Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-4260
RiverSource Government Income Series, Inc.
(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
(Name and address of agent for service)
Registrant’s telephone number, including area code: (612) 671-1947
Date of fiscal year end: May 31
Date of reporting period: November 30, 2010
TABLE OF CONTENTS
Table of Contents
Item 1. Reports to Stockholders.
Table of Contents
Semiannual Report
![(COLUMBIA MANAGEMENT LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-009551/c61904s44362_clmbfc.gif)
Columbia
U.S. Government Mortgage Fund
(formerly known as RiverSource U.S. Government Mortgage Fund)
Semiannual Report for the Period Ended
November 30, 2010
Columbia U. S. Government Mortgage Fund seeks to provide shareholders with current income as its primary objective and, as its secondary objective, preservation of capital.
Not FDIC insured - No bank guarantee - May lose value
Table of Contents
Table of Contents
Your Fund at a Glance | 3 | |||
Fund Expenses Example | 6 | |||
Portfolio of Investments | 8 | |||
Statement of Assets and Liabilities | 16 | |||
Statement of Operations | 18 | |||
Statements of Changes in Net Assets | 19 | |||
Financial Highlights | 21 | |||
Notes to Financial Statements | 27 | |||
Approval of Investment Management Services Agreement | 44 | |||
Proxy Voting | 45 |
See the Fund’s prospectus for risks associated with investing in the Fund.
2 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
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Your Fund at a Glance
(Unaudited)
FUND SUMMARY
> | Columbia U.S. Government Mortgage Fund (the Fund) Class A shares rose 4.80% (excluding sales charge) for the six months ended November 30, 2010 |
> | The Fund outperformed the Barclays Capital U.S. Mortgage-Backed Securities Index, which gained 2.57% for the six-month period. |
> | The Fund also outperformed the Lipper U.S. Mortgage Funds Index, representing the Fund’s peer group, which advanced 3.08% during the same time frame. |
ANNUALIZED TOTAL RETURNS (for period ended November 30, 2010)
Since | ||||||||||||||||||||
inception | ||||||||||||||||||||
6 months* | 1 year | 3 years | 5 years | 2/14/02 | ||||||||||||||||
Columbia U.S. Government Mortgage Fund Class A (excluding sales charge) | +4.80% | +9.27% | +6.49% | +5.91% | +5.10% | |||||||||||||||
Barclays Capital U.S. Mortgage-Backed Securities Index (unmanaged)(1) | +2.57% | +4.46% | +6.82% | +6.66% | +5.66% | |||||||||||||||
Lipper U.S. Mortgage Funds Index (unmanaged)(2) | +3.08% | +5.77% | +6.06% | +5.70% | +4.87% | |||||||||||||||
* | Not annualized. |
The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial intermediary, visiting columbiamanagement.com or calling 800.345.6611.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in fees and expenses. The Fund’s returns reflect the effect of fee waivers/expense reimbursements, if any. Without such waivers/reimbursements, the Fund’s returns would be lower. See the Average Annual Total Returns table for performance of other share classes of the Fund.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 3
Table of Contents
Your Fund at a Glance (continued)
The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index.
(1) | The Barclays Capital U.S. Mortgage-Backed Securities Index, an unmanaged index, includes 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Federal National Mortgage Association (FNMA). The index reflects reinvestment of all distributions and changes in market prices. | |
(2) | The Lipper U.S. Mortgage Funds Index includes the 10 largest U.S. mortgage funds tracked by Lipper Inc. The index’s returns include net reinvested dividends. |
AVERAGE ANNUAL TOTAL RETURNS
at November 30, 2010 | ||||||||||||||||||||
Since | ||||||||||||||||||||
Without sales charge | 6 months* | 1 year | 3 years | 5 years | inception | |||||||||||||||
Class A (inception 2/14/02) | +4.80 | % | +9.27 | % | +6.49 | % | +5.91 | % | +5.10 | % | ||||||||||
Class B (inception 2/14/02) | +4.39 | % | +8.44 | % | +5.68 | % | +5.11 | % | +4.32 | % | ||||||||||
Class C (inception 2/14/02) | +4.40 | % | +8.46 | % | +5.62 | % | +5.07 | % | +4.32 | % | ||||||||||
Class I (inception 3/4/04) | +5.03 | % | +9.52 | % | +6.86 | % | +6.28 | % | +5.31 | % | ||||||||||
Class R4 (inception 2/14/02) | +4.87 | % | +9.20 | % | +7.22 | % | +6.42 | % | +5.47 | % | ||||||||||
Class Z (inception 9/27/10) | N/A | N/A | N/A | N/A | +1.12 | %* | ||||||||||||||
With sales charge | ||||||||||||||||||||
Class A (inception 2/14/02) | -0.17 | % | +4.08 | % | +4.77 | % | +4.88 | % | +4.52 | % | ||||||||||
Class B (inception 2/14/02) | -0.61 | % | +3.44 | % | +4.78 | % | +4.78 | % | +4.32 | % | ||||||||||
Class C (inception 2/14/02) | +3.40 | % | +7.46 | % | +5.62 | % | +5.07 | % | +4.32 | % | ||||||||||
Class A share performance reflects the maximum initial sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second year 4%; third and fourth years 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R4 and Class Z shares. Class I and Class R4 shares are available to qualifying institutional investors only. Class Z shares are offered to certain eligible investors.
* | Not annualized. |
4 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
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PORTFOLIO STATISTICS
Weighted average life(1) | 3.3 years | |
Effective duration(2) | 2.3 years | |
(1) | Weighted average life measures a bond’s maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. | |
(2) | Effective duration measures the sensitivity of a security’s price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. |
PORTFOLIO BREAKDOWN(1) (at November 30, 2010)
Asset-Backed | 2.4% | |||
Commercial Mortgage-Backed | 1.8% | |||
Residential Mortgage-Backed-Agency | 82.6% | |||
Residential Mortgage-Backed-Non-Agency | 11.4% | |||
Options Purchased | —* | |||
Other(2) | 1.8% | |||
* | Rounds to less than .01%. | |
(1) | Portfolio holdings include industry sectors that can be comprised of securities in several industries. Please refer to the section entitled “Portfolio of Investments” for a complete listing. No single industry exceeded 25% of portfolio assets. | |
Percentages indicated are based upon total investments. The Fund’s composition is subject to change. | ||
(2) | Cash & Cash Equivalents. |
QUALITY BREAKDOWN(1) (at November 30, 2010)
AAA rating | 95.4% | |||
AA rating | 0.1% | |||
BBB rating | 2.1% | |||
Non-investment grade | 1.0% | |||
Non-rated | 1.4% | |||
(1) | Percentages indicated are based upon total fixed income securities (excluding Cash & Cash Equivalents). |
Ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor’s rating is used to determine the credit quality of a security. Standard and Poor’s rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor’s doesn’t rate a security, then Moody’s rating is used. Columbia Management Investment Advisers, LLC (the Investment Manager) rates a security using an internal rating system when Moody’s doesn’t provide a rating.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 5
Table of Contents
Fund Expenses Example
(Unaudited)
As a shareholder of the Fund, you incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments; and (ii) ongoing costs, which may include management fees; distribution and service (Rule 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 ongoing expenses of any funds in which the Fund 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 ongoing expenses charged by acquired funds using the expense ratio of each of the acquired funds as of the acquired fund’s most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the period indicated and held until November 30, 2010.
Actual Expenses
The first line of the table provides information about actual account values and actual expenses for each class. 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 actual expense ratio for each class and an assumed rate of return of 5% per year before expenses, which is not the actual return for the class. 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.
6 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Beginning | Ending | Expenses | ||||||||||||||
account value | account value | paid during | Annualized | |||||||||||||
June 1, 2010(a) | Nov. 30, 2010 | the period(b) | expense ratio | |||||||||||||
Class A | ||||||||||||||||
Actual(c) | $ | 1,000 | $ | 1,046.00 | $ | 4.64 | .89% | |||||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,020.94 | $ | 4.58 | .89% | |||||||||
Class B | ||||||||||||||||
Actual(c) | $ | 1,000 | $ | 1,041.90 | $ | 8.58 | 1.65% | |||||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.07 | $ | 8.48 | 1.65% | |||||||||
Class C | ||||||||||||||||
Actual(c) | $ | 1,000 | $ | 1,042.00 | $ | 8.53 | 1.64% | |||||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.12 | $ | 8.43 | 1.64% | |||||||||
Class I | ||||||||||||||||
Actual(c) | $ | 1,000 | $ | 1,046.20 | $ | 2.50 | .48% | |||||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,023.03 | $ | 2.47 | .48% | |||||||||
Class R4 | ||||||||||||||||
Actual(c) | $ | 1,000 | $ | 1,046.70 | $ | 4.07 | .78% | |||||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.50 | $ | 4.02 | .78% | |||||||||
Class Z | ||||||||||||||||
Actual(d) | $ | 1,000 | $ | 1,011.20 | $ | 1.11 | .63% | |||||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,022.27 | $ | 3.25 | .63% | |||||||||
(a) | The beginning account value for Class Z is as of September 27, 2010 (when shares became available) for actual expense calculations. | |
(b) | Expenses are equal to the annualized expense ratio for each class as indicated above, multiplied by the average account value over the period, multiplied by 186/365 (to reflect the one-half year period). Actual expenses for Class Z are equal to the annualized expense ratio for the class as indicated above, multiplied by the average account value over the period, multiplied by 64/365 (to reflect the number of days in the period). | |
(c) | Based on the actual return for the six months ended November 30, 2010: +4.60% for Class A, +4.19% for Class B, +4.20% for Class C, +4.62% for Class I and +4.67% for Class R4. | |
(d) | Based on the actual return for the period from September 27, 2010 (when shares became available) to November 30, 2010 of +1.12% for Class Z. |
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 7
Table of Contents
Portfolio of Investments
Columbia U.S. Government Mortgage Fund
November 30, 2010 (Unaudited)
(Percentages represent value of investments compared to net assets)
Coupon | Principal | |||||||
Issuer | Rate | Amount | Value | |||||
Residential Mortgage-Backed Securities — Agency(a) (98.2%) | ||||||||
Federal Home Loan Mortgage Corp. | ||||||||
06/01/15 | 7.500% | $ | 302,159 | $ | 326,094 | |||
12/01/16-08/01/34 | 6.500% | 2,896,136 | 3,240,199 | |||||
04/01/17 | 7.000% | 258,277 | 282,291 | |||||
10/01/17-06/01/31 | 8.000% | 320,033 | 360,953 | |||||
11/01/17-12/01/39 | 5.000% | 11,057,802 | 11,744,560 | |||||
01/01/30-06/01/33 | 5.500% | 2,174,533 | 2,346,726 | |||||
04/01/33-07/01/37 | 6.000% | 5,288,268 | 5,869,028 | |||||
Federal Home Loan Mortgage Corp. (b) CMO IO Series 2136 Class S | ||||||||
03/15/29 | 10.100% | 3,039,093 | 563,447 | |||||
CMO IO Series 2471 Class SI | ||||||||
03/15/32 | 20.000% | 161,957 | 29,662 | |||||
CMO IO Series 2639 Class UI | ||||||||
03/15/22 | 14.250% | 610,279 | 47,694 | |||||
CMO IO Series 2795 Class IY | ||||||||
07/15/17 | 85.440% | 83,191 | 1,279 | |||||
CMO IO Series 2817 Class SA | ||||||||
06/15/32 | 20.000% | 368,604 | 23,391 | |||||
CMO IO Series 2824 Class EI | ||||||||
09/15/20 | 32.127% | 214,668 | 1,389 | |||||
CMO IO Series 2981 Class AS | ||||||||
05/15/35 | 7.980% | 2,891,786 | 475,073 | |||||
CMO IO Series 3155 Class PS | ||||||||
05/15/36 | 1.810% | 1,240,004 | 218,181 | |||||
CMO IO Series 3453 Class W | ||||||||
12/15/32 | 7.134% | 3,079,029 | 539,695 | |||||
CMO IO Series 3588 Class WI | ||||||||
10/15/12 | 16.038% | 10,057,422 | 719,880 | |||||
CMO IO Series 3600 Class DI | ||||||||
01/15/13 | 4.085% | 7,721,546 | 184,138 | |||||
CMO IO Series 3630 Class AI | ||||||||
03/15/17 | 3.939% | 2,472,815 | 119,630 | |||||
Federal Home Loan Mortgage Corp. (c) | ||||||||
12/01/25 | 3.500% | 4,500,000 | 4,601,250 | |||||
12/01/40 | 4.000% | 2,500,000 | 2,533,595 | |||||
12/01/40 | 6.500% | 800,000 | 886,125 | |||||
Federal National Mortgage Association | ||||||||
08/01/16-10/01/37 | 6.500% | 9,546,243 | 10,761,025 | |||||
03/01/17-06/01/37 | 6.000% | 20,772,715 | 22,998,019 | |||||
03/01/17-07/01/36 | 7.000% | 6,414,289 | 7,390,445 | |||||
04/01/17-09/01/31 | 7.500% | 1,662,362 | 1,900,780 | |||||
11/01/17-08/01/40 | 5.000% | 23,836,026 | 25,399,597 | |||||
03/01/23-02/01/38 | 5.500% | 46,220,521 | 50,258,538 | |||||
04/01/25 | 8.000% | 373,315 | 424,732 | |||||
06/01/25-10/01/40 | 4.500% | 29,543,542 | 30,959,888 | |||||
10/01/31 | 9.500% | 98,481 | 115,512 | |||||
11/01/37 | 8.500% | 95,590 | 108,634 | |||||
Federal National Mortgage Association (b) CMO IO Series 2002-60 Class SA | ||||||||
02/25/31 | 9.540% | 1,839,911 | 328,696 | |||||
CMO IO Series 2003-119 Class GI | ||||||||
12/25/33 | 3.092% | 573,189 | 89,723 | |||||
CMO IO Series 2003-32 Class VS | ||||||||
01/25/33 | 24.941% | 2,525,568 | 260,175 | |||||
CMO IO Series 2003-63 Class IP | ||||||||
07/25/33 | 0.418% | 1,182,394 | 207,573 | |||||
CMO IO Series 2003-71 Class IM | ||||||||
12/25/31 | 5.340% | 276,140 | 24,971 | |||||
CMO IO Series 2004-31 Class SM | ||||||||
05/25/34 | 3.280% | 3,149,114 | 621,460 | |||||
CMO IO Series 2004-46 Class SI | ||||||||
05/25/34 | 19.860% | 3,934,640 | 521,433 | |||||
CMO IO Series 2004-54 Class SW | ||||||||
06/25/33 | 12.060% | 3,729,826 | 405,784 | |||||
CMO IO Series 2004-84 Class GI | ||||||||
12/25/22 | 24.840% | 83,346 | 4,572 | |||||
CMO IO Series 2005-57 Class NI | ||||||||
07/25/35 | 12.400% | 1,992,669 | 277,274 | |||||
CMO IO Series 2005-70 Class YJ | ||||||||
08/25/35 | 67.441% | 731,438 | 12,218 | |||||
CMO IO Series 2006-60 Class UI | ||||||||
07/25/36 | 12.850% | 2,312,824 | 394,873 |
See accompanying Notes to Financial Statements.
8 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Coupon | Principal | |||||||
Issuer | Rate | Amount | Value | |||||
Residential Mortgage-Backed Securities — Agency(a) (continued) | ||||||||
CMO IO Series 2008-7 Class SA | ||||||||
02/25/38 | 9.718% | $738,229 | $118,628 | |||||
CMO IO Series 2009-7 Class LI | ||||||||
02/25/39 | 1.000% | 3,735,131 | 1,068,325 | |||||
CMO IO Series 2010-3 Class DI | ||||||||
04/25/34 | 2.009% | 2,084,660 | 91,114 | |||||
Federal National Mortgage Association (c) | ||||||||
12/01/25-01/01/26 | 3.500% | 10,300,000 | 10,502,939 | |||||
12/01/40 | 4.000% | 12,450,000 | 12,642,589 | |||||
12/01/40 | 4.500% | 7,050,000 | 7,338,613 | |||||
Federal National Mortgage Association (d) | ||||||||
05/01/32 | 6.500% | 139,862 | 158,059 | |||||
01/01/33 | 5.500% | 299,289 | 324,061 | |||||
01/01/33 | 6.000% | 866,748 | 955,852 | |||||
Government National Mortgage Association | ||||||||
02/15/30-03/15/30 | 7.000% | 169,687 | 195,857 | |||||
12/15/31-02/15/32 | 6.500% | 700,211 | 800,120 | |||||
12/15/32 | 6.000% | 230,707 | 256,995 | |||||
09/15/33-05/15/40 | 5.000% | 5,969,001 | 6,465,543 | |||||
Government National Mortgage Association (b) CMO IO Series 2003-11 Class S | ||||||||
02/16/33 | 13.090% | 3,713,334 | 567,617 | |||||
CMO IO Series 2009-106 Class CM | ||||||||
01/16/34 | 26.708% | 1,202,169 | 139,597 | |||||
CMO IO Series 2009-87 Class SK | ||||||||
08/20/32 | 7.700% | 1,724,110 | 193,146 | |||||
Government National Mortgage Association (c) | ||||||||
12/01/40 | 4.000% | 6,000,000 | 6,150,936 | |||||
12/01/40 | 5.000% | 2,000,000 | 2,142,500 | |||||
Total Residential Mortgage-Backed Securities — Agency | ||||||||
(Cost: $228,189,424) $238,692,693 | ||||||||
Residential Mortgage-Backed Securities — Non-Agency (13.6%) | ||||||||
BCAP LLC Trust CMO Series 2009-RR13 Class 12A1 (e)(f) | ||||||||
04/26/37 | 5.250% | 696,180 | 705,385 | |||||
Banc of America Funding Corp. (e) CMO Series 2005-1 Class 1A7 | ||||||||
02/25/35 | 5.500% | 907,791 | 927,096 | |||||
Banc of America Funding Corp. (b)(e)(f) CMO Series 2009-R7A Class 4A2 | ||||||||
08/26/35 | 5.367% | 5,410,975 | 2,195,795 | |||||
Banc of America Mortgage Securities, Inc. CMO Series 2005-E Class 2A5 (b)(e) | ||||||||
06/25/35 | 2.866% | 1,102,658 | 1,089,477 | |||||
ChaseFlex Trust CMO Series 2005-2 Class 2A2 (e) | ||||||||
06/25/35 | 6.500% | 459,668 | 423,954 | |||||
Citigroup Mortgage Loan Trust, Inc. CMO Series 2009-9 Class 1A3 (b)(e)(f) | ||||||||
04/25/34 | 4.914% | 2,489,441 | 632,990 | |||||
Countrywide Alternative Loan Trust (b)(e) CMO Series 2007-8CB Class A13 | ||||||||
05/25/37 | 38.480% | 1,202,839 | 120,607 | |||||
CMO Series 2007-OH3 Class A3 | ||||||||
09/25/47 | 0.753% | 1,569,052 | 341,889 | |||||
Countrywide Home Loan Mortgage Pass-Through Trust CMO Series 2005-R2 Class 2A1 (e)(f) | ||||||||
06/25/35 | 7.000% | 308,935 | 314,499 | |||||
Credit Suisse Mortgage Capital Certificates (e)(f) CMO Series 2009-12R Class 14A1 | ||||||||
11/27/35 | 5.500% | 1,564,477 | 1,642,334 | |||||
CMO Series 2009-12R Class 30A1 | ||||||||
12/27/36 | 5.300% | 178,940 | 182,243 | |||||
Credit Suisse Mortgage Capital Certificates (b)(e)(f) CMO Series 2009-2R Class 1A16 | ||||||||
09/26/34 | 2.885% | 17,500,000 | 6,387,054 | |||||
GSR Mortgage Loan Trust CMO Series 2005-5F Class 2A3 (e) | ||||||||
06/25/35 | 5.500% | 708,757 | 715,521 | |||||
Indymac Index Mortgage Loan Trust CMO IO Series 2006-AR25 Class 3A3 (b)(e) | ||||||||
09/25/36 | 20.000% | 8,041,276 | 46,558 | |||||
JP Morgan Reremic CMO Series 2009-3 Class 1A2 (b)(e)(f) | ||||||||
02/26/35 | 2.859% | 1,449,242 | 713,395 | |||||
Jefferies & Co., Inc. (e)(f) CMO Series 2010-R4 Class 2A2 | ||||||||
10/26/35 | 5.500% | 1,263,474 | 1,235,045 | |||||
Jefferies & Co., Inc. (b)(e)(f) CMO Series 2009-R6 Class 4A2 | ||||||||
04/26/35 | 4.864% | 5,125,699 | 2,921,648 | |||||
MASTR Alternative Loans Trust (e) CMO Series 2004-7 Class 8A1 | ||||||||
08/25/19 | 5.000% | 211,880 | 211,471 | |||||
CMO Series 2004-8 Class 7A1 | ||||||||
09/25/19 | 5.000% | 339,820 | 327,571 |
See accompanying Notes to Financial Statements.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 9
Table of Contents
Portfolio of Investments (continued)
Coupon | Principal | |||||||
Issuer | Rate | Amount | Value | |||||
Residential Mortgage-Backed Securities — Non-Agency (continued) | ||||||||
MASTR Asset Securitization Trust CMO Series 2003-11 Class 7A1 (e) | ||||||||
12/25/33 | 5.250% | $801,776 | $813,451 | |||||
Prime Mortgage Trust (e)(f) CMO Series 2005-1 Class 2A1 | ||||||||
09/25/34 | 5.000% | 1,356,580 | 1,374,143 | |||||
Prime Mortgage Trust (b)(e) CMO Series 2004-CL1 Class 3A1 | ||||||||
02/25/34 | 6.865% | 2,020,666 | 2,187,124 | |||||
RBSSP Resecuritization Trust (e)(f) CMO Series 2009-1 Class 4A1 | ||||||||
10/26/35 | 5.500% | 1,189,471 | 1,224,590 | |||||
RBSSP Resecuritization Trust (b)(e)(f) CMO Series 2009-12 Class 9A1 | ||||||||
03/26/36 | 5.920% | 2,061,667 | 2,064,423 | |||||
Thornburg Mortgage Securities Trust CMO IO Series 2006-5 Class AX (b)(e) | ||||||||
10/25/46 | 12.860% | 6,401,340 | 193,043 | |||||
Wells Fargo Mortgage-Backed Securities Trust (e) CMO Series 2005-14 Class 2A1 | ||||||||
12/25/35 | 5.500% | 384,950 | 396,417 | |||||
CMO Series 2007-8 Class 2A7 | ||||||||
07/25/37 | 6.000% | 989,282 | 999,700 | |||||
Wells Fargo Mortgage-Backed Securities Trust (b)(e) CMO Series 2003-O Class 1A11 | ||||||||
01/25/34 | 4.690% | 408,291 | 416,834 | |||||
CMO Series 2004-F Class A3 | ||||||||
06/25/34 | 4.723% | 310,578 | 313,171 | |||||
CMO Series 2004-Q Class 1A2 | ||||||||
09/25/34 | 4.871% | 1,054,846 | 1,085,493 | |||||
CMO Series 2005-AR16 Class 4A6 | ||||||||
10/25/35 | 2.890% | 858,839 | 854,004 | |||||
Total Residential Mortgage-Backed Securities — Non-Agency | ||||||||
(Cost: $24,995,359) | $ | 33,056,925 | ||||||
Commercial Mortgage-Backed Securities (2.2%) | ||||||||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass-Through Certificates CMO Series K001 Class A2 (e) | ||||||||
04/25/16 | 5.651% | 1,400,616 | 1,572,501 | |||||
GS Mortgage Securities Corp. II Series 2007-EOP Class J (b)(e)(f) | ||||||||
03/06/20 | 1.107% | 1,000,000 | 862,543 | |||||
Morgan Stanley Reremic Trust Series 2010-GG10 Class A4A (e)(f) | ||||||||
08/12/45 | 6.001% | 2,650,000 | 2,849,507 | |||||
Total Commercial Mortgage-Backed Securities | ||||||||
(Cost: $5,309,703) | $ | 5,284,551 | ||||||
Asset-Backed Securities (2.9%) | ||||||||
Bear Stearns Asset-Backed Securities Trust Series 2006-HE9 Class 1A1 (b) | ||||||||
11/25/36 | 0.303% | 267,611 | 262,079 | |||||
Carrington Mortgage Loan Trust Series 2006-RFC1 Class A2 (b) | ||||||||
05/25/36 | 0.353% | 799,065 | 769,500 | |||||
Chrysler Financial Lease Trust Series 2010-A Class C (f) | ||||||||
09/16/13 | 4.490% | 1,000,000 | 1,000,445 | |||||
Citigroup Mortgage Loan Trust, Inc. Series 2006-WFH4 Class A2 (b) | ||||||||
11/25/36 | 0.353% | 348,933 | 329,690 | |||||
Countrywide Asset-Backed Certificates Series 2005-SD1 Class A1C (b)(f) | ||||||||
05/25/35 | 0.643% | 576,070 | 555,349 | |||||
Deutsche Mortgage Securities, Inc. CMO Series 2009-RS2 Class 4A1 (b)(f) | ||||||||
04/26/37 | 0.390% | 544,342 | 534,335 | |||||
Jefferies & Co., Inc. CMO Series 2010-R1 Class 2A1 (b)(f) | ||||||||
11/26/36 | 0.422% | 853,396 | 817,127 | |||||
Mastr Asset-Backed Securities Trust Series 2005-FRE1 Class A4 (b) | ||||||||
10/25/35 | 0.503% | 287,042 | 275,180 | |||||
RAAC Series Series 2006-SP4 Class A1 (b) | ||||||||
11/25/36 | 0.353% | 1,875 | 1,875 | |||||
Renaissance Home Equity Loan Trust Series 2005-2 Class AF3 | ||||||||
08/25/35 | 4.499% | 1,217,142 | 1,187,218 | |||||
Series 2006-4 Class AF1 | ||||||||
01/25/37 | 5.545% | 61,397 | 60,487 | |||||
Structured Asset Investment Loan Trust Series 2005-9 Class A5 (b) | ||||||||
11/25/35 | 0.483% | 625,715 | 609,323 |
See accompanying Notes to Financial Statements.
