UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4260
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AXP GOVERNMENT INCOME SERIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
50606 AXP Financial Center, Minneapolis, Minnesota 55474
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(Address of principal executive offices) (Zip code)
Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268
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(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 330-9283
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Date of fiscal year end: 5/31
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Date of reporting period: 11/30
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<Page>
SEMIANNUAL REPORT
[RIVERSOURCE(SM) INVESTMENTS LOGO]
RIVERSOURCE(SM)
SHORT DURATION U.S. GOVERNMENT FUND
SEMIANNUAL REPORT FOR THE PERIOD ENDED NOV. 30, 2005
- - RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (FORMERLY AXP(R) 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.
<Page>
TABLE OF CONTENTS
Fund Snapshot 3
Performance Summary 4
Questions & Answers with Portfolio Management 6
Investments in Securities 10
Financial Statements 16
Notes to Financial Statements 19
Fund Expenses Example 32
Approval of Investment Management Services Agreement 34
Proxy Voting 38
[DALBAR RATED FOR COMMUNICATION 2005 LOGO]
American Express(R) Funds'* reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
* As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the
name of the American Express Funds.
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2 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
FUND SNAPSHOT AT NOV. 30, 2005
PORTFOLIO MANAGERS
<Table>
<Caption>
PORTFOLIO MANAGERS* SINCE YEARS IN INDUSTRY
Jamie Jackson 6/03 17
Scott Kirby 6/01 19
</Table>
* The Fund is managed by a team of portfolio managers led by Jamie Jackson and
Scott Kirby.
FUND OBJECTIVE
For investors seeking a high level of current income and safety of principal
consistent with investment in U.S. government and government agency securities.
Inception dates by class
A: 8/19/85 B: 3/20/95 C: 6/26/00 I: 3/4/04 Y: 3/20/95
Ticker symbols by class
A: IFINX B: ISHOX C: AXFCX I: AGMIX Y: IDFYX
<Table>
Total net assets $1.297 billion
Number of holdings 188
Weighted average life(1) 3.2 years
Effective duration(2) 2.2 years
Weighted average bond rating(3) AAA
</Table>
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
SECTOR COMPOSITION
PERCENTAGE OF PORTFOLIO ASSETS
<Table>
Mortgage-Backed 46.2%
U.S. Government Obligations & Agencies 44.7%
Short-Term Securities* 8.1%
Commercial Mortgage-Backed 0.9%
Asset-Backed 0.1%
</Table>
* Of the 8.1%, 7.7% is due to security lending activity and 0.4% is the Fund's
cash equivalent position.
CREDIT QUALITY SUMMARY
PERCENTAGE OF BOND PORTFOLIO ASSETS
AAA bonds 100.0%
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
Shares of the Short Duration U.S. Government Fund are not insured or guaranteed
by the U.S. government.
There are risks associated with an investment in a bond fund, including the
impact of interest rates, credit and inflation. In general, bond prices rise
when interest rates fall and vice versa. This effect is usually more pronounced
for longer-term securities.
Fund holdings are subject to change.
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3 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE COMPARISON
FOR THE SIX-MONTH PERIOD ENDED NOV. 30, 2005
<Table>
RiverSource Short Duration U.S. Government Fund
Class A (excluding sales charge) +0.22%
Lehman Brothers 1-3 Year
Government Index(1) (unmanaged) +0.58%
Lipper Short U.S. Government Funds Index(2) +0.51%
</Table>
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 CALLING (800) 862-7919 OR VISITING
www.riversource.com/funds.
(1) The Lehman Brothers 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, but excludes brokerage commissions or other
fees.
(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.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
SEC YIELDS
At Nov. 30, 2005 by class
A: 3.78% B: 3.22% C: 3.23% I: 4.28% Y: 4.15%
At Dec. 30, 2005* by class
A: 3.34% B: 2.77% C: 2.76% I: 3.81% Y: 3.69%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 5 for additional
performance information.
* The last business day of the period.
STYLE MATRIX
<Table>
<Caption>
DURATION
SHORT INT. LONG
QUALITY
HIGH X
MEDIUM
LOW
</Table>
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY
INVESTS.
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4 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS I CLASS Y
(8/19/85) (3/20/95) (6/26/00) (3/4/04) (3/20/95)
AFTER AFTER
(INCEPTION DATES) NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6)
AT NOV. 30, 2005
6 months* +0.22% -4.54% -0.15% -5.08% -0.15% -1.13% +0.59% +0.33%
1 year +1.28% -3.53% +0.53% -4.40% +0.53% -0.45% +1.63% +1.47%
3 years +1.29% -0.34% +0.53% -0.76% +0.53% +0.53% N/A +1.47%
5 years +3.29% +2.29% +2.56% +2.20% +2.52% +2.52% N/A +3.46%
10 years +4.26% +3.75% +3.46% +3.46% N/A N/A N/A +4.41%
Since inception +6.29% +6.03% +4.04% +4.04% +3.12% +3.12% +1.01% +4.99%
AT DEC. 31, 2005
6 months* +0.45% -4.33% +0.07% -4.86% +0.07% -0.91% +0.82% +0.55%
1 year +1.33% -3.48% +0.58% -4.35% +0.58% -0.40% +1.69% +1.52%
3 years +1.06% -0.57% +0.31% -0.98% +0.31% +0.31% N/A +1.24%
5 years +3.14% +2.15% +2.37% +2.01% +2.37% +2.37% N/A +3.32%
10 years +4.17% +3.67% +3.39% +3.39% N/A N/A N/A +4.32%
Since inception +6.28% +6.03% +4.04% +4.04% +3.13% +3.13% +1.20% +4.99%
</Table>
(1) EXCLUDING SALES CHARGE.
(2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%.
(3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS
FOLLOWS: FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR
2%; SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER.
(4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE.
(5) SALES CHARGE IS NOT APPLICABLE TO THESE SHARES. SHARES AVAILABLE TO ELIGIBLE
INVESTORS ONLY, CURRENTLY LIMITED TO RIVERSOURCE PORTFOLIO BUILDER FUNDS,
SIX AFFILIATED FUNDS-OF-FUNDS.
(6) SALES CHARGE IS NOT APPLICABLE TO THESE SHARES. SHARES AVAILABLE TO
INSTITUTIONAL INVESTORS ONLY.
* NOT ANNUALIZED.
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5 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
WITH PORTFOLIO MANAGEMENT
BELOW, THE FUND'S PORTFOLIO MANAGERS JAMIE JACKSON AND SCOTT KIRBY DISCUSS THE
FUND'S POSITIONING AND RESULTS FOR THE SEMIANNUAL PERIOD ENDED NOV. 30, 2005.
Q: HOW DID RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND PERFORM FOR THE FIRST
HALF OF THE FISCAL YEAR?
A: RiverSource Short Duration U.S. Government Fund's Class A shares (excluding
sales charge) rose 0.22% for the six months ended Nov. 30, 2005. The Fund
underperformed the Lehman Brothers 1-3 Year Government Index (Lehman Index),
which gained 0.58%. The Fund also underperformed the Lipper Short U.S.
Government Funds Index, representing the Fund's peer group, which rose 0.51%
over the same time frame.
To help keep the Fund competitive with its peers, RiverSource Investments,
LLC and its affiliates implemented a new expense cap on June 1, 2005,
reducing the maximum level of expenses borne by Class A shareholders from
0.93% of net assets per fiscal year to a maximum 0.89% of net assets per
year.
Q: WHAT FACTORS MOST SIGNIFICANTLY AFFECTED FUND PERFORMANCE DURING THE
SEMIANNUAL PERIOD?
A: Overall, the fixed income market struggled during the six months, as U.S.
Treasury rates followed a volatile path in a generally upward direction. The
major exception to the trend toward higher rates was the short-lived rally in
the immediate aftermath of Hurricane Katrina. However, despite the wrenching
personal catastrophe, fears of a dramatic economic slowdown in response to
the damage did not materialize. The Federal Reserve Board (the Fed) raised
interest rates a total of four times during the semiannual period, bringing
the targeted federal funds rate to 4.00% by the end of November. The market
began to price in continued hikes by the Fed into 2006. Thus, returns on the
Fund and its benchmarks were positive but modest.
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6 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
- - THE FUND BENEFITED DURING THE PERIOD FROM ITS COMPARATIVELY SHORT DURATION
POSITIONING.
The Fund benefited during the period from its comparatively short duration
positioning, as rates rose materially. Duration is a measure of the Fund's
sensitivity to changes in interest rates. Further supporting the Fund's
returns was its modest exposure to agency securities, as this sector
underperformed U.S. Treasuries during the period. Effective issue selection
within the Fund's allocation to mortgage-backed securities also helped -- in
particular, premium-coupon securities, adjustable-rate mortgages (ARMs) and
well-structured collateralized mortgage obligations (CMOs). Higher coupon
bonds significantly outperformed lower coupon bonds during the period, and
mortgage investors favored ARMs and CMOs for their defensive characteristics.
The Fund's exposure to AAA-rated commercial mortgage-backed securities had a
rather neutral effect on results relative to the Lehman Index for the
six-month period.
Despite good issue selection within the sector, the Fund's sizable allocation
to mortgage-backed securities overall detracted from its results relative to
the Lehman Index. Mortgage-backed securities generally underperformed both
U.S. Treasuries and agencies during the period, due to higher interest rates,
slightly higher volatility and a general lack of demand on the part of
investors.
The Fund lagged its Lipper peer group due to its comparatively defensive
positioning, generally maintaining a more conservative risk profile than many
of its peers.
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7 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
I. WE INTEND TO POSITION THE FUND FOR ONGOING U.S. ECONOMIC RECOVERY AND STILL
HIGHER INTEREST RATES, AS THESE THEMES ARE LIKELY TO CONTINUE TO WEIGH ON THE
FIXED INCOME MARKETS INTO THE NEW YEAR.
Q: WHAT CHANGES DID YOU MAKE TO THE FUND AND HOW IS IT CURRENTLY POSITIONED?
A: While we kept a rather defensive positioning throughout the semiannual
period, we extended duration a bit as rates rose significantly during the six
months. Also, as the yield curve flattened dramatically, we removed some of
the Fund's yield curve flattening bias and reduced the portfolio's
sensitivity to changes in interest rates.
In reaction to the underperformance of mortgage-backed securities, we
modestly added to the Fund's allocation to this sector. We had started to see
better value in these securities, and we believed they looked increasingly
attractive.
Q: HOW DO YOU INTEND TO MANAGE THE FUND IN THE COMING MONTHS?
A: We intend to position the Fund for ongoing U.S. economic recovery and still
higher interest rates, as these themes are likely to continue to weigh on the
fixed income markets into the new year. We believe the Fed will likely
continue its gradualist approach, continuing to raise targeted federal funds
rate.
Based on this view, we continue to maintain the Fund's comparatively
defensive positioning for the near term. We believe fixed income yields will
move materially higher in the months ahead. As for yield curve positioning,
or the way a Fund is positioned to respond to changes in short-term vs.
long-term interest rates, we are currently maintaining only a modest
flattening
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8 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
bias. We believe the yield curve has already flattened to near fair value and
the move to higher yields across short-term and long-term maturities going
forward may be more parallel in nature. In mortgages, we plan to remain
defensively positioned, emphasizing premium coupons, 15-year mortgages and
attractive structural attributes.
We will continue to monitor job creation and inflation numbers, as they
remain key indicators for the economy in the coming months. As always, our
strategy is to provide added portfolio value with a moderate amount of risk.
Quality issues and security selection remain a priority as we continue to
seek attractive buying opportunities.
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9 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
INVESTMENTS IN SECURITIES
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
NOV. 30, 2005 (UNAUDITED)
(PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
BONDS (102.1%)
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (49.6%)
Federal Farm Credit Bank
07-17-06 2.13% $ 15,100,000 $ 14,878,332
10-02-06 2.38 14,600,000 14,331,272
10-10-08 4.25 6,015,000 5,945,106
Federal Home Loan Bank
05-15-06 3.00 25,570,000 25,408,756
09-15-06 3.50 30,000,000 29,732,040
10-19-07 4.13 35,000,000 34,635,020
04-18-08 4.13 22,660,000 22,366,122
11-21-08 4.63 6,500,000 6,481,189
Federal Home Loan Mtge Corp
09-15-06 3.63 34,500,000 34,232,694
01-30-07 3.00 10,950,000 10,714,137
10-15-08 5.13 11,385,000 11,503,814
Federal Natl Mtge Assn
02-15-06 5.50 15,500,000 15,536,658
02-28-06 2.25 6,770,000 6,736,841
03-02-07 3.00 16,000,000 15,673,584
10-15-08 4.50 22,165,000 22,028,419
U.S. Treasury
11-30-06 2.88 3,000,000 2,954,064
02-28-07 3.38 36,600,000 36,125,335
06-30-07 3.63 119,109,000(b) 117,680,644
11-30-07 4.25 48,045,000 47,891,112
02-15-08 3.38 105,195,000(l) 102,910,269
10-15-08 3.13 15,810,000 15,266,531
05-15-15 4.13 5,685,000(b),(l) 5,503,791
08-15-23 6.25 6,855,000 8,021,152
02-15-26 6.00 18,285,000 21,077,028
U.S. Treasury Inflation-Indexed Bond
01-15-15 1.63 16,948,125(o) 16,247,621
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Total 643,881,531
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ASSET-BACKED (0.1%)
Centex Home Equity
Series 2001-A Cl A4 (MBIA)
07-25-29 6.47 415,920(m) 414,538
Residential Asset Securities
Series 2002-KS1 Cl AI4 (AMBAC)
11-25-29 5.86 776,583(m) 773,772
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Total 1,188,310
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COMMERCIAL MORTGAGE-BACKED (1.1%)(f)
Federal Natl Mtge Assn #360800
01-01-09 5.74% $ 3,168,483 $ 3,223,152
Federal Natl Mtge Assn #381990
10-01-09 7.11 4,240,677 4,527,222
LB-UBS Commercial Mtge Trust
Series 2004-C6 Cl A2
08-15-29 4.19 6,165,000 6,007,238
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Total 13,757,612
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MORTGAGE-BACKED (51.3%)(f),(g)
Bear Stearns Alternative Trust
Series 2005-5 Cl 1A1
07-25-35 4.41 6,777,923(n) 6,786,327
Countrywide Alternative Loan Trust
Series 2005-6CB Cl 1A1
04-25-35 7.50 2,432,687 2,515,129
Countrywide Home Loans
Series 2005-R2 Cl 2A1
06-25-35 7.00 7,806,597(d) 8,035,339
CS First Boston Mtge Securities
Series 2005-10 4A1
11-25-35 6.50 4,967,964 5,048,693
CS First Boston Mtge Securities
Series 2005-8 7A1
09-25-35 7.00 6,577,766 6,726,267
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
06-15-16 7.00 10,942,784 11,339,470
12-15-28 5.50 2,500,000 2,510,288
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
12-15-12 12.70 8,745,173(i) 400,141
02-15-14 17.16 8,763,107(i) 495,466
01-01-20 15.51 14,977(i) 3,316
03-15-25 11.74 10,152,758(i) 799,960
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
11-15-19 20.00 9,610,985(h),(i) 780,739
03-15-32 16.30 2,494,748(h),(i) 218,370
</Table>
See accompanying notes to investments in securities.
