005-A Cl AF2
06-25-35 4.49% $ 3,615,000 $ 3,586,652
Renaissance Home Equity Loan Trust
Series 2005-4 Cl A3
02-25-36 5.57 4,670,000 4,649,686
Residential Asset Securities
Series 2006-KS1 Cl A2
02-25-36 5.46 7,225,000(i) 7,228,389
WFS Financial Owner Trust
Series 2004-1 Cl D
08-22-11 3.17 386,259 383,878
---------------
Total 80,357,976
- ---------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (16.7%)(f)
Banc of America Commercial Mtge
Series 2005-1 Cl A4
11-10-42 4.89 4,850,000 4,848,126
Banc of America Commercial Mtge
Series 2005-4 Cl ASB
07-10-45 4.87 4,050,000 3,989,253
Banc of America Commercial Mtge
Series 2006-2 Cl AAB
05-10-45 5.72 5,200,000 5,364,485
Banc of America Commercial Mtge
Series 2006-4 Cl AAB
07-10-46 5.60 5,375,000 5,488,498
Banc of America Commercial Mtge
Series 2007-1 Cl A3
01-15-49 5.45 5,800,000 5,829,000
Banc of America Large Loan
Series 2006-LAQ Cl E
02-09-21 5.70 3,350,000(d,i) 3,357,336
Banc of America Large Loan
Series 2006-LAQ Cl F
02-09-21 5.76 3,750,000(d,i) 3,758,204
Banc of America Large Loan
Series 2006-LAQ Cl G
02-09-21 5.85 2,625,000(d,i) 2,630,014
Bear Stearns Commercial Mtge Securities
Series 2003-T10 Cl A1
03-13-40 4.00 2,590,831 2,518,572
Bear Stearns Commercial Mtge Securities
Series 2005-PW10 Cl A4
12-11-40 5.41 6,450,000 6,508,810
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
COMMERCIAL MORTGAGE-BACKED (CONT.)
Bear Stearns Commercial Mtge Securities
Series 2005-T20 Cl E
10-12-42 5.16% $ 3,200,000 $ 3,131,392
Bear Stearns Commercial Mtge Securities
Series 2006-PW14 Cl A4
12-11-38 5.20 4,825,000 4,799,379
CDC Commercial Mtge Trust
Series 2002-FX1 Cl A2
11-15-30 5.68 11,750,000 12,007,472
Citigroup Commercial Mtge Trust
Series 2005-EMG Cl A1
09-20-51 4.15 6,557,259(d) 6,457,636
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2005-CD1 Cl ASB
07-15-44 5.23 3,050,000 3,068,069
Commercial Mtge Acceptance
Series 1999-C1 Cl A2
06-15-31 7.03 9,112,555 9,401,350
Commercial Mtge Pass-Through Ctfs
Series 2006-CN2A Cl BFL
02-05-19 5.63 2,550,000(d,i) 2,562,768
Credit Suisse Mtge Capital Ctfs
Series 2006-C2 Cl A3
03-15-39 5.66 5,000,000 5,154,401
Credit Suisse Mtge Capital Ctfs
Series 2006-C4 Cl A3
09-15-39 5.47 5,000,000 5,069,348
CS First Boston Mtge Securities
Series 2001-CP4 Cl A4
12-15-35 6.18 7,375,000 7,643,712
CS First Boston Mtge Securities
Series 2003-CPN1 Cl A2
03-15-35 4.60 3,525,000 3,426,862
Federal Natl Mtge Assn #385683
02-01-13 4.83 6,171,038 6,123,143
Federal Natl Mtge Assn #385815
01-01-13 4.77 7,152,297 7,080,822
Federal Natl Mtge Assn #555806
10-01-13 5.26 494,533 496,820
Federal Natl Mtge Assn #745629
01-01-18 5.08 6,634,769 6,623,091
GE Capital Commercial Mtge
Series 2004-C2 Cl A2
03-10-40 4.12 6,250,000 6,084,500
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 15
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
COMMERCIAL MORTGAGE-BACKED (CONT.)
General Electric Capital Assurance
Series 2003-1 Cl A3
05-12-35 4.77% $ 10,350,000(d) $ 10,250,268
GMAC Commercial Mtge Securities
Series 1999-C1 Cl B
05-15-33 6.30 8,000,000 8,146,554
Greenwich Capital Commercial Funding
Series 2004-GG1 Cl A5
06-10-36 4.88 3,400,000 3,372,885
Greenwich Capital Commercial Funding
Series 2006-GG7 Cl AAB
07-10-38 5.91 5,250,000 5,479,449
Greenwich Capital Commercial Funding
Series 2007-GG9 Cl A4
01-10-17 5.56 7,225,000(b) 7,261,082
GS Mtge Securities II
Series 2004-GG2 Cl A4
08-10-38 4.96 5,900,000 5,866,201
GS Mtge Securities II
Series 2006-GG8 Cl A4
11-10-39 5.56 7,875,000 8,039,671
JPMorgan Chase Commercial Mtge Securities
Series 2002-CIB5 Cl A1
10-12-37 4.37 6,329,778 6,231,244
JPMorgan Chase Commercial Mtge Securities
Series 2003-CB6 Cl A2
07-12-37 5.26 11,000,000 11,049,257
JPMorgan Chase Commercial Mtge Securities
Series 2003-LN1 Cl A1
10-15-37 4.13 3,847,891 3,737,848
JPMorgan Chase Commercial Mtge Securities
Series 2003-ML1A Cl A1
03-12-39 3.97 3,674,145 3,582,747
JPMorgan Chase Commercial Mtge Securities
Series 2003-ML1A Cl A2
03-12-39 4.77 6,869,000 6,730,507
JPMorgan Chase Commercial Mtge Securities
Series 2004-CBX Cl A3
01-12-37 4.18 4,000,000 3,905,662
JPMorgan Chase Commercial Mtge Securities
Series 2005-LDP2 Cl A1
07-15-42 4.33 4,983,109 4,913,994
JPMorgan Chase Commercial Mtge Securities
Series 2005-LDP5 Cl A1
12-15-44 5.04 11,884,552 11,848,978
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
COMMERCIAL MORTGAGE-BACKED (CONT.)
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP6 Cl A4
04-15-43 5.47% $ 4,250,000 $ 4,307,232
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP6 Cl ASB
04-15-43 5.49 6,450,000 6,542,049
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP7 Cl ASB
04-15-45 5.88 9,500,000(i) 9,888,582
JPMorgan Chase Commercial Mtge Securities
Series 2006-LDP8 Cl A4
05-15-45 5.40 5,300,000 5,340,197
LB-UBS Commercial Mtge Trust
Series 2002-C2 Cl A3
06-15-26 5.39 10,150,000 10,241,466
LB-UBS Commercial Mtge Trust
Series 2002-C4 Cl A4
09-15-26 4.56 7,000,000 6,890,816
LB-UBS Commercial Mtge Trust
Series 2002-C4 Cl A5
09-15-31 4.85 6,000,000 5,929,735
LB-UBS Commercial Mtge Trust
Series 2004-C2 Cl A3
03-15-29 3.97 4,475,000 4,256,307
LB-UBS Commercial Mtge Trust
Series 2004-C8 Cl A2
12-15-29 4.20 8,100,000 7,920,909
LB-UBS Commercial Mtge Trust
Series 2005-C5 Cl AAB
09-15-30 4.93 7,300,000 7,209,626
LB-UBS Commercial Mtge Trust
Series 2006-C3 Cl AAB
03-15-39 5.64 5,950,000 6,085,720
LB-UBS Commercial Mtge Trust
Series 2006-C4 Cl AAB
06-15-32 5.87 4,100,000 4,272,661
LB-UBS Commercial Mtge Trust
Series 2006-C7 Cl A3
11-15-38 5.35 4,600,000 4,619,842
LB-UBS Commercial Mtge Trust
Series 2007-C1 Cl A4
02-15-40 5.42 4,850,000 4,903,229
Morgan Stanley Capital I
Series 2003-IQ4 Cl A1
05-15-40 3.27 4,123,125 3,974,409
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
16 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
COMMERCIAL MORTGAGE-BACKED (CONT.)
Morgan Stanley Capital I
Series 2003-T11 Cl A2
06-13-41 4.34% $ 4,550,000 $ 4,467,689
Morgan Stanley Capital I
Series 2004-HQ4 Cl A5
04-14-40 4.59 4,950,000 4,830,309
Morgan Stanley Capital I
Series 2005-T19 Cl AAB
06-12-47 4.85 9,125,000 8,992,956
Morgan Stanley Capital I
Series 2006-T23 Cl AAB
08-12-41 5.80 3,425,000 3,554,507
Morgan Stanley Capital I
Series 2006-XLF Cl A2
07-15-19 5.45 6,500,000(d,i) 6,501,649
Morgan Stanley Dean Witter Capital I
Series 2002-TOP7 Cl A2
01-15-39 5.98 19,810,000 20,540,552
Nomura Asset Securities
Series 1998-D6 Cl A3
03-15-30 7.22 6,770,000 7,495,964
Prudential Commercial Mtge Trust
Series 2003-PWR1 Cl A1
02-11-36 3.67 5,353,006 5,164,478
SBA CMBS Trust
Series 2006-1A Cl B
11-15-36 5.45 4,050,000(d) 4,096,892
Wachovia Bank Commercial Mtge Trust
Series 2003-C4 Cl A2
04-15-35 4.57 14,000,000 13,719,785
Wachovia Bank Commercial Mtge Trust
Series 2003-C7 Cl A2
10-15-35 5.08 14,550,000(d) 14,461,685
Wachovia Bank Commercial Mtge Trust
Series 2005-C18 Cl A4
04-15-42 4.94 4,225,000 4,135,645
Wachovia Bank Commercial Mtge Trust
Series 2005-C20 Cl A5
07-15-42 5.09 4,642,000 4,629,684
Wachovia Bank Commercial Mtge Trust
Series 2006-C24 Cl A3
03-15-45 5.56 8,100,000 8,265,808
Wachovia Bank Commercial Mtge Trust
Series 2006-C24 Cl APB
03-15-45 5.58 6,750,000 6,890,188
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
COMMERCIAL MORTGAGE-BACKED (CONT.)