10 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Coupon | Principal | |||||||
Issuer | Rate | Amount | Value | |||||
Asset-Backed Securities (continued) | ||||||||
Structured Asset Securities Corp. (b) CMO Series 2006-NC1 Class A6 | ||||||||
05/25/36 | 0.303% | $126,913 | $124,521 | |||||
Series 2007-WF2 Class A2 | ||||||||
08/25/37 | 0.953% | 521,410 | 520,452 | |||||
Total Asset-Backed Securities | ||||||||
(Cost: $6,956,666) | $ | 7,047,581 | ||||||
Exercise | Expiration | ||||||||||
Issuer | Contracts | Price | Date | Value | |||||||
Options Purchased Calls (—%) | |||||||||||
U.S. Treasury Note, 10-year | |||||||||||
291 | $ | 128 | Dec. 2010 | $ | 20,391 | ||||||
Total Options Purchased Calls | |||||||||||
(Cost: $37,318) | $ | 20,391 | |||||||||
Shares | Value | |||||
Money Market Fund (2.0%) (g) | ||||||
Columbia Short-Term Cash Fund, 0.229% (h)(i) | 5,030,784 | $ | 5,030,784 | |||
Total Money Market Fund | ||||||
(Cost: $5,030,784) | $ | 5,030,784 | ||||
Total Investments | ||||||
(Cost: $270,519,254) | ||||||
$ | 289,132,925 | |||||
Other Assets & Liabilities, Net | (46,006,496) | |||||
Net Assets | $ | 243,126,429 | ||||
Investments in Derivatives
Futures Contracts Outstanding at November 30, 2010
Number of | ||||||||||||||||||||
Contracts | Notional | Expiration | Unrealized | Unrealized | ||||||||||||||||
Contract description | Long (Short) | Market Value | Date | Appreciation | Depreciation | |||||||||||||||
U.S. Treasury Long Bond, 20-year | 17 | $2,163,781 | March 2011 | $33,975 | $— | |||||||||||||||
U.S. Treasury Note, 2-year | 4 | 877,500 | April 2011 | 1,369 | — | |||||||||||||||
U.S. Treasury Note, 5-year | (198 | ) | (23,730,609 | ) | April 2011 | — | (42,061 | ) | ||||||||||||
U.S. Treasury Note, 10-year | 26 | 3,226,844 | March 2011 | 8,492 | — | |||||||||||||||
Total | $43,836 | $(42,061 | ) | |||||||||||||||||
Open Options Contracts Written at November 30, 2010
Number of | Exercise | Premium | Expiration | |||||||||||||||||||||
Issuer | Puts/Calls | Contracts | Price | Received | Date | Value | ||||||||||||||||||
U.S. Treasury Note, 10-year | Put | 58 | $122.00 | $29,770 | Dec. 2010 | $(19,937 | ) | |||||||||||||||||
U.S. Treasury Note, 10-year | Put | 60 | 121.50 | 20,484 | Dec. 2010 | (15,000 | ) | |||||||||||||||||
Total | $(34,937 | ) | ||||||||||||||||||||||
See accompanying Notes to Financial Statements.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 11
Table of Contents
Portfolio of Investments (continued)
Notes to Portfolio of Investments
(a) | Represents comparable securities held to satisfy future delivery requirements of the following open forward sale commitments at November 30, 2010: |
Principal | Settlement | Proceeds | ||||||||||||||
Security | Amount | Date | Receivable | Value | ||||||||||||
Federal National Mortgage Association | ||||||||||||||||
12-01-40 4.63% | $1,250,000 | 12-13-10 | $1,335,107 | $1,325,390 | ||||||||||||
12-01-40 5.02 | 3,750,000 | 12-13-10 | 4,031,250 | 4,030,665 |
(b) | Variable rate security. The interest rate shown reflects the rate as of November 30, 2010. | |
(c) | Represents a security purchased on a when-issued or delayed delivery basis. | |
(d) | At November 30, 2010, investments in securities included securities valued at $447,768 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. | |
(e) | 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. | |
(f) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2010, the value of these securities amounted to $28,212,850 or 11.60% of net assets. | |
(g) | At November 30, 2010, cash or short-term securities were designated to cover open put and/or call options on futures written. | |
(h) | Investments in affiliates during the period ended November 30, 2010: |
Sales Cost/ | Dividends | |||||||||||||||||||||||||||
Beginning | Purchase | Proceeds | Realized | Ending | or Interest | |||||||||||||||||||||||
Issuer | Cost | Cost | from Sales | Gain/Loss | Cost | Income | Value | |||||||||||||||||||||
Columbia Short-Term Cash Fund | $11,866,911 | $60,913,785 | $(67,749,912 | ) | $— | $5,030,784 | $11,076 | $5,030,784 |
(i) | The rate shown is the seven-day current annualized yield at November 30, 2010. |
Abbreviation Legend
CMO | Collateralized Mortgage Obligation | |
IO | Interest Only |
See accompanying Notes to Financial Statements.
12 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Fair Value Measurements
Generally accepted accounting principles (GAAP) require disclosure regarding the inputs and valuation techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, investments shall be disclosed by major category.
The Fund categorizes its fair value measurements according to a three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by prioritizing that the most observable input be used when available. Observable inputs are those that market participants would use in pricing an investment based on market data obtained from sources independent of the reporting entity. Unobservable inputs are those that reflect the Fund’s assumptions about the information market participants would use in pricing an investment. An investment’s level within the fair value hierarchy is based on the lowest level of any input that is deemed significant to the asset or liability’s fair value measurement. The input levels are not necessarily an indication of the risk or liquidity associated with investments at that level. For example, certain U.S. government securities are generally high quality and liquid, however, they are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels listed below:
• | Level 1 — Valuations based on quoted prices for investments in active markets that the Fund has the ability to access at the measurement date (including NAV for open-end mutual funds). Valuation adjustments are not applied to Level 1 investments. |
• | Level 2 — Valuations based on other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.). |
• | Level 3 — Valuations based on significant unobservable inputs (including the Fund’s own assumptions and judgment in determining the fair value of investments). |
Inputs that are used in determining fair value of an investment may include price information, credit data, volatility statistics, and other factors. These inputs can be either observable or unobservable. The availability of observable inputs can vary between investments, and is affected by various factors such as the type of investment, and the volume and level of activity for that investment or similar investments in the marketplace. The inputs will be considered by the Fund Administrator, along with any other relevant factors in the calculation of an investment’s fair value. The Fund uses prices and inputs that are current as of the measurement date, which may include periods of market dislocations. During these periods, the availability of prices and inputs may be reduced for many investments. This condition could cause an investment to be reclassified between the various levels within the hierarchy.
Investments falling into the Level 3 category are primarily supported by quoted prices from brokers and dealers participating in the market for those investments. However, these may be classified as Level 3 investments due to lack of market transparency and corroboration to support these quoted prices. Additionally, valuation models may be used as the pricing source for any remaining investments classified as Level 3. These models rely on one or more significant unobservable inputs and/or significant assumptions by the Fund Administrator. Inputs used in valuations may
See accompanying Notes to Financial Statements.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 13
Table of Contents
Portfolio of Investments (continued)
Fair Value Measurements (continued)
include, but are not limited to, financial statement analysis, capital account balances, discount rates and estimated cash flows, and comparable company data.
The following table is a summary of the inputs used to value the Fund’s investments as of November 30, 2010:
Fair value at November 30, 2010 | ||||||||||||||||
Level 1 | Level 2 | |||||||||||||||
quoted prices | other | Level 3 | ||||||||||||||
in active | significant | significant | ||||||||||||||
markets for | observable | unobservable | ||||||||||||||
Description(a) | identical assets | inputs(b) | inputs | Total | ||||||||||||
Bonds | ||||||||||||||||
Residential Mortgage-Backed Securities-Non-Agency | $— | $28,220,684 | $4,836,241 | $33,056,925 | ||||||||||||
Commercial Mortgage-Backed Securities | — | 5,284,551 | — | 5,284,551 | ||||||||||||
Asset-Backed Securities | — | 6,230,454 | 817,127 | 7,047,581 | ||||||||||||
Residential Mortgage-Backed Securities-Agency | 46,798,547 | 191,894,146 | — | 238,692,693 | ||||||||||||
Total Bonds | 46,798,547 | 231,629,835 | 5,653,368 | 284,081,750 | ||||||||||||
Other | ||||||||||||||||
Options Purchased Calls | 20,391 | — | — | 20,391 | ||||||||||||
Affiliated Money Market Fund(c) | 5,030,784 | — | — | 5,030,784 | ||||||||||||
Total Other | 5,051,175 | — | — | 5,051,175 | ||||||||||||
Investments in Securities | 51,849,722 | 231,629,835 | 5,653,368 | 289,132,925 | ||||||||||||
Derivatives(d) | ||||||||||||||||
Assets | ||||||||||||||||
Futures Contracts | 43,836 | — | — | 43,836 | ||||||||||||
Liabilities | ||||||||||||||||
Futures Contracts | (42,061 | ) | — | — | (42,061 | ) | ||||||||||
Options Contracts Written | (34,937 | ) | — | — | (34,937 | ) | ||||||||||
Total | $51,816,560 | $231,629,835 | $5,653,368 | $289,099,763 | ||||||||||||
(a) | See the Portfolio of Investments for all investment classifications not indicated in the table. | |
(b) | There were no significant transfers between Levels 1 and 2 during the period. | |
(c) | Money market fund that is a sweep investment for cash balances in the Fund at November 30, 2010. | |
(d) | Futures contracts, forward foreign currency contracts and swap contracts are valued at unrealized appreciation (depreciation). |
See accompanying Notes to Financial Statements.
14 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Fair Value Measurements (continued)
The following table is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
Residential | ||||||||||||
Mortgage-Backed | ||||||||||||
Securities — Non | Asset-Backed | |||||||||||
Agency | Securities | Total | ||||||||||
Balance as of May 31, 2010 | $3,766,084 | $1,022,693 | $4,788,777 | |||||||||
Accrued discounts/premiums | (37,617 | ) | 12,944 | (24,673 | ) | |||||||
Realized gain (loss) | 383 | — | 383 | |||||||||
Change in unrealized appreciation (depreciation)* | 2,184,777 | 4,613 | 2,189,390 | |||||||||
Sales | (12,196 | ) | (223,123 | ) | (235,319 | ) | ||||||
Purchases | 1,250,235 | — | 1,250,235 | |||||||||
Transfers into Level 3 | — | — | — | |||||||||
Transfers out of Level 3 | (2,315,425 | ) | — | (2,315,425 | ) | |||||||
Balance as of Nov. 30, 2010 | $4,836,241 | $817,127 | $5,653,368 | |||||||||
* | Change in unrealized appreciation (depreciation) relating to securities held at November 30, 2010 was $1,625,818, which is comprised of Asset-Backed Securities of $4,613 and Residential Mortgage-Backed Securities-Non-Agency of $1,621,205. |
Transfers in and/or out of Level 3 are determined based on the fair value at the beginning of the period for security positions held throughout the period.
How to find information about the Fund’s quarterly portfolio holdings
(i) | The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; | |
(ii) | The Fund’s Forms N-Q are available on the Commission’s website at http://www.sec.gov; | |
(iii) | The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 800.SEC.0330); and | |
(iv) | The Fund’s complete schedule of portfolio holdings, as filed on Form N-Q, can be obtained without charge, upon request, by calling 800.345.6611. |
See accompanying Notes to Financial Statements.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 15
Table of Contents
Statement of Assets and Liabilities
November 30, 2010 (Unaudited)
Assets | ||||
Investments, at value | ||||
Unaffiliated issuers (identified cost $265,488,470) | $ | 284,102,141 | ||
Affiliated issuers (identified cost $5,030,784) | 5,030,784 | |||
Total investments (identified cost $270,519,254) | 289,132,925 | |||
Cash | 480,584 | |||
Receivable for: | ||||
Capital shares sold | 36,193 | |||
Investments sold | 26,708,614 | |||
Dividends | 1,556 | |||
Interest | 1,336,030 | |||
Expense reimbursement due from Investment Manager | 8,153 | |||
Total assets | 317,704,055 | |||
Liabilities | ||||
Option contracts written, at value (premiums received $50,254) | 34,937 | |||
Forward sales commitments, at value (proceeds receivable $5,366,357) | 5,356,055 | |||
Payable for: | ||||
Investments purchased | 21,396,813 | |||
Investments purchased on a delayed delivery basis | 47,203,159 | |||
Capital shares purchased | 208,499 | |||
Dividend distributions to shareholders | 276,550 | |||
Variation margin on futures contracts | 19,484 | |||
Investment management fees | 3,209 | |||
Distribution fees | 1,059 | |||
Transfer agent fees | 2,006 | |||
Administration fees | 468 | |||
Plan administration fees | 23 | |||
Other expenses | 75,364 | |||
Total liabilities | 74,577,626 | |||
Net assets applicable to outstanding capital stock | $ | 243,126,429 | ||
16 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Represented by | ||||
Capital stock — $.01 par value | $ | 459,121 | ||
Additional paid-in capital | 239,655,430 | |||
Excess of distributions over net investment income | (203,637 | ) | ||
Accumulated realized loss | (15,425,550 | ) | ||
Unrealized appreciation (depreciation) on: | ||||
Investments | 18,623,973 | |||
Futures contracts | 1,775 | |||
Options contracts written | 15,317 | |||
Total — representing net assets applicable to outstanding capital stock | $ | 243,126,429 | ||
Net assets | ||||
Class A | $ | 86,286,805 | ||
Class B | $ | 10,815,715 | ||
Class C | $ | 6,123,525 | ||
Class I | $ | 139,797,043 | ||
Class R4 | $ | 100,832 | ||
Class Z | $ | 2,509 | ||
Shares outstanding | ||||
Class A | 16,285,030 | |||
Class B | 2,040,918 | |||
Class C | 1,155,074 | |||
Class I | 26,411,559 | |||
Class R4 | 19,061 | |||
Class Z | 474 | |||
Net asset value per share | ||||
Class A(a) | $ | 5.30 | ||
Class B | $ | 5.30 | ||
Class C | $ | 5.30 | ||
Class I | $ | 5.29 | ||
Class R4 | $ | 5.29 | ||
Class Z | $ | 5.29 | ||
(a) | The maximum offering price per share for Class A is $5.56. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. |
The accompanying Notes to Financial Statements are an integral part of this statement.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 17
Table of Contents
Statement of Operations
Six months ended November 30, 2010 (Unaudited)
Net investment income | ||||
Income: | ||||
Interest | $ | 5,064,937 | ||
Dividends from affiliates | 11,076 | |||
Total income | 5,076,013 | |||
Expenses: | ||||
Investment management fees | 598,002 | |||
Distribution fees | ||||
Class A | 110,913 | |||
Class B | 69,268 | |||
Class C | 29,777 | |||
Transfer agent fees | ||||
Class A | 82,885 | |||
Class B | 14,001 | |||
Class C | 5,592 | |||
Class R4 | 40 | |||
Class Z | 1 | |||
Administration fees | 87,209 | |||
Plan administration fees | ||||
Class R4 | 123 | |||
Compensation of board members | 3,133 | |||
Custodian fees | 21,980 | |||
Printing and postage fees | 13,550 | |||
Registration fees | 65,760 | |||
Professional fees | 16,256 | |||
Other | 10,476 | |||
Total expenses | 1,128,966 | |||
Fees waived or expenses reimbursed by Investment Manager | (235,660 | ) | ||
Total net expenses | 893,306 | |||
Net investment income | 4,182,707 | |||
Realized and unrealized gain (loss) — net | ||||
Net realized gain (loss) on: | ||||
Investments | 2,562,959 | |||
Futures contracts | (906,691 | ) | ||
Options contracts written | 207,804 | |||
Net realized gain | 1,864,072 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 5,502,264 | |||
Futures contracts | 224,638 | |||
Options contracts written | 15,317 | |||
Net change in unrealized appreciation | 5,742,219 | |||
Net realized and unrealized gain | 7,606,291 | |||
Net increase in net assets resulting from operations | $ | 11,788,998 | ||
The accompanying Notes to Financial Statements are an integral part of this statement.
18 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Statements of Changes in Net Assets
Six months ended | Year ended | |||||||
November 30, 2010 | May 31, 2010 | |||||||
(Unaudited) | ||||||||
Change in net assets resulting from operations | ||||||||
Net investment income | $ | 4,182,707 | $ | 13,296,834 | ||||
Net realized gain | 1,864,072 | 5,610,504 | ||||||
Net change in unrealized appreciation | 5,742,219 | 15,111,335 | ||||||
Net increase in net assets resulting from operations | 11,788,998 | 34,018,673 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | ||||||||
Class A | (1,761,791 | ) | (3,655,773 | ) | ||||
Class B | (219,623 | ) | (774,677 | ) | ||||
Class C | (95,756 | ) | (176,588 | ) | ||||
Class I | (3,079,806 | ) | (7,949,684 | ) | ||||
Class R4 | (2,006 | ) | (3,511 | ) | ||||
Class Z | (19 | ) | N/A | |||||
Total distributions to shareholders | (5,159,001 | ) | (12,560,233 | ) | ||||
Increase (decrease) in net assets from capital share transactions | 708,992 | (114,525,562 | ) | |||||
Total increase (decrease) in net assets | 7,338,989 | (93,067,122 | ) | |||||
Net assets at beginning of period | 235,787,440 | 328,854,562 | ||||||
Net assets at end of period | $ | 243,126,429 | $ | 235,787,440 | ||||
Undistributed (excess of distributions over) net investment income | $ | (203,637 | ) | $ | 772,657 | |||
The accompanying Notes to Financial Statements are an integral part of this statement.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 19
Table of Contents
Statements of Changes in Net Assets (continued)
Six months ended | Year ended | |||||||||||||||
November 30, 2010 | May 31, 2010 | |||||||||||||||
Shares | Dollars ($) | Shares | Dollars ($) | |||||||||||||
Capital stock activity | ||||||||||||||||
Class A shares | ||||||||||||||||
Subscriptions | 2,509,479 | 13,165,332 | 4,220,355 | 21,150,672 | ||||||||||||
Conversions from Class B | 1,126,043 | 5,911,727 | 445,069 | 2,163,974 | ||||||||||||
Distributions reinvested | 274,426 | 1,444,995 | 646,902 | 3,233,010 | ||||||||||||
Redemptions | (3,213,843 | ) | (16,946,053 | ) | (6,266,469 | ) | (31,160,763 | ) | ||||||||
Net increase (decrease) | 696,105 | 3,576,001 | (954,143 | ) | (4,613,107 | ) | ||||||||||
Class B shares | ||||||||||||||||
Subscriptions | 177,776 | 930,554 | 438,011 | 2,177,805 | ||||||||||||
Distributions reinvested | 38,315 | 201,452 | 140,388 | 701,020 | ||||||||||||
Conversions to Class A | (1,126,044 | ) | (5,911,727 | ) | (445,069 | ) | (2,163,974 | ) | ||||||||
Redemptions | (465,136 | ) | (2,445,486 | ) | (1,782,051 | ) | (8,833,451 | ) | ||||||||
Net decrease | (1,375,089 | ) | (7,225,207 | ) | (1,648,721 | ) | (8,118,600 | ) | ||||||||
Class C shares | ||||||||||||||||
Subscriptions | 238,648 | 1,253,275 | 376,318 | 1,884,834 | ||||||||||||
Distributions reinvested | 15,156 | 79,886 | 31,772 | 159,138 | ||||||||||||
Redemptions | (110,044 | ) | (580,540 | ) | (253,514 | ) | (1,262,692 | ) | ||||||||
Net increase | 143,760 | 752,621 | 154,576 | 781,280 | ||||||||||||
Class I shares | ||||||||||||||||
Subscriptions | 1,007,310 | 5,273,238 | 9,430,678 | 47,538,482 | ||||||||||||
Distributions reinvested | 578,470 | 3,042,486 | 1,590,429 | 7,904,537 | ||||||||||||
Redemptions | (897,804 | ) | (4,725,850 | ) | (31,772,779 | ) | (158,033,789 | ) | ||||||||
Net increase (decrease) | 687,976 | 3,589,874 | (20,751,672 | ) | (102,590,770 | ) | ||||||||||
Class R4 shares | ||||||||||||||||
Subscriptions | 2,809 | 14,707 | 15,627 | 79,055 | ||||||||||||
Distributions reinvested | 334 | 1,754 | 593 | 2,968 | ||||||||||||
Redemptions | (618 | ) | (3,258 | ) | (13,111 | ) | (66,388 | ) | ||||||||
Net increase | 2,525 | 13,203 | 3,109 | 15,635 | ||||||||||||
Class Z shares | ||||||||||||||||
Subscriptions | 474 | 2,500 | — | — | ||||||||||||
Net increase | 474 | 2,500 | — | — | ||||||||||||
Total net increase (decrease) | 155,751 | 708,992 | (23,196,851 | ) | (114,525,562 | ) | ||||||||||
The accompanying Notes to Financial Statements are an integral part of this statement.
20 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Financial Highlights
The following tables are intended to help you understand the Fund’s financial performance. Certain information reflects financial results for a single share of a class held for the periods shown. For periods ended 2008 and after, per share net investment income (loss) amounts are calculated based on average shares outstanding during the period. Total returns assume reinvestment of all dividends and distributions. Total returns do not reflect payment of sales charges, if any, and are not annualized for periods of less than one year.