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10 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
BONDS (CONTINUED)
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #782436
10-01-34 5.01% $ 5,383,087(k) $ 5,330,925
Federal Home Loan Mtge Corp #A18107
01-01-34 5.50 4,080,000 4,028,311
Federal Home Loan Mtge Corp #B16408
09-01-19 5.50 1,737,781 1,745,800
Federal Home Loan Mtge Corp #B16409
09-01-19 5.50 2,408,477 2,419,591
Federal Home Loan Mtge Corp #C00351
07-01-24 8.00 402,254 429,699
Federal Home Loan Mtge Corp #C00385
01-01-25 9.00 614,868 674,961
Federal Home Loan Mtge Corp #C80329
08-01-25 8.00 128,551 137,236
Federal Home Loan Mtge Corp #D54959
07-01-24 8.00 73,171 78,163
Federal Home Loan Mtge Corp #E00398
10-01-10 7.00 831,620 860,537
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 6,638,499 7,056,849
Federal Home Loan Mtge Corp #E90650
07-01-12 5.50 435,624 438,194
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 4,584,102 4,527,021
Federal Home Loan Mtge Corp #E93465
11-01-17 5.50 8,320,719 8,365,832
Federal Home Loan Mtge Corp #E95379
02-01-13 5.00 3,124,181 3,096,312
Federal Home Loan Mtge Corp #E95668
04-01-13 5.00 595,204 589,809
Federal Home Loan Mtge Corp #E95691
05-01-13 4.50 535,784 524,088
Federal Home Loan Mtge Corp #E95845
04-01-13 4.50 810,132 791,736
Federal Home Loan Mtge Corp #E95968
04-01-13 4.50 1,023,009 999,762
Federal Home Loan Mtge Corp #E95972
04-01-13 5.00 2,418,938 2,396,722
Federal Home Loan Mtge Corp #E96172
05-01-13 4.50 5,415,850 5,292,959
Federal Home Loan Mtge Corp #E96236
05-01-13 4.50 6,475,431 6,328,340
Federal Home Loan Mtge Corp #E96351
05-01-13 4.50 5,966,537 5,832,005
Federal Home Loan Mtge Corp #G00363
06-01-25 8.00 513,881 548,599
Federal Home Loan Mtge Corp #G00501
05-01-26 9.00 970,389 1,063,386
Federal Home Loan Mtge Corp #G10669
03-01-12 7.50% $ 3,564,004 $ 3,768,891
Federal Home Loan Mtge Corp #G11243
04-01-17 6.50 21,817,577 22,529,741
Federal Home Loan Mtge Corp #M30074
09-01-09 6.50 280,254 289,307
Federal Natl Mtge Assn
01-01-35 5.00 13,000,000(e) 12,492,194
12-01-35 6.50 16,600,000(e) 16,994,250
01-01-36 6.00 10,000,000(e) 10,037,500
Federal Natl Mtge Assn
Collateralized Mtge Obligation
07-25-23 5.50 19,093,897 19,174,701
12-25-26 8.00 3,346,377 3,554,814
06-25-33 6.01 1,120,659(k) 1,130,403
04-25-34 5.50 4,545,117 4,560,756
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
12-25-12 20.00 6,826,668(i) 296,918
11-25-13 10.08 10,950,000(i) 762,649
08-01-18 3.08 7,936(i) 2,258
01-15-20 20.00 306,047(i) 61,713
07-25-22 20.00 961,158(i) 162,263
03-25-23 8.45 2,488,926(i) 463,990
12-25-31 10.31 3,077,240(i) 520,128
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only/Inverse Floater
02-25-32 19.23 4,741,418(h),(i) 424,388
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
06-25-21 2.44 45,989(j) 42,324
Federal Natl Mtge Assn #124528
10-01-07 7.50 270,836 276,129
Federal Natl Mtge Assn #125032
11-01-21 8.00 209,768 223,655
Federal Natl Mtge Assn #190129
11-01-23 6.00 1,485,973 1,497,692
Federal Natl Mtge Assn #190764
09-01-07 8.50 48,590 48,737
Federal Natl Mtge Assn #190785
05-01-09 7.50 1,047,719 1,068,197
Federal Natl Mtge Assn #190988
06-01-24 9.00 475,427 511,709
Federal Natl Mtge Assn #252061
10-01-13 6.00 2,149,935 2,196,446
</Table>
See accompanying notes to investments in securities.
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11 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
BONDS (CONTINUED)
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #254384
06-01-17 7.00% $ 624,606 $ 649,629
Federal Natl Mtge Assn #254454
08-01-17 7.00 1,202,422 1,250,594
Federal Natl Mtge Assn #254723
05-01-23 5.50 13,075,942 13,005,322
Federal Natl Mtge Assn #254748
04-01-13 5.50 11,383,085 11,447,559
Federal Natl Mtge Assn #254757
05-01-13 5.00 14,921,099 14,762,973
Federal Natl Mtge Assn #254774
05-01-13 5.50 3,602,454 3,619,998
Federal Natl Mtge Assn #254864
08-01-13 4.50 7,507,359 7,324,487
Federal Natl Mtge Assn #255501
09-01-14 6.00 1,606,292 1,642,738
Federal Natl Mtge Assn #303885
05-01-26 7.50 720,412 758,378
Federal Natl Mtge Assn #313007
07-01-11 7.50 582,766 608,483
Federal Natl Mtge Assn #313428
12-01-08 7.50 443,005 451,663
Federal Natl Mtge Assn #336512
02-01-26 6.00 67,939 68,516
Federal Natl Mtge Assn #357485
02-01-34 5.50 17,890,223 17,663,340
Federal Natl Mtge Assn #407327
01-01-14 5.50 732,720 738,077
Federal Natl Mtge Assn #427088
05-01-13 6.00 718,429 733,971
Federal Natl Mtge Assn #452377
01-01-14 6.00 380,303 388,530
Federal Natl Mtge Assn #456374
12-01-13 5.50 1,440,639 1,451,172
Federal Natl Mtge Assn #483013
03-01-14 6.00 867,500 886,268
Federal Natl Mtge Assn #508402
08-01-14 6.50 401,387 413,951
Federal Natl Mtge Assn #545818
07-01-17 6.00 23,428,338 23,997,561
Federal Natl Mtge Assn #545864
08-01-17 5.50 17,742,164 17,868,938
Federal Natl Mtge Assn #545910
08-01-17 6.00 3,495,440 3,580,364
Federal Natl Mtge Assn #555063
11-01-17 5.50 12,604,818 12,686,778
Federal Natl Mtge Assn #555343
08-01-17 6.00 6,194,035 6,328,897
Federal Natl Mtge Assn #555367
03-01-33 6.00% $14,697,058 $14,795,856
Federal Natl Mtge Assn #579485
04-01-31 6.50 3,279,568 3,377,484
Federal Natl Mtge Assn #593829
12-01-28 7.00 2,138,178 2,238,777
Federal Natl Mtge Assn #601416
11-01-31 6.50 1,327,744 1,371,749
Federal Natl Mtge Assn #630993
09-01-31 7.50 2,822,063 2,969,273
Federal Natl Mtge Assn #648040
06-01-32 6.50 3,287,230 3,370,840
Federal Natl Mtge Assn #648349
06-01-17 6.00 11,669,658 11,953,176
Federal Natl Mtge Assn #650501
06-01-17 6.50 2,580,795 2,660,627
Federal Natl Mtge Assn #651284
07-01-17 6.00 2,392,423 2,450,551
Federal Natl Mtge Assn #654670
08-01-17 6.00 752,516 770,784
Federal Natl Mtge Assn #662866
11-01-17 6.00 1,398,404 1,442,857
Federal Natl Mtge Assn #664151
09-01-17 6.00 261,159 266,845
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,842,824 1,889,696
Federal Natl Mtge Assn #670782
11-01-12 5.00 692,664 685,414
Federal Natl Mtge Assn #670830
12-01-12 5.00 988,874 982,646
Federal Natl Mtge Assn #671415
01-01-10 5.00 550,086 548,037
Federal Natl Mtge Assn #678938
02-01-18 5.50 3,668,101 3,692,474
Federal Natl Mtge Assn #678940
02-01-18 5.50 3,307,483 3,328,439
Federal Natl Mtge Assn #678944
01-01-18 5.50 1,606,104 1,616,904
Federal Natl Mtge Assn #686227
02-01-18 5.50 4,801,451 4,832,324
Federal Natl Mtge Assn #695838
04-01-18 5.50 6,042,283 6,080,630
Federal Natl Mtge Assn #696154
04-01-33 4.57 8,473,911(k) 8,354,939
Federal Natl Mtge Assn #696837
04-01-18 5.50 4,875,743 4,907,236
Federal Natl Mtge Assn #703440
05-01-18 5.50 1,129,828 1,136,111
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
12 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
BONDS (CONTINUED)
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #704610
06-01-33 5.50% $15,249,291 $ 15,055,901
Federal Natl Mtge Assn #705114
05-01-33 4.60 7,485,091(k) 7,385,955
Federal Natl Mtge Assn #709527
06-01-18 5.50 755,103 759,643
Federal Natl Mtge Assn #712602
06-01-13 5.00 2,290,099 2,265,822
Federal Natl Mtge Assn #722325
07-01-33 4.97 6,200,690(k) 6,112,942
Federal Natl Mtge Assn #722589
08-01-33 3.20 854,185(k) 867,317
Federal Natl Mtge Assn #725232
03-01-34 5.00 12,925,998 12,480,798
Federal Natl Mtge Assn #725425
04-01-34 5.50 13,121,168 12,954,766
Federal Natl Mtge Assn #725431
08-01-15 5.50 15,047,741 15,157,759
Federal Natl Mtge Assn #725737
08-01-34 4.53 4,905,823(k) 4,876,094
Federal Natl Mtge Assn #730632
08-01-33 4.13 2,858,466(k) 2,793,254
Federal Natl Mtge Assn #739243
09-01-33 6.00 4,272,834 4,298,610
Federal Natl Mtge Assn #739331
09-01-33 6.00 2,208,072 2,221,392
Federal Natl Mtge Assn #743524
11-01-33 5.00 4,107,159 3,965,700
Federal Natl Mtge Assn #753508
11-01-33 5.00 4,401,793 4,250,185
Federal Natl Mtge Assn #790382
09-01-34 4.86 5,922,077(k) 5,925,270
Federal Natl Mtge Assn #791447
10-01-34 6.00 7,304,615 7,349,583
Federal Natl Mtge Assn #797042
06-01-34 5.50 3,403,496 3,356,100
Federal Natl Mtge Assn #797046
07-01-34 5.50 4,151,706 4,093,890
Federal Natl Mtge Assn #797048
06-01-34 5.50 1,505,775 1,484,806
Federal Natl Mtge Assn #797168
02-01-35 4.64 7,543,297(k) 7,484,773
Federal Natl Mtge Assn #799769
11-01-34 5.07 5,809,515(k) 5,771,404
Federal Natl Mtge Assn #801344
10-01-34 5.07 6,383,959(k) 6,319,289
Federal Natl Mtge Assn #815463
02-01-35 5.50 3,619,498 3,569,093
Federal Natl Mtge Assn #832641
09-01-35 6.00% $ 9,169,466 $ 9,226,182
Federal Natl Mtge Assn #836561
10-01-35 6.00 6,111,354 6,149,155
First Horizon Alternative Mtge Securities
Series 2004-AA4 Cl A1
10-25-34 5.41 3,380,637(n) 3,407,344
GMAC Mtge Corporation Loan Trust
Series 2004-AR2 Cl 3A
08-19-34 4.41 6,040,851(k) 5,902,941
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
03-20-29 7.17 5,364,461(i) 430,462
Govt Natl Mtge Assn #615740
08-15-13 6.00 1,513,265 1,552,871
Govt Natl Mtge Assn #781507
09-15-14 6.00 7,497,150 7,693,528
GSR Mtge Loan Trust
Series 2005-AR2 Cl 2A1
04-25-35 4.87 5,257,965(k) 5,197,183
Harborview Mtge Loan Trust
Series 2004-4 Cl 3A
06-19-34 2.98 7,120,999(k) 6,967,557
Morgan Stanley Mtge Loan Trust
Series 2004-10AR Cl 2A1
11-25-34 5.14 2,888,600(k) 2,896,313
Structured Asset Securities
Series 2004-12H Cl 2A
04-25-34 5.53 5,239,283(k) 5,249,921
Washington Mutual
Series 2002-AR15 Cl A5
12-25-32 4.38 5,536,490(k) 5,459,125
Washington Mutual
Series 2005-AR3 Cl A2
03-25-35 4.65 7,872,984(k) 7,730,562
Wells Fargo Mtge Backed Securities Trust
Series 2005-10 Cl A1
10-25-35 5.00 6,970,209 6,689,226
Wells Fargo Mtge Backed Securities Trust
Series 2005-5 Cl 2A1
05-25-35 5.50 5,697,397 5,574,550
Wells Fargo Mtge Backed Securities Trust
Series 2005-AR2 Cl 2A2
03-25-35 4.56 4,189,270(k) 4,107,202
--------------
Total 665,394,419
- ----------------------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $1,341,568,637) $1,324,221,872
- ----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
13 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
SHORT-TERM SECURITIES (9.0%)(c)
<Table>
<Caption>
EFFECTIVE PRINCIPAL
ISSUER YIELD AMOUNT VALUE(a)
COMMERCIAL PAPER
Amsterdam Funding
12-29-05 4.14% $20,000,000(p) $ 19,933,461
Bryant Park Funding LLC
12-08-05 4.03 30,000,000(p) 29,973,132
Dakota Notes
12-02-05 4.03 5,000,000(p) 4,998,881
Park Granada LLC
12-01-05 4.07 15,600,000(p) 15,598,236
12-12-05 4.07 15,000,000(p) 14,979,701
12-13-05 4.06 10,000,000(p) 9,985,375
12-29-05 4.19 21,100,000(p) 21,028,952
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost: $116,510,981) $ 116,497,738
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $1,458,079,618)(q) $1,440,719,610
================================================================================================================
</Table>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) At Nov. 30, 2005, security was partially or fully on loan. See Note 6 to the
financial statements.
(c) Cash collateral received from security lending activity is invested in
short-term securities and represents 8.6% of net assets. See Note 6 to the
financial statements. 0.4% of net assets is the Fund's cash equivalent
position.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At Nov. 30,
2005, the value of these securities amounted to $8,035,339 or 0.6% of net
assets.
(e) At Nov. 30, 2005, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$39,668,599
(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) Comparable securities are held to satisfy future delivery requirements of
the following open forward sale commitments at Nov. 30, 2005:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
----------------------------------------------------------------------------------------------
Federal Natl Mtge Assn
12-01-20 5.50% $39,000,000 12-15-05 $39,036,562 $39,158,418
12-01-35 5.50 30,000,000 12-13-05 29,400,938 29,540,640
</Table>
(h) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in the LIBOR (London InterBank Offering Rate) Index.
Interest rate disclosed is the rate in effect on Nov. 30, 2005. At Nov. 30,
2005, the value of inverse floaters represented 0.1% of net assets.
- --------------------------------------------------------------------------------
14 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(i) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. The principal
amount shown is the notional amount of the underlying mortgages. Interest
rate disclosed represents yield based upon the estimated timing and amount
of future cash flows at Nov. 30, 2005.
(j) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments may
have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents yield based upon the estimated timing of future cash
flows at Nov. 30, 2005.
(k) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Nov. 30, 2005.
(l) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
<Table>
<Caption>
TYPE OF SECURITY NOTIONAL AMOUNT
----------------------------------------------------------------------------------------
PURCHASE CONTRACTS
U.S. Treasury Note, March 2006, 2-year $106,000,000
U.S. Long Bond, March 2006, 20-year 8,600,000
SALE CONTRACTS
U.S. Treasury Note, Dec. 2005, 5-year 51,000,000
U.S. Treasury Note, Dec. 2005, 10-year 12,100,000
U.S. Treasury Note, March 2006, 5-year 300,000
U.S. Treasury Note, March 2006, 10-year 8,300,000
</Table>
(m) The following abbreviations are used in the portfolio security descriptions
to identify the insurer of the issue:
AMBAC -- Ambac Assurance Corporation
MBIA -- MBIA Insurance Corporation
(n) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Nov. 30,
2005.
(o) U.S. Treasury inflation-indexed bonds are securities in which the principal
amount is adjusted for inflation and the semiannual interest payments equal
a fixed percentage of the inflation-adjusted principal amount.
(p) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as
amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid under
guidelines established by the Fund's Board of Directors. These securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At Nov. 30, 2005, the value of these
securities amounted to $116,497,738 or 9.0% of net assets.