Wachovia Bank Commercial Mtge Trust
Series 2006-C27 Cl A3
07-15-45 5.76% $ 2,900,000 $ 3,003,428
Wachovia Bank Commercial Mtge Trust
Series 2006-C27 Cl APB
07-15-45 5.73 5,075,000 5,223,383
Wachovia Bank Commercial Mtge Trust
Series 2006-C29 Cl A4
11-15-48 5.31 6,275,000 6,270,936
---------------
Total 458,467,728
- ---------------------------------------------------------------------------------------
MORTGAGE-BACKED (43.7%)(f,l)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2005-12 Cl 2A1
03-25-36 5.69 8,395,524(j) 8,456,041
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2006-1 Cl 2A1
03-25-36 5.96 9,732,305(j) 9,755,954
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-1 Cl 3A21
02-25-37 6.20 7,400,000(j) 7,558,626
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2006-2 Cl 2A2
09-25-46 5.55 16,927,285(j) 16,927,285
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2006-3 Cl 3A2
10-25-46 5.58 10,096,588(j) 10,121,724
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 1A1
01-25-34 6.00 7,321,174 7,283,470
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 4A1
01-25-19 4.75 4,017,395 3,899,384
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-3 Cl 1A1
04-25-34 6.00 9,154,438 9,174,468
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 17
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Banc of America Alternative Loan
Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00% $ 17,752,093 $ 17,768,735
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-2N Cl N1
11-25-46 7.25 886,342(d) 878,587
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-A Cl 3A2
02-20-36 5.90 6,719,756(j) 6,753,086
Bear Stearns Adjustable Rate Mtge
Trust
Collateralized Mtge Obligation
Series 2005-8 Cl A4
08-25-35 5.09 6,025,000(d,j) 5,929,354
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50 2,190,489 2,224,374
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11T1 Cl A1
07-25-18 4.75 4,227,458 4,103,277
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-54CB Cl 2A3
11-25-35 5.50 6,295,385 6,321,431
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-54CB Cl 3A7
11-25-35 5.50 6,379,450 6,405,795
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-64CB Cl 1A1
12-25-35 5.50 10,936,919 11,035,176
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 5,876,952 6,136,710
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-85CB Cl 2A2
02-25-36 5.50 2,953,715 2,967,342
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-22R Cl 1A2
05-25-36 6.00% $ 8,400,000 $ 8,530,331
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00 9,055,184 9,126,259
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-31CB Cl A16
11-25-36 6.00 10,000,000 10,159,400
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-43CB Cl 1A4
02-25-37 6.00 13,331,181 13,443,696
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 7,237,455(d) 7,543,106
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.38 4,136,193(j) 4,147,113
CS First Boston Mtge Securities
Collateralized Mtge Obligation
Series 2003-29 Cl 8A1
11-25-18 6.00 2,282,427 2,294,999
CS First Boston Mtge Securities
Collateralized Mtge Obligation
Series 2005-12 Cl 3A1
01-25-36 7.00 9,737,090 9,984,537
Downey Savings & Loan Assn Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR5 Cl X1
08-19-45 6.38 54,704,704(g) 623,976
Federal Home Loan Mtge Corp #170216
03-01-17 8.50 8,141 8,651
Federal Home Loan Mtge Corp #1G2496
09-01-36 6.21 8,572,369(j) 8,733,100
Federal Home Loan Mtge Corp #1J1445
01-01-37 5.92 13,600,374(j) 13,750,536
Federal Home Loan Mtge Corp #284190
01-01-17 8.00 355 372
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
18 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #290970
04-01-17 8.00% $ 13,799 $ 14,424
Federal Home Loan Mtge Corp #295114
06-01-17 8.50 3,806 4,045
Federal Home Loan Mtge Corp #540861
09-01-19 8.50 34,249 36,536
Federal Home Loan Mtge Corp #A00304
04-01-21 9.00 55,544 59,470
Federal Home Loan Mtge Corp #B11835
01-01-19 5.50 542,763 545,025
Federal Home Loan Mtge Corp #C00103
03-01-22 8.50 140,012 150,024
Federal Home Loan Mtge Corp #C00144
08-01-22 8.50 116,730 125,209
Federal Home Loan Mtge Corp #C00356
08-01-24 8.00 439,610 465,939
Federal Home Loan Mtge Corp #C00666
10-01-28 7.00 51,878 53,736
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 1,770,275 1,765,704
Federal Home Loan Mtge Corp #C62993
01-01-32 6.50 1,309,739 1,345,525
Federal Home Loan Mtge Corp #C63552
01-01-32 6.50 1,753,871 1,816,345
Federal Home Loan Mtge Corp #C64703
03-01-32 6.50 1,103,482 1,142,620
Federal Home Loan Mtge Corp #C67723
06-01-32 7.00 886,170 921,637
Federal Home Loan Mtge Corp #C78031
04-01-33 5.50 9,821,105 9,782,515
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 8,305,653 8,261,208
Federal Home Loan Mtge Corp #C90767
12-01-23 6.00 8,238,081 8,379,100
Federal Home Loan Mtge Corp #D96300
10-01-23 5.50 5,373,086 5,374,291
Federal Home Loan Mtge Corp #E01127
02-01-17 6.50 1,304,896 1,336,978
Federal Home Loan Mtge Corp #E01419
05-01-18 5.50 4,702,126 4,723,165
Federal Home Loan Mtge Corp #E79810
11-01-14 7.50 1,073,055 1,114,359
Federal Home Loan Mtge Corp #E90216
05-01-17 6.00 1,477,325 1,501,984
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #E98725
08-01-18 5.00% $ 10,540,972 $10,427,075
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 10,614,600 10,499,692
Federal Home Loan Mtge Corp #G00286
02-01-25 8.00 171,796 182,085
Federal Home Loan Mtge Corp #G01108
04-01-30 7.00 3,322,270 3,441,137
Federal Home Loan Mtge Corp #G01441
07-01-32 7.00 3,100,297 3,202,748
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 11,080,110 11,286,377
Federal Home Loan Mtge Corp #G11302
07-01-17 7.00 3,589,736 3,684,514
Federal Home Loan Mtge Corp #G12101
11-01-18 5.00 3,469,378 3,431,033
Federal Home Loan Mtge Corp #G30225
02-01-23 6.00 10,966,004 11,161,272
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
03-15-22 7.00 720,604 718,736
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2590 Cl BI
02-15-14 0.14 2,300,016(g) 83,178
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2718 Cl IA
10-15-22 20.00 5,175,005(g) 173,086
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2576 Cl KJ
02-15-33 5.50 10,824,054 10,908,542
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2641 Cl KC
01-15-18 6.50 3,933,064 4,072,558
Federal Natl Mtge Assn
03-01-37 5.50 18,700,000(b) 18,548,063
03-01-37 6.00 41,025,000(b) 41,371,168
Federal Natl Mtge Assn #125479
04-01-27 7.50 260,020 271,765
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 19
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #190899
04-01-23 8.50% $ 440,003 $ 463,372
Federal Natl Mtge Assn #190944
05-01-24 6.00 6,133,441 6,209,001
Federal Natl Mtge Assn #190988
06-01-24 9.00 397,848 423,331
Federal Natl Mtge Assn #231309
09-01-23 6.50 155,048 159,030
Federal Natl Mtge Assn #231310
09-01-23 6.50 388,724 398,707
Federal Natl Mtge Assn #250330
09-01-25 8.00 273,820 289,752
Federal Natl Mtge Assn #250495
03-01-26 7.00 668,350 692,616
Federal Natl Mtge Assn #250765
12-01-26 8.00 245,507 259,955
Federal Natl Mtge Assn #251116
08-01-27 8.00 275,763 292,154
Federal Natl Mtge Assn #252498
06-01-29 7.00 6,285 6,512
Federal Natl Mtge Assn #252982
01-01-30 8.00 197,976 209,922
Federal Natl Mtge Assn #253883
08-01-16 6.00 3,191,485 3,244,910
Federal Natl Mtge Assn #254236
03-01-17 6.50 1,864,767 1,910,464
Federal Natl Mtge Assn #254383
06-01-32 7.50 400,591 416,646
Federal Natl Mtge Assn #254802
07-01-18 4.50 3,101,540 3,013,511
Federal Natl Mtge Assn #254916
09-01-23 5.50 10,620,483 10,618,750
Federal Natl Mtge Assn #255788
06-01-15 5.50 3,297,639 3,315,753
Federal Natl Mtge Assn #268071
01-01-24 6.50 106,096 108,821
Federal Natl Mtge Assn #303226
02-01-25 8.00 127,052 134,350
Federal Natl Mtge Assn #313049
08-01-11 8.50 891,313 926,153
Federal Natl Mtge Assn #323933
09-01-29 7.00 4,137,213 4,286,654
Federal Natl Mtge Assn #408207
01-01-28 6.50 155,472 161,075
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #455791
01-01-29 6.50% $ 537,258 $ 553,009
Federal Natl Mtge Assn #489888
05-01-29 6.50 2,269,223 2,334,301
Federal Natl Mtge Assn #496029
01-01-29 6.50 3,048,875 3,138,287
Federal Natl Mtge Assn #50700
03-01-08 7.00 439,688 442,690
Federal Natl Mtge Assn #545008
06-01-31 7.00 2,678,249 2,789,163
Federal Natl Mtge Assn #545342
04-01-13 7.00 1,743,367 1,755,272
Federal Natl Mtge Assn #545684
05-01-32 7.50 353,247 368,398
Federal Natl Mtge Assn #545869
07-01-32 6.50 2,373,122 2,440,669
Federal Natl Mtge Assn #545885
08-01-32 6.50 4,091,357 4,189,795
Federal Natl Mtge Assn #545910
08-01-17 6.00 5,317,454 5,418,423
Federal Natl Mtge Assn #555343
08-01-17 6.00 5,123,536 5,210,248
Federal Natl Mtge Assn #555375
04-01-33 6.00 24,450,307 24,882,224
Federal Natl Mtge Assn #555458
05-01-33 5.50 21,884,504 21,768,298
Federal Natl Mtge Assn #555528
04-01-33 6.00 16,132,662 16,341,272
Federal Natl Mtge Assn #555734
07-01-23 5.00 8,400,735 8,240,312
Federal Natl Mtge Assn #555740
08-01-18 4.50 10,537,021 10,236,551
Federal Natl Mtge Assn #555794
09-01-28 7.50 956,158 999,558
Federal Natl Mtge Assn #567840
10-01-30 7.00 1,374,758 1,424,416
Federal Natl Mtge Assn #587859
12-01-16 5.50 4,963,664 4,990,835
Federal Natl Mtge Assn #597374
09-01-31 7.00 739,767 767,855
Federal Natl Mtge Assn #606882
10-01-31 7.00 939,971 972,033
Federal Natl Mtge Assn #634650
04-01-32 7.50 248,681 258,648
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
20 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #638969
03-01-32 5.50% $ 1,483,348 $ 1,479,966
Federal Natl Mtge Assn #643362
04-01-17 6.50 720,777 738,440
Federal Natl Mtge Assn #646147
06-01-32 7.00 2,498,033 2,600,561
Federal Natl Mtge Assn #646446
06-01-17 6.50 1,160,869 1,189,317
Federal Natl Mtge Assn #649068
06-01-17 6.50 1,991,414 2,046,964
Federal Natl Mtge Assn #649263
08-01-17 6.50 2,045,374 2,100,731
Federal Natl Mtge Assn #654208
10-01-32 6.50 2,060,941 2,116,125
Federal Natl Mtge Assn #654682
10-01-32 6.00 1,360,100 1,377,906
Federal Natl Mtge Assn #654689
11-01-32 6.00 1,573,086 1,592,921
Federal Natl Mtge Assn #656908
09-01-32 6.50 1,975,055 2,045,539
Federal Natl Mtge Assn #662061
09-01-32 6.50 1,726,995 1,773,237
Federal Natl Mtge Assn #667787
02-01-18 5.50 1,830,037 1,838,352
Federal Natl Mtge Assn #670382
09-01-32 6.00 11,501,604 11,650,330
Federal Natl Mtge Assn #670387
08-01-32 7.00 1,497,524 1,551,825
Federal Natl Mtge Assn #678028
09-01-17 6.00 5,771,189 5,868,863
Federal Natl Mtge Assn #678065
02-01-33 6.50 447,722 459,853
Federal Natl Mtge Assn #678937
01-01-18 5.50 2,966,235 2,984,093
Federal Natl Mtge Assn #678941
02-01-18 5.50 3,612,046 3,633,744
Federal Natl Mtge Assn #678944
01-01-18 5.50 1,743,973 1,754,426
Federal Natl Mtge Assn #679095
04-01-18 5.00 5,617,338 5,556,588
Federal Natl Mtge Assn #680961
01-01-33 6.00 611,745 620,807
Federal Natl Mtge Assn #681400
03-01-18 5.50 5,229,425 5,256,097
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #682825
01-01-33 6.00% $ 1,986,572 $ 2,012,260
Federal Natl Mtge Assn #683274
02-01-18 5.50 2,512,547 2,525,334
Federal Natl Mtge Assn #684586