Six months ended | ||||||||||||||||||||||||
Class A | Nov. 30, 2010 | Year ended May 31, | ||||||||||||||||||||||
Per share data | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
Net asset value, beginning of period | $5.16 | $4.77 | $4.99 | $5.00 | $4.92 | $5.12 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income | .09 | .25 | .21 | .23 | .22 | .21 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | .16 | .37 | (.18 | ) | (.02 | ) | .09 | (.20 | ) | |||||||||||||||
Total from investment operations | .25 | .62 | .03 | .21 | .31 | .01 | ||||||||||||||||||
Less distributions to shareholders from: | �� | |||||||||||||||||||||||
Net investment income | (.11 | ) | (.23 | ) | (.21 | ) | (.22 | ) | (.23 | ) | (.20 | ) | ||||||||||||
Net realized gains | — | — | (.04 | ) | — | — | (.01 | ) | ||||||||||||||||
Total distributions to shareholders | (.11 | ) | (.23 | ) | (.25 | ) | (.22 | ) | (.23 | ) | (.21 | ) | ||||||||||||
Net asset value, end of period | $5.30 | $5.16 | $4.77 | $4.99 | $5.00 | $4.92 | ||||||||||||||||||
Total return | 4.80% | 13.32% | 0.79% | 4.31% | 6.30% | 0.12% | ||||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||
Expenses prior to fees waived or expenses reimbursed | 1.09% | (b) | 1.09% | 1.08% | 1.09% | 1.17% | 1.19% | |||||||||||||||||
Net expenses after fees waived or expenses reimbursed(c) | 0.89% | (b) | 0.89% | 0.89% | 0.89% | 0.89% | 0.89% | |||||||||||||||||
Net investment income | 3.21% | (b) | 4.98% | 4.51% | 4.56% | 4.45% | 4.08% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $86,287 | $80,371 | $78,940 | $95,365 | $110,627 | $126,322 | ||||||||||||||||||
Portfolio turnover(d) | 195% | 519% | 431% | 354% | 306% | 178% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 21
Table of Contents
Financial Highlights (continued)
Six months ended | ||||||||||||||||||||||||
Class B | Nov. 30, 2010 | Year ended May 31, | ||||||||||||||||||||||
Per share data | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
Net asset value, beginning of period | $5.16 | $4.77 | $4.99 | $5.00 | $4.93 | $5.12 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income | .06 | .21 | .18 | .19 | .19 | .17 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | .16 | .37 | (.18 | ) | (.01 | ) | .07 | (.19 | ) | |||||||||||||||
Total from investment operations | .22 | .58 | .00 | .18 | .26 | (.02 | ) | |||||||||||||||||
Less distributions to shareholders from: | ||||||||||||||||||||||||
Net investment income | (.08 | ) | (.19 | ) | (.18 | ) | (.19 | ) | (.19 | ) | (.16 | ) | ||||||||||||
Net realized gains | — | — | (.04 | ) | — | — | (.01 | ) | ||||||||||||||||
Total distributions to shareholders | (.08 | ) | (.19 | ) | (.22 | ) | (.19 | ) | (.19 | ) | (.17 | ) | ||||||||||||
Net asset value, end of period | $5.30 | $5.16 | $4.77 | $4.99 | $5.00 | $4.93 | ||||||||||||||||||
Total return | 4.39% | 12.46% | 0.03% | 3.53% | 5.30% | (0.42% | ) | |||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||
Expenses prior to fees waived or expenses reimbursed | 1.85% | (b) | 1.85% | 1.84% | 1.86% | 1.94% | 1.95% | |||||||||||||||||
Net expenses after fees waived or expenses reimbursed(c) | 1.65% | (b) | 1.65% | 1.65% | 1.65% | 1.64% | 1.64% | |||||||||||||||||
Net investment income | 2.18% | (b) | 4.18% | 3.75% | 3.79% | 3.70% | 3.31% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $10,816 | $17,619 | $24,177 | $33,666 | $44,391 | $64,490 | ||||||||||||||||||
Portfolio turnover(d) | 195% | 519% | 431% | 354% | 306% | 178% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
22 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Six months ended | ||||||||||||||||||||||||
Class C | Nov. 30, 2010 | Year ended May 31, | ||||||||||||||||||||||
Per share data | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
Net asset value, beginning of period | $5.16 | $4.77 | $4.99 | $5.00 | $4.93 | $5.12 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income | .07 | .21 | .18 | .19 | .19 | .17 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | .15 | .37 | (.18 | ) | (.01 | ) | .07 | (.19 | ) | |||||||||||||||
Total from investment operations | .22 | .58 | .00 | .18 | .26 | (.02 | ) | |||||||||||||||||
Less distributions to shareholders from: | ||||||||||||||||||||||||
Net investment income | (.08 | ) | (.19 | ) | (.18 | ) | (.19 | ) | (.19 | ) | (.16 | ) | ||||||||||||
Net realized gains | — | — | (.04 | ) | — | — | (.01 | ) | ||||||||||||||||
Total distributions to shareholders | (.08 | ) | (.19 | ) | (.22 | ) | (.19 | ) | (.19 | ) | (.17 | ) | ||||||||||||
Net asset value, end of period | $5.30 | $5.16 | $4.77 | $4.99 | $5.00 | $4.93 | ||||||||||||||||||
Total return | 4.40% | 12.47% | 0.03% | 3.53% | 5.30% | (0.43% | ) | |||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||
Expenses prior to fees waived or expenses reimbursed | 1.84% | (b) | 1.85% | 1.83% | 1.85% | 1.94% | 1.95% | |||||||||||||||||
Net expenses after fees waived or expenses reimbursed(c) | 1.64% | (b) | 1.65% | 1.65% | 1.65% | 1.64% | 1.64% | |||||||||||||||||
Net investment income | 2.48% | (b) | 4.27% | 3.76% | 3.80% | 3.70% | 3.31% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $6,124 | $5,217 | $4,090 | $4,186 | $4,879 | $6,740 | ||||||||||||||||||
Portfolio turnover(d) | 195% | 519% | 431% | 354% | 306% | 178% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 23
Table of Contents
Financial Highlights (continued)
Six months ended | ||||||||||||||||||||||||
Class I | Nov. 30, 2010 | Year ended May 31, | ||||||||||||||||||||||
Per share data | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
Net asset value, beginning of period | $5.15 | $4.77 | $4.99 | $5.00 | $4.92 | $5.11 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income | .10 | .26 | .23 | .25 | .24 | .22 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | .16 | .37 | (.18 | ) | (.02 | ) | .08 | (.19 | ) | |||||||||||||||
Total from investment operations | .26 | .63 | .05 | .23 | .32 | .03 | ||||||||||||||||||
Less distributions to shareholders from: | ||||||||||||||||||||||||
Net investment income | (.12 | ) | (.25 | ) | (.23 | ) | (.24 | ) | (.24 | ) | (.21 | ) | ||||||||||||
Net realized gains | — | — | (.04 | ) | — | — | (.01 | ) | ||||||||||||||||
Total distributions to shareholders | (.12 | ) | (.25 | ) | (.27 | ) | (.24 | ) | (.24 | ) | (.22 | ) | ||||||||||||
Net asset value, end of period | $5.29 | $5.15 | $4.77 | $4.99 | $5.00 | $4.92 | ||||||||||||||||||
Total return | 5.03% | 13.58% | 1.21% | 4.74% | 6.68% | 0.59% | ||||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||
Expenses prior to fees waived or expenses reimbursed | 0.66% | (b) | 0.62% | 0.61% | 0.63% | 0.63% | 0.73% | |||||||||||||||||
Net expenses after fees waived or expenses reimbursed(c) | 0.48% | (b) | 0.47% | 0.48% | 0.48% | 0.54% | 0.54% | |||||||||||||||||
Net investment income | 3.60% | (b) | 5.33% | 4.93% | 4.97% | 4.90% | 4.99% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $139,797 | $132,495 | $221,584 | $221,548 | $207,377 | $6,171 | ||||||||||||||||||
Portfolio turnover(d) | 195% | 519% | 431% | 354% | 306% | 178% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
24 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Six months ended | ||||||||||||||||||||||||
Class R4 | Nov. 30, 2010 | Year ended May 31, | ||||||||||||||||||||||
Per share data | (Unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
Net asset value, beginning of period | $5.15 | $4.77 | $4.99 | $5.00 | $4.92 | $5.11 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income | .09 | .25 | .23 | .23 | .23 | .21 | ||||||||||||||||||
Net realized and unrealized gain (loss) on investments | .16 | .37 | (.10 | ) | (.01 | ) | .08 | (.19 | ) | |||||||||||||||
Total from investment operations | .25 | .62 | .13 | .22 | .31 | .02 | ||||||||||||||||||
Less distributions to shareholders from: | ||||||||||||||||||||||||
Net investment income | (.11 | ) | (.24 | ) | (.31 | ) | (.23 | ) | (.23 | ) | (.20 | ) | ||||||||||||
Net realized gains | — | — | (.04 | ) | — | — | (.01 | ) | ||||||||||||||||
Total distributions to shareholders | (.11 | ) | (.24 | ) | (.35 | ) | (.23 | ) | (.23 | ) | (.21 | ) | ||||||||||||
Net asset value, end of period | $5.29 | $5.15 | $4.77 | $4.99 | $5.00 | $4.92 | ||||||||||||||||||
Total return | 4.87% | 13.25% | 2.82% | 4.46% | 6.51% | 0.49% | ||||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||
Expenses prior to fees waived or expenses reimbursed | 0.99% | (b) | 0.93% | 0.89% | 0.93% | 0.99% | 1.04% | |||||||||||||||||
Net expenses after fees waived or expenses reimbursed(c) | 0.78% | (b) | 0.77% | 0.70% | 0.75% | 0.71% | 0.71% | |||||||||||||||||
Net investment income | 3.35% | (b) | 5.09% | 4.38% | 4.69% | 4.63% | 4.40% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $101 | $85 | $64 | $42,429 | $39,842 | $34,633 | ||||||||||||||||||
Portfolio turnover(d) | 195% | 519% | 431% | 354% | 306% | 178% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 25
Table of Contents
Financial Highlights (continued)
Class Z | Six months ended | |||
Per share data | Nov. 30, 2010 | |||
(Unaudited)(e) | ||||
Net asset value, beginning of period | $5.27 | |||
Income from investment operations: | ||||
Net investment income | .04 | |||
Net realized and unrealized gain on investments | .01 | |||
Total from investment operations | .05 | |||
Less distributions to shareholders from: | ||||
Net investment income | (.03 | ) | ||
Net asset value, end of period | $5.29 | |||
Total return | 1.12% | |||
Ratios to average net assets(a) | ||||
Expenses prior to fees waived or expenses reimbursed | 0.86% | (b) | ||
Net expenses after fees waived or expenses reimbursed(c) | 0.63% | (b) | ||
Net investment income | 4.12% | (b) | ||
Supplemental data | ||||
Net assets, end of period (in thousands) | $3 | |||
Portfolio turnover(d) | 195% | |||
Notes to Financial Highlights
(a) | In addition to the fees and expenses which the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of the acquired funds in which it invests. Such indirect expenses are not included in the reported expense ratios | |
(b) | Annualized. | |
(c) | The Investment Manager and its affiliates agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). | |
(d) | Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 95% for the six months ended November 30, 2010, and 246% and 162% for the years ended May 31, 2010 and 2009, respectively. | |
(e) | For the period from September 27, 2010 (when shares became available) to November 30, 2010. |
The accompanying Notes to Financial Statements are an integral part of this statement.
26 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Notes to Financial Statements
November 30, 2010 (Unaudited)
Note 1. Organization
Columbia U.S. Government Mortgage Fund (formerly known as RiverSource U.S. Government Mortgage Fund) (the Fund), a series of RiverSource Government Income Series, Inc. (the Corporation), is a diversified fund. The Corporation is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company.
Fund Shares
The Corporation has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Corporation’s Board of Directors (the Board). The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class Z shares. All share classes have identical voting, dividend and liquidation rights. Each share class has its own expense structure and sales charges, as applicable.
Class A shares are subject to a maximum front-end sales charge of 4.75% based on the investment amount. Class A shares purchased without an initial sales charge in accounts aggregating $1 million at the time of purchase are subject to a 1.00% contingent deferred sales charge (CDSC) if the shares are sold within 18 months of purchase, charged as follows: 1.00% CDSC if redeemed within 12 months of purchase, and 0.50% CDSC if redeemed more than 12, but less than 18, months after purchase.
The Fund no longer accepts investments by new or existing investors in the Fund’s Class B shares, except in connection with the reinvestment of any dividend and/or capital gain distributions in Class B shares of the Fund and exchanges by existing Class B shareholders of certain other funds within the Columbia Family of Funds. Class B shares may be subject to a maximum CDSC of 5.00% based upon the holding period after purchase. Class B shares will generally convert to Class A shares eight years after purchase.
Class C shares are subject to a 1.00% CDSC on shares redeemed within one year of purchase.
Class I shares are not subject to sales charges and are available only to the Columbia Family of Funds.
Class R4 shares are not subject to sales charges, however, the class was closed to new investors effective December 31, 2010.
Class Z shares are not subject to sales charges and are available only to certain investors, as described in the Fund’s prospectus. Class Z shares became effective September 27, 2010.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 27
Table of Contents
Notes to Financial Statements (continued)
November 30, 2010 (Unaudited)
Note 2. Summary of Significant Accounting Policies
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Security Valuation
All securities are valued at the close of business of the New York Stock Exchange (NYSE). Equity securities are valued at the last quoted sales price on the principal exchange or market on which they trade, except for securities traded on the NASDAQ Stock Market, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the mean of the latest quoted bid and asked prices on such exchanges or markets.
Debt securities are generally traded in the over-the-counter market and are valued by an independent pricing service using an evaluated bid. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations.
Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates fair value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par upon reaching 60 days to maturity. 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.
Investments in other open-end investment companies, including money market funds, are valued at net asset value.
Futures and options on futures are valued daily based upon the last sale price at the close of the market on the principal exchange on which they are traded.
Option contracts are valued daily at the mean of the latest quoted bid and asked prices on their primary exchanges. Option contracts, including over-the-counter option contracts, with no readily available market value are valued using quotations obtained from independent brokers as of the close of the NYSE.
28 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities (such as foreign securities) that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time.
Derivative Instruments
The Fund invests in certain derivative instruments as detailed below to meet its investment objectives. Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to maintain cash reserves while maintaining exposure to certain other assets, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. The Fund may also use derivative instruments to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. Derivatives may involve various risks, including the potential inability of the counterparty to fulfill its obligation under the terms of the contract, the potential for an illiquid secondary market and the potential for market movements which may expose the Fund to gains or losses in excess of the amount shown in the Statement of Assets and Liabilities.
The Fund and any counterparty are required to maintain an agreement that requires the Fund and that counterparty to monitor (on a daily basis) the net fair value of all derivatives entered into pursuant to the contract between the Fund and such counterparty. If the net fair value of such derivatives between the Fund and that counterparty exceeds a certain threshold (as defined in the agreement), the Fund or the counterparty (as the case may be) is required to post cash and/or securities as collateral. Fair values of derivatives presented in the financial statements are not netted with the fair value of other derivatives or with any collateral amounts posted by the Fund or any counterparty.
Futures Contracts
Futures contracts represent commitments for the future purchase or sale of an asset at a specified price on a specified date. The Fund bought and sold futures contracts traded on U.S. exchanges to manage the duration and yield curve exposure of the Fund versus the benchmark. The Fund also bought and wrote put and call options on these futures contracts. Upon entering into futures contracts, the Fund bears risks which may include interest rates, exchange rates or securities prices moving unexpectedly, in which case, the Fund may not achieve
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 29
Table of Contents
Notes to Financial Statements (continued)
November 30, 2010 (Unaudited)
the anticipated benefits of the futures contracts and may realize a loss. Additional risks include counterparty credit risk, the possibility of an illiquid market, and that a change in the value of the contract or option may not correlate with changes in the value of the underlying asset.
Upon entering into a futures contract, the Fund pledges cash or securities with the broker in an amount sufficient to meet the initial margin requirement. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily change in the contract value and are recorded as variation margin receivable or payable and are offset in unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities.
Options
Options are contracts which entitle the holder to purchase or sell securities or other identified assets at a specified price, or in the case of index options, to receive or pay the difference between the index value and the strike price of the index option. The Fund bought and wrote options traded on U.S. exchanges or in the over-the-counter (OTC) markets to manage duration and convexity profile versus the benchmark. Completion of transactions for options traded in the OTC market depends upon the performance of the other party. Cash collateral may be collected or posted by the Fund to secure certain OTC options trades. Cash collateral held or posted by the Fund for such option trades must be returned to the counterparty or the Fund upon closure, exercise or expiration of the contract.
Option contracts purchased are recorded as investments and options contracts written are recorded as liabilities of the Fund. The Fund will realize a gain or loss when the option transaction expires or is exercised. 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 or purchased put option, or the purchase cost for a written put or purchased call option, is adjusted by the amount of premium received or paid.
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. 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 Fund’s maximum payout in the case of written put option contracts represents the maximum potential amount of future payments
30 COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT
Table of Contents
(undiscounted) that the Fund could be required to make under the contract. For OTC options contracts, the transaction is also subject to counterparty credit risk. The maximum payout amount may be offset by the subsequent sale, if any, of assets obtained upon the exercise of the put options by holders of the option contracts or proceeds received upon entering into the contracts. The maximum payout amount was $14,366,000 as of November 30, 2010.
Contracts and premiums associated with options contracts written for the six months ended November 30, 2010 are as follows:
Puts | Calls | |||||||||||||||
Contracts | Premiums | Contracts | Premiums | |||||||||||||
Balance May 31, 2010 | — | $ | — | — | $ | — | ||||||||||
Opened | 355 | 184,721 | 169 | 89,988 | ||||||||||||
Closed | (167 | ) | (67,912 | ) | — | — | ||||||||||
Expired | (70 | ) | (66,555 | ) | (169 | ) | (89,988 | ) | ||||||||
Balance November 30, 2010 | 118 | $ | 50,254 | — | $ | — | ||||||||||
Effects of Derivative Transactions in the Financial Statements
The following tables are intended to provide additional information about the effect of derivatives on the financial statements of the Fund including: the fair value of derivatives by risk category and the location of those fair values in the Statement of Assets and Liabilities; the impact of derivative transactions on the Fund’s operations over the period including realized gains or losses and unrealized gains or losses. The derivative schedules following the Portfolio of Investments present additional information regarding derivatives outstanding at the end of the period, if any.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 31
Table of Contents
Notes to Financial Statements (continued)
November 30, 2010 (Unaudited)
Fair values of derivative instruments at November 30, 2010
Asset derivatives | Liability derivatives | |||||||||||||
Risk exposure | Statement of Assets and Liabilities | Statement of Assets | ||||||||||||
category | location | Fair value | and Liabilities location | Fair value | ||||||||||
Interest rate contracts | Investments, at value — Unaffiliated issuers | $ | 20,391 | Options contracts written, at value | $ | 34,937 | ||||||||
Interest rate contracts | Net assets — unrealized appreciation on investments | 1,775 | * | |||||||||||
Total | $ | 22,166 | $ | 34,937 | ||||||||||
* | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Futures Contracts Outstanding table following the Portfolio of Investments. Only the current day’s variation margin is reported in receivables or payables in the Statement of Assets and Liabilities. |
Effect of derivative instruments in the Statement of Operations for the six months ended November 30, 2010
Amount of realized gain (loss) on derivatives recognized in income | ||||||||||||||
Risk exposure category | Futures | Options | Total | |||||||||||
Interest rate contracts | $ | (906,691 | ) | $ | 183,470 | $ | (723,221 | ) | ||||||
Change in unrealized appreciation (depreciation) on derivatives recognized in income | ||||||||||||||
Risk exposure category | Futures | Options | Total | |||||||||||
Interest rate contracts | $ | 224,638 | $ | (1,610 | ) | $ | 223,028 | |||||||
Volume of Derivative Activity
Futures
The gross notional amount of long and short contracts outstanding was approximately $6.3 million and $23.7 million, respectively, at November 30, 2010. The monthly average gross notional amounts for long and short contracts was $10.9 million and $28.4 million, respectively, for the six months ended November 30, 2010. The fair value of such contracts at November 30, 2010 is set forth in the table above.
Options
The gross notional amount of contracts outstanding was approximately $47.8 million at November 30, 2010. The monthly average gross notional amount for these contracts was $11.9 million for the six months ended November 30,
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2010. The fair value of such contracts at November 30, 2010 is set forth in the table above.
Delayed Delivery Securities & Forward Sale Commitments
The Fund may trade securities on other than normal settlement terms, including securities purchased or sold on a “when-issued” basis. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. The Fund identifies within its portfolio of investments cash or liquid securities in an amount equal to the delayed delivery commitment.
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. While 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 “Security Valuation” 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.
Mortgage Dollar Roll Transactions
The Fund may enter into mortgage “dollar rolls” in which the Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date not exceeding 120 days. During the roll period, the Fund loses the right to receive principal and interest paid on the securities sold. However, the Fund will benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase (often referred to as the “drop”) or fee income plus the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage roll, the use of this technique will diminish the investment performance of the Fund compared to
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Notes to Financial Statements (continued)
November 30, 2010 (Unaudited)
what the performance would have been without the use of mortgage dollar rolls. All cash proceeds will be invested in instruments that are permissible investments for the Fund. The Fund identifies within its portfolio of investments cash or liquid securities in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund treats “to be announces” mortgage dollar rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale. The Fund does not currently enter into mortgage dollars rolls that are accounted for as financial transactions.
Mortgage dollar rolls involve certain risks. If the broker-dealer to whom the Fund sells the securities becomes insolvent, the Fund’s right to purchase or repurchase the mortgage-related securities may be restricted and the instruments which the Fund is required to repurchase may be worth less than instruments which the Fund originally held. Successful use of mortgage dollar rolls may depend upon the Investment Manager’s ability to predict interest rates and mortgage repayments. For these reasons, there is no assurance that mortgage dollar rolls can be successfully employed.
Security Transactions
Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Income Recognition
Interest income is recorded on the accrual basis. Market premium and discount are amortized and accreted, respectively, on all debt securities, unless otherwise noted. Original issue discount is accreted to interest income over the life of the security with a corresponding increase in the cost basis, if any. For convertible securities, premiums attributable to the conversion feature are not amortized.
Expenses
General expenses of the Corporation are allocated to the Fund and other funds of the Corporation based upon relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to a specific class of shares are charged to that share class. Expenses directly attributable to the Fund are charged to the Fund.
Determination of Class Net Asset Value
All income, expenses (other than class-specific expenses which are charged directly to that share class) and realized and unrealized gains (losses) are allocated to each class of the Fund on a daily basis for purposes of determining the net asset value of each class. Income and expenses are allocated to each class
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based on the settled shares method, while realized and unrealized gains (losses) are allocated based on the relative net assets of each class.
Federal Income Tax Status
The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Distributions to Shareholders
Distributions from net investment income are declared daily and paid monthly. Net realized capital gains, if any, are distributed at least annually. Income distributions and capital gain distributions are determined in accordance with federal income tax regulations which may differ from GAAP.
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.
Note 3. Fees and Compensation Paid to Affiliates
Investment Management Fees
Under an Investment Management Services Agreement (IMSA), Columbia Management Investment Advisers, LLC (the Investment Manager) determines which securities will be purchased, held or sold. The management fee is an annual fee that is equal to a percentage of the Fund’s average daily net assets that declines from 0.48% to 0.29% as the Fund’s net assets increase. The management fee for the six months ended November 30, 2010 was 0.48% of the Fund’s average daily net assets.
In September 2010, the Board approved, subject to approval by shareholders, an amended IMSA. If approved at the meeting of shareholders to be held on February 15, 2011, it would have the effect of changing the effective management fee rate of the Fund.
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Notes to Financial Statements (continued)
November 30, 2010 (Unaudited)
Administration Fees
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial, Inc. an annual fee for administration and accounting services equal to a percentage of the Fund’s average daily net assets that declines from 0.07% to 0.04% as the Fund’s net assets increase. The fee for the six months ended November 30, 2010, was 0.07% of the Fund’s average daily net assets.
Other Fees
Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the six months ended November 30, 2010, other expenses paid to this company were $90.
Compensation of Board Members
Under a Deferred Compensation Plan (the Plan), the board members who are not “interested persons” of the Fund as defined under the 1940 Act may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or certain other funds managed by the Investment Manager. The Fund’s liability for these amounts is adjusted for market value changes and remains in the funds until distributed in accordance with the Plan.
Transfer Agent Fees
Under a Transfer Agency Agreement, Columbia Management Investment Services Corp. (the Transfer Agent) is responsible for providing transfer agency services to the Fund.