(q) At Nov. 30, 2005, the cost of securities for federal income tax purposes was
approximately $1,458,080,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $ 2,374,000
Unrealized depreciation (19,734,000)
---------------------------------------------------------------------------------------
Net unrealized depreciation $(17,360,000)
---------------------------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
15 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
NOV. 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investments in securities, at value (Note 1)*
(identified cost $1,458,079,618) $1,440,719,610
Cash in bank on demand deposit 37,593
Capital shares receivable 245,760
Accrued interest receivable 8,683,304
Receivable for investment securities Sold 91,481,184
- --------------------------------------------------------------------------------------------------------------
Total assets 1,541,167,451
- --------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 182,031
Capital shares payable 309,298
Payable for investment securities purchased 62,245,330
Payable upon return of securities loaned (Note 6) 111,435,750
Accrued investment management services fee 18,270
Accrued distribution fee 289,475
Accrued service fee 55
Accrued transfer agency fee 1,501
Accrued administrative services fee 2,337
Other accrued expenses 966,552
Forward sale commitments, at value (proceeds receivable $68,437,500) (Note 1) 68,699,058
- --------------------------------------------------------------------------------------------------------------
Total liabilities 244,149,657
- --------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $1,297,017,794
==============================================================================================================
REPRESENTED BY
Capital stock -- $.01 par value (Note 1) $ 2,741,258
Additional paid-in capital 1,525,392,962
Undistributed net investment income 262,904
Accumulated net realized gain (loss) (Note 8) (214,607,992)
Unrealized appreciation (depreciation) on investments (16,771,338)
- --------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $1,297,017,794
==============================================================================================================
Net assets applicable to outstanding shares: Class A $ 771,967,504
Class B $ 430,182,470
Class C $ 18,964,453
Class I $ 55,949,919
Class Y $ 19,953,448
Net asset value per share of outstanding capital stock: Class A shares 163,173,089 $ 4.73
Class B shares 90,917,339 $ 4.73
Class C shares 4,008,474 $ 4.73
Class I shares 11,810,959 $ 4.74
Class Y shares 4,215,978 $ 4.73
- --------------------------------------------------------------------------------------------------------------
* Including securities on loan, at value (Note 6) $ 107,790,200
- --------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
STATEMENT OF OPERATIONS
RIVERSOURCE SHORT DURATION U.S GOVERNMENT FUND
<Table>
<Caption>
PERIOD FROM PERIOD FROM TOTAL
JUNE 1, 2005 TO OCT. 18, 2005 TO JUNE 1, 2005 TO
OCT. 17, 2005 NOV. 30, 2005 NOV. 30, 2005
(UNAUDITED) (UNAUDITED) (UNAUDITED)
INVESTMENT INCOME
Income:
Interest $ 21,834,797 $ 6,808,742 $ 28,643,539
Fee income from securities lending 78,977 36,404 115,381
- ------------------------------------------------------------------------------------------------------------------------------
Total income 21,913,774 6,845,146 28,758,920
- ------------------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 2,926,614 820,217 3,746,831
Distribution fee
Class A 804,657 237,230 1,041,887
Class B 1,990,132 532,601 2,522,733
Class C 82,716 23,345 106,061
Transfer agency fee 1,041,004 286,714 1,327,718
Incremental transfer agency fee
Class A 47,037 14,230 61,267
Class B 49,318 13,842 63,160
Class C 2,511 728 3,239
Service fee -- Class Y 25,314 2,536 27,850
Administrative services fees and expenses 295,253 111,138 406,391
Custodian fees 75,680 22,982 98,662
Compensation of board members 14,225 1,079 15,304
Printing and postage 160,360 25,030 185,390
Registration fees 30,220 7,550 37,770
Audit fees 18,490 6,510 25,000
Other 40,760 6,076 46,836
- ------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,604,291 2,111,808 9,716,099
Expenses waived/reimbursed by the
Investment Manager and it affiliates (Note 2) (1,061,369) (298,639) (1,360,008)
- ------------------------------------------------------------------------------------------------------------------------------
6,542,922 1,813,169 8,356,091
Earnings credits on cash balances (Note 2) (48,181) (12,771) (60,952)
- ------------------------------------------------------------------------------------------------------------------------------
Total net expenses 6,494,741 1,800,398 8,295,139
- ------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 15,419,033 5,044,748 20,463,781
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (1,386,547) (1,127,603) (2,514,150)
Futures contracts (62,558) (516,113) (578,671)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,449,105) (1,643,716) (3,092,821)
Net change in unrealized appreciation
(depreciation) on investments (13,544,648) (1,592,063) (15,136,711)
- ------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (14,993,753) (3,235,779) (18,229,532)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 425,280 $ 1,808,969 $ 2,234,249
==============================================================================================================================
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
17 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
<Table>
<Caption>
NOV. 30, 2005
SIX MONTHS ENDED MAY 31, 2005
(UNAUDITED) YEAR ENDED
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 20,463,781 $ 44,021,997
Net realized gain (loss) on investments (3,092,821) (25,384,686)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (15,136,711) 12,004,347
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 2,234,249 30,641,658
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net Investment income
Class A (12,254,104) (27,188,188)
Class B (5,450,583) (13,508,603)
Class C (231,330) (552,010)
Class I (767,052) (370,986)
Class Y (834,237) (2,998,869)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (19,537,306) (44,618,656)
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 92,647,657 238,048,631
Class B shares 29,148,619 101,336,355
Class C shares 1,525,039 5,860,931
Class I shares 26,586,432 32,075,351
Class Y shares 6,777,663 22,393,741
Reinvestment of distributions at net asset value
Class A shares 11,171,496 24,424,025
Class B shares 5,081,877 12,662,464
Class C shares 219,628 516,851
Class I shares 770,272 361,220
Class Y shares 797,217 2,010,628
Payments for redemptions
Class A shares (215,990,462) (548,605,037)
Class B shares (Note 2) (186,238,943) (483,681,823)
Class C shares (Note 2) (6,132,503) (20,526,865)
Class I shares (2,187,641) (5,183,945)
Class Y shares (86,662,334) (39,177,481)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (322,485,983) (657,484,954)
- ---------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (339,789,040) (671,461,952)
Net assets at beginning of period 1,636,806,834 2,308,268,786
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $1,297,017,794 $1,636,806,834
===========================================================================================================================
Undistributed net investment income $ 262,904 $ --
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
NOTES TO FINANCIAL STATEMENTS
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
(FORMERLY AXP SHORT DURATION U.S. GOVERNMENT FUND)
(UNAUDITED AS TO NOV. 30, 2005)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Government Income Series, Inc. and is registered
under the Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Government Income Series, Inc. has 10 billion
authorized shares of capital stock that can be allocated among the separate
series as designated by the Board. The Fund invests in direct obligations of the
U.S. government, such as Treasury bonds, bills and notes, and of its agencies
and instrumentalities.
The Fund offers Class A, Class B, Class C and Class Y shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
The Fund offers an additional class of shares, Class I, exclusively to certain
institutional investors. Class I shares have no sales charge and are made
available through a separate prospectus supplement provided to investors
eligible to purchase the shares. At Nov. 30, 2005, Ameriprise Financial, Inc.
(Ameriprise Financial) (formerly American Express Financial Corporation) and the
RiverSource Portfolio Builder Funds owned 100% of Class I shares, which
represents 4.31% of the Fund's net assets.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, transfer agency fees and service fee (class specific
expenses) 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.
Prior to Oct. 18, 2005, the Fund invested all of its assets in the Government
Income Portfolio (the Portfolio). The Fund recorded its daily share of the
Portfolio's income, expenses and realized and unrealized gains and losses.
- --------------------------------------------------------------------------------
19 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
Effective at the close of business on Oct. 17, 2005, the Portfolio was
liquidated and the Fund exchanged its interest in the Portfolio for its
proportionate share (99.995%) of the Portfolio's assets and liabilities. Within
the statement of operations for the period from June 1, 2005 to Oct. 17, 2005,
income and expense amounts include allocations from the Portfolio in the
following amounts:
<Table>
Interest income $21,834,797
Fee income from securities lending $ 78,977
Investment management services fee $ 2,926,614
Custodian fees $ 75,680
Compensation of board members $ 8,827
Audit fees $ 13,899
Other $ 28,507
Earnings credits on cash balances $ (946)
</Table>
All realized and unrealized gains (losses) presented for the period from June 1,
2005 to Oct. 17, 2005 were as a result of allocations from the Portfolio.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the Board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
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, 2005, the Fund has entered into other
forward-commitments of $39,668,599.
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.
- --------------------------------------------------------------------------------
20 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
OPTION TRANSACTIONS
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Fund may buy and sell put and call options
and write put and call options. This may include purchasing mortgage-backed
security (MBS) put spread options and writing covered MBS call spread options.
MBS spread options are based upon the changes in the price spread between a
specified mortgage-backed security and a like-duration Treasury security. The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the security
decreases and the option is exercised. The risk in buying an option is that the
Fund pays a premium whether or not the option is exercised. The Fund also has
the additional risk of being unable to enter into a closing transaction if a
liquid secondary market does not exist. The Fund also may write over-the-counter
options where completing the obligation depends upon the credit standing of the
other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Fund will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts. Risks of entering into futures contracts and
related options include the possibility of an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
SHORT SALES
The Fund may engage in short sales. In these transactions, the Fund sells a
security that it does not own. The Fund is obligated to replace the security
that was short by purchasing it at the market price at the time of replacement
or entering into an offsetting transaction with the broker. The price at such
time may be more or less than the price at which the Fund sold the security.
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.
- --------------------------------------------------------------------------------
21 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is
"marked-to-market" daily and the change in market value is recorded by the Fund
as an unrealized gain or loss. If the forward sale commitment is closed through
the acquisition of an offsetting purchase commitment, the Fund realizes a gain
or loss. If the Fund delivers securities under the commitment, the Fund realizes
a gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the "Notes to investments in
securities."
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 all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to the shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts and losses deferred due to "wash sale" transactions.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
22 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
2. EXPENSES AND SALES CHARGES
Effective Oct. 18, 2005, the Fund entered into an Investment Management Services
Agreement with RiverSource Investments, LLC (the Investment Manager) to
determine which securities will be purchased, held or sold. Prior to the
withdrawal of the Fund's assets from the Portfolio, Government Income Trust (the
Trust), on behalf of the Portfolio, had an Investment Management Services
Agreement with Ameriprise Financial. Prior to Oct. 18, 2005, the investment
management fee was assessed at the Portfolio level. The management fee is a
percentage of the Fund's average daily net assets that declines from 0.52% to
0.395% annually as the Fund's assets increase.
Under the current Administrative Services Agreement, the Fund pays Ameriprise
Financial a fee for administration and accounting services at a percentage of
the Fund's average daily net assets that declines from 0.07% to 0.04% annually
as the Fund's assets increase. Prior to Oct. 1, 2005, the fee percentage of the
Fund's average daily net assets declined from 0.05% to 0.025% annually as the
Fund's assets increased. A minor portion of additional administrative service
expenses paid by the Fund are consultants' fees and fund office expenses. Under
this agreement, the Fund also pays taxes, audit and certain legal fees,
registration fees for shares, compensation of board members, corporate filing
fees and any other expenses properly payable by the Fund and approved by the
Board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
RiverSource funds. The Fund's liability for these amounts is adjusted for market
value changes and remains in the Fund until distributed in accordance with the
Plan.
Under a separate Transfer Agency Agreement, RiverSource Service Corporation
(formerly American Express Client Service Corporation) (the Transfer Agent)
maintains shareholder accounts and records. The Fund pays the Transfer Agent an
annual fee per shareholder account for this service as follows:
- - Class A $20.50
- - Class B $21.50
- - Class C $21.00
- - Class Y $18.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
Class I pays a transfer agency fee at an annual rate per shareholder account of
$1. This amount is included in the transfer agency fee on the statement of
operations.
Beginning May 20, 2005, the Transfer Agent implemented an annual closed account
fee of $5 per inactive account, charged on a pro rata basis for 12 months from
the date the account becomes inactive. These fees are included in the transfer
agency fees on the statement of operations.
- --------------------------------------------------------------------------------
23 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
The Fund has agreements with Ameriprise Financial Services, Inc. (formerly
American Express Financial Advisors 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 up to 0.25% of the Fund's
average daily net assets attributable to Class A shares and up to 1.00% for
Class B and Class C shares.
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$499,888 for Class A; $495,530 for Class B and $3,609 for Class C for the six
months ended Nov. 30, 2005.
Beginning June 1, 2005, a new agreement to waive certain fees and expenses is
effective until May 31, 2006, such that net expense will not exceed 0.89% for
Class A, 1.64% for Class B, 1.64% for Class C, 0.59% for Class I and 0.72% for
Class Y. For the six months ended Nov. 30, 2005, the Investment Manager and its
affiliates waived certain fees and expenses to 0.89% for Class A, 1.64% for
Class B, 1.64% for Class C, 0.59% for Class I and 0.72 for Class Y. Of these
waived fees and expenses, the transfer agency fees waived for Class A, Class B,
Class C, Class I and Class Y were $638,449, $411,748, $17,911 and $39,105,
respectively, and the management fees waived at the Fund level were $252,795.
During the period from June 1, 2005 to Oct. 17, 2005, the Fund's custodian and
transfer agency fees were reduced by $48,181 as a result of earnings credits
from overnight cash balances. During the period from Oct. 18, 2005 to Nov. 30,
2005, the Fund's custodian and transfer agency fees were reduced by $12,771 as a
result of earnings credits from overnight cash balances.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $915,766,592 and $1,173,419,591, respectively, for the
period from June 1, 2005 to Oct. 17, 2005 and $392,260,859 and $414,911,913,
respectively, for the period from Oct. 18, 2005 to Nov. 30, 2005. Realized gains
and losses are determined on an identified cost basis.
- --------------------------------------------------------------------------------
24 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED NOV. 30, 2005
CLASS A CLASS B CLASS C CLASS I CLASS Y
- ----------------------------------------------------------------------------------------------------------------------------
Sold 19,470,147 6,122,214 320,281 5,570,824 1,424,478
Issued for reinvested distributions 2,349,508 1,068,797 46,196 161,912 167,314
Redeemed (45,374,529) (39,111,238) (1,287,968) (457,147) (18,169,731)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (23,554,874) (31,920,227) (921,491) 5,275,589 (16,577,939)
- ----------------------------------------------------------------------------------------------------------------------------
<Caption>
YEAR ENDED MAY 31, 2005
CLASS A CLASS B CLASS C CLASS I CLASS Y
- ----------------------------------------------------------------------------------------------------------------------------
Sold 49,509,431 21,094,221 1,219,375 6,690,057 4,661,213
Issued for reinvested distributions 5,087,150 2,636,716 107,621 75,207 418,767
Redeemed (114,279,241) (100,713,445) (4,275,447) (1,075,526) (8,163,718)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (59,682,660) (76,982,508) (2,948,451) 5,689,738 (3,083,738)
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
5. INTEREST RATE FUTURES CONTRACTS
At Nov. 30, 2005, investments in securities included securities valued at
$390,855 that were pledged as collateral to cover initial margin deposits on 616
open purchase contracts and 717 open sale contracts. The notional market value
of the open purchase contracts at Nov. 30, 2005 was $118,334,375 with a net
unrealized loss of $173,162. The notional market value of the open sale
contracts at Nov. 30, 2005 was $76,598,550 with a net unrealized gain of
$1,023,390. See "Summary of significant accounting policies" and "Notes to
investments in securities."
6. LENDING OF PORTFOLIO SECURITIES
At Nov. 30, 2005, securities valued at $107,790,200 were on loan to brokers. For
collateral, the Fund received $111,435,750 in cash. Cash collateral received is
invested in short-term securities, which are included in the short-term section
of the "Investments in securities." Income from securities lending amounted to
$115,381 for the six months ended Nov. 30, 2005. The risks to the Fund of
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due.
- --------------------------------------------------------------------------------
25 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
7. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary
funding of shareholder redemptions or for other temporary or emergency purposes.
The agreement went into effect Sept. 20, 2005. The Fund must maintain asset
coverage for borrowings of at least 300%. The agreement, which enables the Fund
to participate with other RiverSource funds, permits borrowings up to $500
million, collectively. Interest is charged to each Fund based on its borrowings
at a rate equal to either the higher of the Federal Funds Effective Rate plus
0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within
60 days after such loan is executed. The Fund also pays a commitment fee equal
to its pro rata share of the amount of the credit facility at a rate of 0.07%
per annum. Prior to this agreement, the Fund had a revolving credit agreement
that permitted borrowings up to $500 million with the Bank of New York. The Fund
had no borrowings outstanding during the six months ended Nov. 30, 2005.
8. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$205,645,039 at May 31, 2005, that if not offset by capital gains will expire as
follows:
<Table>
<Caption>
2008 2009 2013 2014
$35,174,077 $117,356,906 $36,267,962 $16,846,094
</Table>
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.
- --------------------------------------------------------------------------------
26 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
9. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
CLASS A
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $4.79 $4.82 $ 4.94 $ 4.85 $ 4.78
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .12 .11 .15 .19
Net gains (losses) (both realized and unrealized) (.06) (.03) (.12) .09 .08
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .09 (.01) .24 .27
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.12) (.11) (.15) (.20)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.73 $4.79 $ 4.82 $4.94 $ 4.85
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 772 $ 894 $1,188 $1,728 $1,185
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .89%(c),(d) .93%(c) .97% .95% .95%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average daily net assets 3.07%(d) 2.49% 2.19% 2.90% 4.01%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 95% 169% 125% 218% 267%
- ----------------------------------------------------------------------------------------------------------------------
Total return(e) .22%(f) 1.92% (.24%) 4.90% 5.77%
- ----------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 1.08% for the six months ended Nov. 30, 2005 and
1.01% for the year ended May 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
27 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
CLASS B
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $4.79 $4.82 $4.94 $ 4.85 $ 4.78
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06 .08 .07 .11 .16
Net gains (losses) (both realized and unrealized) (.07) (.03) (.12) .09 .08
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .05 (.05) .20 .24
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.08) (.07) (.11) (.17)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.73 $4.79 $4.82 $ 4.94 $ 4.85
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 430 $ 588 $ 963 $1,578 $1,104
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.64%(c),(d) 1.68%(c) 1.72% 1.71% 1.71%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
daily net assets 2.30%(d) 1.73% 1.44% 2.15% 3.25%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 95% 169% 125% 218% 267%
- ----------------------------------------------------------------------------------------------------------------------
Total return(e) (.15%)(f) 1.16% (.99%) 4.11% 4.98%
- ----------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.84% for the six months ended Nov. 30, 2005 and
1.76% for the year ended May 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
28 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
CLASS C
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $4.79 $4.82 $4.94 $4.85 $4.78
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06 .08 .07 .11 .16
Net gains (losses) (both realized and unrealized) (.07) (.03) (.12) .09 .08
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .05 (.05) .20 .24
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.08) (.07) (.11) (.17)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.73 $4.79 $4.82 $4.94 $4.85
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 19 $ 24 $ 38 $ 58 $ 29
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.64%(c),(d) 1.68%(c) 1.73% 1.72% 1.72%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average daily net assets 2.31%(d) 1.73% 1.44% 2.10% 3.09%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 95% 169% 125% 218% 267%
- ----------------------------------------------------------------------------------------------------------------------
Total return(e) (.15%)(f) 1.16% (.99%) 4.11% 4.98%
- ---------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.84% for the six months ended Nov. 30, 2005 and
1.77% for the year ended May 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
29 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
CLASS I
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(h) 2005 2004(b)
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $4.79 $4.83 $4.90
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08 .14 .03
Net gains (losses) (both realized and unrealized) (.05) (.04) (.07)
- ------------------------------------------------------------------------------------------------
Total from investment operations .03 .10 (.04)
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.14) (.03)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $4.74 $4.79 $4.83
- ------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 56 $ 31 $ 4
- ------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c) .59%(d),(e) .57% .63%(e)
- ------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average daily net assets 3.41%(e) 2.98% 2.74%(e)
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 95% 169% 125%
- ------------------------------------------------------------------------------------------------
Total return(f) .59%(g) 2.06% (.87%)(g)
- ------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date is March 4, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class Y would have been 0.63% for the six months ended Nov. 30, 2005.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
30 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
CLASS Y
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $4.79 $4.82 $4.94 $4.85 $4.78
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08 .13 .12 .15 .20
Net gains (losses) (both realized and unrealized) (.06) (.03) (.12) .09 .08
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .02 .10 -- .24 .28
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.13) (.12) (.15) (.21)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.73 $4.79 $4.82 $4.94 $4.85
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 20 $ 100 $ 115 $ 164 $ 188
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .72%(c),(d) .76%(c) .81% .79% .79%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average daily net assets 3.12%(d) 2.66% 2.35% 3.12% 4.17%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term
securities) 95% 169% 125% 218% 267%
- ----------------------------------------------------------------------------------------------------------------------
Total return(e) .33%(f) 2.10% (.08%) 5.07% 5.93%
- ----------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class Y would have been 0.89% for the six months ended Nov. 30, 2005 and
0.84% for the year ended May 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
31 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
FUND EXPENSES EXAMPLE
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund 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.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Nov. 30, 2005.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
32 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
<Table>
<Caption>
BEGINNING ENDING EXPENSES ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE PAID DURING EXPENSE
JUNE 1, 2005 NOV. 30, 2005 THE PERIOD(a) RATIO
Class A
Actual(b) $1,000 $1,002.20 $4.47(c) .89%
Hypothetical (5% return before expenses) $1,000 $1,020.61 $4.51(c) .89%
Class B
Actual(b) $1,000 $ 998.50 $8.22(c) 1.64%
Hypothetical (5% return before expenses) $1,000 $1,016.85 $8.29(c) 1.64%
Class C
Actual(b) $1,000 $ 998.50 $8.22(c) 1.64%
Hypothetical (5% return before expenses) $1,000 $1,016.85 $8.29(c) 1.64%
Class I
Actual(b) $1,000 $1,005.90 $2.97(c) .59%
Hypothetical (5% return before expenses) $1,000 $1,022.11 $2.99(c) .59%
Class Y
Actual(b) $1,000 $1,003.30 $3.62(c) .72%
Hypothetical (5% return before expenses) $1,000 $1,021.46 $3.65(c) .72%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Nov. 30, 2005: +0.22%
for Class A, -0.15% for Class B, -0.15% for Class C, +0.59% for Class I and
+0.33% for Class Y.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. The Investment Manager and its
affiliates have contractually agreed to waive certain fees and to absorb
certain expenses until May 31, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses will not exceed 0.89% for Class A, 1.64% for Class B, 1.64% for
Class C, 0.59% for Class I and 0.72% for Class Y. If the revised fee
schedule under the Administrative Services Agreement and the cap/fee waiver
agreement had been in place for the entire six-month period ended Nov. 30,
2005, the actual and hypothetical expenses paid would have been the same as
those presented in the table above.
- --------------------------------------------------------------------------------
33 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT
RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of
Ameriprise Financial, Inc. (Ameriprise Financial, formerly American Express
Financial Corporation), serves as the investment manager to the Fund. Under an
investment management services agreement (the IMS Agreement), the investment
manager provides investment advice and other services to the Fund. Throughout
the year, the Fund's Board of Directors (the Board) and the Board's Investment
Review and Contracts Committees monitor these services.
Ameriprise Financial had served as investment manager to the Fund until Sept.
29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise
Financial transferred its rights, title, and interest and its burdens and
obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary.
Each year, the Board determines whether to continue the IMS Agreement by
evaluating the quality and level of services received and the costs associated
with those services. To assist the Board in making this determination, the
investment manager prepares detailed reports for the Board and its Contracts
Committee in March and April and provides data prepared by independent
organizations. The Board gives considerable weight to the work, deliberations
and conclusions of the Contracts and Investment Review Committees in determining
whether to continue the IMS Agreement.
BACKGROUND
This past year, prior to the Board's annual review process, on Feb. 1, 2005,
American Express Company, the former parent of Ameriprise Financial, announced
its intention to pursue a spin-off of Ameriprise Financial by distributing
shares of the common stock of Ameriprise Financial to shareholders of American
Express Company. Following this announcement, the Board determined to proceed
with its annual review process and, after thorough review of the reports and
data provided, at a meeting held in person on April 14, 2005, the Board,
including all of its independent members, determined that the quality and level
of advisory services provided pursuant to the IMS Agreement were satisfactory
and that fees were fair and reasonable. However, in light of the announced plans
of the spin-off, the Board approved continuation of the IMS Agreement with
Ameriprise Financial for only an interim period ending on the later of (i) the
effective date of the spin-off; or (ii) the approval of a new IMS Agreement with
Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in
no event for a period longer than one year.
- --------------------------------------------------------------------------------
34 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
During the course of the six-month period following the April 2005 meeting, the
Board evaluated whether to approve new investment management services agreements
for each of the funds within the Ameriprise Financial fund complex (together,
the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent
counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling
their statutory and other responsibilities associated with the spin-off and the
resulting consideration of new contracts, including the new IMS Agreement. The
Board and its committees were provided with a wealth of written and oral
information in this regard. Furthermore, in connection with the Board's
considerations as to whether post-spin Ameriprise Financial, as an entity
independent from American Express Company, would be capable of continuing to
provide a high quality of services to the Funds, the Board's independent members
retained their own financial adviser, Credit Suisse First Boston LLC (CSFB), to
assist them in analyzing the capital adequacy of post-spin Ameriprise Financial.
(The costs of independent counsel and CSFB and of additional meetings of the
Boards were borne by Ameriprise Financial as part of the commitment of the
American Express Company to ensure a complete and thorough review of the
proposed spin-off and its effect on the services provided by Ameriprise
Financial and its subsidiaries.) At a meeting of the Board held on Sept. 8,
2005, the Board, including all of its independent members, approved, and
recommended that shareholders approve, a proposed new IMS Agreement with
RiverSource (the New IMS Agreement). A meeting of the Fund's shareholders is
expected to be held on Feb. 15, 2006 to consider approval of the New IMS
Agreement. If approved, the New IMS Agreement would take effect shortly after
the shareholder meeting. The following section, "Board Considerations Related to
the New IMS Agreement," provides a detailed discussion of the Board's
considerations and determinations respecting the New IMS Agreement.
BOARD CONSIDERATIONS RELATED TO THE NEW IMS AGREEMENT
In carrying out its legal responsibilities associated with the consideration of
the New IMS Agreement, the Board evaluated the following factors:
NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY POST-SPIN AMERIPRISE
FINANCIAL (AND ITS SUBSIDIARIES)
The Board recognized that only a few months had passed since its April 2005
conclusion that the nature, extent and quality of services provided by
Ameriprise Financial were satisfactory and consistent with those that would be
expected for a fund family of the size of the Funds and its determination to
renew the IMS Agreement for the interim period. However, the Board also
recognized the need to supplement this assessment with an evaluation of whether
the spin-off or other factors would result in changes to the advisory services
being provided under the current IMS Agreement.
- --------------------------------------------------------------------------------
35 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
The Board focused its evaluation on the following factors potentially impacting
the nature, extent and quality of advisory services to be provided by Ameriprise
Financial: (i) Ameriprise Financial's projected capital structure and capital
adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its
ability to retain and attract personnel; and (iv) its ability to successfully
re-brand its products and services. Based on extensive presentations and reports
by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed
capital structure (which includes certain indemnification commitments made by
American Express Company) should enable RiverSource to continue to provide a
high quality and level of advisory services to the Fund. In making this
determination, the Board took into account representations by management of
Ameriprise Financial that projected capital levels would allow Ameriprise
Financial and RiverSource to meet legal and compliance responsibilities, build
their distribution network, pursue technological upgrades, make capital
commitments necessary to retain and attract key personnel devoted to legal and
compliance responsibilities, portfolio management and distribution, and pursue
smaller asset management acquisitions to help grow the asset management
business. The Board accorded significant weight to CSFB's confirmation as to the
reasonableness of the proposed capital structure. The Board also considered the
fact that there were no expected departures of key personnel involved in the
portfolio management, operations and marketing of the Funds as a result of the
announcement of the spin-off.
The Board concluded that, based on all of the materials and information
provided, post-spin Ameriprise Financial (including RiverSource) would be in a
position to continue to provide a high quality and level of advisory services to
the Fund.
INVESTMENT PERFORMANCE
The Board next focused on investment performance. The Board reviewed reports
documenting the Fund's performance over one-, three- and/or five-year periods,
as well as the entire period during which its current portfolio manager has
managed the Fund, and compared to relevant Lipper and market indices. The Board
took into account its determination in April 2005 that investment performance in
2004, although below median, was consistent with the management style of the
Fund in light of market conditions in 2004.
The Board also considered that it had been receiving monthly performance reports
for the Fund and that there had been no significant deviations from April's
overall performance data.
COST OF SERVICES PROVIDED
The Board evaluated comparative fees and the costs of services under the current
IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise
Financial (including RiverSource and other subsidiaries) to institutional
clients. The Board observed that the proposed advisory fee changes are designed
to work in tandem with proposed changes to administrative services fees and that
advisory fees under the New IMS Agreement would decrease. The Board studied
RiverSource's effort (i.e., its "pricing philosophy") to set substantially all
Funds' total expense ratios at or below the median expense ratio of comparable
mutual funds (as compiled by Lipper). It also noted that RiverSource has agreed
to voluntarily impose expense caps or waivers to achieve this pricing objective
whenever the expense ratio exceeded the median expense ratio by more than three
basis points.
- --------------------------------------------------------------------------------
36 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
The Board next considered the expected profitability to Ameriprise Financial and
RiverSource derived from their relationship with the Fund, recalling the April
2005 determination that the profitability level was appropriate. The Board noted
that projected profitability of Ameriprise Financial would allow it to operate
effectively and, at the same time, reinvest in RiverSource and its other asset
management businesses. The Board also considered that the proposed changes in
advisory fees and the mergers of certain other Funds would result in revenue
gains to Ameriprise Financial, but that these increases would not materially
alter profit margins due to expected increases in costs associated with the
spin-off, particularly re-branding and separation. CSFB also reported that
Ameriprise Financial's projected level of return on equity was generally
reasonable in light of the returns on equity of its industry competitors. In
evaluating profitability, the Board also considered the benefits Ameriprise
Financial obtains through the use of commission dollars paid on portfolio
transactions for the Fund and from other business relationships that result from
managing the Fund. The Board also considered the fees charged by Ameriprise
Financial (and its subsidiaries) to institutional clients as well as the fees
paid to, and charged by, subadvisers, noting the differences in services
provided in each case. In light of these considerations, the Board concluded
that projected profitability levels were appropriate.
ECONOMIES OF SCALE
The Board also considered the "breakpoints" in fees that would be triggered as
Fund net asset levels grew and the extent to which shareholders would benefit
from such growth. The Board observed that the revised fee schedules under the
proposed New IMS Agreement would continue to provide breakpoints similar to
those in place pursuant to the current IMS Agreement. Accordingly, the Board
concluded that the proposed New IMS Agreement provides adequate opportunity for
shareholders to realize benefits as Fund assets grow.
OTHER CONSIDERATIONS
In addition, the Board accorded weight to the fact that, under the New IMS
Agreement, RiverSource Investments is held to a higher standard of care than
under the current IMS Agreement. The Board also noted Ameriprise Financial's
commitment to a culture that adheres to ethical business practice, assigns
accountability to senior management and seeks to identify conflicts and propose
appropriate action to minimize the risks posed by the conflicts.
Furthermore, the Board recognized that it was not limited to considering
management's proposed New IMS Agreement. In this regard, the Board evaluated the
circumstances under which it would consider the retention of an investment
adviser different from RiverSource Investments. The Board concluded, based on
its consultation with independent counsel, that pursuing the retention of a
different adviser was not necessary, primarily because, in its best judgment,
Ameriprise Financial continues to be basically the same organization (from a
functional and managerial standpoint) as it was prior to the spin-off. The Board
reasoned that shareholders purchased shares of the Fund with an expectation that
the current investment advisory organization would be servicing the Fund.
- --------------------------------------------------------------------------------
37 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
PROXY VOTING
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the website www.riversource.com/funds; or by
searching the website of the Securities and Exchange Commission (SEC) at
http://www.sec.gov. Information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge by calling the Fund's administrator, Board Services
Corporation, collect at (612) 330-9283; by looking at the website
www.riversource.com/funds; or by searching the website of the SEC at
www.sec.gov.