03-01-33 6.00 3,443,470 3,491,265
Federal Natl Mtge Assn #686172
02-01-33 6.00 2,877,737 2,914,949
Federal Natl Mtge Assn #686528
02-01-33 6.00 3,728,129 3,784,546
Federal Natl Mtge Assn #687051
01-01-33 6.00 11,153,358 11,237,810
Federal Natl Mtge Assn #689093
07-01-28 5.50 3,487,475 3,479,526
Federal Natl Mtge Assn #694628
04-01-33 5.50 7,028,481 6,998,962
Federal Natl Mtge Assn #694795
04-01-33 5.50 8,327,747 8,292,824
Federal Natl Mtge Assn #694988
03-01-33 5.50 11,938,294 11,877,009
Federal Natl Mtge Assn #695202
03-01-33 6.50 4,442,450 4,552,027
Federal Natl Mtge Assn #695220
04-01-33 5.50 1,878,044 1,867,268
Federal Natl Mtge Assn #695909
05-01-18 5.50 2,406,733 2,420,419
Federal Natl Mtge Assn #697843
04-01-18 5.00 2,360,008 2,335,196
Federal Natl Mtge Assn #699424
04-01-33 5.50 4,773,291 4,753,267
Federal Natl Mtge Assn #702427
04-01-33 5.50 4,566,327 4,547,157
Federal Natl Mtge Assn #704049
05-01-18 5.50 2,829,855 2,845,321
Federal Natl Mtge Assn #709901
06-01-18 5.00 5,980,374 5,917,385
Federal Natl Mtge Assn #710823
05-01-33 5.50 658,368 655,600
Federal Natl Mtge Assn #712057
07-01-18 4.50 3,886,141 3,775,843
Federal Natl Mtge Assn #720006
07-01-33 5.50 9,579,691 9,524,720
Federal Natl Mtge Assn #720070
07-01-23 5.50 2,713,181 2,712,738
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 21
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #720378
06-01-18 4.50% $ 6,409,877 $ 6,227,949
Federal Natl Mtge Assn #723687
08-01-28 5.50 4,101,350 4,092,002
Federal Natl Mtge Assn #725232
03-01-34 5.00 18,936,600 18,431,227
Federal Natl Mtge Assn #725425
04-01-34 5.50 25,967,521 25,820,986
Federal Natl Mtge Assn #725684
05-01-18 6.00 10,842,271 11,028,622
Federal Natl Mtge Assn #725719
07-01-33 4.84 7,141,056(j) 7,006,232
Federal Natl Mtge Assn #725737
08-01-34 4.54 5,341,334(j) 5,312,063
Federal Natl Mtge Assn #725813
12-01-33 6.50 11,190,554 11,466,580
Federal Natl Mtge Assn #730153
08-01-33 5.50 1,282,566 1,275,206
Federal Natl Mtge Assn #735057
01-01-19 4.50 11,094,602 10,779,711
Federal Natl Mtge Assn #735212
12-01-34 5.00 20,963,945 20,390,564
Federal Natl Mtge Assn #735949
10-01-35 4.99 9,516,357(j) 9,489,386
Federal Natl Mtge Assn #738921
11-01-32 6.50 878,744 904,298
Federal Natl Mtge Assn #743262
10-01-18 5.00 3,688,875 3,649,690
Federal Natl Mtge Assn #747642
11-01-28 5.50 2,741,455 2,735,206
Federal Natl Mtge Assn #753074
12-01-28 5.50 7,658,411 7,640,954
Federal Natl Mtge Assn #753091
12-01-33 5.50 4,670,325 4,643,526
Federal Natl Mtge Assn #753919
12-01-33 4.95 6,155,253(j) 6,086,468
Federal Natl Mtge Assn #759342
01-01-34 6.50 1,876,017 1,936,671
Federal Natl Mtge Assn #765183
01-01-19 5.50 616,575 619,597
Federal Natl Mtge Assn #765759
12-01-18 5.00 4,117,644 4,073,114
Federal Natl Mtge Assn #765761
02-01-19 5.00 2,013,689 1,991,912
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #766641
03-01-34 5.00% $ 7,025,623 $ 6,833,466
Federal Natl Mtge Assn #776962
04-01-29 5.00 17,735,783 17,252,463
Federal Natl Mtge Assn #779327
06-01-34 4.55 4,237,720(j) 4,168,887
Federal Natl Mtge Assn #804442
12-01-34 6.50 1,622,548 1,658,470
Federal Natl Mtge Assn #837258
09-01-35 4.92 2,868,819(j) 2,884,425
Federal Natl Mtge Assn #844257
11-01-35 5.09 10,308,823(j) 10,319,031
Federal Natl Mtge Assn #845070
12-01-35 5.09 6,986,987(j) 6,981,174
Federal Natl Mtge Assn #882063
06-01-36 6.50 4,059,858 4,172,600
Federal Natl Mtge Assn #886291
07-01-36 7.00 7,632,287 7,897,208
Federal Natl Mtge Assn #886461
08-01-36 6.19 7,371,232(j) 7,518,583
Federal Natl Mtge Assn #900197
10-01-36 5.98 9,879,827(j) 10,038,694
Federal Natl Mtge Assn #901922
10-01-36 5.79 9,549,968(j) 9,639,780
Federal Natl Mtge Assn #909471
02-01-37 5.55 8,815,938(j) 8,848,997
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-24 Cl PI
12-25-12 20.00 1,296,728(g) 20,339
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 13.34 3,142,974(g) 477,584
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 12.17 848,498(g) 109,895
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
22 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 367 Cl 2
01-25-36 8.53% $ 15,276,563(g) $ 3,437,227
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series 43 Cl 1
09-01-18 5.24 20,075(h) 17,003
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 3,728,677 3,947,626
Govt Natl Mtge Assn #345538
02-15-24 8.00 149,003 157,765
Govt Natl Mtge Assn #3920
11-20-36 6.00 18,807,068 19,046,734
Govt Natl Mtge Assn #398831
08-15-26 8.00 197,166 209,027
Govt Natl Mtge Assn #423782
05-15-26 7.50 459,163 479,237
Govt Natl Mtge Assn #425004
10-15-33 5.50 3,909,516 3,909,168
Govt Natl Mtge Assn #426170
06-15-26 8.00 109,239 115,811
Govt Natl Mtge Assn #595256
12-15-32 6.00 6,815,099 6,933,964
Govt Natl Mtge Assn #604580
08-15-33 5.00 4,086,492 4,000,804
Govt Natl Mtge Assn #604708
10-15-33 5.50 10,547,891 10,546,953
Govt Natl Mtge Assn #606844
09-15-33 5.00 10,117,875 9,905,717
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-70 Cl IC
08-20-32 13.50 8,987,969(g) 1,473,343
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-80 Cl CI
01-20-32 20.00 1,658,119(g) 139,356
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2006-5 Cl 2A1B
07-19-46 5.55% $ 4,917,457(j) $ 4,918,789
Harborview Nim
Collateralized Mtge Obligation
Series 2006-10 Cl N1
11-19-36 6.41 1,450,586(d) 1,449,679
Harborview Nim
Collateralized Mtge Obligation
Series 2006-8A Cl N1
07-21-36 6.41 903,419(d) 903,419
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 4.50 129,084,859(g) 1,089,154
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-AR25 Cl 1A21
12-25-35 5.87 6,811,956(j) 6,835,372
IndyMac Index Nim
Collateralized Mtge Obligation
Series 2006-AR6 Cl N1
06-25-46 6.65 2,133,924(d) 2,125,922
Lehman XS Net Interest Margin Nts
Collateralized Mtge Obligation
Series 2006-2N Cl A1
02-27-46 7.00 1,082,568(d) 1,082,568
Lehman XS Net Interest Margin Nts
Collateralized Mtge Obligation
Series 2006-AR8 Cl A1
10-28-46 6.25 1,165,548(d) 1,162,269
Lehman XS Net Interest Margin Nts
Collateralized Mtge Obligation
Series 2006-GPM6 Cl A1
10-28-46 6.25 2,440,254(d) 2,438,331
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-2 Cl 4A1
02-25-19 5.00 6,362,713 6,233,486
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 2A1
05-25-34 6.00 3,671,602 3,640,651
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 23
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00% $ 5,079,989 $ 4,943,998
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00 6,842,802 6,663,042
Rali NIM
Collateralized Mtge Obligation
Series 2006-QO4 Cl N1
04-25-46 6.05 1,499,784(d) 1,493,222
Residential Accredit Loans
Collateralized Mtge Obligation
Series 2006-QS3 Cl 1A10
03-25-36 6.00 6,535,098 6,632,604
Structured Asset Securities
Collateralized Mtge Obligation
Series 2003-33H Cl 1A1
10-25-33 5.50 14,243,093 14,091,876
Washington Mutual Alternative Mtge Loan Trust
Pass-Through Ctfs
Collateralized Mtge Obligation
Interest Only
Series 2005-AR1 Cl X
12-25-35 7.10 47,193,748(g) 405,571
Washington Mutual Alternative Mtge Loan Trust
Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR10 Cl 1A1
09-25-36 5.96 5,637,146(j) 5,689,392
Washington Mutual
Collateralized Mtge Obligation
Series 2003-AR10 Cl A7
10-25-33 4.06 9,025,000(j) 8,980,750
Washington Mutual
Collateralized Mtge Obligation
Series 2004-CB2 Cl 6A
07-25-19 4.50 4,812,179 4,583,167
Washington Mutual
Collateralized Mtge Obligation
Series 2005-AR14 Cl 2A1
12-25-35 5.30 5,559,473(j) 5,527,916
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MORTGAGE-BACKED (CONT.)
Washington Mutual
Collateralized Mtge Obligation
Series 2005-AR17 Cl A1C1
12-25-45 5.51% $ 882,079(j) $ 882,173
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 18,191,435 17,604,579
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 12,418,834 12,248,075
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 1A1
09-25-36 6.04 5,420,093(j) 5,480,043
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR6 Cl 5A1
03-25-36 5.11 11,882,116(j) 11,768,657
--------------
Total 1,201,869,570
- ----------------------------------------------------------------------------------
AEROSPACE & DEFENSE (0.1%)
DRS Technologies
02-01-16 6.63 825,000 827,063
L-3 Communications
06-15-12 7.63 670,000 693,450
L-3 Communications
Sr Sub Nts
Series B
10-15-15 6.38 890,000 885,550
-------------
Total 2,406,063
- ----------------------------------------------------------------------------------
BANKING (2.9%)
Bank of America
Sub Nts
10-15-36 6.00 15,500,000 16,180,140
Citigroup
Sub Nts
08-25-36 6.13 13,090,000 13,840,685
Manufacturers & Traders Trust
Sub Nts
12-01-21 5.63 6,945,000 6,962,440
Natl City Bank of Cleveland
Sub Nts
12-15-11 6.20 2,910,000 3,042,987
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
24 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
BANKING (CONT.)
Natl City Bank of Kentucky
Sub Nts
02-15-11 6.30% $ 1,433,000 $ 1,492,429
Popular North America
Sr Nts
10-01-08 3.88 28,122,000 27,545,162
Wachovia Bank
Sub Nts
02-01-37 5.85 2,490,000 2,529,840
Wells Fargo Bank
Sub Nts
08-26-36 5.95 8,630,000 9,048,728
--------------
Total 80,642,411
- --------------------------------------------------------------------------------
BROKERAGE (1.5%)
LaBranche & Co
Sr Nts
05-15-12 11.00 935,000 1,016,813
Lehman Brothers Holdings
Sr Nts
02-06-12 5.25 12,825,000 12,894,133
Merrill Lynch & Co
Sub Nts
01-29-37 6.11 6,290,000 6,281,647
Morgan Stanley
01-09-17 5.45 22,360,000 22,210,769
--------------
Total 42,403,362
- --------------------------------------------------------------------------------
CHEMICALS (--%)
NewMarket
Sr Nts
12-15-16 7.13 845,000(d) 847,113
PQ
02-15-13 7.50 90,000 90,675
--------------
Total 937,788
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS (--%)
Jarden
05-01-17 7.50 775,000 784,688
- --------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING (--%)
Baldor Electric
Sr Nts
02-15-17 8.63 170,000 178,500
- --------------------------------------------------------------------------------
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
ELECTRIC (4.0%)
Arizona Public Service
05-15-15 4.65% $ 12,465,000 $ 11,723,994
CMS Energy
Sr Nts
01-15-09 7.50 1,275,000 1,303,688
Commonwealth Edison
1st Mtge
04-15-15 4.70 8,115,000 7,667,904
Commonwealth Edison
1st Mtge Series 104
08-15-16 5.95 4,120,000 4,217,817
Consumers Energy
1st Mtge
02-15-12 5.00 3,355,000 3,316,773
Consumers Energy
1st Mtge Series F
05-15-10 4.00 1,040,000 1,003,341
Consumers Energy
1st Mtge Series H
02-17-09 4.80 10,775,000 10,696,925
Duke Energy Indiana
10-15-35 6.12 7,970,000 8,265,440
Edison Mission Energy
Sr Unsecured
06-15-13 7.50 720,000 752,400
Entergy Gulf States
1st Mtge
06-01-08 3.60 5,500,000 5,383,796
Exelon
06-15-10 4.45 9,790,000 9,535,020
Exelon
Sr Nts
05-01-11 6.75 1,320,000 1,386,818
Florida Power
1st Mtge
07-15-11 6.65 2,250,000 2,383,389
Indiana Michigan Power
Sr Nts
03-15-37 6.05 7,965,000 8,085,757
IPALCO Enterprises
Secured
11-14-08 8.38 400,000 413,000
11-14-11 8.63 3,680,000 3,988,200
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 25
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
ELECTRIC (CONT.)