Prior to September 7, 2010, the Transfer Agent received annual account-based service fees for Class A, Class B and Class C shares which amount varied by class and annual asset-based service fees based on the Fund’s average daily net assets attributable to Class R4 shares. In addition, the Transfer Agent charged an annual fee per inactive account and received reimbursement from the Fund for certain out-of-pocket expenses.
Under a new Transfer Agency Agreement effective September 7, 2010, the Transfer Agent has contracted with Boston Financial Data Services (BFDS) to serve as sub-transfer agent. The Transfer Agent receives monthly account-based service fees based on the number of open accounts and is reimbursed by the Fund for the fees and expenses the Transfer Agent pays to financial intermediaries that maintain omnibus accounts with the Fund subject to an annual limitation (that varies by class) that is a percentage of the average aggregate
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value of the Fund’s shares maintained in each such omnibus account (other than omnibus accounts for which American Enterprise Investment Services Inc. is the broker of record or accounts where the beneficial shareholder is a customer of Ameriprise Financial Services, Inc., which are paid a per account fee). The Transfer Agent also pays the fees of BFDS for services as sub-transfer agent and is not entitled to reimbursement for such fees from the Fund.
The Transfer Agent also receives reimbursement for certain out-of-pocket expenses and may also retain, as additional compensation for its services, fees for wire, telephone and redemption orders, Individual Retirement Account (IRA) trustee agent fees and account transcript fees due to the Transfer Agent from shareholders of the Funds and credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund.
For the six months ended November 30, 2010, the Fund’s annualized effective transfer agent fee rates as a percentage of average daily net assets of each class were as follows:
Class A | 0.19 | % | ||
Class B | 0.20 | |||
Class C | 0.19 | |||
Class R4 | 0.08 | |||
Class Z | 0.15 |
Class I shares do not pay transfer agent fees.
Plan Administration Fees
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund’s average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services.
Distribution Fees
The Fund has an agreement with Columbia Management Investment Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Class A shares and a fee at an annual rate of up to 1.00% of the Fund’s average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, of the 1.00% fee, up to 0.75% is reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet reimbursed (unreimbursed expense) was approximately $836,000 and $133,000
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 37
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Notes to Financial Statements (continued)
November 30, 2010 (Unaudited)
for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of October 31, 2010, and may be recovered from future payments under the distribution plan or CDSCs. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced.
Sales Charges
Sales charges, including front-end and CDSCs, received by the Distributor for distributing Fund shares were $45,887 for Class A, $4,977 for Class B and $1,609 for Class C for the six months ended November 30, 2010.
Expenses Waived/Reimbursed by The Investment Manager and its Affiliates
For the six months ended November 30, 2010, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows:
Class A | 0.89 | % | ||
Class B | 1.65 | |||
Class C | 1.64 | |||
Class I | 0.48 | |||
Class R4 | 0.78 | |||
Class Z | 0.63 |
The waived/reimbursed fees and expenses for the transfer agent fees at the class level were as follows:
Class A | $ | 10,480 | ||
Class B | 2,015 | |||
Class C | 701 | |||
Class R4 | 16 |
The management fees waived/reimbursed at the Fund level were $222,448.
Under an agreement which was effective until July 31, 2010, the Investment Manager and its affiliates contractually agreed to waive certain fees and reimburse certain expenses such that net expenses (excluding fees and expenses of acquired funds*) would not exceed the following percentage of the class’ average daily net assets:
Class A | 0.89 | % | ||
Class B4 | 1.65 | |||
Class C | 1.65 | |||
Class I | 0.47 | |||
Class R4 | 0.77 |
Effective August 1, 2010, the Investment Manager and its affiliates have contractually agreed to waive certain fees and reimburse certain expenses until July 31, 2011, unless sooner terminated at the sole discretion of the Board, such
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that net expenses (excluding fees and expenses of acquired funds*) will not exceed the following percentage of the class’ average daily net assets:
Class A | 0.89 | % | ||
Class B | 1.65 | |||
Class C | 1.64 | |||
Class I | 0.48 | |||
Class R4 | 0.78 | |||
Class Z | 0.64 |
* | 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. |
Note 4. Portfolio Information
The cost of purchases and proceeds from sales of securities, excluding short-term obligations but including mortgage dollar rolls, aggregated to $552,349,570 and $572,601,299, respectively, for the six months ended November 30, 2010.
Note 5. Affiliated Money Market Fund
The Fund may invest its daily cash balances in Columbia Short-Term Cash Fund (formerly known as RiverSource Short-Term Cash Fund), a money market fund established for the exclusive use by the Fund and other affiliated Funds. The income earned by the Fund from such investments is included as “Dividends from affiliates” in the Statement of Operations. As an investing fund, the Fund indirectly bears its proportionate share of the expenses of Columbia Short-Term Cash Fund.
Note 6. Shareholder Concentration
At November 30, 2010, the Investment Manager along with affiliated funds-of funds owned approximately 58% of the outstanding shares of the Fund. Purchase and redemption activity of these accounts may have a significant effect on the operations of the Fund.
At November 30, 2010, the Investment Manager along with affiliated funds-of-funds owned 100% of Class I shares.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 39
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Notes to Financial Statements (continued)
November 30, 2010 (Unaudited)
Note 7. Line of Credit
The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on October 14, 2010, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other funds managed by the Investment Manager, severally and not jointly, permits collective borrowings up to $300 million. The borrowers shall have the right, upon written notice to the Administrative Agent, to request an increase of up to $200 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $500 million. Participation in such increase by any existing lender shall be at such lender’s sole discretion. Interest is charged to each Fund based on its borrowings at a rate equal to the sum of the federal funds rate plus (i) 1.25% per annum plus (ii) if one-month LIBOR exceeds the federal funds rate, the amount of such excess. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.10% per annum.
Prior to October 14, 2010, the credit facility agreement, which was a collective agreement between the Fund and certain other funds managed by the Investment Manager, severally and not jointly, permitted collective borrowings up to $300 million. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.10% per annum, in addition to an upfront fee equal to its pro rata share of 0.04% of the amount of the credit facility. The Fund had no borrowings for the six months ended November 30, 2010.
Note 8. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
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At November 30, 2010, the cost of investments for federal income tax purposes was approximately $270,519,000 and the approximate unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation | $ | 21,309,000 | ||
Unrealized depreciation | $ | (2,695,000 | ) | |
Net unrealized appreciation | $ | 18,614,000 | ||
The following capital loss carryforwards, determined as of May 31, 2010 may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
Year of expiration | Amount | |||
2017 | $ | 410,120 | ||
2018 | $ | 11,667,024 | ||
Total | $ | 12,077,144 | ||
It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carryforward has been offset or expires. There is no assurance that the Fund will be able to utilize all of its capital loss carryforward before it expires.
Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. However, management’s conclusion may be subject to review and adjustment at a later date based on factors including, but not limited to, new tax laws, regulations, and administrative interpretations (including relevant court decisions). The Fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
Note 9. Subsequent Events
Management has evaluated the events and transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosure.
Note 10. Information Regarding Pending and Settled Legal Proceedings
In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc. was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company (now known as legacy RiverSource) mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 41
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Notes to Financial Statements (continued)
November 30, 2010 (Unaudited)
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 (the District Court). In response to defendants’ motion to dismiss the complaint, the District Court dismissed one of plaintiffs’ four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants’ favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals (the Eighth Circuit) on August 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary judgment and remanded to the District Court for further proceedings. On August 6, 2009, defendants filed a writ of certiorari with the U.S. Supreme Court (the Supreme Court), asking the Supreme Court to stay the District Court proceedings while the Supreme Court considers and rules in a case captioned Jones v. Harris Associates, which involves issues of law similar to those presented in the Gallus case. On March 30, 2010, the Supreme Court issued its ruling in Jones v. Harris Associates, and on April 5, 2010, the Supreme Court vacated the Eighth Circuit’s decision in the Gallus case and remanded the case to the Eighth Circuit for further consideration in light of the Supreme Court’s decision in Jones v. Harris Associates. On June 4, 2010, the Eighth Circuit remanded the Gallus case to the District Court for further consideration in light of the Supreme Court’s decision in Jones v. Harris Associates. On December 9, 2010, the District Court reinstated its July 9, 2007 summary judgment order in favor of the defendants.
In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal
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proceedings, and have made regular reports to the funds’ Boards of Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial.
COLUMBIA U.S. GOVERNMENT MORTGAGE FUND — 2010 SEMIANNUAL REPORT 43
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Approval of Investment Management Services Agreement
In September 2010, in connection with various initiatives to integrate the legacy Columbia Funds and legacy RiverSource Funds, for which Columbia Management Investment Advisers, LLC (CMIA) serves as investment manager, the Fund’s Board of Directors (the Board) approved, subject to approval by shareholders, an amended investment management services agreement between the Fund and CMIA (the IMSA), which would have the effect of changing the effective management fee rate of the Fund. The IMSA is subject to the approval of the Fund’s shareholders at a meeting to be held on February 15, 2011. A discussion regarding the basis for the approval by the Board of the IMSA is set forth under “Proposal 4 — Approve Proposed IMS Agreement — Board Considerations,” in the definitive proxy statement filed with the Securities and Exchange Commission by RiverSource Government Income Series, Inc., on behalf of the Fund, on December 28, 2010, and is incorporated by reference herein.
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Proxy Voting
The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling 800.345.6611; contacting your financial intermediary; visiting columbiamanagement.com; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting columbiamanagement.com; or searching the website of the SEC at www.sec.gov.
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Columbia U.S. Government Mortgage Fund
(formerly known as RiverSource U.S. Government Mortgage Fund)
(formerly known as RiverSource U.S. Government Mortgage Fund)
P.O. Box 8081
Boston, MA 02266-8081
columbiamanagement.com
![]() | This report must be accompanied or preceded by the Fund’s current prospectus. The Fund is distributed by Columbia Management Investment Distributors, Inc., member FINRA and managed by Columbia Management Investment Advisers, LLC. ©2011 Columbia Management Investment Advisers, LLC. All rights reserved. | S-6256 K (1/11) |
Table of Contents
Semiannual Report
![(COLUMBIA MANAGEMENT LOGO)](https://capedge.com/proxy/N-CSRS/0000950123-11-009551/c61904c61905_clmbfc.gif)
RiverSource
Short Duration U.S. Government Fund
Semiannual Report for the Period Ended
November 30, 2010
RiverSource Short Duration U.S. Government Fund seeks to provide shareholders with a high level of current income and safety of principal consistent with investment in U.S. government and government agency securities.
Not FDIC insured - No bank guarantee - May lose value
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Table of Contents
Your Fund at a Glance | 3 | |||
Fund Expenses Example | 8 | |||
Portfolio of Investments | 11 | |||
Statement of Assets and Liabilities | 24 | |||
Statement of Operations | 26 | |||
Statements of Changes in Net Assets | 27 | |||
Financial Highlights | 29 | |||
Notes to Financial Statements | 36 | |||
Proxy Voting | 54 |
In August 2010, the Board of Directors of RiverSource Short Duration U.S. Government Fund (the “Fund”) approved a proposal to merge the Fund with and into Columbia Short Term Bond Fund. The merger is expected to be a tax-free reorganization for U.S. federal income tax purposes. More information about Columbia Short Term Bond Fund and the definitive terms of the proposed merger are included in proxy materials mailed to shareholders who owned shares of the Fund on December 17, 2010. The proxy materials are available at https://www.proxy-direct.com/col22080. If approved at a meeting of shareholders to be held on February 15, 2011, the merger is expected to take place before the end of the second quarter of 2011.
See the Fund’s prospectus for risks associated with investing in the Fund.
2 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
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Your Fund at a Glance
(Unaudited)
FUND SUMMARY
> | RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares rose 1.78% (excluding sales charge) for the six months ended Nov. 30, 2010. |
> | The Fund outperformed its benchmark, the Barclays Capital U.S. 1-3 Year Government Index, which gained 1.15% during the six-month period. |
> | The Fund also outperformed the Lipper Short U.S. Government Funds Index, representing the Fund’s peer group, which advanced 1.49% during the same time frame. |
ANNUALIZED TOTAL RETURNS (for period ended Nov. 30, 2010)
6 months* | 1 year | 3 years | 5 years | 10 years | ||||||||||||||||
RiverSource Short Duration U.S. Government Fund Class A (excluding sales charge) | +1.78% | +2.81% | +2.72% | +3.52% | +3.40% | |||||||||||||||
Barclays Capital U.S. 1-3 Year Government Index (unmanaged)(1) | +1.15% | +1.84% | +3.63% | +4.43% | +4.22% | |||||||||||||||
Lipper Short U.S. Government Funds Index (unmanaged)(2) | +1.49% | +2.39% | +3.50% | +4.01% | +3.71% | |||||||||||||||
* | Not annualized. |
The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial intermediary, visiting columbiamanagement.com or calling 800.345.6611.
The 3.00% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in fees and expenses. The Fund’s returns reflect the effect of fee waivers/expense reimbursements, if any. Without such waivers/reimbursements, the Fund’s returns would be lower. See the Average Annual Total Returns table for performance of other share classes of the Fund.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 3
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Your Fund at a Glance (continued)
The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index.
(1) | The Barclays Capital U.S. 1-3 Year Government Index, an unmanaged index, is made up of all publicly issued, non-convertible domestic debt of the U.S. government, or agency thereof, or any quasi-federal corporation. The index also includes corporate debt guaranteed by the U.S. government. Only notes and bonds with a minimum maturity of one year up to a maximum maturity of 2.9 years are included. The index reflects reinvestment of all distributions and changes in market prices. | |
(2) | The Lipper Short U.S. Government Funds Index includes the 30 largest short U.S. government funds tracked by Lipper Inc. The index’s returns include net reinvested dividends. |
4 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
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AVERAGE ANNUAL TOTAL RETURNS
at Nov. 30, 2010 | ||||||||||||||||||||||||
Since | ||||||||||||||||||||||||
Without sales charge | 6 months* | 1 year | 3 years | 5 years | 10 years | inception** | ||||||||||||||||||
Class A (inception 8/19/85) | +1.78 | % | +2.81 | % | +2.72 | % | +3.52 | % | +3.40 | % | N/A | |||||||||||||
Class B (inception 3/20/95) | +1.59 | % | +2.46 | % | +2.01 | % | +2.78 | % | +2.67 | % | N/A | |||||||||||||
Class C (inception 6/26/00) | +1.39 | % | +2.04 | % | +1.95 | % | +2.74 | % | +2.63 | % | N/A | |||||||||||||
Class I (inception 3/4/04) | +2.19 | % | +3.42 | % | +3.18 | % | +3.90 | % | N/A | +3.15 | % | |||||||||||||
Class R*** (inception 8/3/09) | +1.61 | % | +2.43 | % | N/A | N/A | N/A | +3.85 | % | |||||||||||||||
Class R4 (inception 3/20/95) | +2.04 | % | +2.90 | % | +2.83 | % | +3.65 | % | +3.56 | % | N/A | |||||||||||||
Class W (inception 12/1/06) | +2.00 | % | +3.00 | % | +2.67 | % | N/A | N/A | +3.24 | % | ||||||||||||||
With sales charge | ||||||||||||||||||||||||
Class A (inception 8/19/85) | -1.28 | % | -0.28 | % | +1.68 | % | +2.89 | % | +3.09 | % | N/A | |||||||||||||
Class B (inception 3/20/95) | -3.41 | % | -2.54 | % | +1.04 | % | +2.41 | % | +2.67 | % | N/A | |||||||||||||
Class C (inception 6/26/00) | +0.39 | % | +1.04 | % | +1.95 | % | +2.74 | % | +2.63 | % | N/A | |||||||||||||
Class A share performance reflects the maximum initial sales charge of 3.00%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second year 4%; third and fourth years 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. Sales charges do not apply to Class I, Class R, Class R4, and Class W shares. Class I, Class R and Class R4 are available to qualifying institutional investors only. Class W shares are offered through qualifying discretionary accounts.
* | Not annualized. | |
** | For classes with less than 10 years performance. |
*** | Effective Sept. 7, 2010, Class R2 shares were renamed Class R shares. |
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 5
Table of Contents
Your Fund at a Glance (continued)
PORTFOLIO STATISTICS
Weighted average life(1) | 2.3 years | |
Effective duration(2) | 1.6 years | |
(1) | Weighted average life measures a bond’s maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. | |
(2) | Effective duration measures the sensitivity of a security’s price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. |
6 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
PORTFOLIO BREAKDOWN(1) (at Nov. 30, 2010)
Asset-Backed | 6.3% | |||
Commercial Mortgage-Backed | 1.8% | |||
FDIC — Insured Debt(2) | 9.5% | |||
Government Guaranteed(3) | 0.2% | |||
Residential Mortgage-Backed(4) | 44.4% | |||
U.S. Government Obligations & Agencies | 35.9% | |||
Other(5) | 1.9% | |||
(1) | Portfolio holdings include industry sectors that can be comprised of securities in several industries. Please refer to the section entitled “Portfolio of Investments” for a complete listing. No single industry exceeded 25% of portfolio assets. | |
Percentages indicated are based upon total investments (excluding Investments of Cash Collateral Received for Securities on Loan). The Fund’s composition is subject to change. | ||
(2) | Debt guaranteed under the FDIC’s Temporary Liquidity Guarantee Program (TLGP). | |
(3) | Debt guaranteed by the HM Treasury, United Kingdom. | |
(4) | Of the 44.4%, 9.09% is due to forward commitment residential mortgage-backed securities activity. Short-term securities are held as collateral for these commitments. | |
(5) | Cash & Cash Equivalents. |
QUALITY BREAKDOWN(1) (at Nov. 30, 2010)
AAA bonds | 92.8% | |||
AA bonds | 1.7% | |||
A bonds | 1.6% | |||
BBB bonds | 1.4% | |||
Non-investment grade bonds | 0.1% | |||
Non-rated bonds | 2.4% | |||
(1) | Percentages indicated are based upon total fixed income securities (excluding Investments of Cash Collateral Received for Securities on Loan and Cash & Cash Equivalents). |
Ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor’s rating is used to determine the credit quality of a security. Standard and Poor’s rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor’s doesn’t rate a security, then Moody’s rating is used. Columbia Management Investment Advisers, LLC (the Investment Manager) rates a security using an internal rating system when Moody’s doesn’t provide a rating.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 7
Table of Contents
Fund Expenses Example
(Unaudited)
As a shareholder of the Fund, you incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments; and (ii) ongoing costs, which may include management fees; distribution and service (Rule 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 ongoing expenses of any funds in which the Fund 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 ongoing expenses charged by acquired funds using the expense ratio of each of the acquired funds as of the acquired fund’s most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the period indicated and held until Nov. 30, 2010.
Actual Expenses
The first line of the table provides information about actual account values and actual expenses for each class. 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 actual expense ratio for each class and an assumed rate of return of 5% per year before expenses, which is not the actual return for the class. 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.