- --------------------------------------------------------------------------------
38 -- RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2005 SEMIANNUAL REPORT
<Page>
[RIVERSOURCE(SM) INVESTMENTS LOGO]
RIVERSOURCE INVESTMENTS
200 AMERIPRISE FINANCIAL CENTER
MINNEAPOLIS, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
RiverSource Funds are managed by RiverSource Investments, LLC and distributed by
Ameriprise Financial Services, Inc., Member NASD. Both companies are part of
Ameriprise Financial, Inc.
S-6442 W (1/06)
<Page>
SEMIANNUAL REPORT
[RIVERSOURCE(SM) INVESTMENTS LOGO]
RIVERSOURCE(SM)
U.S. GOVERNMENT MORTGAGE FUND
SEMIANNUAL REPORT FOR THE
PERIOD ENDED NOV. 30, 2005
- - RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND (FORMERLY AXP(R) U.S. GOVERNMENT
MORTGAGE FUND) SEEKS TO PROVIDE SHAREHOLDERS WITH CURRENT INCOME AS ITS
PRIMARY OBJECTIVE AND, AS ITS SECONDARY OBJECTIVE, PRESERVATION OF CAPITAL.
<Page>
TABLE OF CONTENTS
Fund Snapshot 3
Performance Summary 4
Questions & Answers
with Portfolio Management 6
Investments in Securities 9
Financial Statements 16
Notes to Financial Statements 19
Fund Expenses Example 30
Approval of Investment Management
Services Agreement 32
Proxy Voting 36
[DALBAR RATED FOR COMMUNICATION 2005 LOGO]
American Express(R) Funds'* reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
* As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the
name of the American Express Funds.
- --------------------------------------------------------------------------------
2 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
FUND SNAPSHOT
AT NOV. 30, 2005
PORTFOLIO MANAGER
<Table>
<Caption>
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
Scott Kirby* 2/02 19
</Table>
* The Fund is managed by a team of portfolio managers led by Scott Kirby.
FUND OBJECTIVE
The Fund seeks to provide shareholders with current income as its primary goal
and, as its secondary goal, preservation of capital.
Inception dates by class
A: 2/14/02 B: 2/14/02 C: 2/14/02 I: 3/4/04 Y: 2/14/02
Ticker symbols by class
A: AUGAX B: AUGBX C: AUGCX I: -- Y: RSGYX
<Table>
Total net assets $269.5 million
Number of holdings 202
Weighted average life(1) 5.3 years
Effective duration(2) 3.3 years
Weighted average bond rating(3) AAA
</Table>
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
STYLE MATRIX
<Table>
<Caption>
DURATION SHORT INT. LONG
QUALITY
HIGH X
MEDIUM
LOW
</Table>
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY
INVESTS.
[CHART]
SECTOR COMPOSITION
PERCENTAGE OF PORTFOLIO ASSETS
<Table>
Mortgage-Backed* 92.3%
Short-Term Securities* 7.7%
</Table>
* Of the 92.3%, 6.4% is due to forward commitment mortgage-backed securities
activity. Short-term securities are held as collateral for these commitments.
CREDIT QUALITY SUMMARY
PERCENTAGE OF BOND PORTFOLIO ASSETS
<Table>
AAA bonds 99.3%
AA bonds 0.7%
</Table>
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
Shares of the U.S. Government Mortgage Fund are not insured or guaranteed by the
U.S. government.
There are risks associated with an investment in a bond fund, including the
impact of interest rates, credit and inflation. In general, bond prices rise
when interest rates fall and vice versa. This effect is usually more pronounced
for longer-term securities.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
3 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE COMPARISON
FOR THE SIX-MONTH PERIOD ENDED NOV. 30, 2005
<Table>
RiverSource U.S. Government Mortgage Fund
Class A (excluding sales charge) -0.26%
Lehman Brothers Mortgage-Backed
Securities Index(1) (unmanaged) -0.16%
Lipper U.S. Mortgage Funds Index(2) -0.15%
</Table>
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 CALLING (800) 862-7919 OR VISITING
www.riversource.com/funds.
(1) The Lehman Brothers 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, but excludes brokerage commissions or other fees.
(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.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
SEC YIELDS
At Nov. 30, 2005 by class
A: 3.87% B: 3.32% C: 3.30% I: 4.36% Y: 4.25%
At Dec. 30, 2005* by class
A: 3.95% B: 3.40% C: 3.40% I: 4.33% Y: 4.34%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 5 for additional
performance information.
* The last business day of the period.
- --------------------------------------------------------------------------------
4 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS I CLASS Y
(INCEPTION DATES) (2/14/02) (2/14/02) (2/14/02) (3/4/04) (2/14/02)
AFTER AFTER
NAV(1) POP(2) NAV(1) CDSC(3) NAV(1) CDSC(4) NAV(5) NAV(6)
AT NOV. 30, 2005
6 months* -0.26% -4.99% -0.63% -5.52% -0.43% -1.41% +0.09% +0.03%
1 year +1.88% -2.95% +1.13% -3.76% +1.33% +0.35% +2.40% +2.06%
3 years +3.18% +1.52% +2.41% +1.16% +2.48% +2.48% N/A +3.36%
Since inception +4.05% +2.72% +3.28% +2.55% +3.33% +3.33% +2.59% +4.23%
AT DEC. 31, 2005
6 months* +0.54% -4.24% +0.17% -4.75% -0.02% -1.01% +0.45% +0.44%
1 year +2.22% -2.64% +1.47% -3.43% +1.47% +0.49% +2.50% +2.20%
3 years +3.10% +1.44% +2.33% +1.08% +2.33% +2.33% N/A +3.21%
Since inception +4.21% +2.90% +3.44% +2.73% +3.43% +3.43% +2.86% +4.33%
</Table>
(1) EXCLUDING SALES CHARGE.
(2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%.
(3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS
FOLLOWS:
FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%;
SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER.
(4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE.
(5) SALES CHARGE IS NOT APPLICABLE TO THESE SHARES. SHARES AVAILABLE TO
ELIGIBLE INVESTORS ONLY, CURRENTLY LIMITED TO RIVERSOURCE PORTFOLIO BUILDER
FUNDS, SIX AFFILIATED FUNDS-OF-FUNDS.
(6) SALES CHARGE IS NOT APPLICABLE TO THESE SHARES. SHARES AVAILABLE TO
INSTITUTIONAL INVESTORS ONLY.
* NOT ANNUALIZED.
- --------------------------------------------------------------------------------
5 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
WITH PORTFOLIO MANAGEMENT
BELOW, PORTFOLIO MANAGER SCOTT KIRBY DISCUSSES THE FUND'S POSITIONING AND
RESULTS FOR THE SEMIANNUAL PERIOD ENDED NOV. 30, 2005.
Q: HOW DID RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND PERFORM FOR THE FIRST
HALF OF THE FISCAL YEAR?
A: RiverSource U.S. Government Mortgage Fund's Class A shares (excluding sales
charge) fell 0.26% for the six months ended Nov. 30, 2005. The Fund
underperformed the Lehman Brothers Mortgage-Backed Securities Index (Lehman
Index), which declined 0.16%. The Fund also underperformed the Lipper U.S.
Mortgage Funds Index, representing the Fund's peer group, which fell 0.15%
during the same time frame. To help keep the Fund competitive with its
peers, RiverSource Investments and its affiliates revised the Fund's
expense cap, reducing the maximum level of expenses borne by Class A
shareholders from 0.95% of net assets per fiscal year to a maximum 0.89% of
net assets per year through May 31, 2006.
Q: WHAT FACTORS MOST SIGNIFICANTLY AFFECTED THE FUND'S PERFORMANCE DURING THE
SEMIANNUAL PERIOD?
A: Overall, the mortgage market struggled during the period in a rising rate
environment. The Federal Reserve Board (the Fed) raised interest rates four
times during the six months, bringing the targeted federal funds rate to
4.00% by the end of November. The U.S. Treasury yield curve flattened
dramatically, i.e., the difference in yields between short- and long-term
maturities narrowed. As the yields narrowed, there was a general lack of
demand on the part of investors for mortgages. In other words, there were
not enough buyers for an increasing supply of mortgages. Historically,
mortgages perform better in a steeper yield curve environment. Also, as
mortgages are highly sensitive to changes in interest rates, slightly
higher volatility and fears of a continued measured pace of rate hikes by
the Fed further weighed on the mortgage sector's performance. Thus, returns
for the Fund and the Lehman Index were negative.
We maintained the Fund's duration shorter than that of the Lehman Index in
anticipation of rising rates and had prudently positioned the portfolio for
the yield curve flattening scenario which occurred during the period.
The Fund also benefited from its effective individual security selection.
We focused on issues with reduced sensitivity to changes in interest rates.
Further supporting the Fund's results was its focus within the mortgage
sector on higher coupon bonds. Finally, the Fund was defensively positioned
with significant exposure to 15-year
- --------------------------------------------------------------------------------
6 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
- - FURTHER SUPPORTING THE FUND'S RESULTS WAS ITS FOCUS WITHIN THE MORTGAGE SECTOR
ON HIGHER COUPON BONDS.
mortgages, which outperformed 30-year mortgages during the semiannual
period. Overall, the Fund's conservative risk profile and our efforts to
reduce the Fund's exposure to volatility when possible helped Fund returns.
On the other hand, many of the Fund's long-held specified pools of
mortgages that performed well in a highly refinance-able mortgage market,
such as those with low loan balances, began to erode over the semiannual
period. In other words, the premium paid for those mortgages with low
prepayment potential was reduced as interest rates rose and refinancing
became less likely. Thus, these holdings detracted modestly from the Fund's
results.
Q: WHAT CHANGES DID YOU MAKE TO THE FUND AND HOW IS IT CURRENTLY POSITIONED?
A: Early in the semiannual period, we sold the Fund's positions in commercial
mortgage-backed securities (CMBS). This proved a prudent strategy, as CMBS
generally underperformed the other securities held in the Fund's portfolio
during the six months. Toward the end of the period, we removed most of the
Fund's remaining yield curve flattening bias, moving toward a rather
neutral position relative to the Lehman Index. We believe the yield curve
has already flattened to near fair value and the move to higher yields
across short-term and long-term maturities going forward may be more
parallel in nature.
We continued to emphasize those securities issued by government mortgage
agencies, including Ginnie Mae, Fannie Mae and Freddie Mac. We maintained
our focus on higher coupon mortgage securities and emphasized investment in
more seasoned pools of mortgages, which we continue to expect to outperform
with increased interest rates. Throughout, securities were carefully
selected to reduce the risk of prepayments if significantly higher interest
rates do not materialize. Overall, the opportunistic adjustments we made in
response to valuations or market developments resulted in a semiannual
portfolio turnover rate of 102%.
- --------------------------------------------------------------------------------
7 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
- - WE INTEND TO POSITION THE FUND FOR ONGOING U.S. ECONOMIC RECOVERY AND STILL
HIGHER INTEREST RATES, AS THESE THEMES ARE LIKELY TO CONTINUE TO WEIGH ON THE
FIXED INCOME MARKETS INTO THE NEW YEAR.
Q: HOW DO YOU INTEND TO MANAGE THE FUND IN THE COMING MONTHS?
A: We intend to position the Fund for ongoing U.S. economic recovery and still
higher interest rates, as these themes are likely to continue to weigh on
the fixed income markets into the new year. We believe the Fed will likely
continue its gradualist approach, raising the targeted federal funds rate
to a 4.50% or 4.75% rate.
Thus, for the near term, we anticipate that mortgages may continue to
underperform U.S. Treasuries. However, once the Fed neutralizes its stance,
we believe demand for mortgages will become greater once again. It must
also be noted, however, that volatility in the market may increase during
the near term, given a new Fed chairman taking over in early 2006 and the
uncertainty such a change may bring with it after the long reign of the
current chairman, Alan Greenspan.
Given this backdrop, we intend to maintain the Fund's duration shorter than
the Lehman Index for the near term. Within mortgage-backed securities, we
expect to maintain a conservative risk posture. When the Fed tightening
cycle does end, we may then seek select opportunities to lengthen the
Fund's duration and become a bit more aggressive in our overall
positioning. As always, however, our strategy is to provide added portfolio
value with a moderate amount of risk. Quality issues and security selection
remain a priority as we continue to seek attractive buying opportunities.