Metropolitan Edison
Sr Nts
03-15-10 4.45% $ 1,810,000 $ 1,769,921
MidAmerican Energy Holdings
04-01-36 6.13 1,540,000 1,598,766
Midwest Generation LLC
Pass-Through Ctfs Series B
01-02-16 8.56 163,621 178,960
Northern States Power
Sr Nts
08-01-09 6.88 5,730,000 5,948,754
NRG Energy
02-01-14 7.25 695,000 708,900
Oncor Electric Delivery
Secured
01-15-15 6.38 5,960,000 6,245,347
Pacific Gas & Electric
03-01-34 6.05 1,540,000 1,593,253
Portland General Electric
03-15-10 7.88 2,935,000 3,149,725
Public Service Company of Colorado
Sr Nts Series A
07-15-09 6.88 2,005,000 2,077,916
Sierra Pacific Power
Series M
05-15-16 6.00 3,525,000 3,611,676
Xcel Energy
Sr Nts
07-01-08 3.40 3,315,000 3,241,904
--------------
Total 110,249,384
- --------------------------------------------------------------------------------
ENTERTAINMENT (0.2%)
United Artists Theatre Circuit
07-01-15 9.30 6,492,049(n) 6,751,731
- --------------------------------------------------------------------------------
ENVIRONMENTAL (0.1%)
Allied Waste North America
06-01-17 6.88 1,370,000(b) 1,361,438
Allied Waste North America
Series B
05-15-16 7.13 1,385,000 1,407,506
--------------
Total 2,768,944
- --------------------------------------------------------------------------------
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
FOOD AND BEVERAGE (1.3%)
Aramark
Sr Nts
02-01-15 8.86% $ 130,000(d,i) $ 134,550
Cadbury Schweppes US Finance LLC
10-01-08 3.88 15,250,000(d) 14,946,372
Constellation Brands
09-01-16 7.25 945,000 980,438
Cott Beverages USA
12-15-11 8.00 1,740,000 1,781,325
Kraft Foods
10-01-13 5.25 9,415,000 9,386,905
Molson Coors Capital Finance
09-22-10 4.85 7,680,000(c) 7,581,220
--------------
Total 34,810,810
- --------------------------------------------------------------------------------
GAMING (0.1%)
Majestic Star Casino LLC/Capital
10-15-10 9.50 690,000 726,225
Mohegan Tribal Gaming Authority
Sr Sub Nts
04-01-12 8.00 750,000 780,000
Pokagon Gaming Authority
Sr Nts
06-15-14 10.38 235,000(d) 257,325
Wynn Las Vegas LLC/Capital
1st Mtge
12-01-14 6.63 690,000 683,100
--------------
Total 2,446,650
- --------------------------------------------------------------------------------
GAS DISTRIBUTORS (0.1%)
Atmos Energy
10-15-09 4.00 4,005,000 3,880,917
- --------------------------------------------------------------------------------
GAS PIPELINES (0.4%)
Colorado Interstate Gas
Sr Nts
03-15-15 5.95 470,000 475,906
11-15-15 6.80 830,000 887,595
Regency Energy Partners LP/Finance
Sr Unsecured
12-15-13 8.38 300,000(d) 306,750
Southern Star Central
Sr Nts
03-01-16 6.75 1,460,000 1,463,650
Tennessee Gas Pipe Line
04-01-37 7.63 3,145,000 3,708,125
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
26 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
GAS PIPELINES (CONT.)
Transcontinental Gas Pipe Line
Series B
08-15-11 7.00% $ 1,915,000 $ 2,008,356
Transcontinental Gas Pipe Line
Sr Unsecured
04-15-16 6.40 656,000 679,780
Williams Companies
Sr Nts
07-15-19 7.63 2,079,000 2,255,715
--------------
Total 11,785,877
- --------------------------------------------------------------------------------
HEALTH CARE (0.5%)
Community Health Systems
Sr Sub Nts
12-15-12 6.50 835,000 839,175
DaVita
03-15-13 6.63 1,305,000 1,301,737
03-15-15 7.25 945,000 954,450
Health Management Associates
Sr Unsecured
04-15-16 6.13 695,000 681,900
Mckesson
03-01-17 5.70 7,315,000(b) 7,302,930
Omnicare
Sr Sub Nts
12-15-13 6.75 1,105,000 1,093,950
Triad Hospitals
Sr Nts
05-15-12 7.00 720,000 743,400
Triad Hospitals
Sr Sub Nts
11-15-13 7.00 860,000 895,475
--------------
Total 13,813,017
- --------------------------------------------------------------------------------
HEALTH CARE INSURANCE (0.3%)
CIGNA
Sr Unsecured
11-15-36 6.15 9,010,000 9,231,556
- --------------------------------------------------------------------------------
INDEPENDENT ENERGY (1.2%)
Apache
01-15-37 6.00 5,770,000 5,932,604
Canadian Natural Resources
02-15-37 6.50 2,920,000(c) 3,054,416
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
INDEPENDENT ENERGY (CONT.)
Chesapeake Energy
01-15-16 6.63% $ 1,510,000 $ 1,517,550
08-15-17 6.50 675,000 664,875
01-15-18 6.25 925,000 911,125
Denbury Resources
Sr Sub Nts
12-15-15 7.50 100,000 101,000
Pioneer Natural Resources
05-01-18 6.88 2,675,000 2,697,684
Range Resources
03-15-15 6.38 425,000 416,500
05-15-16 7.50 180,000 184,950
XTO Energy
01-31-15 5.00 10,850,000 10,492,515
XTO Energy
Sr Unsecured
06-30-15 5.30 6,515,000 6,419,868
--------------
Total 32,393,087
- --------------------------------------------------------------------------------
LIFE INSURANCE (0.4%)
Prudential Financial
12-14-36 5.70 11,990,000 11,834,243
- --------------------------------------------------------------------------------
MEDIA CABLE (0.2%)
Comcast
03-15-37 6.45 3,105,000 3,314,625
Videotron Ltee
01-15-14 6.88 1,310,000(c) 1,323,100
--------------
Total 4,637,725
- --------------------------------------------------------------------------------
MEDIA NON CABLE (0.5%)
Clear Channel Communications
Sr Nts
09-15-14 5.50 1,355,000 1,201,073
Dex Media West LLC/Finance
Sr Nts Series B
08-15-10 8.50 560,000 586,600
Idearc
Sr Nts
11-15-16 8.00 574,000(d) 596,960
Lamar Media
01-01-13 7.25 242,000 245,630
Lamar Media
Series B
08-15-15 6.63 735,000 723,975
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 27
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
MEDIA NON CABLE (CONT.)
News America
12-15-35 6.40% $ 3,055,000 $ 3,152,891
Radio One
Series B
07-01-11 8.88 1,000,000 1,032,500
RH Donnelley
Sr Disc Nts Series A-1
01-15-13 6.88 645,000 628,875
RR Donnelley & Sons
Sr Unsecured
01-15-17 6.13 4,095,000 4,178,023
Sinclair Broadcast Group
03-15-12 8.00 720,000 741,600
Sun Media
02-15-13 7.63 745,000(c) 756,175
------------
Total 13,844,302
- ------------------------------------------------------------------------------------
METALS (0.1%)
Reliance Steel & Aluminum
11-15-36 6.85 2,320,000(d) 2,413,006
- ------------------------------------------------------------------------------------
NON CAPTIVE CONSUMER (0.2%)
Countrywide Financial
Sub Nts
05-15-16 6.25 5,210,000 5,302,587
- ------------------------------------------------------------------------------------
OIL FIELD SERVICES (0.1%)
Chart Inds
Sr Sub Nts
10-15-15 9.88 345,000(d) 364,838
OPTI Canada
12-15-14 8.25 1,306,000(c,d) 1,354,975
Pride Intl
Sr Nts
07-15-14 7.38 845,000 866,125
------------
Total 2,585,938
- ------------------------------------------------------------------------------------
OTHER FINANCIAL INSTITUTIONS (0.3%)
Residential Capital
Sr Unsecured
06-30-10 6.38 9,220,000 9,300,601
- ------------------------------------------------------------------------------------
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
PACKAGING (0.1%)
Greif
Sr Nts
02-01-17 6.75% $ 2,715,000(d) $ 2,742,150
Owens-Brockway Glass Container
05-15-13 8.25 630,000 659,925
Plastipak Holdings
Sr Nts
12-15-15 8.50 345,000(d) 359,663
------------
Total 3,761,738
- ------------------------------------------------------------------------------------
PAPER (0.1%)
Cascades
Sr Nts
02-15-13 7.25 90,000(c) 90,900
Georgia-Pacific
01-15-17 7.13 1,830,000(d) 1,830,000
NewPage
Secured
05-01-12 10.00 260,000 283,400
Norampac
Sr Nts
06-01-13 6.75 155,000(c) 153,450
------------
Total 2,357,750
- ------------------------------------------------------------------------------------
RAILROADS (0.2%)
Burlington Nothern Sante Fe
08-15-36 6.20 5,470,000 5,674,244
- ------------------------------------------------------------------------------------
RESTAURANTS (--%)
Seminole Hard Rock Entertainment/Intl LLC
Secured
03-15-14 7.85 100,000(b,d,i) 100,625
- ------------------------------------------------------------------------------------
RETAILERS (0.8%)
Home Depot
Sr Unsecured
12-16-36 5.88 9,835,000 9,868,537
May Department Stores
07-15-09 4.80 11,204,000 11,081,126
United Auto Group
03-15-12 9.63 715,000 749,413
United Auto Group
Sr Sub Nts
12-15-16 7.75 980,000(d) 999,600
------------
Total 22,698,676
- ------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
28 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
TECHNOLOGY (0.1%)
Flextronics Intl
Sr Sub Nts
11-15-14 6.25% $ 775,000(c) $ 749,813
NXP Funding LLC
Secured
10-15-13 8.11 1,055,000(c,d,i) 1,078,737
---------------
Total 1,828,550
- ---------------------------------------------------------------------------------------
TRANSPORTATION SERVICES (0.1%)
Ryder System
03-01-14 5.85 2,040,000 2,064,205
- ---------------------------------------------------------------------------------------
WIRELESS (0.1%)
American Tower
Sr Nts
10-15-12 7.13 220,000 227,425
Vodafone Group
02-27-37 6.15 1,545,000(c) 1,544,552
---------------
Total 1,771,977
- ---------------------------------------------------------------------------------------
WIRELINES (3.4%)
AT&T
05-15-36 6.80 7,460,000 8,176,809
Qwest
03-15-12 8.88 1,095,000 1,209,975
Qwest
Sr Nts
06-15-15 7.63 1,450,000 1,547,875
Qwest
Sr Unsecured
10-01-14 7.50 950,000 1,008,188
Telecom Italia Capital
11-15-33 6.38 10,045,000(c) 9,809,826
Telefonica Europe
09-15-10 7.75 9,823,000(c) 10,612,808
TELUS
06-01-11 8.00 23,894,000(c) 26,241,371
Verizon New York
Series A
04-01-12 6.88 20,910,000 22,096,454
Verizon Pennsylvania
Series A
11-15-11 5.65 10,520,000 10,708,729
BONDS (CONTINUED)
ISSUER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
WIRELINES (CONT.)