8 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Beginning | Ending | Expenses | ||||||||||||||
account value | account value | paid during | Annualized | |||||||||||||
June 1, 2010 | Nov. 30, 2010 | the period(a) | expense ratio | |||||||||||||
Class A | ||||||||||||||||
Actual(b) | $ | 1,000 | $ | 1,017.80 | $ | 4.37 | (c) | .85% | (c) | |||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.15 | $ | 4.38 | (c) | .85% | (c) | |||||||
Class B | ||||||||||||||||
Actual(b) | $ | 1,000 | $ | 1,015.90 | $ | 8.27 | (c) | 1.61% | (c) | |||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.28 | $ | 8.28 | (c) | 1.61% | (c) | |||||||
Class C | ||||||||||||||||
Actual(b) | $ | 1,000 | $ | 1,013.90 | $ | 8.21 | 1.60% | |||||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.33 | $ | 8.22 | 1.60% | |||||||||
Class I | ||||||||||||||||
Actual(b) | $ | 1,000 | $ | 1,021.90 | $ | 2.32 | (c) | .45% | (c) | |||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,023.19 | $ | 2.32 | (c) | .45% | (c) | |||||||
Class R | ||||||||||||||||
Actual(b) | $ | 1,000 | $ | 1,016.10 | $ | 6.06 | (c) | 1.18% | (c) | |||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,019.47 | $ | 6.07 | (c) | 1.18% | (c) | |||||||
Class R4 | ||||||||||||||||
Actual(b) | $ | 1,000 | $ | 1,020.40 | $ | 3.81 | .74% | |||||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.71 | $ | 3.81 | .74% | |||||||||
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 9
Table of Contents
Fund Expenses Example (continued)
Beginning | Ending | Expenses | ||||||||||||||
account value | account value | paid during | Annualized | |||||||||||||
June 1, 2010 | Nov. 30, 2010 | the period(a) | expense ratio | |||||||||||||
Class W | ||||||||||||||||
Actual(b) | $ | 1,000 | $ | 1,020.00 | $ | 4.37 | (c) | .85% | (c) | |||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.15 | $ | 4.38 | (c) | .85% | (c) | |||||||
(a) | Expenses are equal to the annualized expense ratio for each class as indicated above, multiplied by the average account value over the period, multiplied by 186/365 (to reflect the one-half year period). | |
(b) | Based on the actual return for the six months ended Nov. 30, 2010: +1.78% for Class A, +1.59% for Class B, +1.39% for Class C, +2.19% for Class I, +1.61% for Class R, +2.04% for Class R4 and +2.00% for Class W. | |
(c) | Columbia Management Investment Advisers, LLC (the Investment Manager) and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until July 31, 2011, unless sooner terminated at the sole discretion of the Fund’s Board, such that net expenses (excluding fees and expenses of acquired funds) will not exceed 0.84% for Class A, 1.60% for Class B, 0.44% for Class I, 1.24% for Class R and 0.89% for Class W. Any amounts waived will not be reimbursed by the Fund. This change was effective Aug. 1, 2010. Had this change been in place for the entire six month period ended Nov. 30, 2010, the actual expenses paid would have been $4.32 for Class A, $8.22 for Class B, $2.27 for Class I, $6.37 for Class R, and $4.58 for Class W; the hypothetical expenses paid would have been $4.33 for Class A, $8.22 for Class B, $2.27 for Class I, $6.38 for Class R, and $4.58 for Class W. |
10 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Portfolio of Investments
Nov. 30, 2010 (Unaudited)
(Percentages represent value of investments compared to net assets)
Investments in Securities
Bonds (97.1%) | ||||||||||
Coupon | Principal | |||||||||
Issuer | rate | amount | Value(a) | |||||||
U.S. Government Obligations & Agencies (39.5%) | ||||||||||
Federal Home Loan Banks | ||||||||||
05-20-11 | 2.625 | % | $2,565,000 | (n) | $2,594,085 | |||||
12-28-11 | 1.000 | 14,550,000 | (n) | 14,653,488 | ||||||
06-21-13 | 1.875 | 12,600,000 | (n) | 12,956,908 | ||||||
10-18-13 | 3.625 | 2,000,000 | 2,153,908 | |||||||
Federal Home Loan Mortgage Corp. | ||||||||||
06-15-11 | 6.000 | 500,000 | 515,604 | |||||||
07-26-12 | 1.000 | 4,820,000 | 4,823,205 | |||||||
08-20-12 | 5.500 | 2,610,000 | 2,829,830 | |||||||
09-28-12 | 1.250 | 1,510,000 | 1,510,769 | |||||||
10-28-13 | 0.875 | 30,660,000 | (n) | 30,667,082 | ||||||
Federal National Mortgage Association | ||||||||||
09-24-12 | 0.625 | 23,000,000 | (n) | 23,044,666 | ||||||
11-19-12 | 4.750 | 730,000 | 789,218 | |||||||
07-17-13 | 4.375 | 5,020,000 | 5,474,922 | |||||||
09-17-13 | 1.125 | 2,450,000 | 2,452,837 | |||||||
12-18-13 | 0.750 | 5,960,000 | 5,926,600 | |||||||
10-26-15 | 1.625 | 30,000,000 | (n) | 29,964,060 | ||||||
Private Export Funding Corp. U.S. Government Guaranty | ||||||||||
10-15-14 | 3.050 | 5,675,000 | 6,000,086 | |||||||
U.S. Treasury | ||||||||||
12-31-10 | 0.875 | 11,750,000 | (n) | 11,756,766 | ||||||
07-31-11 | 1.000 | 3,250,000 | (n) | 3,266,250 | ||||||
05-31-12 | 0.750 | 33,000,000 | (n) | 33,181,830 | ||||||
06-15-12 | 1.875 | 6,690,000 | (n) | 6,842,612 | ||||||
08-31-12 | 0.375 | 22,000,000 | (n) | 21,980,244 | ||||||
02-15-13 | 1.375 | 9,785,000 | (n) | 9,966,940 | ||||||
11-30-15 | 1.375 | 8,000,000 | (e) | 7,966,248 | ||||||
10-31-17 | 1.875 | 7,000,000 | (n) | 6,886,796 | ||||||
Total | 248,204,954 | |||||||||
Asset-Backed (6.9%) | ||||||||||
Access Group, Inc. Series 2005-1 Class A1 | ||||||||||
06-22-18 | 0.370 | 1,344,059 | (o) | 1,342,489 | ||||||
Banc of America Funding Corp. CMO Series 2009-R14A Class 1A1 | ||||||||||
09-26-37 | 1.355 | 3,621,267 | (d,o) | 3,596,127 | ||||||
Bear Stearns Asset-Backed Securities Trust Series 2006-HE9 Class 1A1 | ||||||||||
11-25-36 | 0.303 | 616,715 | (o) | 603,966 | ||||||
Carrington Mortgage Loan Trust Series 2006-RFC1 Class A2 | ||||||||||
05-25-36 | 0.353 | 2,397,194 | (o) | 2,308,501 | ||||||
Chrysler Financial Lease Trust Series 2010-A Class A2 | ||||||||||
06-15-11 | 1.780 | 3,193,313 | (d) | 3,198,557 | ||||||
Citigroup Mortgage Loan Trust, Inc. Series 2006-WFH4 Class A2 | ||||||||||
11-25-36 | 0.353 | 1,241,700 | (o) | 1,173,223 | ||||||
Countrywide Asset-Backed Certificates Series 2005-SD1 Class A1C | ||||||||||
05-25-35 | 0.643 | 1,246,799 | (d,o) | 1,201,952 | ||||||
Countrywide Asset-Backed Certificates Series 2006-22 Class 2A1 (MGIC) | ||||||||||
05-25-47 | 0.303 | 592,078 | (b,o) | 589,335 | ||||||
Credit-Based Asset Servicing and Securitization LLC Series 2006-CB6 Class A22 | ||||||||||
07-25-36 | 0.343 | 731,894 | (o) | 729,426 | ||||||
Jefferies & Co., Inc. CMO Series 2010-R1 Class 2A1 | ||||||||||
11-26-36 | 0.422 | 924,512 | (d,o) | 885,221 | ||||||
Morgan Stanley ABS Capital I Series 2005-WMC5 Class M2 | ||||||||||
06-25-35 | 0.733 | 2,449,651 | (o) | 2,382,449 | ||||||
Morgan Stanley ABS Capital I Series 2006-WMC1 Class A2B | ||||||||||
12-25-35 | 0.453 | 1,372,354 | (o) | 1,313,523 | ||||||
RAAC Series Series 2006-SP4 Class A1 | ||||||||||
11-25-36 | 0.353 | 4,754 | (o) | 4,753 | ||||||
RBSSP Resecuritization Trust CMO Series 2009-10 Class 4A1 | ||||||||||
07-26-36 | 0.405 | 2,318,460 | (d,o) | 2,288,283 | ||||||
RBSSP Resecuritization Trust CMO Series 2009-10 Class 7A1 | ||||||||||
03-26-37 | 0.355 | 863,791 | (d,o) | 857,716 |
See accompanying Notes to Portfolio of Investments.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 11
Table of Contents
Portfolio of Investments (continued)
Bonds (continued) | ||||||||||
Coupon | Principal | |||||||||
Issuer | rate | amount | Value(a) | |||||||
Asset-Backed (cont.) | ||||||||||
RBSSP Resecuritization Trust CMO Series 2009-11 Class 2A1 | ||||||||||
04-26-36 | 0.405 | % | $4,187,005 | (d,o) | $3,962,875 | |||||
RBSSP Resecuritization Trust CMO Series 2009-12 Class 2A1 | ||||||||||
10-25-32 | 4.767 | 1,440,672 | (d) | 1,452,658 | ||||||
RBSSP Resecuritization Trust CMO Series 2009-13 Class 8A1 | ||||||||||
06-26-37 | 1.005 | 4,695,420 | (d,o) | 4,637,467 | ||||||
Residential Asset Mortgage Products, Inc. Series 2004-RS8 Class AI4 | ||||||||||
06-25-32 | 5.060 | 1,453,835 | 1,442,840 | |||||||
Sierra Receivables Funding Co. Series 2010-2A Class A | ||||||||||
11-20-25 | 3.840 | 2,193,614 | (d) | 2,208,635 | ||||||
Small Business Administration Series 2002-P10B Class 1 | ||||||||||
08-10-12 | 5.199 | 201,123 | 210,881 | |||||||
Soundview Home Equity Loan Trust Series 2005-B Class M1 | ||||||||||
05-25-35 | 6.135 | 101,486 | (o) | 101,326 | ||||||
Specialty Underwriting & Residential Finance Series 2005-BC3 Class M1 | ||||||||||
06-25-36 | 0.703 | 4,500,000 | (o) | 4,272,102 | ||||||
Structured Asset Investment Loan Trust Series 2005-9 Class A5 | ||||||||||
11-25-35 | 0.483 | 1,349,323 | (o) | 1,313,974 | ||||||
Structured Asset Securities Corp. CMO Series 2006-NC1 Class A6 | ||||||||||
05-25-36 | 0.303 | 601,165 | (o) | 589,837 | ||||||
Structured Asset Securities Corp. Series 2007-WF2 Class A2 | ||||||||||
08-25-37 | 0.953 | 564,173 | (o) | 563,135 | ||||||
Total | 43,231,251 | |||||||||
Commercial Mortgage-Backed (1.9%)(f) | ||||||||||
Bear Stearns Commercial Mortgage Securities Series 2004-PWR6 Class A4 | ||||||||||
11-11-41 | 4.521 | 1,575,000 | 1,614,626 | |||||||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass-Through Certificates CMO Series K001 Class A2 | ||||||||||
04-25-16 | 5.651 | 4,166,390 | 4,677,692 | |||||||
Federal National Mortgage Association CMO Series 2010-M4 Class A1 | ||||||||||
06-25-20 | 2.520 | 2,735,703 | 2,793,750 | |||||||
JP Morgan Chase Commercial Mortgage Securities Corp. Series 2004-CBX Class A3 | ||||||||||
01-12-37 | 4.184 | 3,057,612 | 3,062,326 | |||||||
Total | 12,148,394 | |||||||||
Residential Mortgage-Backed (48.8%)(f,j) | ||||||||||
Banc of America Funding Corp. CMO Series 2010-R4 Class 4A1 | ||||||||||
06-26-37 | 0.465 | 959,615 | (d,o) | 935,012 | ||||||
BCAP LLC Trust CMO Series 2009-RR13 Class 12A1 | ||||||||||
04-26-37 | 5.250 | 1,933,105 | (d) | 1,958,665 | ||||||
BCAP LLC Trust CMO Series 2010-RR6 Class 6A1 | ||||||||||
07-26-37 | 4.000 | 5,451,213 | (d) | 5,511,155 | ||||||
Citigroup Mortgage Loan Trust, Inc. CMO Series 2006-AR9 Class 1A1 | ||||||||||
11-25-36 | 0.323 | 35,229 | (o) | 35,047 | ||||||
Countrywide Alternative Loan Trust CMO Series 2006-OA11 Class A3B1 | ||||||||||
09-25-46 | 0.433 | 645,283 | (o) | 620,330 | ||||||
Credit Suisse Mortgage Capital Certificates CMO Series 2009-12R Class 14A1 | ||||||||||
11-27-35 | 5.500 | 5,539,360 | (d) | 5,815,027 | ||||||
Credit Suisse Mortgage Capital Certificates CMO Series 2009-12R Class 30A1 | ||||||||||
12-27-36 | 5.300 | 634,137 | (d) | 645,845 | ||||||
Credit Suisse Mortgage Capital Certificates CMO Series 2010-17R Class 1A1 | ||||||||||
06-26-36 | 2.831 | 2,968,814 | (d,o) | 2,968,814 | ||||||
Federal Home Loan Mortgage Corp. | ||||||||||
12-01-25 | 4.500 | 22,450,000 | (e) | 23,604,064 | ||||||
Federal Home Loan Mortgage Corp. #1G2547 | ||||||||||
12-01-36 | 6.097 | 737,911 | (o) | 796,414 |
See accompanying Notes to Portfolio of Investments.
12 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
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Bonds (continued) | ||||||||||
Coupon | Principal | |||||||||
Issuer | rate | amount | Value(a) | |||||||
Residential Mortgage-Backed (cont.) | ||||||||||
Federal Home Loan Mortgage Corp. #1G2598 | ||||||||||
01-01-37 | 5.950 | % | $1,001,752 | (o) | $1,064,253 | |||||
Federal Home Loan Mortgage Corp. #1J0614 | ||||||||||
09-01-37 | 5.672 | 1,701,292 | (o) | 1,807,572 | ||||||
Federal Home Loan Mortgage Corp. #1Q0140 | ||||||||||
08-01-36 | 6.083 | 320,374 | (o) | 338,265 | ||||||
Federal Home Loan Mortgage Corp. #B10459 | ||||||||||
10-01-18 | 5.500 | 589,459 | 642,707 | |||||||
Federal Home Loan Mortgage Corp. #C00351 | ||||||||||
07-01-24 | 8.000 | 159,952 | 186,462 | |||||||
Federal Home Loan Mortgage Corp. #C00385 | ||||||||||
01-01-25 | 9.000 | 280,026 | 323,270 | |||||||
Federal Home Loan Mortgage Corp. #C80329 | ||||||||||
08-01-25 | 8.000 | 50,572 | 59,008 | |||||||
Federal Home Loan Mortgage Corp. #E81240 | ||||||||||
06-01-15 | 7.500 | 1,526,015 | 1,646,892 | |||||||
Federal Home Loan Mortgage Corp. #E92454 | ||||||||||
11-01-17 | 5.000 | 1,459,317 | 1,564,251 | |||||||
Federal Home Loan Mortgage Corp. #E96624 | ||||||||||
05-01-18 | 5.000 | 701,688 | 752,144 | |||||||
Federal Home Loan Mortgage Corp. #G00363 | ||||||||||
06-01-25 | 8.000 | 202,630 | 236,431 | |||||||
Federal Home Loan Mortgage Corp. #G00501 | ||||||||||
05-01-26 | 9.000 | 400,232 | 473,233 | |||||||
Federal Home Loan Mortgage Corp. #G04710 | ||||||||||
09-01-38 | 6.000 | 1,135,221 | 1,246,072 | |||||||
Federal Home Loan Mortgage Corp. #G10669 | ||||||||||
03-01-12 | 7.500 | 228,014 | 237,972 | |||||||
Federal Home Loan Mortgage Corp. #G11243 | ||||||||||
04-01-17 | 6.500 | 6,652,146 | 7,245,770 | |||||||
Federal Home Loan Mortgage Corp. #G13987 | ||||||||||
01-01-24 | 6.000 | 5,950,000 | 6,491,698 | |||||||
Federal Home Loan Mortgage Corp. CMO I.O. Series 11 Class B | ||||||||||
01-01-20 | 9.899 | 5,377 | (h) | 1,363 | ||||||
Federal Home Loan Mortgage Corp. CMO I.O. Series 2471 Class SI | ||||||||||
03-15-32 | 20.000 | 842,219 | (h) | 154,249 | ||||||
Federal Home Loan Mortgage Corp. CMO I.O. Series 2981 Class AS | ||||||||||
05-15-35 | 7.980 | 7,920,254 | (h) | 1,301,167 | ||||||
Federal Home Loan Mortgage Corp. CMO I.O. Series 3455 Class AI | ||||||||||
12-15-13 | 10.697 | 12,566,001 | (h) | 286,267 | ||||||
Federal Home Loan Mortgage Corp. CMO I.O. Series 3517 Class JI | ||||||||||
12-15-12 | 58.040 | 1,401,594 | (h) | 11,680 | ||||||
Federal Home Loan Mortgage Corp. CMO I.O. Series 3600 Class DI | ||||||||||
01-15-13 | 4.085 | 20,417,151 | (h) | 486,894 | ||||||
Federal Home Loan Mortgage Corp. CMO I.O. Series 3630 Class AI | ||||||||||
03-15-17 | 3.939 | 8,739,405 | (h) | 422,795 | ||||||
Federal Home Loan Mortgage Corp. CMO Series 2617 Class HD | ||||||||||
06-15-16 | 7.000 | 1,444,405 | 1,485,393 | |||||||
Federal Home Loan Mortgage Corp. CMO Series 3531 Class CE | ||||||||||
01-15-39 | 3.000 | 2,380,558 | 2,449,330 | |||||||
Federal Home Loan Mortgage Corp. CMO Series 3683 Class JD | ||||||||||
12-15-23 | 4.000 | 5,541,226 | 5,833,401 | |||||||
Federal Home Loan Mortgage Corp. CMO Series 3684 Class CM | ||||||||||
08-15-24 | 2.500 | 6,120,649 | 6,204,594 | |||||||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass-Through Certificates CMO Series K003 Class A1 | ||||||||||
07-25-13 | 2.225 | 4,304,277 | 4,355,920 | |||||||
Federal National Mortgage Association | ||||||||||
12-01-25 | 3.500 | 3,000,000 | (e) | 3,067,968 | ||||||
12-01-25 | 4.500 | 8,825,000 | (e) | 9,303,483 | ||||||
12-01-25 | 5.000 | 2,500,000 | (e) | 2,661,328 | ||||||
01-01-26 | 3.500 | 15,000,000 | (e) | 15,288,284 | ||||||
Federal National Mortgage Association #125032 | ||||||||||
11-01-21 | 8.000 | 80,020 | 93,032 | |||||||
Federal National Mortgage Association #190129 | ||||||||||
11-01-23 | 6.000 | 571,538 | 630,390 | |||||||
Federal National Mortgage Association #190988 | ||||||||||
06-01-24 | 9.000 | 122,374 | 134,559 | |||||||
Federal National Mortgage Association #254384 | ||||||||||
06-01-17 | 7.000 | 174,839 | 192,597 |
See accompanying Notes to Portfolio of Investments.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 13
Table of Contents
Portfolio of Investments (continued)
Bonds (continued) | ||||||||||
Coupon | Principal | |||||||||
Issuer | rate | amount | Value(a) | |||||||
Residential Mortgage-Backed (cont.) | ||||||||||
Federal National Mortgage Association #254454 | ||||||||||
08-01-17 | 7.000 | % | $314,728 | $346,695 | ||||||
Federal National Mortgage Association #254723 | ||||||||||
05-01-23 | 5.500 | 4,634,530 | 5,070,417 | |||||||
Federal National Mortgage Association #256901 | ||||||||||
09-01-37 | 6.500 | 757,602 | 839,130 | |||||||
Federal National Mortgage Association #303885 | ||||||||||
05-01-26 | 7.500 | 217,080 | 248,349 | |||||||
Federal National Mortgage Association #313007 | ||||||||||
07-01-11 | 7.500 | 7,249 | 7,312 | |||||||
Federal National Mortgage Association #336512 | ||||||||||
02-01-26 | 6.000 | 37,789 | 41,674 | |||||||
Federal National Mortgage Association #508402 | ||||||||||
08-01-14 | 6.500 | 140,785 | 153,902 | |||||||
Federal National Mortgage Association #545818 | ||||||||||
07-01-17 | 6.000 | 6,989,014 | 7,649,551 | |||||||
Federal National Mortgage Association #545864 | ||||||||||
08-01-17 | 5.500 | 5,559,892 | 6,068,681 | |||||||
Federal National Mortgage Association #545910 | ||||||||||
08-01-17 | 6.000 | 1,056,082 | 1,154,145 | |||||||
Federal National Mortgage Association #555063 | ||||||||||
11-01-17 | 5.500 | 3,454,026 | 3,787,604 | |||||||
Federal National Mortgage Association #555367 | ||||||||||
03-01-33 | 6.000 | 5,660,090 | (p) | 6,241,965 | ||||||
Federal National Mortgage Association #579485 | ||||||||||
04-01-31 | 6.500 | 1,284,017 | 1,449,357 | |||||||
Federal National Mortgage Association #593829 | ||||||||||
12-01-28 | 7.000 | 1,018,827 | 1,158,690 | |||||||
Federal National Mortgage Association #601416 | ||||||||||
11-01-31 | 6.500 | 477,997 | 539,877 | |||||||
Federal National Mortgage Association #630993 | ||||||||||
09-01-31 | 7.500 | 1,468,525 | 1,684,165 | |||||||
Federal National Mortgage Association #648040 | ||||||||||
06-01-32 | 6.500 | 1,490,348 | 1,684,262 | |||||||
Federal National Mortgage Association #648349 | ||||||||||
06-01-17 | 6.000 | 3,879,237 | 4,243,689 | |||||||
Federal National Mortgage Association #651284 | ||||||||||
07-01-17 | 6.000 | 727,971 | 792,191 | |||||||
Federal National Mortgage Association #662866 | ||||||||||
11-01-17 | 6.000 | 838,767 | 917,800 | |||||||
Federal National Mortgage Association #665752 | ||||||||||
09-01-32 | 6.500 | 487,054 | 550,427 | |||||||
Federal National Mortgage Association #678940 | ||||||||||
02-01-18 | 5.500 | 1,247,042 | 1,370,973 | |||||||
Federal National Mortgage Association #686227 | ||||||||||
02-01-18 | 5.500 | 1,622,153 | 1,782,674 | |||||||
Federal National Mortgage Association #696837 | ||||||||||
04-01-18 | 5.500 | 1,793,366 | 1,952,871 | |||||||
Federal National Mortgage Association #722325 | ||||||||||
07-01-33 | 4.941 | 3,519,736 | (o) | 3,723,954 | ||||||
Federal National Mortgage Association #739243 | ||||||||||
09-01-33 | 6.000 | 2,194,871 | 2,457,680 | |||||||
Federal National Mortgage Association #739331 | ||||||||||
09-01-33 | 6.000 | 999,647 | 1,102,414 | |||||||
Federal National Mortgage Association #745392 | ||||||||||
12-01-20 | 4.500 | 598,135 | 636,846 | |||||||
Federal National Mortgage Association #791447 | ||||||||||
10-01-34 | 6.000 | 3,494,924 | 3,870,595 | |||||||
Federal National Mortgage Association #799843 | ||||||||||
11-01-34 | 2.173 | 485,521 | (o) | 499,245 | ||||||
Federal National Mortgage Association #829597 | ||||||||||
08-01-35 | 2.599 | 785,298 | (o) | 820,205 | ||||||
Federal National Mortgage Association #831809 | ||||||||||
09-01-36 | 6.000 | 4,924,523 | 5,424,623 | |||||||
Federal National Mortgage Association #832641 | ||||||||||
09-01-35 | 6.000 | 3,373,015 | 3,701,852 | |||||||
Federal National Mortgage Association #881886 | ||||||||||
04-01-36 | 5.377 | 429,970 | (o) | 458,433 | ||||||
Federal National Mortgage Association #886764 | ||||||||||
08-01-36 | 6.086 | 295,373 | (o) | 313,327 | ||||||
Federal National Mortgage Association #887403 | ||||||||||
07-01-36 | 7.000 | 1,831,171 | 2,106,165 | |||||||
Federal National Mortgage Association #888989 | ||||||||||
06-01-37 | 5.745 | 2,151,770 | (o) | 2,297,687 | ||||||
Federal National Mortgage Association #895834 | ||||||||||
04-01-36 | 5.934 | 408,235 | (o) | 426,219 | ||||||
Federal National Mortgage Association #929139 | ||||||||||
02-01-23 | 5.000 | 6,831,640 | 7,274,771 | |||||||
Federal National Mortgage Association #946609 | ||||||||||
09-01-37 | 5.712 | 452,299 | (o) | 481,199 | ||||||
Federal National Mortgage Association #995097 | ||||||||||
10-01-37 | 6.500 | 2,643,588 | 2,957,814 | |||||||
Federal National Mortgage Association #MA0548 | ||||||||||
10-01-20 | 3.500 | 1,962,288 | 2,038,787 |
See accompanying Notes to Portfolio of Investments.