- --------------------------------------------------------------------------------
8 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
INVESTMENTS IN SECURITIES
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
NOV. 30, 2005 (UNAUDITED)
(PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
BONDS (101.6%)
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED(f)
Adjustable Rate Mtge Trust
Series 2004-2 Cl 6A1
02-25-35 5.26% $ 499,961(c) $ 499,155
Banc of America Mtge Securities
Series 2004-F Cl B1
07-25-34 4.13 543,088(c) 523,803
Bank of America Alternative Loan Trust
Series 2003-11 Cl 1A1
01-25-34 6.00 752,821 752,385
Bank of America Alternative Loan Trust
Series 2003-11 Cl 4A1
01-25-19 4.75 384,940 373,031
Chaseflex Trust
Series 2005-2 Cl 2A2
6-25-35 6.50 813,360 829,628
Countrywide Alternative Loan Trust
Series 2005-54CB Cl 2A3
11-25-35 5.50 652,730 653,933
Countrywide Alternative Loan Trust
Series 2005-6CB Cl 1A1
04-25-35 7.50 600,446 620,794
Countrywide Home Loans
Series 2004-12 Cl 1M
08-25-34 4.61 374,180(c) 363,381
Countrywide Home Loans
Series 2005-HYB1 Cl 6A1
03-25-35 5.20 1,456,250(c) 1,443,944
Countrywide Home Loans
Series 2005-R2 Cl 2A1
06-25-35 7.00 817,375(k) 841,325
CS First Boston Mtge Securities
Series 2004-AR5 Cl CB1
06-25-34 4.40 371,046(c) 360,478
CS First Boston Mtge Securities
Series 2005
12-25-35 7.00 1,175,000(b) 1,216,125
CS First Boston Mtge Securities
Series 2005-10 Cl 4A1
11-25-35 6.50 983,755 999,741
CS First Boston Mtge Securities
Series 2005-8 Cl 7A1
09-25-35 7.00% $1,409,521 $1,441,343
Downey Savings & Loan Assn Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR5 Cl X1
08-19-45 6.38 8,725,227(c),(g) 130,878
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
10-15-27 5.00 2,225,000 2,206,474
06-15-28 5.00 2,200,000 2,183,232
12-15-28 5.50 635,000 637,613
02-15-33 5.50 3,234,430 3,269,419
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
02-15-14 17.16 1,090,365(g) 61,649
07-15-17 7.50 772,832(g) 91,573
10-15-22 14.56 1,249,112(g) 76,559
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
11-15-19 20.00 1,441,648(d),(g) 117,111
03-15-32 16.30 479,736(d),(g) 41,992
Federal Home Loan Mtge Corp #555140
03-01-10 8.00 290,842 300,660
Federal Home Loan Mtge Corp #555300
10-01-17 8.00 427,186 452,602
Federal Home Loan Mtge Corp #89232
04-01-17 7.00 1,031,421 1,073,181
Federal Home Loan Mtge Corp #A10892
07-01-33 6.00 913,398 926,188
Federal Home Loan Mtge Corp #A15111
10-01-33 6.00 1,221,961 1,231,286
Federal Home Loan Mtge Corp #A21059
04-01-34 6.50 694,924 711,289
Federal Home Loan Mtge Corp #A25174
08-01-34 6.50 662,355 677,953
Federal Home Loan Mtge Corp #C53098
06-01-31 8.00 408,168 434,699
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
9 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50% $1,317,394 $1,303,770
Federal Home Loan Mtge Corp #C68876
07-01-32 7.00 233,597 243,389
Federal Home Loan Mtge Corp #C69665
08-01-32 6.50 3,092,375 3,169,291
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 2,029,166 2,005,976
Federal Home Loan Mtge Corp #D95232
03-01-22 6.50 431,214 445,132
Federal Home Loan Mtge Corp #D95371
04-01-22 6.50 665,868 692,299
Federal Home Loan Mtge Corp #E00285
01-01-09 7.00 177,828 182,271
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 1,314,459 1,397,295
Federal Home Loan Mtge Corp #E88036
02-01-17 6.50 1,870,340 1,933,385
Federal Home Loan Mtge Corp #E88468
12-01-16 6.50 378,943 392,245
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 2,323,907 2,294,970
Federal Home Loan Mtge Corp #E93685
01-01-18 5.50 1,525,166 1,533,435
Federal Home Loan Mtge Corp #E96522
05-01-18 5.00 902,818 891,405
Federal Home Loan Mtge Corp #E96523
05-01-18 5.00 1,089,151 1,076,090
Federal Home Loan Mtge Corp #E97855
08-01-18 5.00 2,190,085 2,167,751
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 521,974 515,435
Federal Home Loan Mtge Corp #G01169
01-01-30 5.50 2,019,335 1,997,742
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 2,677,073 2,712,262
Federal Natl Mtge Assn
12-01-20 5.00 4,225,000(b) 4,159,006
12-01-20 5.50 3,350,000(b) 3,363,608
12-01-20 6.00 5,500,000(b) 5,615,171
12-01-35 6.50 1,700,000(b) 1,740,375
01-01-36 6.00 4,100,000(b) 4,115,375
Federal Natl Mtge Assn
Collateralized Mtge Obligation
12-25-26 8.00 478,054 507,831
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
12-25-12 13.29% $ 835,919(g) $ 36,357
12-25-22 8.27 303,158(g) 46,123
12-25-31 10.31 683,831(g) 115,584
12-25-33 6.09 604,214(g) 151,258
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
08-25-44 0.00 41,699(e) 32,180
Federal Natl Mtge Assn #13481
05-01-08 7.75 162,352 168,205
Federal Natl Mtge Assn #252409
03-01-29 6.50 2,191,311 2,281,944
Federal Natl Mtge Assn #254793
07-01-33 5.00 2,942,876 2,841,517
Federal Natl Mtge Assn #254916
09-01-23 5.50 2,574,281 2,560,378
Federal Natl Mtge Assn #313470
08-01-10 7.50 478,472 496,371
Federal Natl Mtge Assn #323362
11-01-28 6.00 3,861,173(b) 3,885,305
Federal Natl Mtge Assn #323715
05-01-29 6.00 688,015 693,780
Federal Natl Mtge Assn #344909
04-01-25 8.00 1,056,280 1,134,466
Federal Natl Mtge Assn #357514
03-01-34 5.50 3,019,397 2,981,105
Federal Natl Mtge Assn #357947
09-01-35 6.00 2,095,507 2,108,468
Federal Natl Mtge Assn #426860
10-01-09 8.50 65,180 65,919
Federal Natl Mtge Assn #483691
12-01-28 7.00 1,358,368 1,435,900
Federal Natl Mtge Assn #487757
09-01-28 7.50 1,139,132 1,199,175
Federal Natl Mtge Assn #514704
01-01-29 6.00 1,075,085 1,084,094
Federal Natl Mtge Assn #545008
06-01-31 7.00 2,123,971 2,232,775
Federal Natl Mtge Assn #545339
11-01-31 6.50 374,720 385,841
Federal Natl Mtge Assn #545818
07-01-17 6.00 4,210,012 4,312,299
Federal Natl Mtge Assn #545864
08-01-17 5.50 2,189,483 2,205,128
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
10 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #555063
11-01-17 5.50% $1,561,952 $1,572,109
Federal Natl Mtge Assn #555458
05-01-33 5.50 2,131,772 2,104,464
Federal Natl Mtge Assn #555734
07-01-23 5.00 927,637 901,945
Federal Natl Mtge Assn #555740
08-01-18 4.50 4,957,278 4,801,976
Federal Natl Mtge Assn #581418
06-01-31 7.00 1,343,805 1,415,512
Federal Natl Mtge Assn #583088
06-01-29 6.00 3,715,929 3,765,587
Federal Natl Mtge Assn #592270
01-01-32 6.50 872,858 901,962
Federal Natl Mtge Assn #596505
08-01-16 6.50 267,891 277,075
Federal Natl Mtge Assn #601416
11-01-31 6.50 493,691 510,053
Federal Natl Mtge Assn #624979
01-01-32 6.00 1,118,408 1,128,896
Federal Natl Mtge Assn #626670
03-01-32 7.00 741,789 782,191
Federal Natl Mtge Assn #627426
03-01-17 6.50 704,830 729,606
Federal Natl Mtge Assn #630992
09-01-31 7.00 2,336,377 2,466,890
Federal Natl Mtge Assn #630993
09-01-31 7.50 2,190,906 2,305,193
Federal Natl Mtge Assn #631388
05-01-32 6.50 2,693,642 2,777,050
Federal Natl Mtge Assn #632412
12-01-17 5.50 1,789,087 1,801,034
Federal Natl Mtge Assn #632856
03-01-17 6.00 769,620 788,317
Federal Natl Mtge Assn #633674
06-01-32 6.50 1,014,518 1,049,126
Federal Natl Mtge Assn #635231
04-01-32 7.00 498,550 522,198
Federal Natl Mtge Assn #635908
04-01-32 6.50 2,140,124 2,207,282
Federal Natl Mtge Assn #636812
04-01-32 7.00 193,947 203,878
Federal Natl Mtge Assn #640200
10-01-31 9.50 105,404 116,157
Federal Natl Mtge Assn #640207
03-01-17 7.00 45,559 47,244
Federal Natl Mtge Assn #640208
04-01-17 7.50 86,663 90,916
Federal Natl Mtge Assn #643192
05-01-17 6.00% $ 350,929 $ 359,457
Federal Natl Mtge Assn #644805
05-01-32 7.00 1,660,263 1,748,866
Federal Natl Mtge Assn #645053
05-01-32 7.00 939,751 981,402
Federal Natl Mtge Assn #646189
05-01-32 6.50 722,666 741,047
Federal Natl Mtge Assn #654071
09-01-22 6.50 745,314 769,747
Federal Natl Mtge Assn #654685
11-01-22 6.00 774,066 784,806
Federal Natl Mtge Assn #655635
08-01-32 6.50 1,155,338 1,191,233
Federal Natl Mtge Assn #656514
09-01-17 6.50 1,735,250 1,794,341
Federal Natl Mtge Assn #660186
11-01-32 6.00 3,258,975 3,293,211
Federal Natl Mtge Assn #663651
10-01-17 5.50 714,630 719,320
Federal Natl Mtge Assn #663667
11-01-17 5.50 720,819 725,211
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,725,503 1,769,391
Federal Natl Mtge Assn #667302
01-01-33 7.00 945,782 994,071
Federal Natl Mtge Assn #667604
10-01-32 5.50 684,937 676,507
Federal Natl Mtge Assn #670382
09-01-32 6.00 1,653,613 1,664,729
Federal Natl Mtge Assn #676683
12-01-32 6.00 1,480,817 1,490,772
Federal Natl Mtge Assn #677089
01-01-33 5.50 866,930 856,259
Federal Natl Mtge Assn #677294
01-01-33 6.00 2,048,479 2,062,250
Federal Natl Mtge Assn #682229
03-01-33 5.50 2,978,636 2,941,973
Federal Natl Mtge Assn #684585
02-01-33 5.50 2,008,299 1,985,763
Federal Natl Mtge Assn #684843
02-01-18 5.50 2,429,954 2,445,279
Federal Natl Mtge Assn #684853
03-01-33 6.50 318,868 327,927
Federal Natl Mtge Assn #688002
03-01-33 5.50 2,119,229 2,096,656
Federal Natl Mtge Assn #689026
05-01-33 5.50 524,736 518,690
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
11 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #689093
07-01-28 5.50% $1,361,439 $1,345,604
Federal Natl Mtge Assn #694628
04-01-33 5.50 2,767,854 2,739,951
Federal Natl Mtge Assn #694795
04-01-33 5.50 3,414,085 3,379,564
Federal Natl Mtge Assn #695220
04-01-33 5.50 1,768,483 1,746,055
Federal Natl Mtge Assn #695460
04-01-18 5.50 3,118,812 3,138,868
Federal Natl Mtge Assn #697145
03-01-23 5.50 1,780,515 1,774,377
Federal Natl Mtge Assn #699424
04-01-33 5.50 2,173,671 2,151,756
Federal Natl Mtge Assn #701101
04-01-33 6.00 2,889,423 2,906,854
Federal Natl Mtge Assn #704610
06-01-33 5.50 2,944,783 2,907,438
Federal Natl Mtge Assn #704657
05-01-18 5.00 1,591,640 1,571,041
Federal Natl Mtge Assn #705655
05-01-33 5.00 952,752 919,937
Federal Natl Mtge Assn #708503
05-01-33 6.00 461,360 465,626
Federal Natl Mtge Assn #708504
05-01-33 6.00 779,192 786,857
Federal Natl Mtge Assn #710780
05-01-33 6.00 330,783 332,779
Federal Natl Mtge Assn #711206
05-01-33 5.50 1,720,298 1,698,482
Federal Natl Mtge Assn #711239
07-01-33 5.50 743,047 733,623
Federal Natl Mtge Assn #711501
05-01-33 5.50 1,118,285 1,107,163
Federal Natl Mtge Assn #720006
07-01-33 5.50 2,743,965(h) 2,709,166
Federal Natl Mtge Assn #720378
06-01-18 4.50 2,139,341 2,074,871
Federal Natl Mtge Assn #723771
08-01-28 5.50 1,321,703 1,306,330
Federal Natl Mtge Assn #725232
03-01-34 5.00 2,169,721 2,094,991
Federal Natl Mtge Assn #725684
05-01-18 6.00 1,216,022 1,242,385
Federal Natl Mtge Assn #725719
07-01-33 4.85 655,132(c) 643,144
Federal Natl Mtge Assn #726362
06-01-18 5.00 1,622,512 1,604,698
Federal Natl Mtge Assn #726940
08-01-23 5.50% $1,849,795 $1,831,852
Federal Natl Mtge Assn #730153
08-01-33 5.50 1,025,632 1,012,625
Federal Natl Mtge Assn #733367
08-01-23 5.50 1,470,616 1,456,260
Federal Natl Mtge Assn #735057
01-01-19 4.50 7,791,352 7,556,559
Federal Natl Mtge Assn #735160
12-01-34 4.36 901,865(c) 892,504
Federal Natl Mtge Assn #743524
11-01-33 5.00 2,498,522 2,412,467
Federal Natl Mtge Assn #743579
11-01-33 5.50 2,222,781 2,194,592
Federal Natl Mtge Assn #747339
10-01-23 5.50 1,595,499 1,579,897
Federal Natl Mtge Assn #747536
11-01-33 5.00 2,364,268 2,282,837
Federal Natl Mtge Assn #750932
10-01-18 4.50 1,125,581 1,091,661
Federal Natl Mtge Assn #753507
12-01-18 5.00 1,609,525 1,589,140
Federal Natl Mtge Assn #753940
12-01-18 5.00 1,507,915(b) 1,488,400
Federal Natl Mtge Assn #759342
01-01-34 6.50 653,674 672,933
Federal Natl Mtge Assn #761141
12-01-18 5.00 2,010,122(b) 1,984,107
Federal Natl Mtge Assn #765760
02-01-19 5.00 1,380,771 1,362,901
Federal Natl Mtge Assn #766641
03-01-34 5.00 3,986,359 3,844,123
Federal Natl Mtge Assn #776962
04-01-29 5.00 1,657,684 1,595,294
Federal Natl Mtge Assn #790759
09-01-34 4.82 1,572,107(c) 1,567,191
Federal Natl Mtge Assn #796728
09-01-19 6.00 1,062,246 1,085,066
Federal Natl Mtge Assn #828714
07-01-35 5.00 2,926,900 2,816,541
First Horizon Alternative Mtge Securities
Series 2004-AA4 Cl A1
10-25-34 5.41 487,299(i) 491,149
First Horizon Alternative Mtge Securities
Series 2005-AA3 Cl 3A1
05-25-35 5.40 1,075,186(i) 1,075,315
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
12 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
<Table>
<Caption>
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
First Horizon Alternative Mtge Securities
Series 2005-AA4 Cl B1
06-25-35 5.38% $ 349,685 $ 348,811
Govt Natl Mtge Assn #518371
02-15-30 7.00 263,493 276,751
Govt Natl Mtge Assn #528344
03-15-30 7.00 452,983 475,775
Govt Natl Mtge Assn #556293
12-15-31 6.50 537,737 558,902
Govt Natl Mtge Assn #583182
02-15-32 6.50 688,499 715,383
Govt Natl Mtge Assn #595256
12-15-32 6.00 504,129 512,185
Govt Natl Mtge Assn #619613
09-15-33 5.00 2,188,360 2,144,390
Harborview Mtge Loan Trust
Series 2005-16 Cl 3A1B
01-19-36 4.55 1,025,000(c) 1,025,000
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 4.50 18,235,226(c),(g) 216,543
IndyMac Index Mtge Loan Trust
Series 2005-AR3 Cl 3A1
04-25-35 5.33 339,214(c) 338,282
Master Alternative Loans Trust
Series 2004-2 Cl 4A1
02-25-19 5.00 623,871 616,853
Master Alternative Loans Trust
Series 2004-7 Cl 8A1
08-25-19 5.00 515,436 508,772
Master Alternative Loans Trust
Series 2004-8 Cl 7A1
09-25-19 5.00 724,289 714,779
Master Alternative Loans Trust
Series 2005-3 Cl 1A2
04-25-35 5.50 1,537,000 1,506,521
Structured Adjustable Rate Mtge Loan Trust
Series 2004-5 Cl B1
05-25-34 4.60 423,316(c) 408,644
Structured Adjustable Rate Mtge Loan Trust
Series 2005-15 Cl 4A1
07-25-35 5.53 936,265(c) 927,780
Structured Asset Securities
Series 2003-33H Cl 1A1
10-25-33 5.50 1,534,322 1,501,547
Washington Mutual
Series 2004-CB2 Cl 6A
07-25-19 4.50% $ 836,863 $ 804,660
Washington Mutual
Series 2004-CB4 Cl 22A
12-25-19 6.00 2,035,051 2,049,502
Washington Mutual
Series 2005
12-25-45 4.39 550,000(b) 550,000
Wells Fargo Mtge Backed Securities Trust
Series 2005-10 Cl A1
10-25-35 5.00 2,489,360 2,389,009
Wells Fargo Mtge Backed Securities Trust
Series 2005-5 Cl 2A1
05-25-35 5.50 949,566 929,092
Wells Fargo Mtge Backed Securities Trust
Series 2005-AR1 Cl 1A1
02-25-35 4.55 1,006,292(c) 990,543
Wells Fargo Mtge Backed Securities Trust
Series 2005-AR16 Cl 6A3
10-25-35 5.00 1,352,438(c) 1,342,686
- ---------------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $278,029,123) $273,776,058
- ---------------------------------------------------------------------------------------------------------
</Table>
SHORT-TERM SECURITIES (8.4%)
<Table>
<Caption>
EFFECTIVE PRINCIPAL
ISSUER YIELD AMOUNT VALUE(a)
COMMERCIAL PAPER
Kitty Hawk Funding
12-13-05 4.06% $5,000,000(j) $ 4,992,687
Old Line Funding
12-15-05 4.06 3,400,000(j) 3,394,263
Park Granada LLC
12-01-05 4.07 3,700,000(j) 3,699,582
12-12-05 4.06 5,700,000(j) 5,692,304
Thames Asset Global Securitization
12-15-05 4.07 5,000,000(j) 4,991,542
- ---------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost: $22,772,947) $ 22,770,378
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $300,802,070)(l) $296,546,436
=========================================================================================================
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
13 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) At Nov. 30, 2005, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$28,138,066.
(c) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Nov. 30, 2005.
(d) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in the LIBOR (London InterBank Offering Rate) Index.
Interest rate disclosed is the rate in effect on Nov. 30, 2005. At Nov.
30, 2005, the value of inverse floaters represented 0.1% of net assets.
(e) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents yield based upon the estimated timing of future cash
flows at Nov. 30, 2005.
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal
repayments may have an adverse (positive) effect on yield to maturity. The
principal amount shown is the notional amount of the underlying mortgages.
Interest rate disclosed represents yield based upon the estimated timing
and amount of future cash flows at Nov. 30, 2005.