Windstream
08-01-16 8.63% $ 1,750,000 $ 1,916,250
Windstream
Sr Nts
03-15-19 7.00 660,000(d) 664,950
---------------
Total 93,993,235
- ---------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $2,699,333,326) $ 2,695,406,796
- ---------------------------------------------------------------------------------------
SENIOR LOANS (1.1%)(k)
BORROWER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
AUTOMOTIVE (0.1%)
Ford Motor
Tranche B Term Loan
11-29-13 8.36% $ 1,425,000 $ 1,444,152
- ---------------------------------------------------------------------------------------
ENTERTAINMENT (--%)
Natl CineMedia LLC
Tranche B Term Loan
02-13-15 7.07 80,000 80,600
- ---------------------------------------------------------------------------------------
FOOD AND BEVERAGE (0.1%)
Aramark
Tranche B Term Loan
08-08-13 7.45-7.47 220,000(b) 222,382
08-08-13 7.45-7.47 1,955,000 1,976,173
---------------
Total 2,198,555
- ---------------------------------------------------------------------------------------
HEALTH CARE (0.5%)
HCA
Tranche B Term Loan
11-14-13 7.61 1,570,000(b) 1,588,651
11-14-13 7.61 11,480,000 11,616,382
---------------
Total 13,205,033
- ---------------------------------------------------------------------------------------
MEDIA NON CABLE (0.2%)
Intelsat Bermuda
Term Loan
07-11-14 7.86 1,135,000(c) 1,144,931
VNU
Tranche B Term Loan
08-09-13 7.61 1,475,000(b,c) 1,489,750
08-09-13 7.61 3,994,988(c) 4,034,938
---------------
Total 6,669,619
- ---------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 29
SENIOR LOANS (CONTINUED)
BORROWER COUPON PRINCIPAL VALUE(a)
RATE AMOUNT
RETAILERS (0.1%)
Michaels Stores
Tranche B Term Loan
10-31-13 8.13% $ 2,222,035 $ 2,242,434
Neiman Marcus Group
Tranche B Term Loan
04-06-13 7.35 1,755,000 1,774,884
---------------
Total 4,017,318
- ---------------------------------------------------------------------------------------
TECHNOLOGY (0.1%)
West Corp
Tranche B Term Loan
10-24-13 7.76-8.11 2,715,000 2,741,580
- ---------------------------------------------------------------------------------------
TOTAL SENIOR LOANS
(Cost: $30,112,636) $ 30,356,857
- ---------------------------------------------------------------------------------------
MONEY MARKET FUND (5.6%)(p)
SHARES VALUE(a)
RiverSource Short-Term
Cash Fund 155,260,259(q) $ 155,260,259
- ---------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $155,260,259) $ 155,260,259
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $2,884,706,221)(r) $ 2,881,023,912
=======================================================================================
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) At Feb. 28, 2007, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$88,592,289.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in U.S. dollar currency unless
otherwise noted. At Feb. 28, 2007, the value of foreign securities
represented 2.8% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
Fund's Board of Directors. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At Feb. 28, 2007, the value of these securities
amounted to $130,172,220 or 4.7% of net assets.
(e) The following abbreviations are used in the portfolio security
descriptions to identify the insurer of the issue:
AMBAC -- Ambac Assurance Corporation
MBIA -- MBIA Insurance Corporation
(f) Mortgage-backed securities represent direct or indirect participations
in, or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities
and collateralized mortgage obligations. These securities may be issued
or guaranteed by U.S. government agencies or instrumentalities, or by
private issuers, generally originators and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks,
investment bankers and special purpose entities. The maturity dates
shown represent the original maturity of the underlying obligation.
Actual maturity may vary based upon prepayment activity on these
obligations. Unless otherwise noted, the coupon rates presented are
fixed rates.
- ------------------------------------------------------------------------------
30 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(g) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of
an interest only is extremely sensitive to the rate of principal
payments on the underlying mortgage assets. A rapid (slow) rate of
principal repayments may have an adverse (positive) effect on yield to
maturity. The principal amount shown is the notional amount of the
underlying mortgages. Interest rate disclosed represents yield based
upon the estimated timing and amount of future cash flows at Feb. 28,
2007.
(h) Principal only represents securities that entitle holders to receive
only principal payments on the underlying mortgages. The yield to
maturity of a principal only is sensitive to the rate of principal
payments on the underlying mortgage assets. A slow (rapid) rate of
principal repayments may have an adverse (positive) effect on yield to
maturity. Interest rate disclosed represents yield based upon the
estimated timing of future cash flows at Feb. 28, 2007.
(i) Interest rate varies either based on a predetermined schedule or to
reflect current market conditions; rate shown is the effective rate on
Feb. 28, 2007.
(j) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Feb. 28, 2007.
(k) Senior loans have rates of interest that float periodically based
primarily on the London Interbank Offered Rate ("LIBOR") and other
short-term rates. Remaining maturities of senior loans may be less than
the stated maturities shown as a result of contractual or optional
prepayments by the borrower. Such prepayments cannot be predicted with
certainty.
(l) Comparable securities are held to satisfy future delivery requirements
of the following open forward sale commitments at Feb. 28, 2007:
SECURITY PRINCIPAL SETTLEMENT PROCEEDS VALUE
AMOUNT DATE RECEIVABLE
--------------------------------------------------------------------------------------
Federal Natl Mtge Assn
03-01-22 4.50% $ 15,000,000 03-19-07 $ 14,411,719 $ 14,535,930
03-01-22 5.00 15,650,000 03-19-07 15,332,109 15,439,695
03-01-37 5.00 19,000,000 03-13-07 18,337,968 18,441,875
(m) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 6 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT
----------------------------------------------------------------------------------
PURCHASE CONTRACTS
U.S. Long Bond, June 2007, 20-year $ 68,500,000
U.S. Treasury Note, June 2007, 5-year 77,800,000
U.S. Treasury Note, June 2007, 10-year 43,700,000
SALE CONTRACTS
U.S. Treasury Note, June 2007, 2-year 55,000,000
(n) Identifies issues considered to be illiquid as to their marketability
(see Note 1 to the financial statements). These securities may be valued
at fair value according to methods selected in good faith by the Fund's
Board of Directors. Information concerning such security holdings at
Feb. 28, 2007, is as follows:
SECURITY ACQUISITION COST
DATES
-----------------------------------------------------------------------------------------
United Artists Theatre Circuit
9.30% 2015 02-23-96 thru 08-12-96 $ 6,295,664
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 31
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(o) At Feb. 28, 2007, security was partially or fully on loan. See Note 5 to
the financial statements.
(p) Cash collateral received from security lending activity is invested in
an affiliated money market fund and represents 2.5% of net assets. See
Note 5 to the financial statements. 3.1% of net assets is the Fund's
cash equivalent position.
(q) Affiliated Money Market Fund -- See Note 7 to the financial statements.
(r) At Feb. 28, 2007, the cost of securities for federal income tax purposes
was approximately $2,884,706,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $ 18,499,000
Unrealized depreciation (22,181,000)
------------------------------------------------------------------------------------
Net unrealized depreciation $ (3,682,000)
------------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations
of the Public Reference Room may be obtained by calling 1-800-SEC-0330);
and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form
N-Q, can be found at riversource.com/funds.
- ------------------------------------------------------------------------------
32 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEB. 28, 2007 (UNAUDITED)
ASSETS
Investments in securities, at value (Note 1)
Unaffiliated issuers* (identified cost $2,729,445,962) $ 2,725,763,653
Affiliated money market fund (identified cost $155,260,259) (Note 7) 155,260,259
- -----------------------------------------------------------------------------------------------
Total investments in securities (identified cost $2,884,706,221) 2,881,023,912
Cash in bank on demand deposit 323,121
Foreign currency holdings (identified cost $2,070,004) (Note 1) 2,161,459
Capital shares receivable 1,190,712
Accrued interest receivable 18,503,129
Receivable for investment securities sold 136,054,707
- -----------------------------------------------------------------------------------------------
Total assets 3,039,257,040
- -----------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 1,522,869
Capital shares payable 323,694
Payable for investment securities purchased 164,707,264
Payable upon return of securities loaned (Note 5) 69,055,000
Accrued investment management services fee 34,546
Accrued distribution fee 473,090
Accrued transfer agency fee 6,586
Accrued administrative services fee 4,739
Accrued plan administration services fee 16,728
Other accrued expenses 245,428
Forward sale commitments, at value (proceeds receivable $48,081,796) (Note 1) 48,417,500
- -----------------------------------------------------------------------------------------------
Total liabilities 284,807,444
- -----------------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $ 2,754,449,596
===============================================================================================
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 33
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
FEB. 28, 2007 (UNAUDITED)
REPRESENTED BY
Capital stock -- $.01 par value (Note 1) $ 5,645,397
Additional paid-in capital 2,900,775,931
Excess of distributions over net investment income (1,145,380)
Accumulated net realized gain (loss) (Note 10) (148,666,945)
Unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (Note 6) (2,159,407)
- ----------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $ 2,754,449,596
==========================================================================================================
Net assets applicable to outstanding shares: Class A $ 1,954,741,012
Class B $ 381,162,809
Class C $ 16,747,242
Class I $ 319,653,597
Class R2 $ 5,063
Class R3 $ 5,063
Class R4 $ 81,115,961
Class R5 $ 5,063
Class W $ 1,013,786
Net asset value per share of outstanding capital stock: Class A shares 400,684,005 $ 4.88
Class B shares 78,128,377 $ 4.88
Class C shares 3,432,220 $ 4.88
Class I shares 65,435,375 $ 4.89
Class R2 shares 1,040 $ 4.87
Class R3 shares 1,040 $ 4.87
Class R4 shares 16,648,855 $ 4.87
Class R5 shares 1,040 $ 4.87
Class W shares 207,722 $ 4.88
- ----------------------------------------------------------------------------------------------------------
* Including securities on loan, at value (Note 5) $ 68,423,700
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
34 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEB. 28, 2007 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest $ 67,731,305
Income distributions from affiliated money market fund (Note 7) 3,740,752
Fee income from securities lending (Note 5) 183,803
- ------------------------------------------------------------------------------------------------
Total income 71,655,860
- ------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 6,297,290
Distribution fee
Class A 2,445,361
Class B 1,933,077
Class C 83,772
Class R2 5
Class R3 2
Class W 60
Transfer agency fee
Class A 1,598,600
Class B 340,750
Class C 14,745
Class R2 1
Class R3 1
Class R4 59,172
Class R5 1
Class W 48
Service fee -- Class R4 36,188
Administrative services fees and expenses 863,988
Plan administration services fee
Class R2 2
Class R3 2
Class R4 46,594
Compensation of board members 28,804
Custodian fees 130,700
Printing and postage 288,235
Registration fees 75,970
Professional fees 26,843
Other 52,835
- ------------------------------------------------------------------------------------------------
Total expenses 14,323,046
Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (1,114,756)
- ------------------------------------------------------------------------------------------------
13,208,290
Earnings and bank fee credits on cash balances (Note 2) (120,083)
- ------------------------------------------------------------------------------------------------
Total net expenses 13,088,207
- ------------------------------------------------------------------------------------------------
Investment income (loss) -- net 58,567,653
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 35
STATEMENT OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED FEB. 28, 2007 (UNAUDITED)
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (Note 3) $ 40,375,717
Futures contracts 1,469,870
Swap transactions 289,325
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 42,134,912
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 25,131,401
- -----------------------------------------------------------------------------------------------
Net gain (loss) on investments and foreign currencies 67,266,313
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $125,833,966
===============================================================================================
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
36 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
FEB. 28, 2007 AUG. 31, 2006
SIX MONTHS ENDED YEAR ENDED
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 58,567,653 $ 103,147,373
Net realized gain (loss) on investments 42,134,912 (39,151,119)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies 25,131,401 (17,503,759)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 125,833,966 46,492,495
- ------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (46,273,505) (76,604,597)
Class B (7,677,278) (15,585,869)
Class C (332,467) (591,217)
Class I (7,302,646) (4,560,444)
Class R2 (44) N/A
Class R3 (47) N/A
Class R4 (2,629,979) (6,737,531)
Class R5 (52) N/A
Class W (852) N/A
- ------------------------------------------------------------------------------------------------------------
Total distributions (64,216,870) (104,079,658)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 37
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FEB. 28, 2007 AUG. 31, 2006
SIX MONTHS ENDED YEAR ENDED
(UNAUDITED)
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) $ 124,019,701 $ 316,729,749
Class B shares 32,578,573 79,990,744
Class C shares 1,689,939 3,579,299
Class I shares 80,806,691 109,101,564
Class R2 shares 5,000 N/A
Class R3 shares 5,000 N/A
Class R4 shares 13,541,321 19,247,047
Class R5 shares 5,000 N/A
Class W shares 1,011,580 N/A
Fund Merger (Note 9)
Class A shares N/A 482,178,674
Class B shares N/A 84,180,791
Class C shares N/A 3,014,375
Class I shares N/A 161,023,234
Class R4 shares N/A 43,644,789
Reinvestment of distributions at net asset value
Class A shares 37,191,322 60,868,805
Class B shares 6,839,149 13,634,050
Class C shares 290,185 518,063
Class I shares 7,223,848 4,443,417
Class R4 shares 2,653,017 6,613,878
Class W shares 725 N/A
Payments for redemptions
Class A shares (263,739,909) (578,402,371)
Class B shares (Note 2) (68,847,786) (247,147,060)
Class C shares (Note 2) (2,904,158) (7,432,273)
Class I shares (50,771,560) (1,248,255)
Class R4 shares (109,531,516) (95,308,639)
Class W shares (1,304) N/A
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (187,935,182) 459,229,881
- -------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (126,318,086) 401,642,718
Net assets at beginning of period 2,880,767,682 2,479,124,964
- -------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 2,754,449,596 $ 2,880,767,682
=============================================================================================================
Undistributed (excess of distributions over) net investment income $ (1,145,380) $ 4,503,837
- -------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
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38 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
(Unaudited as to Feb. 28, 2007)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of RiverSource Diversified Income Series, Inc. and is
registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. RiverSource Diversified
Income Series, Inc. has 10 billion authorized shares of capital stock that can
be allocated among the separate series as designated by the Board. The Fund
invests primarily in bonds and other debt securities including securities
issued by the U.S. government, corporate bonds and mortgage- and asset-backed
securities.