14 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Bonds (continued) | ||||||||||
Coupon | Principal | |||||||||
Issuer | rate | amount | Value(a) | |||||||
Residential Mortgage-Backed (cont.) | ||||||||||
Federal National Mortgage Association CMO I.O. Series 163 Class 2 | ||||||||||
07-25-22 | 20.000 | % | $320,406 | (h) | $54,946 | |||||
Federal National Mortgage Association CMO I.O. Series 2003-26 Class MI | ||||||||||
03-25-23 | 1.920 | 807,665 | (h) | 93,010 | ||||||
Federal National Mortgage Association CMO I.O. Series 2003-63 Class IP | ||||||||||
07-25-33 | 0.418 | 2,291,143 | (h) | 402,218 | ||||||
Federal National Mortgage Association CMO I.O. Series 36 Class 2 | ||||||||||
08-01-18 | 15.474 | 76 | (h) | 14 | ||||||
08-01-18 | 17.410 | 2,717 | (h) | 523 | ||||||
Federal National Mortgage Association CMO I.O. Series 70 Class 2 | ||||||||||
01-15-20 | 20.000 | 122,835 | (h) | 27,536 | ||||||
Federal National Mortgage Association CMO P.O. Series G-15 Class A | ||||||||||
06-25-21 | 2.490 | 17,186 | (i) | 16,085 | ||||||
Federal National Mortgage Association CMO Series 2002-97 Class CF | ||||||||||
03-25-31 | 5.500 | 3,770,507 | 3,850,802 | |||||||
Federal National Mortgage Association CMO Series 2003-W11 Class A1 | ||||||||||
06-25-33 | 3.274 | 86,405 | (o) | 90,590 | ||||||
Federal National Mortgage Association CMO Series 2004-60 Class PA | ||||||||||
04-25-34 | 5.500 | 2,128,922 | 2,295,540 | |||||||
Federal National Mortgage Association CMO Series 2009-70 Class NL | ||||||||||
08-25-19 | 3.000 | 1,207,507 | 1,244,729 | |||||||
Federal National Mortgage Association CMO Series 2010-50 Class AB | ||||||||||
01-25-24 | 2.500 | 5,052,900 | 5,121,304 | |||||||
Government National Mortgage Association Series 2010-161 | ||||||||||
05-16-35 | 0.750 | 4,000,000 | (e) | 4,071,000 | ||||||
Government National Mortgage Association #615740 | ||||||||||
08-15-13 | 6.000 | 268,078 | 292,883 | |||||||
Government National Mortgage Association #648339 | ||||||||||
10-15-35 | 5.500 | 890,699 | 985,120 | |||||||
Government National Mortgage Association #781507 | ||||||||||
09-15-14 | 6.000 | 1,240,888 | 1,313,798 | |||||||
Government National Mortgage Association CMO Series 2009-105 Class A | ||||||||||
12-16-50 | 3.456 | 7,051,530 | 7,470,532 | |||||||
Government National Mortgage Association CMO Series 2009-114 Class A | ||||||||||
12-16-38 | 3.103 | 7,339,564 | 7,571,201 | |||||||
Government National Mortgage Association CMO Series 2009-63 Class A | ||||||||||
01-16-38 | 3.400 | 4,842,832 | 5,069,015 | |||||||
Government National Mortgage Association CMO Series 2009-71 Class A | ||||||||||
04-16-38 | 3.304 | 7,209,726 | 7,473,314 | |||||||
Government National Mortgage Association CMO Series 2009-90 Class AC | ||||||||||
01-16-33 | 3.137 | 5,400,000 | 5,628,002 | |||||||
Government National Mortgage Association CMO Series 2010-13 Class A | ||||||||||
08-16-22 | 2.461 | 4,633,142 | 4,712,116 | |||||||
Government National Mortgage Association CMO Series 2010-159 Class A | ||||||||||
01-16-33 | 2.159 | 4,700,000 | (e) | 4,779,900 | ||||||
Government National Mortgage Association CMO Series 2010-18 Class A | ||||||||||
12-16-50 | 3.100 | 4,936,703 | 5,134,703 | |||||||
Government National Mortgage Association CMO Series 2010-22 Class AC | ||||||||||
12-16-30 | 2.229 | 3,770,016 | 3,836,165 | |||||||
Government National Mortgage Association CMO Series 2010-49 Class A | ||||||||||
03-16-51 | 2.870 | 1,486,188 | 1,547,552 | |||||||
Government National Mortgage Association CMO Series 2010-65 Class A | ||||||||||
11-16-28 | 2.017 | 3,638,969 | 3,687,066 | |||||||
Government National Mortgage Association CMO Series 2010-83 Class A | ||||||||||
10-16-50 | 2.021 | 4,445,584 | 4,503,644 | |||||||
GSR Mortgage Loan Trust CMO Series 2005-5F Class 2A3 | ||||||||||
06-25-35 | 5.500 | 2,500,816 | 2,524,684 |
See accompanying Notes to Portfolio of Investments.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 15
Table of Contents
Portfolio of Investments (continued)
Bonds (continued) | ||||||||||
Coupon | Principal | |||||||||
Issuer | rate | amount | Value(a) | |||||||
Residential Mortgage-Backed (cont.) | ||||||||||
LVII Resecuritization Trust CMO Series 2009-3 Class A1 | ||||||||||
11-27-37 | 5.711 | % | $964,440 | (d,o) | $983,729 | |||||
Residential Asset Securitization Trust CMO Series 2004-A7 Class A1 | ||||||||||
10-25-34 | 5.500 | 1,579,704 | 1,581,618 | |||||||
Wells Fargo Mortgage-Backed Securities Trust CMO Series 2003-O Class 1A11 | ||||||||||
01-25-34 | 4.690 | 1,433,394 | (o) | 1,463,385 | ||||||
Wells Fargo Mortgage-Backed Securities Trust CMO Series 2004-Q Class 1A2 | ||||||||||
09-25-34 | 4.871 | 2,999,466 | (o) | 3,086,612 | ||||||
Wells Fargo Mortgage-Backed Securities Trust CMO Series 2005-AR16 Class 4A6 | ||||||||||
10-25-35 | 2.890 | 2,455,144 | (o) | 2,441,321 | ||||||
Wells Fargo Mortgage-Backed Securities Trust CMO Series 2006-12 Class A1 | ||||||||||
10-25-36 | 6.000 | 1,644,544 | 1,630,536 | |||||||
Total | 306,884,477 | |||||||||
Total Bonds | ||||||||||
(Cost: $598,596,658) | $610,469,076 | |||||||||
FDIC-Insured Debt (10.4%)(k) | ||||||||||
Coupon | Principal | |||||||||
Issuer | rate | amount | Value(a) | |||||||
U.S. Agencies | ||||||||||
Bank of America Corp. FDIC Government Guaranty | ||||||||||
04-30-12 | 2.100 | % | $4,175,000 | $4,266,086 | ||||||
06-15-12 | 3.125 | 3,810,000 | 3,961,482 | |||||||
Citigroup Funding, Inc. FDIC Government Guaranty | ||||||||||
11-15-12 | 1.875 | 3,055,000 | 3,130,272 | |||||||
Citigroup Funding, Inc. FDIC Government Guaranty | ||||||||||
07-12-12 | 2.125 | 15,000,000 | 15,379,633 | |||||||
General Electric Capital Corp. FDIC Government Guaranty | ||||||||||
12-09-11 | 3.000 | 11,525,000 | 11,828,787 | |||||||
12-28-12 | 2.625 | 7,580,000 | 7,883,671 | |||||||
JPMorgan Chase & Co. FDIC Government Guaranty | ||||||||||
02-23-11 | 1.650 | 2,940,000 | 2,949,327 | |||||||
Morgan Stanley FDIC Government Guaranty | ||||||||||
02-10-12 | 0.566 | 8,300,000 | 8,330,021 | |||||||
The Goldman Sachs Group, Inc. FDIC Government Guaranty | ||||||||||
07-15-11 | 1.625 | 7,750,000 | 7,815,960 | |||||||
Total FDIC-Insured Debt | ||||||||||
(Cost: $64,366,542) | $65,545,239 | |||||||||
Government Guaranteed (0.2%) | ||||||||||
Coupon | Principal | |||||||||
Issuer | rate | amount | Value(a) | |||||||
Foreign Agencies(c) (0.1%) | ||||||||||
Barclays Bank PLC Government Liquid Guaranteed | ||||||||||
03-05-12 | 2.700 | % | $780,000 | (c,d,l) | $794,483 | |||||
Banking (0.1%) | ||||||||||
The Royal Bank of Scotland PLC Government Liquid Guaranteed | ||||||||||
04-23-12 | 2.650 | 400,000 | (c,l) | 409,552 | ||||||
Total Government Guaranteed | ||||||||||
(Cost: $1,185,072) | $1,204,035 | |||||||||
Money Market Fund (2.1%) | ||||||
Shares | Value(a) | |||||
Columbia Short-Term Cash Fund, 0.229% | 13,238,842 | (m) | $13,238,842 | |||
Total Money Market Fund | ||||||
(Cost: $13,238,842) | $13,238,842 | |||||
See accompanying Notes to Portfolio of Investments.
16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Investments of Cash Collateral Received | ||||||||||
for Securities on Loan (11.1%) | ||||||||||
Effective | Principal | |||||||||
Issuer | yield | amount | Value(a) | |||||||
Repurchase Agreements(g) | ||||||||||
Cantor Fitzgerald & Co. dated 11-30-10, matures 12-01-10, repurchase price | ||||||||||
$30,000,217 | 0.260 | % | $30,000,000 | $30,000,000 | ||||||
Credit Suisse Securities (USA) LLC dated 11-30-10, matures 12-01-10, repurchase price | ||||||||||
$27,609,529 | 0.240 | 27,609,345 | 27,609,345 | |||||||
Merrill Lynch Pierce Fenner & Smith, Inc. dated 11-30-10, matures 12-01-10, repurchase price | ||||||||||
$5,000,035 | 0.250 | 5,000,000 | 5,000,000 | |||||||
Pershing LLC dated 11-30-10, matures 12-01-10, repurchase price | ||||||||||
$7,000,064 | 0.330 | 7,000,000 | 7,000,000 | |||||||
Total Investments of Cash Collateral Received for Securities on Loan | ||||||||||
(Cost: $69,609,345) | $69,609,345 | |||||||||
Total Investments in Securities | ||||||||||
(Cost: $746,996,459)(q) | $760,066,537 | |||||||||
Investments in Derivatives
Futures Contracts Outstanding at Nov. 30, 2010
Number of | Notional | |||||||||||||||||||
contracts | market | Expiration | Unrealized | Unrealized | ||||||||||||||||
Contract description | long (short) | value | date | appreciation | depreciation | |||||||||||||||
U.S. Treasury Note, 2-year | (115 | ) | (25,228,125 | ) | April 2011 | $— | $(10,981 | ) | ||||||||||||
U.S. Treasury Note, 5-year | (492 | ) | (58,966,968 | ) | April 2011 | — | (24,095 | ) | ||||||||||||
Total | $— | $(35,076 | ) | |||||||||||||||||
Notes to Portfolio of Investments
CMO | — Collateralized Mortgage Obligation | |
FDIC | — Federal Deposit Insurance Corporation | |
P.O. | — Principal Only | |
I.O. | — Interest Only |
(a) | Securities are valued by using policies described in Note 2 to the financial statements. | |
(b) | The following abbreviation is used in the portfolio security description to identify the insurer and/or guarantor of the issue: |
MGIC | — Mortgage Guaranty Insurance Corporation |
(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 Nov. 30, 2010, the value of foreign securities, excluding short-term securities, represented 0.19% of net assets. |
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 17
Table of Contents
Portfolio of Investments (continued)
Notes to Portfolio of Investments (continued)
(d) | Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund’s Board of Directors. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Nov. 30, 2010, the value of these securities amounted to $43,902,221 or 6.98% of net assets. | |
(e) | At Nov. 30, 2010, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $71,002,054. See Note 2 to the financial statements. | |
(f) | Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property, and include single- and multi-class pass-through securities and collateralized mortgage obligations. These securities may be issued or guaranteed by U.S. government agencies or instrumentalities, or by private issuers, generally originators and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. The maturity dates shown represent the original maturity of the underlying obligation. Actual maturity may vary based upon prepayment activity on these obligations. Unless otherwise noted, the coupon rates presented are fixed rates. | |
(g) | The table below represents securities received as collateral for repurchase agreements. This collateral, which is generally high quality short-term obligations, is deposited with the Fund’s custodian and, pursuant to the terms of the repurchase agreement, must have an aggregate market value greater than or equal to the repurchase price plus accrued interest at all times. The value of securities and/or cash held as collateral for repurchase agreements is monitored on a daily basis to ensure the existence of the proper level of collateral. |
Cantor Fitzgerald & Co. (0.260%) | ||||
Security description | Value(a) | |||
Fannie Mae Grantor Trust | $5,422 | |||
Fannie Mae Interest Strip | 1,559,369 | |||
Fannie Mae Principal Strip | 287,252 | |||
Fannie Mae REMICS | 3,128,882 | |||
Fannie Mae Whole Loan | 157,864 | |||
Federal Farm Credit Bank | 1,165,893 | |||
Federal Home Loan Mortgage Corp | 615,511 | |||
Federal National Mortgage Association | 529,729 | |||
FHLMC Multifamily Structured Pass Through Certificates | 1,470 | |||
FHLMC Structured Pass Through Securities | 1,658,101 | |||
Freddie Mac Coupon Strips | 4,152 | |||
Freddie Mac Reference REMIC | 30,304 | |||
Freddie Mac REMICS | 4,908,719 | |||
Freddie Mac Strips | 936,697 | |||
Ginnie Mae I Pool | 2,080,986 | |||
Ginnie Mae II Pool | 6,256,119 |
18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Notes to Portfolio of Investments (continued)
Cantor Fitzgerald & Co. (0.260%) (continued) | ||||
Security description | Value(a) | |||
Government National Mortgage Association | $2,271,649 | |||
United States Treasury Bill | 2,519,242 | |||
United States Treasury Inflation Indexed Bonds | 396,701 | |||
United States Treasury Strip Coupon | 1,886,599 | |||
United States Treasury Strip Principal | 199,341 | |||
Total market value of collateral securities | $30,600,002 | |||
Credit Suisse Securities (USA) LLC (0.240%) | ||||
Security description | Value(a) | |||
Ginnie Mae I Pool | $23,123,437 | |||
Ginnie Mae II Pool | 5,038,187 | |||
Total market value of collateral securities | $28,161,624 | |||
Merrill Lynch Pierce Fenner & Smith, Inc (0.250%) | ||||
Security description | Value(a) | |||
Government National Mortgage Association | $5,100,000 | |||
Total market value of collateral securities | $5,100,000 | |||
Pershing LLC (0.330%) | ||||
Security description | Value(a) | |||
Fannie Mae Pool | $1,991,930 | |||
Fannie Mae REMICS | 273,257 | |||
Fannie Mae Whole Loan | 6,850 | |||
Federal Farm Credit Bank | 212,086 | |||
Federal Home Loan Banks | 157,055 | |||
Federal Home Loan Mortgage Corp | 12,746 | |||
Federal National Mortgage Association | 154,014 | |||
FHLMC-GNMA | 3,395 | |||
Freddie Mac Gold Pool | 1,711,088 | |||
Freddie Mac Non Gold Pool | 251,713 | |||
Freddie Mac REMICS | 416,971 | |||
Ginnie Mae I Pool | 451,144 | |||
Ginnie Mae II Pool | 655,513 | |||
Government National Mortgage Association | 721,247 | |||
United States Treasury Note/Bond | 114,660 | |||
United States Treasury Strip Coupon | 6,331 | |||
Total market value of collateral securities | $7,140,000 | |||
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 19
Table of Contents
Portfolio of Investments (continued)
Notes to Portfolio of Investments (continued)
(h) | Interest only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an interest only security is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. The principal amount shown is the notional amount of the underlying mortgages. The interest rate disclosed represents yield based upon the estimated timing and amount of future cash flows at Nov. 30, 2010. | |
(i) | Principal only represents securities that entitle holders to receive only principal payments on the underlying mortgages. The yield to maturity of a principal only security 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 Nov. 30, 2010. | |
(j) | Represents comparable securities held to satisfy future delivery requirements of the following open forward sale commitment at Nov. 30, 2010: |
Principal | Settlement | Proceeds | ||||||||||||||
Security | amount | date | receivable | Value | ||||||||||||
Federal National Mortgage Association | ||||||||||||||||
10-01-25 5.50% | $500,000 | 11-24-10 | $537,179 | $543,526 |
(k) | This debt is guaranteed under the FDIC’s (Federal Deposit Insurance Corporation) Temporary Liquidity Guarantee Program (TLGP) and is backed by the full faith and credit of the United States. | |
(l) | This debt is guaranteed by the HM Treasury, United Kingdom. | |
(m) | Affiliated Money Market Fund – See Note 8 to the financial statements. The rate shown is the seven-day current annualized yield at Nov. 30, 2010. | |
(n) | At Nov. 30, 2010, security was partially or fully on loan. See Note 7 to the financial statements. | |
(o) | Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Nov. 30, 2010. | |
(p) | At Nov. 30, 2010, investments in securities included securities valued at $515,512 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. | |
(q) | At Nov. 30, 2010, the cost of securities for federal income tax purposes was approximately $746,996,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: |
Unrealized appreciation | $14,145,000 | |||
Unrealized depreciation | (1,074,000 | ) | ||
Net unrealized appreciation | $13,071,000 | |||
20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Fair Value Measurements
Generally accepted accounting principles (GAAP) require disclosure regarding the inputs and valuation techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, investments shall be disclosed by major category.
The Fund categorizes its fair value measurements according to a three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by prioritizing that the most observable input be used when available. Observable inputs are those that market participants would use in pricing an investment based on market data obtained from sources independent of the reporting entity. Unobservable inputs are those that reflect the Fund’s assumptions about the information market participants would use in pricing an investment. An investment’s level within the fair value hierarchy is based on the lowest level of any input that is deemed significant to the asset or liability’s fair value measurement. The input levels are not necessarily an indication of the risk or liquidity associated with investments at that level. For example, certain U.S. government securities are generally high quality and liquid, however, they are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels listed below:
• | Level 1 — Valuations based on quoted prices for investments in active markets that the Fund has the ability to access at the measurement date (including NAV for open-end mutual funds). Valuation adjustments are not applied to Level 1 investments. | |
• | Level 2 — Valuations based on other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.). | |
• | Level 3 — Valuations based on significant unobservable inputs (including the Fund’s own assumptions and judgment in determining the fair value of investments). |
Inputs that are used in determining fair value of an investment may include price information, credit data, volatility statistics, and other factors. These inputs can be either observable or unobservable. The availability of observable inputs can vary between investments, and is affected by various factors such as the type of investment, and the volume and level of activity for that investment or similar investments in the marketplace. The inputs will be considered by the Fund Administrator, along with any other relevant factors in the calculation of an investment’s fair value. The Fund uses prices and inputs that are current as of the measurement date, which may include periods of market dislocations. During these periods, the availability of prices and inputs may be reduced for many investments. This condition could cause an investment to be reclassified between the various levels within the hierarchy.
Investments falling into the Level 3 category are primarily supported by quoted prices from brokers and dealers participating in the market for those investments. However, these may be classified as Level 3 investments due to lack of market transparency and corroboration to support these quoted prices. Additionally, valuation models may be used as the pricing source for any remaining investments classified as Level 3. These models rely on one or more significant unobservable
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 21
Table of Contents
Portfolio of Investments (continued)
Fair Value Measurements (continued)
inputs and/or significant assumptions by the Fund Administrator. Inputs used in valuations may include, but are not limited to, financial statement analysis, capital account balances, discount rates and estimated cash flows, and comparable company data.
The following table is a summary of the inputs used to value the Fund’s investments as of Nov. 30, 2010:
Fair value at Nov. 30, 2010 | ||||||||||||||||
Level 1 | Level 2 | |||||||||||||||
quoted prices | other | Level 3 | ||||||||||||||
in active | significant | significant | ||||||||||||||
markets for | observable | unobservable | ||||||||||||||
Description(a) | identical assets | inputs(b) | inputs | Total | ||||||||||||
Bonds | ||||||||||||||||
U.S. Government Obligations & Agencies | $101,847,686 | $146,357,268 | $— | $248,204,954 | ||||||||||||
Asset-Backed Securities | — | 42,346,030 | 885,221 | 43,231,251 | ||||||||||||
Commercial Mortgage-Backed Securities | — | 12,148,394 | — | 12,148,394 | ||||||||||||
Residential Mortgage-Backed Securities | 53,925,128 | 240,155,906 | 12,803,443 | 306,884,477 | ||||||||||||
Total Bonds | 155,772,814 | 441,007,598 | 13,688,664 | 610,469,076 | ||||||||||||
Other | ||||||||||||||||
FDIC-Insured Debt Securities | — | 65,545,239 | — | 65,545,239 | ||||||||||||
Government Guaranteed | — | 1,204,035 | — | 1,204,035 | ||||||||||||
Affiliated Money Market Fund(c) | 13,238,842 | — | — | 13,238,842 | ||||||||||||
Investments of Cash Collateral Received for Securities on Loan | — | 69,609,345 | — | 69,609,345 | ||||||||||||
Total Other | 13,238,842 | 136,358,619 | — | 149,597,461 | ||||||||||||
Investments in Securities | 169,011,656 | 577,366,217 | 13,688,664 | 760,066,537 | ||||||||||||
Derivatives(d) | ||||||||||||||||
Liabilities | ||||||||||||||||
Futures Contracts | (35,076 | ) | — | — | (35,076 | ) | ||||||||||
Total | $168,976,580 | $577,366,217 | $13,688,664 | $760,031,461 | ||||||||||||
(a) | See the Portfolio of Investments for all investment classifications not indicated in the table. | |
(b) | There were no significant transfers between Levels 1 and 2 during the period. | |
(c) | Money market fund that is a sweep investment for cash balances in the Fund at Nov. 30, 2010. | |
(d) | Derivative instruments are valued at unrealized appreciation (depreciation). |
22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Fair Value Measurements (continued)
The following table is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
Residential | ||||||||||||
Asset-Backed | Mortgage-Backed | |||||||||||
Securities | Securities | Total | ||||||||||
Balance as of May 31, 2010 | $5,284,093 | $15,421,587 | $20,705,680 | |||||||||
Accrued discounts/premiums | 11,455 | (94,003 | ) | (82,548 | ) | |||||||
Realized gain (loss) | — | 967,831 | 967,831 | |||||||||
Change in unrealized appreciation (depreciation)* | 5,190 | (740,712 | ) | (735,522 | ) | |||||||
Sales | (194,217 | ) | 1,499,863 | 1,305,646 | ||||||||
Purchases | — | 9,156,625 | 9,156,625 | |||||||||
Transfers into Level 3 | — | — | — | |||||||||
Transfers out of Level 3 | (4,221,300 | ) | (13,407,748 | ) | (17,629,048 | ) | ||||||
Balance as of Nov. 30, 2010 | $885,221 | $12,803,443 | $13,688,664 | |||||||||
* | Change in unrealized appreciation (depreciation) relating to securities held at Nov. 30, 2010 was $1,451, which is comprised of Asset-Backed Securities of $5,190 and Residential Mortgage-Backed Securities of $(3,739). |
Transfers in and/or out of Level 3 are determined based on the fair value at the beginning of the period for security positions held throughout the period.
How to find information about the Fund’s quarterly portfolio holdings
(i) | The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; | |
(ii) | The Fund’s Forms N-Q are available on the Commission’s website at http://www.sec.gov; | |
(iii) | The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 800.SEC.0330); and | |
(iv) | The Fund’s complete schedule of portfolio holdings, as filed on Form N-Q, can be obtained without charge, upon request, by calling 800.345.6611. |
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 23
Table of Contents
Statement of Assets and Liabilities
Nov. 30, 2010 (Unaudited)
Assets | ||||
Investments in securities, at value | ||||
Unaffiliated issuers* (identified cost $664,148,272) | $ | 677,218,350 | ||
Affiliated money market fund (identified cost $13,238,842) | 13,238,842 | |||
Investments of cash collateral received for securities on loan (identified cost $69,609,345) | 69,609,345 | |||
Total investments in securities (identified cost $746,996,459) | 760,066,537 | |||
Receivable from Investment Manager | 33,588 | |||
Capital shares receivable | 186,986 | |||
Dividends and accrued interest receivable | 2,487,101 | |||
Receivable for investment securities sold | 28,880,117 | |||
Total assets | 791,654,329 | |||
Liabilities | ||||
Forward sale commitments, at value (proceeds receivable $537,179) | 543,526 | |||
Disbursements in excess of cash | 279,751 | |||
Dividends payable to shareholders | 284,128 | |||
Capital shares payable | 901,533 | |||
Payable for investment securities purchased | 19,339,931 | |||
Payable for securities purchased on a forward-commitment basis | 71,002,054 | |||
Payable upon return of securities loaned | 69,609,345 | |||
Variation margin payable on futures contracts | 118,949 | |||
Accrued investment management services fees | 8,290 | |||
Accrued distribution fees | 5,253 | |||
Accrued transfer agency fees | 16,701 | |||
Accrued administrative services fees | 1,191 | |||
Accrued plan administration services fees | 974 | |||
Other accrued expenses | 583,053 | |||
Total liabilities | 162,694,679 | |||
Net assets applicable to outstanding capital stock | $ | 628,959,650 | ||
Represented by | ||||
Capital stock — $.01 par value | $ | 1,311,964 | ||
Additional paid-in capital | 711,190,779 | |||
Excess of distributions over net investment income | (360,975 | ) | ||
Accumulated net realized gain (loss) | (96,210,773 | ) | ||
Unrealized appreciation (depreciation) on investments | 13,028,655 | |||
Total — representing net assets applicable to outstanding capital stock | $ | 628,959,650 | ||
*Value of securities on loan | $ | 165,306,917 | ||
24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Net asset value per share | ||||||||||||
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Class A | $ | 482,322,912 | 100,620,606 | $ | 4.79 | (1) | ||||||
Class B | $ | 39,362,099 | 8,208,161 | $ | 4.80 | |||||||
Class C | $ | 29,627,357 | 6,181,286 | $ | 4.79 | |||||||
Class I | $ | 69,834,616 | 14,556,845 | $ | 4.80 | |||||||
Class R | $ | 3,527,819 | 735,907 | $ | 4.79 | |||||||
Class R4 | $ | 4,279,803 | 892,539 | $ | 4.80 | |||||||
Class W | $ | 5,044 | 1,053 | $ | 4.79 | |||||||
(1) | The maximum offering price per share for Class A is $4.94. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 3.00%. |
The accompanying Notes to Financial Statements are an integral part of this statement.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 25
Table of Contents
Statement of Operations
Six months ended Nov. 30, 2010 (Unaudited)
Investment income | ||||
Income: | ||||
Interest | $ | 8,591,422 | ||
Income distributions from affiliated money market fund | 27,170 | |||
Income from securities lending — net | 39,659 | |||
Total income | 8,658,251 | |||
Expenses: | ||||
Investment management services fees | 1,589,521 | |||
Distribution fees | ||||
Class A | 629,586 | |||
Class B | 254,210 | |||
Class C | 147,610 | |||
Class R | 7,905 | |||
Class W | 6 | |||
Transfer agency fees | ||||
Class A | 459,055 | |||
Class B | 50,323 | |||
Class C | 27,128 | |||
Class R | 1,698 | |||
Class R4 | 1,065 | |||
Class W | 4 | |||
Administrative services fees | 227,987 | |||
Plan administration services fees | ||||
Class R | 2,004 | |||
Class R4 | 5,899 | |||
Compensation of board members | 8,377 | |||
Custodian fees | 22,237 | |||
Printing and postage | 32,320 | |||
Registration fees | 57,561 | |||
Professional fees | 18,901 | |||
Other | 24,394 | |||
Total expenses | 3,567,791 | |||
Expenses waived/reimbursed by the Investment Manager and its affiliates | (594,994 | ) | ||
Total net expenses | 2,972,797 | |||
Investment income (loss) — net | 5,685,454 | |||
Realized and unrealized gain (loss) — net | ||||
Net realized gain (loss) on: | ||||
Security transactions | 7,174,534 | |||
Futures contracts | (2,863,845 | ) | ||
Net realized gain (loss) on investments | 4,310,689 | |||
Net change in unrealized appreciation (depreciation) on investments | 2,150,156 | |||
Net gain (loss) on investments | 6,460,845 | |||
Net increase (decrease) in net assets resulting from operations | $ | 12,146,299 | ||
The accompanying Notes to Financial Statements are an integral part of this statement.