(h) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
<Table>
<Caption>
TYPE OF SECURITY NOTIONAL AMOUNT
--------------------------------------------------------------------------
PURCHASE CONTRACT
U.S. Long Bond, March 2006, 20-year $10,300,000
SALE CONTRACTS
U.S. Treasury Note, Dec. 2005, 5-year 2,300,000
U.S. Treasury Note, Dec. 2005, 10-year 1,500,000
U.S. Treasury Note, March 2006, 2-year 4,800,000
U.S. Treasury Note, March 2006, 10-year 600,000
</Table>
(i) Interest rate varies either based on a predetermined schedule or to
reflect current market conditions; rate shown is the effective rate on
Nov. 30, 2005.
(j) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors." This security has been determined to be liquid
under guidelines established by the Fund's Board of Directors. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At Nov. 30, 2005, the value of
these securities amounted to $22,770,378 or 8.4% of net assets.
(k) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
Fund's Board of Directors. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
Nov. 30, 2005, the value of these securities amounted to $841,325 or 0.3%
of net assets.
- --------------------------------------------------------------------------------
14 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(l) At Nov. 30, 2005, the cost of securities for federal income tax purposes
was approximately $300,802,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $ 524,000
Unrealized depreciation (4,780,000)
--------------------------------------------------------------------------
Net unrealized depreciation $(4,256,000)
--------------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
15 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
NOV. 30, 2005 (UNAUDITED)
<Table>
ASSETS
Investments in securities, at value (Note 1)
(identified cost $300,802,070) $296,546,436
Cash in bank on demand deposit 30,777
Capital shares receivable 69,166
Accrued interest receivable 1,266,232
Receivable for investment securities sold 18,133,043
- -------------------------------------------------------------------------------------------------------------
Total assets 316,045,654
- -------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 33,425
Capital shares payable 127,541
Payable for investment securities purchased 18,087,928
Payable for securities purchased on a forward-commitment basis (Note 1) 28,138,066
Accrued investment management services fee 3,836
Accrued distribution fee 55,684
Accrued service fee 92
Accrued transfer agency fee 1,549
Accrued administrative services fee 516
Other accrued expenses 64,903
- -------------------------------------------------------------------------------------------------------------
Total liabilities 46,513,540
- -------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $269,532,114
=============================================================================================================
REPRESENTED BY
Capital stock -- $.01 par value (Note 1) $ 537,652
Additional paid-in capital 273,849,756
Excess of distributions over net investment income (80,097)
Accumulated net realized gain (loss) (579,103)
Unrealized appreciation (depreciation) on investments (Note 5) (4,196,094)
- -------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $269,532,114
=============================================================================================================
Net assets applicable to outstanding shares: Class A $147,362,645
Class B $ 79,663,101
Class C $ 8,697,842
Class I $ 9,725
Class Y $ 33,798,801
Net asset value per share of outstanding capital stock: Class A shares 29,396,644 $ 5.01
Class B shares 15,885,640 $ 5.01
Class C shares 1,734,224 $ 5.02
Class I shares 1,942 $ 5.01
Class Y shares 6,746,709 $ 5.01
- -------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
16 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
STATEMENT OF OPERATIONS
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
SIX MONTHS ENDED NOV. 30, 2005 (UNAUDITED)
<Table>
INVESTMENT INCOME
Income:
Interest $ 6,386,709
- -------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 694,543
Distribution fee
Class A 192,816
Class B 445,676
Class C 48,567
Transfer agency fee 248,059
Incremental transfer agency fee
Class A 12,927
Class B 13,648
Class C 1,378
Service fee -- Class Y 7,011
Administrative services fees and expenses 79,548
Compensation of board members 5,694
Custodian fees 34,885
Printing and postage 52,820
Registration fees 29,535
Audit fees 11,000
Other 4,602
- -------------------------------------------------------------------------------------------------------------
Total expenses 1,882,709
Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (335,923)
- -------------------------------------------------------------------------------------------------------------
1,546,786
Earnings credits on cash balances (Note 2) (7,889)
- -------------------------------------------------------------------------------------------------------------
Total net expenses 1,538,897
- -------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 4,847,812
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (Note 3) (570,573)
Futures contracts 139,189
- -------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (431,384)
Net change in unrealized appreciation (depreciation) on investments (5,234,693)
- -------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (5,666,077)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (818,265)
=============================================================================================================
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
17 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
<Table>
<Caption>
NOV. 30, 2005 MAY 31, 2005
SIX MONTHS ENDED YEAR ENDED
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 4,847,812 $ 9,869,268
Net realized gain (loss) on investments (431,384) 2,059,479
Net change in unrealized appreciation (depreciation) on investments (5,234,693) 3,221,638
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (818,265) 15,150,385
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (2,945,259) (6,521,365)
Class B (1,370,134) (3,367,254)
Class C (149,355) (379,894)
Class I (203) (414)
Class Y (276,506) (890)
- -------------------------------------------------------------------------------------------------------------
Total distributions (4,741,457) (10,269,817)
- -------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 21,879,310 49,147,666
Class B shares 7,177,678 19,159,654
Class C shares 497,960 1,916,466
Class Y shares 34,396,667 21,761
Reinvestment of distributions at net asset value
Class A shares 2,693,709 5,863,503
Class B shares 1,292,655 3,139,154
Class C shares 139,737 344,732
Class Y shares 271,758 464
Payments for redemptions
Class A shares (33,323,891) (75,829,038)
Class B shares (Note 2) (24,886,218) (54,952,040)
Class C shares (Note 2) (2,301,942) (6,648,471)
Class Y shares (434,679) --
- -------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions 7,402,744 (57,836,149)
- -------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 1,843,022 (52,955,581)
Net assets at beginning of period 267,689,092 320,644,673
- -------------------------------------------------------------------------------------------------------------
Net assets at end of period $269,532,114 $267,689,092
=============================================================================================================
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
18 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
NOTES TO FINANCIAL STATEMENTS
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
(FORMERLY AXP U.S. GOVERNMENT MORTGAGE FUND)
(UNAUDITED AS TO NOV. 30, 2005)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund is a series of AXP Government Income Series, Inc. and is registered
under the Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. AXP Government Income Series, Inc. has 10 billion
authorized shares of capital stock that can be allocated among the separate
series as designated by the Board. The Fund invests primarily in mortgage-backed
securities that either are issued or guaranteed as to principal and interest by
the U.S. government, its agencies, authorities or instrumentalities.
The Fund offers Class A, Class B, Class C and Class Y shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class Y shares have no sales charge and are offered only to qualifying
institutional investors.
The Fund offers an additional class of shares, Class I, exclusively to certain
institutional investors. Class I shares have no sales charge and are made
available through a separate prospectus supplement provided to investors
eligible to purchase the shares. At Nov. 30, 2005, Ameriprise Financial, Inc.
(Ameriprise Financial) (formerly American Express Financial Corporation) and IDS
Life Insurance Company owned 100% of Class I shares.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee, transfer agency fees and service fee (class specific
expenses) differ among classes. Income, expenses (other than class specific
expenses) and realized and unrealized gains or losses on investments are
allocated to each class of shares based upon its relative net assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
19 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the Board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
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, 2005, the Fund has entered into outstanding
when-issued securities of $19,532,801 and other forward-commitments of
$8,605,265.
The Fund also enters into transactions to sell purchase commitments to third
parties at current market values and concurrently acquires other purchase
commitments for similar securities at later dates. As an inducement for the Fund
to "roll over" its purchase commitments, the Fund receives negotiated amounts in
the form of reductions of the purchase price of the commitment.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Fund may buy and sell put and call options
and write put and call options. This may include purchasing mortgage-backed
security (MBS) put spread options and writing covered MBS call spread options.
MBS spread options are based upon the changes in the price spread between a
specified mortgage-backed security and a like-duration Treasury security. The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the security
decreases and the option is exercised. The risk in buying an option is that the
Fund pays a premium whether or not the option is exercised. The Fund also has
the additional risk of being unable to enter into a closing transaction if a
liquid secondary market does not exist. The Fund also may write over-the-counter
options where completing the obligation depends upon the credit standing of the
other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Fund will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
- --------------------------------------------------------------------------------
20 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts. Risks of entering into futures contracts and
related options include the possibility of an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
SHORT SALES
The Fund may engage in short sales. In these transactions, the Fund sells a
security that it does not own. The Fund is obligated to replace the security
that was short by purchasing it at the market price at the time of replacement
or entering into an offsetting transaction with the broker. The price at such
time may be more or less than the price at which the Fund sold the security.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are used
to satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is
"marked-to-market" daily and the change in market value is recorded by the Fund
as an unrealized gain or loss. If the forward sale commitment is closed through
the acquisition of an offsetting purchase commitment, the Fund realizes a gain
or loss. If the Fund delivers securities under the commitment, the Fund realizes
a gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the "Notes to investments in
securities."
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.
- --------------------------------------------------------------------------------
21 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
FEDERAL TAXES
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to shareholders. No provision for income or excise taxes
is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts and losses deferred due to "wash sale" transactions.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, RiverSource Investments, LLC
(the Investment Manager) determines which securities will be purchased, held or
sold. Prior to Oct. 1, 2005, investment management services were provided by
Ameriprise Financial. The management fee is a percentage of the Fund's average
daily net assets that declines from 0.52% to 0.395% annually as the Fund's
assets increase.
Under the current Administrative Services Agreement, the Fund pays Ameriprise
Financial a fee for administration and accounting services at a percentage of
the Fund's average daily net assets that declines from 0.07% to 0.04% annually
as the Fund's assets increase. Prior to Oct. 1, 2005, the fee percentage of the
Fund's average daily net assets declined from 0.05% to 0.025% annually as the
Fund's assets increased. A minor portion of additional administrative service
expenses paid by the Fund are consultants' fees and fund office expenses. Under
this agreement, the Fund also pays taxes, audit and certain legal fees,
registration fees for shares, compensation of board members, corporate filing
fees and any other expenses properly payable by the Fund and approved by the
Board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
RiverSource funds. The Fund's liability for these amounts is adjusted for market
value changes and remains in the Fund until distributed in accordance with the
Plan.
- --------------------------------------------------------------------------------
22 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
Under a separate Transfer Agency Agreement, RiverSource Service Corporation
(formerly American Express Client Service Corporation) (the Transfer Agent)
maintains shareholder accounts and records. The Fund pays the Transfer Agent an
annual fee per shareholder account for this service as follows:
- - Class A $20.50
- - Class B $21.50
- - Class C $21.00
- - Class Y $18.50
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the fee for Class Y.
Class I pays a transfer agency fee at an annual rate per shareholder account of
$1. This amount is included in the transfer agency fee on the statement of
operations.
Beginning May 20, 2005, the Transfer Agent implemented an annual closed account
fee of $5 per inactive account, charged on a pro rata basis for 12 months from
the date the account becomes inactive. These fees are included in the transfer
agency fees on the statement of operations.
The Fund has agreements with Ameriprise Financial Services, Inc. (formerly
American Express Financial Advisors 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 up to 0.25% of the Fund's
average daily net assets attributable to Class A shares and up to 1.00% for
Class B and Class C shares.
Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for
service provided to shareholders by financial advisors and other servicing
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.
Sales charges received by the Distributor for distributing Fund shares were
$132,514 for Class A, $87,778 for Class B and $2,251 for Class C for the six
months ended Nov. 30, 2005.
For the six months ended Nov. 30, 2005, the Investment Manager and its
affiliates waived certain fees and expenses to 0.89% for Class A, 1.64% for
Class B, 1.64% for Class C, 0.59% for Class I and 0.71% for Class Y. Of these
waived fees and expenses, the transfer agency fees waived for Class A, Class B,
Class C and Class Y were $118,067, $74,214, $7,977 and $11,077, respectively,
and the management fees waived at the Fund level were $124,588. Beginning Oct.
1, 2005, the Investment Manager and its affiliates have agreed to waive certain
fees and expenses until May 31, 2006. Under this agreement, net expenses will
not exceed 0.89% for Class A, 1.64% for Class B, 1.64% for Class C, 0.59% for
Class I and 0.71% for Class Y of the Fund's average daily net assets.
During the six months ended Nov. 30, 2005, the Fund's custodian and transfer
agency fees were reduced by $7,889 as a result of earnings credits from
overnight cash balances. The Fund also pays custodian fees to Ameriprise Trust
Company (formerly American Express Trust Company), an affiliate of Ameriprise
Financial.
- --------------------------------------------------------------------------------
23 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $289,944,850 and $272,614,949, respectively, for the six
months ended Nov. 30, 2005. Realized gains and losses are determined on an
identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED NOV. 30, 2005
CLASS A CLASS B CLASS C CLASS I CLASS Y
- ---------------------------------------------------------------------------------------------------------
Sold 4,312,948 1,413,733 98,038 - 6,771,859
Issued for reinvested distributions 531,790 255,026 27,571 - 54,093
Redeemed (6,576,387) (4,907,453) (454,135) - (86,081)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,731,649) (3,238,694) (328,526) - 6,739,871
- ---------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED MAY 31, 2005
CLASS A CLASS B CLASS C CLASS I CLASS Y
- ---------------------------------------------------------------------------------------------------------
Sold 9,625,103 3,748,262 374,927 - 4,240
Issued for reinvested distributions 1,147,161 613,952 67,418 - 91
Redeemed (14,862,288) (10,774,795) (1,302,715) - -
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) (4,090,024) (6,412,581) (860,370) - 4,331
- ---------------------------------------------------------------------------------------------------------
</Table>
5. INTEREST RATE FUTURES CONTRACTS
At Nov. 30, 2005, investments in securities included securities valued at
$345,561 that were pledged as collateral to cover initial margin deposits on 103
open purchase contracts and 68 open sale contracts. The notional market value of
the open purchase contracts at Nov. 30, 2005 was $11,539,219 with a net
unrealized loss of $51,581. The notional market value of the open sale contracts
at Nov. 30, 2005 was $9,644,969 with a net unrealized gain of $111,121. See
"Summary of significant accounting policies" and "Notes to investments in
securities."
6. BANK BORROWINGS
The Fund has a revolving credit agreement with a syndicate of banks headed by
JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary
funding of shareholder redemptions or for other temporary or emergency purposes.
The agreement went into effect Sept. 20, 2005. The Fund must maintain asset
coverage for borrowings of at least 300%. The agreement, which enables the Fund
to participate with other RiverSource funds, permits borrowings up to $500
million, collectively. Interest is charged to each Fund based on its borrowings
at a rate equal to either the higher of the Federal Funds Effective Rate plus
0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within
60 days after such loan is executed. The Fund also pays a commitment fee equal
to its pro rata share of the amount of the credit facility at a rate of 0.07%
per annum. Prior to this agreement, the Fund had a revolving credit agreement
that permitted borrowings up to $500 million with The Bank of New York. The Fund
had no borrowings outstanding during the six months ended Nov. 30, 2005.