The Fund offers Class A, Class B, Class C, Class I and Class R4 shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge
(CDSC) and automatically convert to Class A shares during the ninth year
of ownership.
o Class C shares may be subject to a CDSC.
o Class I and Class R4 shares have no sales charge and are offered only to
qualifying institutional investors.
In September 2006, the Board approved renaming Class Y as Class R4,
terminating the shareholder servicing agreement, revising the fee structure
under the transfer agent agreement from account-based to asset-based, and
adopting a plan administration services agreement. These changes were
effective Dec. 11, 2006.
At Feb. 28, 2007, Ameriprise Financial, Inc. (Ameriprise Financial) and the
affiliated funds-of-funds owned 100% of Class I shares.
Effective Dec. 11, 2006, the Fund offers additional classes of shares, Class
R2, Class R3 and Class R5, offered to certain institutional investors. These
shares are sold without a front-end sales charge or CDSC. At Feb. 28, 2007,
Ameriprise Financial owned 100% of Class R2, Class R3 and Class R5 shares.
Effective Dec. 1, 2006, the Fund offers an additional class of shares, Class
W, offered through qualifying discretionary accounts. Class W shares are sold
without a front-end sales charge or CDSC. At Feb. 28, 2007, Ameriprise
Financial owned 100% of Class W shares.
At Feb. 28, 2007, Ameriprise Financial and the affiliated funds-of-funds owned
approximately 12% of the total outstanding Fund shares.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 39
All classes of shares have identical voting, dividend and liquidation
rights. Class specific expenses (e.g., distribution and service fees, transfer
agency fees, plan administration fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or
losses on investments are allocated to each class of shares based upon its
relative net assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from
actual results.
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the Board.
Short-term securities maturing in more than 60 days from the valuation date
are valued at the market price or approximate market value based on current
interest rates; those maturing in 60 days or less are valued at amortized
cost.
ILLIQUID SECURITIES
At Feb. 28, 2007, investments in securities included issues that are illiquid
which the Fund currently limits to 10% of net assets, at market value, at the
time of purchase. The aggregate value of such securities at Feb. 28, 2007 was
$6,751,731 representing 0.25% of net assets. These securities are valued at
fair value according to methods selected in good faith by the Board. According
to board guidelines, certain unregistered securities are determined to be
liquid and are not included within the 10% limitation specified above. Assets
are liquid if they can be sold or disposed of in the ordinary course of
business within seven days at approximately the value at which the asset is
valued by the Fund.
SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS
Delivery and payment for securities that have been purchased by the Fund on a
forward-commitment basis, including when-issued securities and other
forward-commitments, can take place one month or more after the transaction
date. During this period, such securities are subject to market fluctuations,
and they may affect the Fund's net assets the same as owned securities. The
Fund designates cash or liquid securities at least equal to the amount of its
forward-commitments. At Feb. 28, 2007, the Fund has entered into outstanding
when-issued securities of $85,512,289 and other forward-commitments of
$3,080,000.
- ------------------------------------------------------------------------------
40 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
The Fund also enters into transactions to sell purchase commitments to third
parties at current market values and concurrently acquires other purchase
commitments for similar securities at later dates. As an inducement for the
Fund to "roll over" its purchase commitments, the Fund receives negotiated
amounts in the form of reductions of the purchase price of the commitment.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains, and facilitate buying and
selling of securities for investments, the Fund may buy and write options
traded on any U.S. or foreign exchange or in the over-the-counter market where
completing the obligation depends upon the credit standing of the other party.
The Fund also may buy and sell put and call options and write covered call
options on portfolio securities as well as write cash-secured put options. The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases. The risk in writing a
put option is that the Fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an option
is that the Fund pays a premium whether or not the option is exercised. The
Fund also has the additional risk of being unable to enter into a closing
transaction if a liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund
will realize a gain or loss when the option transaction expires or closes.
When options on debt securities or futures are exercised, the Fund will
realize a gain or loss. When other options are exercised, the proceeds on
sales for a written call option, the purchase cost for a written put option or
the cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy
and sell financial futures contracts traded on any U.S. or foreign exchange.
The Fund also may buy and write put and call options on these futures
contracts. Risks of entering into futures contracts and related options
include the possibility of an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 41
FOREIGN CURRENCY TRANSLATIONS AND FOREIGN CURRENCY CONTRACTS
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to
the purchase or sale of securities and income and expenses are translated at
the exchange rate on the transaction date. The effect of changes in foreign
exchange rates on realized and unrealized security gains or losses is
reflected as a component of such gains or losses. In the statement of
operations, net realized gains or losses from foreign currency transactions,
if any, may arise from sales of foreign currency, closed forward contracts,
exchange gains or losses realized between the trade date and settlement date
on securities transactions, and other translation gains or losses on
dividends, interest income and foreign withholding taxes. At Feb. 28, 2007,
foreign currency holdings consisted of European monetary units and British
pounds.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete its contract obligations.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are
used to satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Valuation of securities" above. The forward sale commitment is
"marked-to-market" daily and the change in market value is recorded by the
Fund as an unrealized gain or loss. If the forward sale commitment is closed
through the acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss. If the Fund delivers securities under the commitment,
the Fund realizes a gain or a loss from the sale of the securities based upon
the market price established at the date the commitment was entered into.
Forward sale commitments outstanding at period end are listed in the "Notes to
investments in securities."
- ------------------------------------------------------------------------------
42 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
CMBS TOTAL RETURN SWAP TRANSACTIONS
The Fund may enter into swap agreements to earn the total return on a
specified security or index of fixed income securities. CMBS total return
swaps are bilateral financial contracts designed to replicate synthetically
the total returns of collateralized mortgage-backed securities. Under the
terms of the swaps, the Fund either receives or pays the total return on a
reference security or index applied to a notional principal amount. In return,
the Fund agrees to pay or receive from the counterparty a floating rate, which
is reset periodically based on short-term interest rates, applied to the same
notional amount.
The notional amounts of swap contracts are not recorded in the financial
statements. Swaps are valued daily, and the change in value is recorded as
unrealized appreciation (depreciation) until the termination of the swap, at
which time realized gain (loss) is recorded. Payments received or made are
recorded as realized gains (losses).
Swap agreements may be subject to liquidity risk, which exists when a
particular swap is difficult to purchase or sell. It may not be possible for
the Fund to initiate a transaction or liquidate a position at an advantageous
time or price, which may result in significant losses. Total return swaps are
subject to the risk that the counterparty will default on its obligation to
pay net amounts due to the Funds.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of
their duties to the Fund. In addition, certain of the Fund's contracts with
its service providers contain general indemnification clauses. The Fund's
maximum exposure under these arrangements is unknown since the amount of any
future claims that may be made against the Fund cannot be determined and the
Fund has no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the deferred losses
on certain futures contracts, the recognition of certain foreign currency
gains (losses) as ordinary income (loss) for tax purposes and losses deferred
due to "wash sale" transactions. The character of distributions made during
the year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes. Also, due to
the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains
(losses) were recorded by the Fund.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 43
RECENT ACCOUNTING PRONOUNCEMENTS
On Sept. 20, 2006, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 157 "Fair Value Measurements"
("SFAS 157"). SFAS 157 establishes an authoritative definition of fair value,
sets out a framework for measuring fair value, and requires additional
disclosures about fair-value measurements. The application of SFAS 157 is
required for fiscal years beginning after Nov. 15, 2007 and interim periods
within those fiscal years. The impact of SFAS 157 on the Fund's financial
statements is being evaluated.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." FIN
48 clarifies the accounting for uncertainty in income taxes recognized in
accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48
prescribes a two-step process to recognize and measure a tax position taken or
expected to be taken in a tax return. The first step is to determine whether a
tax position has met the more-likely-than-not recognition threshold and the
second step is to measure a tax position that meets the threshold to determine
the amount of benefit to recognize. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after Dec. 15, 2006. Tax positions of the Fund are being evaluated
to determine the impact, if any, to the fund. The adoption of FIN 48 is not
anticipated to have a material impact on the fund.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value
or payable in cash. Capital gains, when available, are distributed along with
the last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased
or sold. Dividend income is recognized on the ex-dividend date or upon receipt
of ex-dividend notification in the case of certain foreign securities.
Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, RiverSource Investments,
LLC (the Investment Manager) determines which securities will be purchased,
held or sold. The management fee is a percentage of the Fund's average daily
net assets that declines from 0.48% to 0.29% annually as the Fund's assets
increase.
- ------------------------------------------------------------------------------
44 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial
a fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.07% to 0.04% annually as the
Fund's assets increase.
Other expenses in the amount of $12,829 are for, among other things, certain
expenses of the Fund or the Board including: Fund boardroom and office
expense, employee compensation, employee health and retirement benefits, and
certain other expenses. Payment of these Fund and Board expenses is
facilitated by a company providing limited administrative services to the Fund
and the Board.
Compensation of Board members includes, for the former Board Chair,
compensation as well as retirement benefits. Certain other aspects of the
former Board Chair's compensation, including health benefits and payment of
certain other expenses, are included under other expenses.
Under a Deferred Compensation Plan (the Plan), non-interested board members
may defer receipt of their compensation. Deferred amounts are treated as
though equivalent dollar amounts had been invested in shares of the Fund or
other RiverSource funds. The Fund's liability for these amounts is adjusted
for market value changes and remains in the Fund until distributed in
accordance with the Plan.
Professional fees include fees paid by the Fund for legal services and
independent auditor services.