26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Statements of Changes in Net Assets
Six months ended | Year ended | |||||||
Nov. 30, 2010 | May 31, 2010 | |||||||
(Unaudited) | ||||||||
Operations and distributions | ||||||||
Investment income (loss) — net | $ | 5,685,454 | $ | 15,505,510 | ||||
Net realized gain (loss) on investments | 4,310,689 | 4,201,347 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 2,150,156 | 12,661,886 | ||||||
Net increase (decrease) in net assets resulting from operations | 12,146,299 | 32,368,743 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | ||||||||
Class A | (4,577,698 | ) | (12,668,025 | ) | ||||
Class B | (264,516 | ) | (1,425,001 | ) | ||||
Class C | (157,058 | ) | (407,301 | ) | ||||
Class I | (777,732 | ) | (1,538,428 | ) | ||||
Class R | (23,392 | ) | (47,161 | ) | ||||
Class R4 | (45,279 | ) | (104,118 | ) | ||||
Class W | (47 | ) | (116 | ) | ||||
Total distributions | (5,845,722 | ) | (16,190,150 | ) | ||||
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 27
Table of Contents
Statements of Changes in Net Assets (continued)
Six months ended | Year ended | |||||||
Nov. 30, 2010 | May 31, 2010 | |||||||
(Unaudited) | ||||||||
Capital share transactions | ||||||||
Proceeds from sales | ||||||||
Class A shares | $ | 36,601,617 | $ | 88,786,015 | ||||
Class B shares | 3,011,776 | 7,530,462 | ||||||
Class C shares | 5,183,130 | 7,364,078 | ||||||
Class I shares | 2,437,319 | 31,799,700 | ||||||
Class R shares | 1,084,663 | 952,078 | ||||||
Class R4 shares | 604,100 | 2,462,644 | ||||||
Fund merger (Note 11) | ||||||||
Class A shares | N/A | 33,719,721 | ||||||
Class B shares | N/A | 4,922,961 | ||||||
Class C shares | N/A | 16,708,376 | ||||||
Class R shares | N/A | 3,419,969 | ||||||
Reinvestment of distributions at net asset value | ||||||||
Class A shares | 3,969,733 | 11,449,031 | ||||||
Class B shares | 248,774 | 1,328,133 | ||||||
Class C shares | 120,069 | 301,069 | ||||||
Class I shares | 772,739 | 1,516,948 | ||||||
Class R shares | 4,766 | 8,199 | ||||||
Class R4 shares | 45,261 | 103,225 | ||||||
Conversions from Class B to Class A | ||||||||
Class A shares | 22,784,738 | 26,046,599 | ||||||
Class B shares | (22,784,738 | ) | (26,046,599 | ) | ||||
Payments for redemptions | ||||||||
Class A shares | (73,887,918 | ) | (213,595,187 | ) | ||||
Class B shares | (8,427,262 | ) | (36,237,124 | ) | ||||
Class C shares | (3,780,909 | ) | (9,903,018 | ) | ||||
Class I shares | (1,591,482 | ) | (8,886,058 | ) | ||||
Class R shares | (589,241 | ) | (1,415,514 | ) | ||||
Class R4 shares | (1,125,679 | ) | (2,288,821 | ) | ||||
Increase (decrease) in net assets from capital share transactions | (35,318,544 | ) | (59,953,113 | ) | ||||
Proceeds from regulatory settlement (Note 10) | — | 112,925 | ||||||
Total increase (decrease) in net assets | (29,017,967 | ) | (43,661,595 | ) | ||||
Net assets at beginning of period | 657,977,617 | 701,639,212 | ||||||
Net assets at end of period | $ | 628,959,650 | $ | 657,977,617 | ||||
Excess of distributions over net investment income | $ | (360,975 | ) | $ | (200,707 | ) | ||
The accompanying Notes to Financial Statements are an integral part of this statement.
28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Financial Highlights
The following tables are intended to help you understand the Fund’s financial performance. Certain information reflects financial results for a single share of a class held for the periods shown. For the periods 2008 and after, per share net investment income (loss) amounts are calculated based on average shares outstanding during the period. Total returns assume reinvestment of all dividends and distributions. Total returns do not reflect payment of sales charges, if any, and are not annualized for periods of less than one year.
Six months | ||||||||||||||||||||||||
Class A | ended Nov. 30, | Year ended May 31, | ||||||||||||||||||||||
Per share data | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $4.75 | $4.63 | $4.74 | $4.73 | $4.68 | $4.79 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income (loss) | .04 | .11 | .14 | .19 | .19 | .15 | ||||||||||||||||||
Net gains (losses) (both realized and unrealized) | .04 | .12 | (.11 | ) | .01 | .05 | (.10 | ) | ||||||||||||||||
Total from investment operations | .08 | .23 | .03 | .20 | .24 | .05 | ||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Dividends from net investment income | (.04 | ) | (.11 | ) | (.14 | ) | (.19 | ) | (.19 | ) | (.16 | ) | ||||||||||||
Proceeds from regulatory settlement | — | .00 | (a) | — | — | — | — | |||||||||||||||||
Net asset value, end of period | $4.79 | $4.75 | $4.63 | $4.74 | $4.73 | $4.68 | ||||||||||||||||||
Total return | 1.78% | 5.11% | (b) | .59% | 4.27% | 5.12% | 1.00% | |||||||||||||||||
Ratios to average net assets(c) | ||||||||||||||||||||||||
Gross expenses prior to expense waiver/reimbursement | 1.03% | (d) | 1.04% | 1.02% | 1.04% | 1.03% | 1.06% | |||||||||||||||||
Net expenses after expense waiver/reimbursement(e) | .85% | (d) | .86% | .89% | .89% | (f) | .89% | .89% | ||||||||||||||||
Net investment income (loss) | 1.77% | (d) | 2.35% | 3.00% | 3.93% | 3.99% | 3.27% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in millions) | $482 | $488 | $529 | $539 | $514 | $641 | ||||||||||||||||||
Portfolio turnover rate(g) | 123% | 329% | 271% | 209% | 168% | 194% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 29
Table of Contents
Financial Highlights (continued)
Six months | ||||||||||||||||||||||||
Class B | ended Nov. 30, | Year ended May 31, | ||||||||||||||||||||||
Per share data | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $4.75 | $4.63 | $4.74 | $4.73 | $4.68 | $4.79 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income (loss) | .02 | .08 | .10 | .15 | .15 | .12 | ||||||||||||||||||
Net gains (losses) (both realized and unrealized) | .06 | .12 | (.11 | ) | .01 | .05 | (.11 | ) | ||||||||||||||||
Total from investment operations | .08 | .20 | (.01 | ) | .16 | .20 | .01 | |||||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Dividends from net investment income | (.03 | ) | (.08 | ) | (.10 | ) | (.15 | ) | (.15 | ) | (.12 | ) | ||||||||||||
Proceeds from regulatory settlement | — | .00 | (a) | — | — | — | — | |||||||||||||||||
Net asset value, end of period | $4.80 | $4.75 | $4.63 | $4.74 | $4.73 | $4.68 | ||||||||||||||||||
Total return | 1.59% | 4.31% | (b) | (.18% | ) | 3.48% | 4.34% | .26% | ||||||||||||||||
Ratios to average net assets(c) | ||||||||||||||||||||||||
Gross expenses prior to expense waiver/reimbursement | 1.79% | (d) | 1.80% | 1.78% | 1.80% | 1.79% | 1.82% | |||||||||||||||||
Net expenses after expense waiver/reimbursement(e) | 1.61% | (d) | 1.62% | 1.65% | 1.65% | (f) | 1.64% | 1.64% | ||||||||||||||||
Net investment income (loss) | 1.01% | (d) | 1.64% | 2.26% | 3.18% | 3.23% | 2.50% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in millions) | $39 | $67 | $113 | $159 | $216 | $338 | ||||||||||||||||||
Portfolio turnover rate(g) | 123% | 329% | 271% | 209% | 168% | 194% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
Table of Contents
Six months | ||||||||||||||||||||||||
Class C | ended Nov. 30, | Year ended May 31, | ||||||||||||||||||||||
Per share data | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $4.75 | $4.63 | $4.74 | $4.73 | $4.68 | $4.79 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income (loss) | .02 | .07 | .10 | .15 | .15 | .12 | ||||||||||||||||||
Net gains (losses) (both realized and unrealized) | .05 | .13 | (.11 | ) | .02 | .05 | (.11 | ) | ||||||||||||||||
Total from investment operations | .07 | .20 | (.01 | ) | .17 | .20 | .01 | |||||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Dividends from net investment income | (.03 | ) | (.08 | ) | (.10 | ) | (.16 | ) | (.15 | ) | (.12 | ) | ||||||||||||
Proceeds from regulatory settlement | — | .00 | (a) | — | — | — | — | |||||||||||||||||
Net asset value, end of period | $4.79 | $4.75 | $4.63 | $4.74 | $4.73 | $4.68 | ||||||||||||||||||
Total return | 1.39% | 4.31% | (b) | (.17% | ) | 3.49% | 4.34% | .26% | ||||||||||||||||
Ratios to average net assets(c) | ||||||||||||||||||||||||
Gross expenses prior to expense waiver/reimbursement | 1.78% | (d) | 1.80% | 1.78% | 1.80% | 1.80% | 1.83% | |||||||||||||||||
Net expenses after expense waiver/reimbursement(e) | 1.60% | (d) | 1.62% | 1.65% | 1.65% | (f) | 1.64% | 1.64% | ||||||||||||||||
Net investment income (loss) | 1.01% | (d) | 1.51% | 2.21% | 3.18% | 3.24% | 2.51% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in millions) | $30 | $28 | $13 | $10 | $10 | $15 | ||||||||||||||||||
Portfolio turnover rate(g) | 123% | 329% | 271% | 209% | 168% | 194% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 31
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Financial Highlights (continued)
Six months | ||||||||||||||||||||||||
ended | ||||||||||||||||||||||||
Class I | Nov. 30, | Year ended May 31, | ||||||||||||||||||||||
Per share data | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $4.75 | $4.64 | $4.74 | $4.74 | $4.69 | $4.79 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income (loss) | .05 | .13 | .16 | .20 | .20 | .17 | ||||||||||||||||||
Net gains (losses) (both realized and unrealized) | .05 | .11 | (.11 | ) | .01 | .05 | (.10 | ) | ||||||||||||||||
Total from investment operations | .10 | .24 | .05 | .21 | .25 | .07 | ||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Dividends from net investment income | (.05 | ) | (.13 | ) | (.15 | ) | (.21 | ) | (.20 | ) | (.17 | ) | ||||||||||||
Proceeds from regulatory settlement | — | .00 | (a) | — | — | — | — | |||||||||||||||||
Net asset value, end of period | $4.80 | $4.75 | $4.64 | $4.74 | $4.74 | $4.69 | ||||||||||||||||||
Total return | 2.19% | 5.28% | (b) | 1.18% | 4.45% | 5.50% | 1.56% | |||||||||||||||||
Ratios to average net assets(c) | ||||||||||||||||||||||||
Gross expenses prior to expense waiver/reimbursement | .60% | (d) | .60% | .60% | .60% | .59% | .62% | |||||||||||||||||
Net expenses after expense waiver/reimbursement(e) | .45% | (d) | .48% | .51% | .51% | (f) | .54% | .58% | ||||||||||||||||
Net investment income (loss) | 2.16% | (d) | 2.67% | 3.49% | 4.23% | 4.37% | 3.66% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in millions) | $70 | $68 | $42 | $93 | $55 | $62 | ||||||||||||||||||
Portfolio turnover rate(g) | 123% | 329% | 271% | 209% | 168% | 194% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
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Six months | Period ended | |||||||
Class R* | ended Nov. 30, | May 31, | ||||||
Per share data | 2010 | 2010(h) | ||||||
(Unaudited) | ||||||||
Net asset value, beginning of period | $4.75 | $4.66 | ||||||
Income from investment operations: | ||||||||
Net investment income (loss) | .03 | .07 | ||||||
Net gains (losses) (both realized and unrealized) | .05 | .09 | ||||||
Total from investment operations | .08 | .16 | ||||||
Less distributions: | ||||||||
Dividends from net investment income | (.04 | ) | (.07 | ) | ||||
Proceeds from regulatory settlement | — | .00 | (a) | |||||
Net asset value, end of period | $4.79 | $4.75 | ||||||
Total return | 1.61% | 3.47% | (b) | |||||
Ratios to average net assets(c) | ||||||||
Gross expenses prior to expense waiver/reimbursement | 1.34% | (d) | 1.40% | (d) | ||||
Net expenses after expense waiver/reimbursement(e) | 1.18% | (d) | 1.28% | (d) | ||||
Net investment income (loss) | 1.43% | (d) | 1.76% | (d) | ||||
Supplemental data | ||||||||
Net assets, end of period (in millions) | $4 | $3 | ||||||
Portfolio turnover rate(g) | 123% | 329% | ||||||
See accompanying Notes to Financial Highlights.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 33
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Financial Highlights (continued)
Six months | ||||||||||||||||||||||||
Class R4 | ended Nov. 30, | Year ended May 31, | ||||||||||||||||||||||
Per share data | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $4.75 | $4.64 | $4.74 | $4.73 | $4.68 | $4.79 | ||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||
Net investment income (loss) | .05 | .11 | .15 | .19 | .19 | .16 | ||||||||||||||||||
Net gains (losses) (both realized and unrealized) | .05 | .12 | (.11 | ) | .02 | .05 | (.11 | ) | ||||||||||||||||
Total from investment operations | .10 | .23 | .04 | .21 | .24 | .05 | ||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Dividends from net investment income | (.05 | ) | (.12 | ) | (.14 | ) | (.20 | ) | (.19 | ) | (.16 | ) | ||||||||||||
Proceeds from regulatory settlement | — | .00 | (a) | — | — | — | — | |||||||||||||||||
Net asset value, end of period | $4.80 | $4.75 | $4.64 | $4.74 | $4.73 | $4.68 | ||||||||||||||||||
Total return | 2.04% | 4.96% | (b) | .93% | 4.41% | 5.31% | 1.19% | |||||||||||||||||
Ratios to average net assets(c) | ||||||||||||||||||||||||
Gross expenses prior to expense waiver/reimbursement | .89% | (d) | .90% | .90% | .90% | .86% | .88% | |||||||||||||||||
Net expenses after expense waiver/reimbursement(e) | .74% | (d) | .78% | .76% | .76% | (f) | .72% | .72% | ||||||||||||||||
Net investment income (loss) | 1.88% | (d) | 2.43% | 3.15% | 4.06% | 4.09% | 3.27% | |||||||||||||||||
Supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in millions) | $4 | $5 | $4 | $5 | $4 | $19 | ||||||||||||||||||
Portfolio turnover rate(g) | 123% | 329% | 271% | 209% | 168% | 194% | ||||||||||||||||||
See accompanying Notes to Financial Highlights.
34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
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Six months | ||||||||||||||||||||
Class W | ended Nov. 30, | Year ended May 31, | ||||||||||||||||||
Per share data | 2010 | 2010 | 2009 | 2008 | 2007(i) | |||||||||||||||
(Unaudited) | ||||||||||||||||||||
Net asset value, beginning of period | $4.74 | $4.63 | $4.74 | $4.73 | $4.75 | |||||||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income (loss) | .04 | .11 | .14 | .18 | .08 | |||||||||||||||
Net gains (losses) (both realized and unrealized) | .05 | .11 | (.12 | ) | .02 | (.02 | ) | |||||||||||||
Total from investment operations | .09 | �� | .22 | .02 | .20 | .06 | ||||||||||||||
Less distributions: | ||||||||||||||||||||
Dividends from net investment income | (.04 | ) | (.11 | ) | (.13 | ) | (.19 | ) | (.08 | ) | ||||||||||
Proceeds from regulatory settlement | — | .00 | (a) | — | — | — | ||||||||||||||
Net asset value, end of period | $4.79 | $4.74 | $4.63 | $4.74 | $4.73 | |||||||||||||||
Total return | 2.00% | 4.81% | (b) | .52% | 4.21% | 1.42% | ||||||||||||||
Ratios to average net assets(c) | ||||||||||||||||||||
Gross expenses prior to expense waiver/reimbursement | 1.04% | (d) | 1.04% | 1.04% | 1.06% | 1.00% | (d) | |||||||||||||
Net expenses after expense waiver/reimbursement(e) | .85% | (d) | .92% | .96% | .95% | .95% | (d) | |||||||||||||
Net investment income (loss) | 1.75% | (d) | 2.29% | 2.95% | 3.87% | 4.02% | (d) | |||||||||||||
Supplemental data | ||||||||||||||||||||
Net assets, end of period (in millions) | $— | $— | $— | $— | $— | |||||||||||||||
Portfolio turnover rate(g) | 123% | 329% | 271% | 209% | 168% | |||||||||||||||
Notes to Financial Highlights
* | Effective Sept. 7, 2010, Class R2 shares were renamed Class R shares. | |
(a) | Rounds to less than $0.01 per share. | |
(b) | During the year ended May 31, 2010, the Fund received proceeds from a regulatory settlement. Had the Fund not received these proceeds, the total return would have been lower by 0.02%. | |
(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 reported expense ratios. | |
(d) | Annualized. | |
(e) | The Investment Manager and its affiliates agreed to waive/reimburse certain fees and expenses (excluding fees and expenses of acquired funds). | |
(f) | For the year ended May 31, 2008, the ratio of net expenses after reduction for waiver/reimbursement, if any, and after reduction for earnings and bank fee credits was 0.88% for Class A, 1.64% for Class B, 1.64% for Class C, 0.50% for Class I and 0.75% for Class R4. | |
(g) | Includes mortgage dollar rolls. If mortgage dollar roll transactions were excluded, the portfolio turnover would have been 75% for the six months ended Nov. 30, 2010, and 286% and 199% for the years ended May 31, 2010 and 2009, respectively. | |
(h) | For the period from Aug. 3, 2009 (when shares became available) to May 31, 2010. | |
(i) | For the period from Dec. 1, 2006 (when shares became available) to May 31, 2007. |
The accompanying Notes to Financial Statements are an integral part of this statement.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 35
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Notes to Financial Statements
(Unaudited as of Nov. 30, 2010)
1. | ORGANIZATION |
RiverSource Short Duration U.S. Government Fund (the Fund) is a series of RiverSource Government Income Series, Inc. (the Corporation) and is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified, open-end management investment company. The Corporation has 10 billion authorized shares of capital stock that can be allocated among the separate series as designated by the Corporation’s Board of Directors (the Board).
The Fund offers Class A, Class B, Class C, Class I, Class R, Class R4 and Class W shares.
Class A shares are subject to a maximum front-end sales charge of 3.00% based on the investment amount. Class A shares purchased without an initial sales charge in accounts aggregating $1 million to $50 million at the time of purchase are subject to a 1.00% contingent deferred sales charge (CDSC) if the shares are sold within 18 months of purchase, charged as follows: 1.00% CDSC if redeemed within 12 months of purchase, and 0.50% CDSC if redeemed more than 12, but less than 18, months after purchase.
The Fund no longer accepts investments by new or existing investors in the Fund’s Class B shares, except in connection with the reinvestment of any dividend and/or capital gain distributions in Class B shares of the Fund and exchanges by existing Class B shareholders of certain other funds within the Columbia Family of Funds. Class B shares may be subject to a maximum CDSC of 5.00% based upon the holding period after purchase. Class B shares will generally convert to Class A shares eight years after purchase.
Class C shares are subject to a 1.00% CDSC on shares redeemed within one year of purchase.
Class I shares are not subject to sales charges and are available only to the Columbia Family of Funds.
Class R shares are not subject to sales charges and are available to qualifying institutional investors. Effective Sept. 7, 2010, Class R2 shares were renamed Class R shares.
Class R4 shares are not subject to sales charges, however, the class was closed to new investors effective Dec. 31, 2010.
Class W shares are not subject to sales charges and are available only to investors purchasing through authorized investment programs managed by investment professionals, including discretionary managed account programs.
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At Nov. 30, 2010, Columbia Management Investment Advisers, LLC (the Investment Manager) and affiliated funds-of-funds owned 100% of Class I shares, and the Investment Manager owned 100% of Class W shares.
All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution and service fees, transfer agency fees, plan administration services fees) differ among classes. Income, expenses (other than class specific expenses) and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Use of estimates
Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results.
Valuation of securities
All securities are valued at the close of business of the New York Stock Exchange (NYSE). Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sales price from the primary exchange. Debt securities are generally traded in the over-the-counter market and are valued by an independent pricing service using an evaluated bid. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. The procedures adopted by the Board generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time.
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. Typically, those maturing in 60 days or less that originally had maturities of more than 60 days at acquisition date are valued at amortized cost using the market value on the 61st day before maturity. Short-term securities maturing in 60 days or less at acquisition date are valued at amortized cost. Amortized cost is
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 37
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Notes to Financial Statements (continued)
an approximation of market value. Investments in money market funds are valued at net asset value.
Repurchase agreements
The Fund may enter into repurchase agreements. Generally, securities received as collateral subject to repurchase agreements are deposited with the Fund’s custodian and, pursuant to the terms of the repurchase agreement, must have an aggregate market value greater than or equal to the repurchase price plus accrued interest at all times. The market value of securities held as collateral for repurchase agreements is monitored on a daily basis to ensure the existence of the proper level of collateral.
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 Nov. 30, 2010, the Fund has outstanding when-issued securities of $71,002,054.
The Fund also enters into transactions to sell purchase commitments to third parties at current market values and concurrently acquires other purchase commitments for similar securities at later dates. As an inducement for the Fund to “roll over” its purchase commitments, the Fund receives negotiated amounts in the form of reductions of the purchase price of the commitment. The Fund records the incremental difference between the forward purchase and sale of each forward roll as realized gain or loss. Losses may arise due to changes in the value of the securities or if a counterparty does not perform under the terms of the agreement. If a counterparty files for bankruptcy or becomes insolvent, the Fund’s right to repurchase or sell securities may be limited.
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.
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Unsettled forward sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under “Valuation of securities” above. The forward sale commitment is “marked-to-market” daily and the change in market value is recorded by the Fund as an unrealized gain or loss. If the forward sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss. If the Fund delivers securities under the commitment, the Fund realizes a gain or a loss from the sale of the securities based upon the market price established at the date the commitment was entered into. Forward sale commitments outstanding at period end are listed in the Notes to Portfolio of Investments.
Guarantees and indemnifications
Under the Fund’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, certain of the Fund’s contracts with its service providers contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown since the amount of 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 (which includes net short-term capital gains) to shareholders. No provision for income or excise taxes is thus required.
Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all tax returns filed for the last three years.
Dividends to shareholders
Dividends from net investment income, declared daily and payable monthly, when available, are reinvested in additional shares of the Fund at net asset value or payable in cash. Capital gains, when available, are normally distributed along with the last income dividend of the calendar year.