- --------------------------------------------------------------------------------
24 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
7. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a)
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(h) 2005 2004 2003 2002(b)
Net asset value, beginning of period $5.12 $5.03 $5.19 $5.06 $5.01
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10 .19 .16 .19 .04
Net gains (losses) (both realized and unrealized) (.11) .10 (.09) .16 .04
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .29 .07 .35 .08
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.20) (.16) (.20) (.03)
Tax return of capital - - (.01) - -
Distributions from realized gains - - (.06) (.02) -
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.20) (.23) (.22) (.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.01 $5.12 $5.03 $5.19 $5.06
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 147 $ 159 $ 177 $ 251 $ 58
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) .89%(e) .95% .98% .99% .95%(e)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.89%(e) 3.67% 3.11% 3.31% 2.98%(e)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 102% 137% 163% 227% 200%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) (.26%)(g) 5.78% 1.27% 6.93% 1.75%(g)
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Feb. 14, 2002 (when shares became publicly available)
to May 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 1.14% for the six months ended Nov. 30, 2005 and
1.10%, 1.05%, 1.06% and 1.58% for the periods ended May 31, 2005, 2004,
2003 and 2002, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
25 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a)
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(h) 2005 2004 2003 2002(b)
Net asset value, beginning of period $5.12 $5.04 $5.20 $5.07 $5.01
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08 .15 .12 .15 .03
Net gains (losses) (both realized and unrealized) (.11) .09 (.09) .16 .05
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) .24 .03 .31 .08
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.16) (.12) (.16) (.02)
Tax return of capital - - (.01) - -
Distributions from realized gains - - (.06) (.02) -
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.16) (.19) (.18) (.02)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.01 $5.12 $5.04 $5.20 $5.07
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 80 $ 98 $ 129 $ 200 $ 28
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) 1.64%(e) 1.69% 1.74% 1.75% 1.74%(e)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.13%(e) 2.90% 2.35% 2.49% 2.68%(e)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 102% 137% 163% 227% 200%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) (.63%)(g) 4.78% .52% 6.12% 1.76%(g)
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Feb. 14, 2002 (when shares became publicly available)
to May 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.90% for the six months ended Nov. 30, 2005 and
1.86%, 1.80%, 1.82% and 2.34% for the periods ended May 31, 2005, 2004,
2003 and 2002, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
26 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a)
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(h) 2005 2004 2003 2002(b)
Net asset value, beginning of period $5.12 $5.04 $5.20 $5.07 $5.01
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08 .15 .12 .15 .03
Net gains (losses) (both realized and unrealized) (.10) .09 (.09) .16 .05
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .24 .03 .31 .08
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.16) (.12) (.16) (.02)
Tax return of capital - - (.01) - -
Distributions from realized gains - - (.06) (.02) -
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.16) (.19) (.18) (.02)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.02 $5.12 $5.04 $5.20 $5.07
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 9 $ 11 $ 15 $ 22 $ 5
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) 1.64%(e) 1.70% 1.74% 1.75% 1.73%(e)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.14%(e) 2.90% 2.36% 2.50% 2.60%(e)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 102% 137% 163% 227% 200%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) (.43%)(g) 4.79% .52% 6.12% 1.74%(g)
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Feb. 14, 2002 (when shares became publicly available)
to May 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.90% for the six months ended Nov. 30, 2005 and
1.85%, 1.80%, 1.82% and 2.34% for the periods ended May 31, 2005, 2004,
2003 and 2002, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
27 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
CLASS I
PER SHARE INCOME AND CAPITAL CHANGES(a)
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(h) 2005 2004(b)
Net asset value, beginning of period $5.11 $5.03 $5.15
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11 .20 .05
Net gains (losses) (both realized and unrealized) (.10) .09 (.11)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .01 .29 (.06)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.21) (.06)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.01 $5.11 $5.03
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ - $ - $ -
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c) .59%(d),(e) .62%(d) .64%(e)
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 4.19%(e) 3.99% 3.39%(e)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 102% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(f) .09%(g) 5.92% (1.38%)(g)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date is March 4, 2004.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class I would have been 0.68% for the six months ended Nov. 30, 2005 and
0.66% for the year ended May 31, 2005.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
28 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
CLASS Y
PER SHARE INCOME AND CAPITAL CHANGES(a)
<Table>
<Caption>
FISCAL PERIOD ENDED MAY 31, 2005(h) 2005 2004 2003 2002(b)
Net asset value, beginning of period $5.11 $5.03 $5.19 $5.06 $5.01
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11 .20 .17 .19 .04
Net gains (losses) (both realized and unrealized) (.11) .08 (.09) .16 .04
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations - .28 .08 .35 .08
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.20) (.17) (.20) (.03)
Tax return of capital - - (.01) - -
Distributions from realized gains - - (.06) (.02) -
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.20) (.24) (.22) (.03)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.01 $5.11 $5.03 $5.19 $5.06
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 34 $ - $ - $ - $ -
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(c),(d) .71%(e) .77% .81% .80% .78%(e)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 4.24%(e) 3.99% 3.29% 3.68% 2.95%(e)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 102% 137% 163% 227% 200%
- -------------------------------------------------------------------------------------------------------------------------------
Total return(f) .03%(g) 5.75% 1.45% 7.10% 1.80%(g)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Feb. 14, 2002 (when shares became publicly available)
to May 31, 2002.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class Y would have been 0.97% for the six months ended Nov. 30, 2005 and
0.94%, 0.87%, 0.88% and 1.40% for the periods ended May 31, 2005, 2004,
2003 and 2002, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
(h) Six months ended Nov. 30, 2005 (Unaudited).
- --------------------------------------------------------------------------------
29 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
FUND EXPENSES EXAMPLE
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund 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.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Nov. 30, 2005.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
30 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JUNE 1, 2005 NOV. 30, 2005 THE PERIOD(a) EXPENSE RATIO
Class A
Actual(b) $1,000 $ 997.40 $4.46(c) .89%
Hypothetical (5% return before expenses) $1,000 $1,020.61 $4.51(c) .89%
Class B
Actual(b) $1,000 $ 993.70 $8.20(c) 1.64%
Hypothetical (5% return before expenses) $1,000 $1,016.85 $8.29(c) 1.64%
Class C
Actual(b) $1,000 $ 995.70 $8.20(c) 1.64%
Hypothetical (5% return before expenses) $1,000 $1,016.85 $8.29(c) 1.64%
Class I
Actual(b) $1,000 $1,000.90 $2.96(c) .59%
Hypothetical (5% return before expenses) $1,000 $1,022.11 $2.99(c) .59%
Class Y
Actual(b) $1,000 $1,000.30 $3.56(c) .71%
Hypothetical (5% return before expenses) $1,000 $1,021.51 $3.60(c) .71%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Nov. 30, 2005: -0.26%
for Class A, -0.63% for Class B, -0.43% for Class C, +0.09% for Class I and
+0.03% for Class Y.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. The Investment Manager and its
affiliates have contractually agreed to waive certain fees and to absorb
certain expenses until May 31, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses will not exceed 0.89% for Class A; 1.64% for Class B; 1.64% for
Class C, 0.59% for Class I and 0.71% for Class Y. If the revised fee
schedule under the Administrative Services Agreement and the cap/fee waiver
agreement had been in place for the entire six-month period ended Nov. 30,
2005, the actual and hypothetical expenses paid would have been the same as
those presented in the table above.
- --------------------------------------------------------------------------------
31 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT
RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of
Ameriprise Financial, Inc. (Ameriprise Financial, formerly American Express
Financial Corporation), serves as the investment manager to the Fund. Under an
investment management services agreement (the IMS Agreement), the investment
manager provides investment advice and other services to the Fund. Throughout
the year, the Fund's Board of Directors (the Board) and the Board's Investment
Review and Contracts Committees monitor these services.
Ameriprise Financial had served as investment manager to the Fund until Sept.
29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise
Financial transferred its rights, title, and interest and its burdens and
obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary.
Each year, the Board determines whether to continue the IMS Agreement by
evaluating the quality and level of services received and the costs associated
with those services. To assist the Board in making this determination, the
investment manager prepares detailed reports for the Board and its Contracts
Committee in March and April and provides data prepared by independent
organizations. The Board gives considerable weight to the work, deliberations
and conclusions of the Contracts and Investment Review Committees in determining
whether to continue the IMS Agreement.
BACKGROUND
This past year, prior to the Board's annual review process, on Feb. 1, 2005,
American Express Company, the former parent of Ameriprise Financial, announced
its intention to pursue a spin-off of Ameriprise Financial by distributing
shares of the common stock of Ameriprise Financial to shareholders of American
Express Company. Following this announcement, the Board determined to proceed
with its annual review process and, after thorough review of the reports and
data provided, at a meeting held in person on April 14, 2005, the Board,
including all of its independent members, determined that the quality and level
of advisory services provided pursuant to the IMS Agreement were satisfactory
and that fees were fair and reasonable. However, in light of the announced plans
of the spin-off, the Board approved continuation of the IMS Agreement with
Ameriprise Financial for only an interim period ending on the later of (i) the
effective date of the spin-off; or (ii) the approval of a new IMS Agreement with
Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in
no event for a period longer than one year.
During the course of the six-month period following the April 2005 meeting, the
Board evaluated whether to approve new investment management services agreements
for each of the funds within the Ameriprise Financial fund complex (together,
the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent
counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling
their statutory and other responsibilities associated with the spin-off and the
resulting consideration of new contracts, including the new IMS Agreement. The
Board and its committees were provided with a wealth of written and oral
information in this regard. Furthermore, in connection with the Board's
considerations as to whether post-spin Ameriprise Financial, as an entity
independent from American Express Company, would be capable of continuing to
provide a high quality of services to the Funds, the
- --------------------------------------------------------------------------------
32 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
Board's independent members retained their own financial adviser, Credit Suisse
First Boston LLC (CSFB), to assist them in analyzing the capital adequacy of
post-spin Ameriprise Financial. (The costs of independent counsel and CSFB and
of additional meetings of the Boards were borne by Ameriprise Financial as part
of the commitment of the American Express Company to ensure a complete and
thorough review of the proposed spin-off and its effect on the services provided
by Ameriprise Financial and its subsidiaries.) At a meeting of the Board held on
Sept. 8, 2005, the Board, including all of its independent members, approved,
and recommended that shareholders approve, a proposed new IMS Agreement with
RiverSource (the New IMS Agreement). A meeting of the Fund's shareholders is
expected to be held on Feb. 15, 2006 to consider approval of the New IMS
Agreement. If approved, the New IMS Agreement would take effect shortly after
the shareholder meeting. The following section, "Board Considerations Related to
the New IMS Agreement," provides a detailed discussion of the Board's
considerations and determinations respecting the New IMS Agreement.
BOARD CONSIDERATIONS RELATED TO THE NEW IMS AGREEMENT
In carrying out its legal responsibilities associated with the consideration of
the New IMS Agreement, the Board evaluated the following factors:
NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY POST-SPIN AMERIPRISE
FINANCIAL (AND ITS SUBSIDIARIES)
The Board recognized that only a few months had passed since its April 2005
conclusion that the nature, extent and quality of services provided by
Ameriprise Financial were satisfactory and consistent with those that would be
expected for a fund family of the size of the Funds and its determination to
renew the IMS Agreement for the interim period. However, the Board also
recognized the need to supplement this assessment with an evaluation of whether
the spin-off or other factors would result in changes to the advisory services
being provided under the current IMS Agreement.
The Board focused its evaluation on the following factors potentially impacting
the nature, extent and quality of advisory services to be provided by Ameriprise
Financial: (i) Ameriprise Financial's projected capital structure and capital
adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its
ability to retain and attract personnel; and (iv) its ability to successfully
re-brand its products and services. Based on extensive presentations and reports
by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed
capital structure (which includes certain indemnification commitments made by
American Express Company) should enable RiverSource to continue to provide a
high quality and level of advisory services to the Fund. In making this
determination, the Board took into account representations by management of
Ameriprise Financial that projected capital levels would allow Ameriprise
Financial and RiverSource to meet legal and compliance responsibilities, build
their distribution network, pursue technological upgrades, make capital
commitments necessary to retain and attract key personnel devoted to legal and
compliance responsibilities, portfolio management and distribution, and pursue
smaller asset management acquisitions to help grow the asset management
business. The Board accorded significant weight to CSFB's confirmation as to the
reasonableness of the proposed capital structure. The Board also considered the
fact that there were no expected departures of key personnel involved in the
portfolio management, operations and marketing of the Funds as a result of the
announcement of the spin-off.
- --------------------------------------------------------------------------------
33 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
The Board concluded that, based on all of the materials and information
provided, post-spin Ameriprise Financial (including RiverSource) would be in a
position to continue to provide a high quality and level of advisory services to
the Fund.
INVESTMENT PERFORMANCE
The Board next focused on investment performance. The Board reviewed reports
documenting the Fund's performance over one-, three- and/or five-year periods,
as well as the entire period during which its current portfolio manager has
managed the Fund, and compared to relevant Lipper and market indices. The Board
took into account its determination in April 2005 that investment performance in
2004 exceeded the median.
The Board also considered that it had been receiving monthly performance reports
for the Fund and that there had been no significant deviations from April's
overall performance data.
COST OF SERVICES PROVIDED
The Board evaluated comparative fees and the costs of services under the current
IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise
Financial (including RiverSource and other subsidiaries) to institutional
clients. The Board observed that the proposed advisory fee changes are designed
to work in tandem with proposed changes to administrative services fees and that
advisory fees under the New IMS Agreement would decrease. The Board studied
RiverSource's effort (i.e., its "pricing philosophy") to set substantially all
Funds' total expense ratios at or below the median expense ratio of comparable
mutual funds (as compiled by Lipper). It also noted that RiverSource has agreed
to voluntarily impose expense caps or waivers to achieve this pricing objective
whenever the expense ratio exceeded the median expense ratio by more than three
basis points.
The Board next considered the expected profitability to Ameriprise Financial and
RiverSource derived from their relationship with the Fund, recalling the April
2005 determination that the profitability level was appropriate. The Board noted
that projected profitability of Ameriprise Financial would allow it to operate
effectively and, at the same time, reinvest in RiverSource and its other asset
management businesses. The Board also considered that the proposed changes in
advisory fees and the mergers of certain other Funds would result in revenue
gains to Ameriprise Financial, but that these increases would not materially
alter profit margins due to expected increases in costs associated with the
spin-off, particularly re-branding and separation. CSFB also reported that
Ameriprise Financial's projected level of return on equity was generally
reasonable in light of the returns on equity of its industry competitors. In
evaluating profitability, the Board also considered the benefits Ameriprise
Financial obtains through the use of commission dollars paid on portfolio
transactions for the Fund and from other business relationships that result from
managing the Fund. The Board also considered the fees charged by Ameriprise
Financial (and its subsidiaries) to institutional clients as well as the fees
paid to, and charged by, subadvisers, noting the differences in services
provided in each case. In light of these considerations, the Board concluded
that projected profitability levels were appropriate.
- --------------------------------------------------------------------------------
34 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
ECONOMIES OF SCALE
The Board also considered the "breakpoints" in fees that would be triggered as
Fund net asset levels grew and the extent to which shareholders would benefit
from such growth. The Board observed that the revised fee schedules under the
proposed New IMS Agreement would continue to provide breakpoints similar to
those in place pursuant to the current IMS Agreement. Accordingly, the Board
concluded that the proposed New IMS Agreement provides adequate opportunity for
shareholders to realize benefits as Fund assets grow.
OTHER CONSIDERATIONS
In addition, the Board accorded weight to the fact that, under the New IMS
Agreement, RiverSource Investments is held to a higher standard of care than
under the current IMS Agreement. The Board also noted Ameriprise Financial's
commitment to a culture that adheres to ethical business practice, assigns
accountability to senior management and seeks to identify conflicts and propose
appropriate action to minimize the risks posed by the conflicts.
Furthermore, the Board recognized that it was not limited to considering
management's proposed New IMS Agreement. In this regard, the Board evaluated the
circumstances under which it would consider the retention of an investment
adviser different from RiverSource Investments. The Board concluded, based on
its consultation with independent counsel, that pursuing the retention of a
different adviser was not necessary, primarily because, in its best judgment,
Ameriprise Financial continues to be basically the same organization (from a
functional and managerial standpoint) as it was prior to the spin-off. The Board
reasoned that shareholders purchased shares of the Fund with an expectation that
the current investment advisory organization would be servicing the Fund.
- --------------------------------------------------------------------------------
35 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
PROXY VOTING
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the website www.riversource.com/funds; or by
searching the website of the Securities and Exchange Commission (SEC) at
http://www.sec.gov. Information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge by calling the Fund's administrator, Board Services
Corporation, collect at (612) 330-9283; by looking at the website
www.riversource.com/funds; or by searching the website of the SEC at
www.sec.gov.
- --------------------------------------------------------------------------------
36 -- RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2005 SEMIANNUAL REPORT
<Page>
[RIVERSOURCE INVESTMENTS(SM) LOGO]
RIVERSOURCE INVESTMENTS
200 AMERIPRISE FINANCIAL CENTER
MINNEAPOLIS, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
RiverSource Funds are managed by RiverSource Investments, LLC and distributed by
Ameriprise Financial Services, Inc., Member NASD.
Both companies are part of Ameriprise Financial, Inc.
S-6256 E (1/06)
Item 2. Code of Ethics. Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert. Not applicable for semi-annual
reports.
Item 4. Principal Accountant Fees and Services. Not applicable for
semi-annual reports.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing
date of this Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance
that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) AXP Government Income Series, Inc.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date January 31, 2006
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/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date January 31, 2006
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date January 31, 2006