Under a Transfer Agency Agreement, RiverSource Service Corporation (the
Transfer Agent) maintains shareholder accounts and records. The Fund pays the
Transfer Agent an annual fee per shareholder account for this service as
follows:
o Class A $20.50
o Class B $21.50
o Class C $21.00
Effective Dec. 11, 2006, as part of the Board's approval to rename Class Y as
Class R4, the fee structure under the Transfer Agency Agreement was revised
from an account-based fee for Class Y to an asset-based fee for Class R4. The
Fund will pay the Transfer Agent an annual asset-based fee at a rate of 0.05%
of the Fund's average daily net assets attributable to Class R4 shares. Prior
to Dec. 11, 2006, the Fund paid the Transfer Agent an annual account-based fee
of $18.50 per shareholder account.
In addition, with the introduction of Class R2, Class R3, Class R5 and Class W
shares, the Fund will pay the Transfer Agent an annual asset-based fee at a
rate of 0.05% of the Fund's average daily net assets attributable to Class R2,
Class R3 and Class R5 shares and an annual asset-based fee at a rate of 0.20%
of the Fund's average daily net assets attributable to Class W shares.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 45
Prior to Dec. 11, 2006, Class I paid a transfer agency fee at an annual rate
per shareholder account of $1. This amount is included in the transfer agency
fee on the statement of operations. Effective Dec. 11, 2006, this fee was
eliminated.
The Transfer Agent charges an annual closed account fee of $5 per inactive
account, charged on a pro rata basis for 12 months from the date the account
becomes inactive. These fees are included in the transfer agency fees on the
statement of operations.
The Fund has agreements with Ameriprise Financial Services, Inc. and
RiverSource Distributors, Inc. (collectively, the Distributor) for
distribution and shareholder services. Under a Plan and Agreement of
Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of
up to 0.25% of the Fund's average daily net assets attributable to Class A,
Class R3 and Class W shares, a fee at an annual rate of up to 0.50% of the
Fund's average daily net assets attributable to Class R2 shares and a fee at
an annual rate of up to 1.00% of the Fund's average daily net assets
attributable to Class B and Class C shares.
Beginning Dec. 11, 2006, a new Plan Administration Services Agreement was
adopted for the restructured Class R4 and the introduction of Class R2 and
Class R3. The fee is calculated at a rate of 0.25% of the Fund's average daily
net assets attributable to Class R2, Class R3 and Class R4 shares.
Prior to Dec. 11, 2006, under a Shareholder Service Agreement, the Fund paid
the Distributor a fee for service provided to shareholders by the Distributor
and other servicing agents with respect to those shares. The fee was
calculated at a rate of 0.10% of the Fund's average daily net assets
attributable to Class Y shares. Effective Dec. 11, 2006, this agreement was
terminated.
Sales charges received by the Distributor for distributing Fund shares were
$928,404 for Class A, $184,687 for Class B and $1,520 for Class C for the six
months ended Feb. 28, 2007.
In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in
which it invests (also referred to as "acquired funds"), including affiliated
and non-affiliated pooled investment vehicles (including mutual funds and
exchange traded funds). Because the acquired funds have varied expense and fee
levels and the Fund may own different proportions of acquired funds at
different times, the amount of fees and expenses incurred indirectly by the
Fund will vary.
For the six months ended Feb. 28, 2007, the Investment Manager and its
affiliates waived certain fees and expenses (excluding fees and expenses of
acquired funds), such that net expenses are 0.89% for Class A, 1.65% for Class
B, 1.65% for Class C, 0.54% for Class I, 1.32% for Class R2, 1.07% for Class
R3, 0.73% for Class R4, 0.57% for Class R5 and 0.95% for Class W. Of these
waived fees and expenses, the transfer agency fees waived for Class A, Class
B, Class C, Class R4 and Class W were $620,456, $127,815, $5,195, $37,786 and
$5, respectively, and the management fees waived at the Fund level were
$323,499. In addition, the Investment Manager
- ------------------------------------------------------------------------------
46 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
and its affiliates have agreed to waive certain fees and expenses until Aug.
31, 2007, unless sooner terminated at the discretion of the Board, such that
net expenses (excluding fees and expenses of acquired funds), will not exceed
0.89% for Class A, 1.65% for Class B, 1.66% for Class C, 0.54% for Class I,
1.32% for Class R2, 1.07% for Class R3, 0.73% for Class R4, 0.57% for Class R5
and 0.97% for Class W of the Fund's average daily net assets.
During the six months ended Feb. 28, 2007, the Fund's custodian and transfer
agency fees were reduced by $120,083 as a result of earnings and bank fee
credits from overnight cash balances.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $3,754,878,291 and $4,075,330,220, respectively, for
the six months ended Feb. 28, 2007. Realized gains and losses are determined
on an identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
SIX MONTHS ENDED FEB. 28, 2007
CLASS A CLASS B CLASS C CLASS I CLASS R2(a)
- -----------------------------------------------------------------------------------------------------------
Sold 25,785,759 6,771,888 351,116 16,755,014 1,040
Issued for reinvested distributions 7,722,377 1,420,212 60,259 1,497,909 --
Redeemed (54,845,844) (14,313,864) (603,790) (10,557,562) --
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) (21,337,708) (6,121,764) (192,415) 7,695,361 1,040
- -----------------------------------------------------------------------------------------------------------
CLASS R3(a) CLASS R4(b) CLASS R5(a) CLASS W(c)
- -----------------------------------------------------------------------------------------------------------
Sold 1,040 2,808,650 1,040 207,840
Issued for reinvested distributions -- 551,782 -- 150
Redeemed -- (22,913,597) -- (268)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,040 (19,553,165) 1,040 207,722
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2006
CLASS A CLASS B CLASS C CLASS I CLASS R4(b)
- -----------------------------------------------------------------------------------------------------------
Sold 66,603,100 16,761,356 749,835 23,207,815 4,039,333
Fund merger 101,470,543 17,711,859 633,369 33,851,639 9,182,696
Issued for reinvested distributions 12,810,045 2,867,046 108,893 941,851 1,392,410
Redeemed (121,661,365) (52,093,450) (1,561,227) (263,328) (19,763,678)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) 59,222,323 (14,753,189) (69,130) 57,737,977 (5,149,239)
- -----------------------------------------------------------------------------------------------------------
(a) Inception date is Dec. 11, 2006.
(b) Effective Dec. 11, 2006, Class Y was renamed Class R4.
(c) Inception date is Dec. 1, 2006.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 47
5. LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend securities
representing up to one-third of the value of its total assets (which includes
collateral for securities on loan) to broker-dealers, banks, or other
institutional borrowers of securities. The Fund receives collateral in the
form of cash and U.S. government securities, equal to at least 100% of the
value of securities loaned, which is marked to the market value of the loaned
securities daily until the securities are returned, e.g., if the value of the
securities on loan increases, additional cash collateral is provided by the
borrower. The Investment Manager serves as securities lending agent for the
Fund under the investment management services agreement pursuant to which the
Fund has agreed to reimburse the Investment Manager for expenses incurred by
it in connection with the lending program, and pursuant to guidelines adopted
by and under the oversight of the Board. At Feb. 28, 2007, securities valued
at $68,423,700 were on loan to brokers. For collateral, the Fund received
$69,055,000 in cash. Cash collateral received is invested in short-term
securities, including U.S. government securities or other high-grade debt
obligations, which are included in the "Investments in securities." Income
from securities lending amounted to $183,803 for the six months ended Feb. 28,
2007. The risks to the Fund of securities lending are that the borrower may
not provide additional collateral when required or return the securities when
due.
6. INTEREST RATE FUTURES CONTRACTS
At Feb. 28, 2007, investments in securities included securities valued at
$1,438,770 that were pledged as collateral to cover initial margin deposits on
1,900 open purchase contracts and 275 open sale contracts. The notional market
value of the open purchase contracts at Feb. 28, 2007 was $207,249,191 with a
net unrealized gain of $1,953,678. The notional market value of the open sale
contracts at Feb. 28, 2007 was $56,362,111 with a net unrealized loss of
$186,527. See "Summary of significant accounting policies" and "Notes to
investments in securities."
7. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash
Fund, a money market fund established for the exclusive use of the RiverSource
funds and other institutional clients of RiverSource Investments.
- ------------------------------------------------------------------------------
48 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
8. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the
temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The agreement went into effect Sept. 19, 2006. The Fund
must maintain asset coverage for borrowings of at least 300%. The agreement,
which enables the Fund to participate with other RiverSource funds, permits
borrowings up to $500 million, collectively. Interest is charged to each Fund
based on its borrowings at a rate equal to either the higher of the Federal
Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate.
Borrowings are payable within 60 days after such loan is executed. The Fund
also pays a commitment fee equal to its pro rata share of the amount of the
credit facility at a rate of 0.06% per annum. Prior to this agreement, the
Fund paid a commitment fee equal to its pro rata share of the amount of the
credit facility at a rate of 0.07% per annum. The Fund had no borrowings under
the facility outstanding during the six months ended Feb. 28, 2007.
9. FUND MERGER
At the close of business on March 10, 2006, RiverSource Diversified Bond Fund
acquired the assets and assumed the identified liabilities of RiverSource
Selective Fund. The reorganization was completed after shareholders approved
the plan on Feb. 15, 2006.
The aggregate net assets of RiverSource Diversified Bond Fund immediately
before the acquisition were $2,230,540,317 and the combined net assets
immediately after the acquisition were $3,004,582,180.
The merger was accomplished by a tax-free exchange of 91,783,512 shares of
RiverSource Selective Fund valued at $774,041,863.
In exchange for the RiverSource Selective Fund shares and net assets,
RiverSource Diversified Bond Fund issued the following number of shares:
SHARES
Class A 101,470,543
Class B 17,711,859
Class C 633,369
Class I 33,851,639
Class Y 9,182,696
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 49
RiverSource Selective Fund's net assets after adjustments for any permanent
book-to-tax differences at the merger date were as follows, which include the
following amounts of capital stock, unrealized depreciation, accumulated net
realized loss and temporary book-to-tax differences.
TEMPORARY
TOTAL NET CAPITAL UNREALIZED ACCUMULATED BOOK-TO-TAX
ASSETS STOCK DEPRECIATION NET REALIZED LOSS DIFFERENCES
- ------------------------------------------------------------------------------------------------
RiverSource
Selective Fund $774,041,863 $826,804,340 $(18,618,938) $ (34,129,421) $ (14,118)
10. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$175,789,584 at Aug. 31, 2006, that if not offset by capital gains will expire
as follows:
2009 2010 2012 2014 2015
$78,698,873 $49,658,521 $5,227,159 $12,836,807 $29,368,224
RiverSource Diversified Bond Fund acquired $31,763,053 of capital loss
carry-overs in connection with the RiverSource Selective Fund merger (Note 9).
In addition to the acquired capital loss carry-overs, the Fund also acquired
unrealized capital gains as a result of the mergers. The yearly utilization of
the acquired capital losses as well as the utilization of the acquired
unrealized losses is limited by the Internal Revenue Code. It is unlikely the
Board will authorize a distribution of any net realized capital gains until
the available capital loss carry-over has been offset or expires.
11. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs
allege that they are investors in several American Express Company mutual
funds and they purport to bring the action derivatively on behalf of those
funds under the Investment Company Act of 1940. The plaintiffs allege that
fees allegedly paid to the defendants by the funds for investment advisory and
administrative services are excessive. The plaintiffs seek remedies including
restitution and rescission of investment advisory and distribution agreements.
The plaintiffs voluntarily agreed to transfer this case to the United States
District Court for the District of Minnesota. In response to our motion to
dismiss the complaint, the Court dismissed one of plaintiffs' four claims and
granted plaintiffs limited discovery. Discovery is currently set to end in
March 2007.