Other
Security transactions are accounted for on the date securities are purchased or sold. Dividend income, if any, is recognized on the ex-dividend date and interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 39
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Notes to Financial Statements (continued)
3. | DERIVATIVES INSTRUMENTS |
The Fund invests in certain derivative instruments as detailed below to meet its investment objectives. Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to maintain cash reserves while maintaining exposure to certain other assets, to offset anticipated declines in values of investments, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. The Fund may also use derivative instruments to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. Derivatives may involve various risks, including the potential inability of the counterparty to fulfill its obligation under the terms of the contract, the potential for an illiquid secondary market and the potential for market movements which may expose the Fund to gains or losses in excess of the amount shown in the Statement of Assets and Liabilities.
The Fund and any counterparty are required to maintain an agreement that requires the Fund and that counterparty to monitor (on a daily basis) the net fair value of all derivatives entered into pursuant to the contract between the Fund and such counterparty. If the net fair value of such derivatives between the Fund and that counterparty exceeds a certain threshold (as defined in the agreement), the Fund or the counterparty (as the case may be) is required to post cash and/or securities as collateral. Fair values of derivatives presented in the financial statements are not netted with the fair value of other derivatives or with any collateral amounts posted by the Fund or any counterparty.
Futures contracts
Futures contracts represent commitments for the future purchase or sale of an asset at a specified price on a specified date. The Fund bought and sold futures contracts traded on U.S. and foreign exchanges to manage the duration and yield curve exposure of the Fund versus the benchmark (U.S. Treasury Note futures). Upon entering into futures contracts, the Fund bears risks which may include interest rates, exchange rates or securities prices moving unexpectedly, in which case, the Fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. Additional risks include counterparty credit risk, the possibility of an illiquid market, and that a change in the value of the contract or option may not correlate with changes in the value of the underlying asset.
Upon entering into a futures contract, the Fund pledges cash or securities with the broker in an amount sufficient to meet the initial margin requirement. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily change in the contract
40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
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value and are recorded as variation margin receivable or payable and are offset in unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities.
Effects of derivative transactions on the financial statements
The following tables are intended to provide additional information about the effect of derivatives on the financial statements of the Fund including: the fair value of derivatives by risk category and the location of those fair values in the Statement of Assets and Liabilities; the impact of derivative transactions on the Fund’s operations over the period including realized gains or losses and unrealized gains or losses. The derivative schedules following the Portfolio of Investments present additional information regarding derivative instruments outstanding at the end of the period, if any.
Fair values of derivative instruments at Nov. 30, 2010
Liability derivatives | ||||||||
Statement of Assets | ||||||||
and Liabilities | ||||||||
Risk exposure category | location | Fair value | ||||||
Interest rate contracts | Net assets — unrealized depreciation on investments | $ | 35,076 | * | ||||
* | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Futures Contracts Outstanding table following the Portfolio of Investments. Only the current day’s variation margin is reported in receivables or payables in the Statement of Assets and Liabilities. |
Effect of derivative instruments in the Statement of Operations
for the six months ended Nov. 30, 2010
for the six months ended Nov. 30, 2010
Amount of realized gain (loss) on derivatives recognized in income | ||||||
Risk exposure category | Futures contracts | |||||
Interest rate contracts | $ | (2,863,845 | ) | |||
Change in unrealized appreciation (depreciation) on derivatives recognized in income | ||||||
Risk exposure category | Futures contracts | |||||
Interest rate contracts | $ | 234,227 | ||||
Volume of derivative activity
Futures contracts
The gross notional amount of short contracts outstanding was approximately $84.2 million at Nov. 30, 2010. The monthly average gross notional amounts for
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 41
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Notes to Financial Statements (continued)
long and short contracts was $72.4 million and $66.2 million, respectively, for the six months ended Nov. 30, 2010. The fair value of such contracts at Nov. 30, 2010 is set forth in the table above.
4. | EXPENSES AND SALES CHARGES |
Investment management services fees
Under an Investment Management Services Agreement, the Investment Manager determines which securities will be purchased, held or sold. The management fee is an annual fee that is equal to a percentage of the Fund’s average daily net assets that declines from 0.48% to 0.25% as the Fund’s net assets increase. The management fee for the six months ended Nov. 30, 2010 was 0.48% of the Fund’s average daily net assets.
Administrative services fees
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial, Inc., the parent company of the Investment Manager, an annual fee for administration and accounting services equal to a percentage of the Fund’s average daily net assets that declines from 0.07% to 0.04% as the Fund’s net assets increase. The fee for the six months ended Nov. 30, 2010 was 0.07% of the Fund’s average daily net assets.
Other fees
Other expenses are for, among other things, certain expenses of the Fund or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Fund and the Board. For the six months ended Nov. 30, 2010, other expenses paid to this company were $241.
Compensation of board members
Under a Deferred Compensation Plan (the Plan), the board members who are not “interested persons” of the Fund as defined under the 1940 Act may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the Fund or certain other funds managed by the Investment Manager. The Fund’s liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Plan.
Transfer agency fees
Under a Transfer Agency Agreement, Columbia Management Investment Services Corp. (the Transfer Agent) is responsible for providing transfer agency services to the Fund.
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Prior to Sept. 7, 2010, the Transfer Agent received annual account-based service fees from Class A, Class B and Class C shares that varied by class and annual asset-based service fees based on the Fund’s average daily net assets attributable to Class R, Class R4 and Class W shares, which amount varied by class. In addition, the Transfer Agent charged an annual fee per inactive account and received reimbursement from the Fund for certain out-of-pocket expenses.
Under a new Transfer Agency Agreement effective Sept. 7, 2010, the Transfer Agent has contracted with Boston Financial Data Services (“BFDS”) to serve as sub-transfer agent. The Transfer Agent receives monthly account-based service fees based on the number of open accounts and is reimbursed by the Fund for the fees and expenses the Transfer Agent pays to financial intermediaries that maintain omnibus accounts with the Fund subject to an annual limitation (that varies by class) that is a percentage of the average aggregate value of the Fund’s shares maintained in each such omnibus account (other than omnibus accounts for which American Enterprise Investment Services Inc. is the broker of record or accounts where the beneficial shareholder is a customer of Ameriprise Financial Services, Inc., which are paid a per account fee). The Transfer Agent pays the fees of BFDS for services as sub-transfer agent and is not entitled to reimbursement for such fees from the Fund.
The Transfer Agent also receives reimbursement for certain out-of-pocket expenses and may also retain, as additional compensation for its services, fees for wire, telephone and redemption orders, Individual Retirement Account (“IRA”) trustee agent fees and account transcript fees due to the Transfer Agent from shareholders of the Fund and credits (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection with its services to the Fund.
For the six months ended Nov. 30, 2010, the Fund’s annualized effective transfer agent fee rates as a percentage of average daily net assets of each class were as follows:
Class A | 0.18 | % | ||
Class B | 0.20 | |||
Class C | 0.18 | |||
Class R | 0.11 | |||
Class R4 | 0.05 | |||
Class W | 0.17 |
Class I shares do not pay transfer agent fees.
The Fund and certain other associated investment companies (together, the Guarantors), have severally, but not jointly, guaranteed the performance and
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 43
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Notes to Financial Statements (continued)
observance of all the terms and conditions of a lease entered into by Seligman Data Corp. (SDC), the former transfer agent of Seligman U.S. Government Securities Fund, which was acquired by the Fund on Aug. 28, 2009 (see Note 11), including the payment of rent by SDC (the Guaranty). The lease and the Guaranty expire in January 2019. At Nov. 30, 2010, the Fund’s total potential future obligation over the life of the Guaranty is $88,830. The liability remaining at Nov. 30, 2010 for non-recurring charges associated with the lease amounted to $44,165 and is included within other accrued expenses in the Statement of Assets and Liabilities.
Plan administration services fees
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund pays an annual fee at a rate of 0.25% of the Fund’s average daily net assets attributable to Class R4 shares for the provision of various administrative, recordkeeping, communication and educational services. Prior to Sept. 7, 2010, the Fund also paid an annual fee at a rate of 0.25% of the Fund’s average daily net assets attributable to Class R shares for such services.
Distribution fees
The Fund has an agreement with Columbia Management Investment Distributors, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, the Fund paid a fee at an annual rate of up to 0.25% of the Fund’s average daily net assets attributable to Class A 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 R shares (of which up to 0.25% may be used for services) and a fee at an annual rate of up to 1.00% of the Fund’s average daily net assets attributable to Class B and Class C shares. For Class B and Class C shares, of the 1.00% fee, up to 0.75% is reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet reimbursed (unreimbursed expense) was approximately $3,406,000 and $1,540,000 for Class B and Class C shares, respectively. These amounts are based on the most recent information available as of Oct. 31, 2010, and may be recovered from future payments under the distribution plan or CDSCs. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced.
Sales charges
Sales charges, including front-end and CDSCs, received by the Distributor for distributing Fund shares were $161,908 for Class A, $13,638 for Class B and $1,857 for Class C for the six months ended Nov. 30, 2010.
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Expenses waived/reimbursed by the Investment Manager and its affiliates
For the six months ended Nov. 30, 2010, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that net expenses (excluding fees and expenses of acquired funds*) were as follows:
Class A | 0.85 | % | ||
Class B | 1.61 | |||
Class C | 1.60 | |||
Class I | 0.45 | |||
Class R | 1.18 | |||
Class R4 | 0.74 | |||
Class W | 0.85 |
The waived/reimbursed fees and expenses for the transfer agency fees at the class level were as follows:
Class A | $ | 98,104 | ||
Class B | 12,246 | |||
Class C | 5,711 | |||
Class R | 100 | |||
Class R4 | 155 |
The management fees waived/reimbursed at the Fund level were $478,678.
Under an agreement which was effective until July 31, 2010, the Investment Manager and its affiliates contractually agreed to waive certain fees and reimburse certain expenses such that net expenses (excluding fees and expenses of acquired funds*) would not exceed the following percentage of the class’ average daily net assets:
Class A | 0.86 | % | ||
Class B | 1.62 | |||
Class C | 1.62 | |||
Class I | 0.48 | |||
Class R | 1.28 | |||
Class R4 | 0.78 | |||
Class W | 0.93 |
Effective Aug. 1, 2010, the Investment Manager and its affiliates have contractually agreed to waive certain fees and reimburse certain expenses until July 31, 2011, unless sooner terminated at the sole discretion of the Board, such
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 45
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Notes to Financial Statements (continued)
that net expenses (excluding fees and expenses of acquired funds*) will not exceed the following percentage of the class’ average daily net assets:
Class A | 0.84 | % | ||
Class B | 1.60 | |||
Class C | 1.60 | |||
Class I | 0.44 | |||
Class R | 1.24 | |||
Class R4 | 0.74 | |||
Class W | 0.89 |
* | 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. |
5. | SECURITIES TRANSACTIONS |
Cost of purchases and proceeds from sales of securities (other than short-term obligations, but including mortgage dollar rolls) aggregated $856,103,356 and $827,887,465, respectively, for the six months ended Nov. 30, 2010. Realized gains and losses are determined on an identified cost basis.
6. | CAPITAL SHARE TRANSACTIONS |
Transactions in shares of capital stock for the periods indicated were as follows:
Six months ended | Year ended | |||||||||||
Nov. 30, 2010 | May 31, 2010(a) | |||||||||||
Class A | ||||||||||||
Sold | 7,667,879 | 18,853,705 | ||||||||||
Fund merger | N/A | 7,186,369 | ||||||||||
Converted from Class B(b) | 4,766,724 | 5,576,336 | ||||||||||
Reinvested distributions | 829,976 | 2,438,534 | ||||||||||
Redeemed | (15,446,332 | ) | (45,489,263 | ) | ||||||||
Net increase (decrease) | (2,181,753 | ) | (11,434,319 | ) | ||||||||
Class B | ||||||||||||
Sold | 630,474 | 1,600,644 | ||||||||||
Fund merger | N/A | 1,049,408 | ||||||||||
Reinvested distributions | 52,034 | 283,399 | ||||||||||
Converted to Class A(b) | (4,776,632 | ) | (5,576,350 | ) | ||||||||
Redeemed | (1,763,244 | ) | (7,723,130 | ) | ||||||||
Net increase (decrease) | (5,857,368 | ) | (10,366,029 | ) | ||||||||
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Six months ended | Year ended | |||||||||||
Nov. 30, 2010 | May 31, 2010(a) | |||||||||||
Class C | ||||||||||||
Sold | 1,084,616 | 1,563,844 | ||||||||||
Fund merger | N/A | 3,561,144 | ||||||||||
Reinvested distributions | 25,103 | 64,062 | ||||||||||
Redeemed | (790,720 | ) | (2,103,348 | ) | ||||||||
Net increase (decrease) | 318,999 | 3,085,702 | ||||||||||
Class I | ||||||||||||
Sold | 509,589 | 6,758,907 | ||||||||||
Reinvested distributions | 161,498 | 322,307 | ||||||||||
Redeemed | (332,262 | ) | (1,885,792 | ) | ||||||||
Net increase (decrease) | 338,825 | 5,195,422 | ||||||||||
Class R(c) | ||||||||||||
Sold | 226,550 | 201,664 | ||||||||||
Fund merger | N/A | 728,900 | ||||||||||
Reinvested distributions | 996 | 1,739 | ||||||||||
Redeemed | (123,531 | ) | (300,411 | ) | ||||||||
Net increase (decrease) | 104,015 | 631,892 | ||||||||||
Class R4 | ||||||||||||
Sold | 126,508 | 522,899 | ||||||||||
Reinvested distributions | 9,461 | 21,965 | ||||||||||
Redeemed | (234,949 | ) | (487,406 | ) | ||||||||
Net increase (decrease) | (98,980 | ) | 57,458 | |||||||||
(a) | Class R is for the period from Aug. 3, 2009 (when shares became available) to May 31, 2010. | |
(b) | Automatic conversion of Class B shares to Class A shares based on the original purchase date. | |
(c) | Effective Sept. 7, 2010, Class R2 shares were renamed Class R shares. |
7. | LENDING OF PORTFOLIO SECURITIES |
The Fund has entered into a Master Securities Lending Agreement (the Agreement) with JPMorgan Chase Bank, National Association (JPMorgan). The Agreement authorizes JPMorgan as lending agent to lend securities to authorized borrowers in order to generate additional income on behalf of the Fund. Pursuant to the Agreement, the securities loaned are secured by cash or U.S. government securities equal to at least 100% of the market value of the loaned securities. Any additional collateral required to maintain those levels due to market fluctuations of the loaned securities is delivered the following business day. Cash collateral received is invested by the lending agent on behalf of the Fund into authorized investments pursuant to the Agreement. The investments made with the cash collateral are listed in the Portfolio of Investments. The values of such
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 47
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Notes to Financial Statements (continued)
investments and any uninvested cash collateral are disclosed in the Statement of Assets and Liabilities along with the related obligation to return the collateral upon the return of the securities loaned. At Nov. 30, 2010, securities valued at $165,306,917 were on loan, secured by U.S. government securities valued at $98,402,388 and by cash collateral of $69,609,345 invested in short-term securities or in cash equivalents.
Risks of delay in recovery of securities or even loss of rights in the securities may occur should the borrower of the securities fail financially. Risks may also arise to the extent that the value of the securities loaned increases above the value of the collateral received. JPMorgan will indemnify the Fund from losses resulting from a borrower’s failure to return a loaned security when due. Such indemnification does not extend to losses associated with declines in the value of cash collateral investments. Loans are subject to termination by the Fund or the borrower at any time, and are, therefore, not considered to be illiquid investments.
Pursuant to the Agreement, the Fund receives income for lending its securities either in the form of fees or by earning interest on invested cash collateral, net of negotiated rebates paid to borrowers and fees paid to the lending agent for services provided and any other securities lending expenses. Net income of $39,659 earned from securities lending for the six months ended Nov. 30, 2010 is included in the Statement of Operations. The Fund also continues to earn interest and dividends on the securities loaned.
8. | AFFILIATED MONEY MARKET FUND |
The Fund may invest its daily cash balance in Columbia Short-Term Cash Fund (formerly known as RiverSource Short-Term Cash Fund), a money market fund established for the exclusive use of certain funds managed by the Investment Manager and other institutional clients of the Investment Manager. The cost of the Fund’s purchases and proceeds from sales of shares of Columbia Short-Term Cash Fund aggregated $223,458,971 and $224,169,863, respectively, for the six months ended Nov. 30, 2010. The income distributions received with respect to the Fund’s investment in Columbia Short-Term Cash Fund can be found in the Statement of Operations and the Fund’s invested balance in Columbia Short-Term Cash Fund at Nov. 30, 2010, can be found in the Portfolio of Investments.
9. | BANK BORROWINGS |
The Fund has entered into a revolving credit facility with a syndicate of banks led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for
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other temporary or emergency purposes. The credit facility became effective on Oct. 14, 2010, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between the Fund and certain other funds managed by the Investment Manager, severally and not jointly, permits collective borrowings up to $300 million. The borrowers shall have the right, upon written notice to the Administrative Agent, to request an increase of up to $200 million in the aggregate amount of the credit facility from new or existing lenders, provided that the aggregate amount of the credit facility shall at no time exceed $500 million. Participation in such increase by any existing lender shall be at such lender’s sole discretion. Interest is charged to each fund based on its borrowings at a rate equal to the sum of the federal funds rate plus (i) 1.25% per annum plus (ii) if one-month LIBOR exceeds the federal funds rate, the amount of such excess. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.10% per annum.
Prior to Oct. 14, 2010, the credit facility agreement, which was a collective agreement between the Fund and certain other funds managed by the Investment Manager, severally and not jointly, permitted collective borrowings up to $300 million. The Fund also paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.10% per annum, in addition to an upfront fee equal to its pro rata share of 0.04% of the amount of the credit facility. The Fund had no borrowings during the six months ended Nov. 30, 2010.
10. | PROCEEDS FROM REGULATORY SETTLEMENT |
During the year ended May 31, 2010, as a result of a settlement of an administrative proceeding brought by the Securities and Exchange Commission against an unaffiliated third party relating to market timing and/or late trading of mutual funds, the Fund received $112,925, which represented the Fund’s portion of the proceeds from the settlement (the Fund was not a party to the proceeding). The proceeds received by the Fund were recorded as an increase to additional paid-in capital.
11. | FUND MERGER |
At the close of business on Aug. 28, 2009, RiverSource Short Duration U.S. Government Fund acquired the assets and assumed the identified liabilities of Seligman U.S. Government Securities Fund. The merger was completed after shareholders of the acquired fund approved the plan on June 29, 2009.
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Notes to Financial Statements (continued)
The aggregate net assets of RiverSource Short Duration U.S. Government Fund immediately before the acquisition were $655,221,348 and the combined net assets immediately after the acquisition were $713,992,375.
The acquisition was accomplished by a tax-free exchange of 8,071,788 shares of Seligman U.S. Government Securities Fund valued at $58,771,027.
In exchange for Seligman U.S. Government Securities Fund shares, RiverSource Short Duration U.S. Government Fund issued the following number of shares:
Shares | ||||
Class A | 7,186,369 | |||
Class B | 1,049,408 | |||
Class C | 3,561,144 | |||
Class R | 728,900 |
For financial reporting purposes, net assets received and shares issued by RiverSource Short Duration U.S. Government Fund were recorded at fair value; however, Seligman U.S. Government Securities Fund’s cost of investments was carried forward to align ongoing reporting of RiverSource Short Duration U.S. Government Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
The components of Seligman U.S. Government Securities Fund’s net assets after adjustments for any permanent book-to-tax differences at the merger date were as follows:
Total net assets | $ | 58,771,027 | ||
Capital stock | 62,591,453 | |||
Excess of distributions over net investment income | (59,434 | ) | ||
Accumulated net realized loss | (5,240,048 | ) | ||
Unrealized appreciation | 1,479,056 |
The financial statements reflect the operations of RiverSource Short Duration U.S. Government Fund for the period prior to the acquisition and the combined Fund for the period subsequent to the acquisition. Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of Seligman U.S. Government Securities Fund that have been included in the combined Fund’s Statement of Operations since the acquisition was completed. Assuming the acquisition had been completed on June 1, 2009, RiverSource Short Duration U.S. Government Fund’s pro-forma net investment income, net gain on investments, and net increase in net assets from operations for the year ended May 31, 2010 would have been $15.4 million, $4.5 million, and $32.6 million, respectively.
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12. | FEDERAL TAX INFORMATION |
Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of futures and options contracts, recognition of unrealized appreciation (depreciation) for certain derivative investments and losses deferred due to wash sales. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains were recorded by the Fund.
For federal income tax purposes, the Fund had a capital loss carry-over of $93,995,687 at May 31, 2010, that if not offset by capital gains will expire as follows:
2012 | 2013 | 2014 | 2015 | 2017 | 2018 | |||||||||||||||
$1,261,719 | $ | 38,180,597 | $ | 22,499,962 | $ | 9,579,187 | $ | 3,846,817 | $ | 18,627,405 |
It is unlikely the Board will authorize a distribution of any net realized capital gains until the available capital loss carry-over has been offset or expires. There is no assurance that the Fund will be able to utilize all of its capital loss carry-over before it expires. There is no assurance that the Fund will be able to utilize all of its capital loss carry-over before it expires.
13. | SUBSEQUENT EVENTS |
Management has evaluated Fund related events and transactions that occurred during the period from the date of the Statement of Assets and Liabilities through the date of issuance of the Fund’s financial statements. There were no events or transactions that occurred during the period that materially impacted the amounts or disclosures in the Fund’s financial statements, other than as noted below.
The Board of Directors of the Fund has approved the proposed merger of the Fund into Columbia Short Term Bond Fund. It is currently anticipated that a meeting of shareholders will be held during the first half of 2011 to vote on the proposal.
14. | 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
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Notes to Financial Statements (continued)
they are investors in several American Express Company (now known as legacy RiverSource) mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota (the District Court). In response to defendants’ motion to dismiss the complaint, the District Court dismissed one of plaintiffs’ four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants’ favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals (the Eighth Circuit) on August 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary judgment and remanded to the District Court for further proceedings. On August 6, 2009, defendants filed a writ of certiorari with the U.S. Supreme Court (the Supreme Court), asking the Supreme Court to stay the District Court proceedings while the Supreme Court considers and rules in a case captioned Jones v. Harris Associates, which involves issues of law similar to those presented in the Gallus case. On March 30, 2010, the Supreme Court issued its ruling in Jones v. Harris Associates, and on April 5, 2010, the Supreme Court vacated the Eighth Circuit’s decision in the Gallus case and remanded the case to the Eighth Circuit for further consideration in light of the Supreme Court’s decision in Jones v. Harris Associates. On June 4, 2010, the Eighth Circuit remanded the Gallus case to the District Court for further consideration in light of the Supreme Court’s decision in Jones v. Harris Associates. On December. 9, 2010, the District Court reinstated its July 9, 2007 summary judgment order in favor of the defendants.
In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at
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http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the funds’ Boards of Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial.
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT 53
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Proxy Voting
The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling 800.345.6611; contacting your financial intermediary; visiting columbiamanagement.com; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting columbiamanagement.com; or searching the website of the SEC at www.sec.gov.
54 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND — 2010 SEMIANNUAL REPORT
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RiverSource Short Duration U.S. Government Fund
P.O. Box 8081
Boston, MA 02266-8081
columbiamanagement.com
![]() | This report must be accompanied or preceded by the Fund’s current prospectus. The Fund is distributed by Columbia Management Investment Distributors, Inc., member FINRA and managed by Columbia Management Investment Advisers, LLC. ©2011 Columbia Management Investment Advisers, LLC. All rights reserved. | S-6442 AC (1/11) |
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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. Investments.
(a) | The registrant’s “Schedule 1 — Investments in securities of unaffiliated issuers” (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR. | |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable.
Item 9. Purchases 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.
There were no material changes to the procedure by which shareholders may recommend nominees to the registrant’s board of directors.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officer, based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing of this report, have concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant’s management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) There was no change in the registrant’s internal controls over financial reporting that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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Item 12. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not applicable for semi annual reports.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
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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 Government Income Series, Inc. |
By | /s/ J. Kevin Connaughton | |||
President and Principal Executive Officer |
Date January 21, 2011
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/ J. Kevin Connaughton | |||
President and Principal Executive Officer | ||||
Date January 21, 2011 | ||||
By | /s/ Michael G. Clarke | |||
Chief Financial Officer | ||||
Date January 21, 2011 |