- ------------------------------------------------------------------------------
50 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
In December 2005, without admitting or denying the allegations, American
Express Financial Corporation (AEFC, which is now known as Ameriprise
Financial, Inc. (Ameriprise Financial)), the parent company of RiverSource
Investments, LLC (RiverSource Investments), entered into settlement agreements
with the Securities and Exchange Commission (SEC) and Minnesota Department of
Commerce (MDOC) related to market timing activities. In connection with these
matters, the SEC and MDOC issued orders (the Orders) alleging that AEFC
violated certain provisions of the federal and Minnesota securities laws by
failing to adequately disclose market timing activities by allowing certain
identified market timers to continue to market time contrary to disclosures in
mutual fund and variable annuity product prospectuses. The Orders also alleged
that AEFC failed to implement procedures to detect and prevent market timing
in 401(k) plans for employees of AEFC and related companies and failed to
adequately disclose that there were no such procedures. Pursuant to the MDOC
Order, the MDOC also alleged that AEFC allowed inappropriate market timing to
occur by failing to have written policies and procedures and failing to
properly supervise its employees.
As a result of the Orders, AEFC was censured and ordered to cease and desist
from committing or causing any violations of certain provisions of the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and
various Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to
pay disgorgement of $10 million and civil money penalties of $7 million. AEFC
also agreed to make presentations at least annually to its board of directors
and the relevant mutual funds' board that include an overview of policies and
procedures to prevent market timing, material changes to these policies and
procedures and whether disclosures related to market timing are consistent
with the SEC order and federal securities laws. AEFC also agreed to retain an
independent distribution consultant to assist in developing a plan for
distribution of all disgorgement and civil penalties ordered by the SEC in
accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. In addition, AEFC agreed to
complete and submit to the MDOC a compliance review of its procedures
regarding market timing within one year of the MDOC Order, including a summary
of actions taken to ensure compliance with applicable laws and regulations and
certification by a senior officer regarding compliance and supervisory
procedures.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Funds' Boards of Directors/Trustees.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 51
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings,
including routine litigation, class actions, and governmental actions,
concerning matters arising in connection with the conduct of their business
activities. Ameriprise Financial believes that the Funds are not currently the
subject of, and that neither Ameriprise Financial nor any of its affiliates
are the subject of, any pending legal, arbitration or regulatory proceedings
that are likely to have a material adverse effect on the Funds or the ability
of Ameriprise Financial or its affiliates to perform under their contracts
with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as
necessary, 8-K filings with the Securities and Exchange Commission on legal
and regulatory matters that relate to Ameriprise Financial and its affiliates.
Copies of these filings may be obtained by accessing the SEC website at
www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse
effect on the Funds or the ability of Ameriprise Financial or its affiliates
to perform under their contracts with the Funds, these proceedings are subject
to uncertainties and, as such, we are unable to estimate the possible loss or
range of loss that may result. An adverse outcome in one or more of these
proceedings could result in adverse judgments, settlements, fines, penalties
or other relief that could have a material adverse effect on the consolidated
financial condition or results of operations of Ameriprise Financial.
- ------------------------------------------------------------------------------
52 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
12. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating
the Fund's results.
CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003
Net asset value, beginning of period $ 4.77 $ 4.89 $ 4.87 $ 4.78 $ 4.75
- ----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10 .19 .18 .18 .20
Net gains (losses) (both realized and
unrealized) .12 (.11) .03 .08 .03
- ----------------------------------------------------------------------------------------------------------
Total from investment operations .22 .08 .21 .26 .23
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.20) (.19) (.17) (.20)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.88 $ 4.77 $ 4.89 $ 4.87 $ 4.78
- ----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 1,955 $ 2,013 $ 1,774 $ 1,933 $ 2,280
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net
assets(b),(c) .89%(d),(e) .89%(d) .94%(d) .98%(d) .97%
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.32%(e) 4.09% 3.67% 3.55% 4.16%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 134% 281% 300% 279% 256%
- ----------------------------------------------------------------------------------------------------------
Total return(f) 4.72%(g) 1.64% 4.38% 5.54% 4.91%
- ----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class A would have been 0.98% for the six months ended Feb. 28, 2007
and 0.99%, 1.02% and 1.00% for the years ended Aug. 31, 2006, 2005 and
2004, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Feb. 28, 2007 (Unaudited).
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 53
CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003
Net asset value, beginning of period $ 4.77 $ 4.89 $ 4.88 $ 4.78 $ 4.75
- ----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .16 .15 .14 .16
Net gains (losses) (both realized
and unrealized) .11 (.12) .01 .09 .03
- ----------------------------------------------------------------------------------------------------------
Total from investment operations .20 .04 .16 .23 .19
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.16) (.15) (.13) (.16)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.88 $ 4.77 $ 4.89 $ 4.88 $ 4.78
- ----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 381 $ 402 $ 484 $ 628 $ 902
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(b),(c) 1.65%(d),(e) 1.65%(d) 1.70%(d) 1.73%(d) 1.73%
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.56%(e) 3.31% 2.92% 2.78% 3.40%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 134% 281% 300% 279% 256%
- ----------------------------------------------------------------------------------------------------------
Total return(f) 4.34%(g) .88% 3.39% 4.95% 4.12%
- ----------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class B would have been 1.74% for the six months ended Feb. 28, 2007
and 1.76%, 1.78% and 1.75% for the years ended Aug. 31, 2006, 2005 and
2004, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Feb. 28, 2007 (Unaudited).
- ------------------------------------------------------------------------------
54 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003
Net asset value, beginning of period $ 4.77 $ 4.90 $ 4.88 $ 4.78 $ 4.75
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .16 .15 .14 .16
Net gains (losses) (both realized
and unrealized) .11 (.13) .02 .09 .03
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .20 .03 .17 .23 .19
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.16) (.15) (.13) (.16)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.88 $ 4.77 $ 4.90 $ 4.88 $ 4.78
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 17 $ 17 $ 18 $ 21 $ 27
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(b),(c) 1.65%(d,(e) 1.66%(d) 1.70%(d) 1.73%(d) 1.74%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.57%(e) 3.31% 2.93% 2.79% 3.34%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 134% 281% 300% 279% 256%
- -----------------------------------------------------------------------------------------------------------------------
Total return(f) 4.33%(g) .66% 3.60% 4.95% 4.11%
- -----------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class C would have been 1.74% for the six months ended Feb. 28, 2007
and 1.76%, 1.79% and 1.75% for the years ended Aug. 31, 2006, 2005 and
2004, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Feb. 28, 2007 (Unaudited).
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 55
CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(i) 2006 2005 2004(b)
Net asset value, beginning of period $ 4.78 $ 4.89 $ 4.88 $ 4.91
- --------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11 .21 .20 .11
Net gains (losses) (both realized
and unrealized) .12 (.11) .02 (.04)
- --------------------------------------------------------------------------------------------------------
Total from investment operations .23 .10 .22 .07
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.21) (.21) (.10)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.89 $ 4.78 $ 4.89 $ 4.88
- --------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 320 $ 276 $ -- $ --
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c),(d) .54%(e),(f) .54%(e) .60% .59%(f)
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.68%(f) 4.59% 4.01% 3.13%(f)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 134% 281% 300% 279%
- --------------------------------------------------------------------------------------------------------
Total return(g) 4.90%(h) 2.19% 4.53% 1.43%(h)
- --------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Inception date is March 4, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class I would have been 0.57% for the six months ended Feb. 28, 2007
and 0.55% for the year ended Aug. 31, 2006.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Feb. 28, 2007 (Unaudited).
- ------------------------------------------------------------------------------
56 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
CLASS R2
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(b)
Net asset value, beginning of period $ 4.82
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .04
Net gains (losses) (both realized
and unrealized) .05
- --------------------------------------------------------------------------------
Total from investment operations .09
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.04)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 4.87
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ --
- --------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c),(d),(e) 1.32%(f)
- --------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.96%(f)
- --------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 134%
- --------------------------------------------------------------------------------
Total return(g) 2.14%(h)
- --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007
(Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class R2 would have been 1.33% for the period ended Feb. 28, 2007.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 57
CLASS R3
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(b)
Net asset value, beginning of period $ 4.82
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .04
Net gains (losses) (both realized
and unrealized) .05
- --------------------------------------------------------------------------------
Total from investment operations .09
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.04)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 4.87
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ --
- --------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c),(d),(e) 1.07%(f)
- --------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.23%(f)
- --------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 134%
- --------------------------------------------------------------------------------
Total return(g) 2.20%(h)
- --------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007
(Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class R3 would have been 1.07% for the six months ended Feb. 28, 2007.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- ------------------------------------------------------------------------------
58 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
CLASS R4*
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(h) 2006 2005 2004 2003
Net asset value, beginning of period $ 4.77 $ 4.89 $ 4.88 $ 4.78 $ 4.75
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11 .20 .19 .18 .21
Net gains (losses) (both realized
and unrealized) .11 (.12) .02 .10 .03
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .22 .08 .21 .28 .24
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.20) (.20) (.18) (.21)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.87 $ 4.77 $ 4.89 $ 4.88 $ 4.78
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 81 $ 173 $ 202 $ 203 $ 268
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(b),(c) .73%(d),(e) .73%(d) .78%(d) .81%(d) .81%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.41%(e) 4.24% 3.85% 3.70% 4.34%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 134% 281% 300% 279% 256%
- --------------------------------------------------------------------------------------------------------------------------
Total return(f) 4.60%(g) 1.81% 4.34% 5.92% 5.08%
- --------------------------------------------------------------------------------------------------------------------------
* Effective Dec. 11, 2006, Class Y was renamed Class R4.
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class R4 would have been 0.81% for the six months ended Feb. 28,
2007 and 0.82%, 0.86% and 0.83% for the years ended Aug. 31, 2006, 2005
and 2004, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Feb. 28, 2006 (Unaudited).
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 59
CLASS R5
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(b)
Net asset value, beginning of period $ 4.82
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .05
Net gains (losses) (both realized
and unrealized) .05
- ------------------------------------------------------------------------
Total from investment operations .10
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05)
- ------------------------------------------------------------------------
Net asset value, end of period $ 4.87
- ------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ --
- ------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c),(d),(e) .57%(f)
- ------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 4.72%(f)
- ------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 134%
- ------------------------------------------------------------------------
Total return(g) 2.30%(h)
- ------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from Dec. 11, 2006 (inception date) to Feb. 28, 2007
(Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class R5 would have been 0.61% for the period ended Feb. 28, 2007.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- ------------------------------------------------------------------------------
60 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
CLASS W
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended Aug. 31, 2007(b)
Net asset value, beginning of period $ 4.84
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .05
Net gains (losses) (both realized and unrealized) .04
- -----------------------------------------------------------------------------
Total from investment operations .09
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05)
- -----------------------------------------------------------------------------
Net asset value, end of period $ 4.88
- -----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 1
- -----------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d),(e) .95%(f)
- -----------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.89%(f)
- -----------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 134%
- -----------------------------------------------------------------------------
Total return(g) 2.00%(h)
- -----------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from Dec. 1, 2006 (inception date) to Feb. 28, 2007
(Unaudited).
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not
included in the above reported expense ratios.
(e) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class W would have been 0.97% for the period ended Feb. 28, 2007.
(f) Adjusted to an annual basis.
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT 61
PROXY VOTING
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of
Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities during
the 12-month period ended June 30, 2006 is available without charge by
visiting riversource.com/funds; or searching the website of the SEC at
www.sec.gov.
- ------------------------------------------------------------------------------
62 RIVERSOURCE DIVERSIFIED BOND FUND - 2007 SEMIANNUAL REPORT
RIVERSOURCE(R) DIVERSIFIED BOND FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
This report must be accompanied or preceded by the
Fund's current prospectus. RiverSource(R) mutual funds
are distributed by RiverSource Distributors, Inc. and
Ameriprise Financial Services, Inc., Members NASD, and
managed by RiverSource Investments, LLC. These companies
RIVERSOURCE [LOGO](R) are part of Ameriprise Financial, Inc.
INVESTMENTS
S-6490 X (4/07)
Item 2. Code of Ethics. Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert. Not applicable for semi-annual
reports.
Item 4. Principal Accountant Fees and Services. Not applicable for
semi-annual reports.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing
date of this Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance
that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Diversified Income Series, Inc.
By /s/ Patrick T. Bannigan
-----------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date May 2, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Patrick T. Bannigan
-----------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date May 2, 2007
By /s/ Jeffrey P. Fox
-----------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date May 2, 2007