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
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-1947
Date of fiscal year end: 5/31
Date of reporting period: 5/31
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
SHORT DURATION U.S. GOVERNMENT FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
MAY 31, 2009
(Prospectus also enclosed)
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND SEEKS
TO PROVIDE SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT
INCOME AND SAFETY OF PRINCIPAL CONSISTENT WITH
INVESTMENT IN U.S. GOVERNMENT AND GOVERNMENT AGENCY
SECURITIES.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective,
investment strategy, risks, sales charges,
fees and other matters of interest. Please
read the prospectus carefully before you
invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 2
Manager Commentary................. 6
The Fund's Long-term Performance... 12
Fund Expenses Example.............. 14
Portfolio of Investments........... 16
Statement of Assets and
Liabilities...................... 28
Statement of Operations............ 30
Statements of Changes in Net
Assets........................... 31
Financial Highlights............... 32
Notes to Financial Statements...... 38
Report of Independent Registered
Public Accounting Firm........... 55
Federal Income Tax Information..... 57
Board Members and Officers......... 58
Approval of Investment Management
Services Agreement............... 62
Proxy Voting....................... 65
</Table>
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RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
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> RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares rose
0.59% (excluding sales charge) for the 12 months ended May 31, 2009.
> The Fund underperformed its benchmark, the Barclays Capital U.S. 1-3 Year
Government Index, which gained 5.34% during the same period.
> The Fund underperformed the Lipper Short U.S. Government Funds Index,
representing the Fund's peer group, which advanced 3.96% during the same time
frame.
ANNUALIZED TOTAL RETURNS (for period ended May 31, 2009)
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<Table>
<Caption>
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------
RiverSource Short Duration U.S.
Government Fund Class A
(excluding sales charge) +0.59% +3.31% +2.56% +3.30%
- --------------------------------------------------------------------
Barclays Capital U.S. 1-3 Year
Government Index (unmanaged) +5.34% +5.86% +4.24% +4.78%
- --------------------------------------------------------------------
Lipper Short U.S. Government
Funds Index +3.96% +4.63% +3.53% +4.08%
- --------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial intermediary
or visiting riversource.com/funds.
The 3.00% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes. It is not possible to invest directly in an index.
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2 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT MAY 31, 2009
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/19/95) +0.59% +3.31% +2.56% +3.30% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -0.18% +2.53% +1.80% +2.53% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -0.17% +2.53% +1.80% N/A +2.79%
- ---------------------------------------------------------------------------
Class I (inception 3/4/04) +1.18% +3.69% +2.93% N/A +2.63%
- ---------------------------------------------------------------------------
Class R4 (inception
3/20/95) +0.93% +3.53% +2.77% +3.49% N/A
- ---------------------------------------------------------------------------
Class W (inception
12/1/06) +0.52% N/A N/A N/A +2.45%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/19/95) -2.44% +2.26% +1.94% +2.99% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -5.06% +1.26% +1.44% +2.53% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -1.15% +2.53% +1.80% N/A +2.79%
- ---------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum sales charge of 3.00%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third** years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I, Class R4 and Class W shares. Class I and Class R4 are
available to institutional investors only. Class W shares are offered through
qualifying discretionary accounts.
*For classes with less than 10 years performance.
**For Class B shares purchased on or after June 13, 2009, the CDSC percentage
for the third year will be 3%.
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RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 3.4 years
- --------------------------------------
Effective duration(2) 2.2 years
- --------------------------------------
Weighted average bond
rating(3) AAA
- --------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO*
(as of the current prospectus)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Total Net
fund fund
expenses expenses(a)
- ----------------------------------------
Class A 1.02% 0.86%
- ----------------------------------------
Class B 1.78% 1.62%
- ----------------------------------------
Class C 1.78% 1.62%
- ----------------------------------------
Class I 0.60% 0.48%
- ----------------------------------------
Class R2(b) 1.40% 1.28%
- ----------------------------------------
Class R4 0.90% 0.78%
- ----------------------------------------
Class W 1.04% 0.93%
- ----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until July 31, 2010, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding fees and expenses of acquired funds) will not exceed 0.86% for
Class A, 1.62% for Class B, 1.62% for Class C, 0.48% for Class I, 1.28% for
Class R2, 0.78% for Class R4 and 0.93% for Class W.
(b) Inception date for Class R5 is Aug. 3, 2009.
(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.
* Fund expense ratios are calculated based on the fund's average net assets
during the fund's most recently completed fiscal year, and have not been
adjusted for current asset levels, including any decrease or increase in
assets, which, if adjusted, would result in expense ratios that are higher
or lower, respectively, than those that are expressed herein. Any fee
waivers/expense caps would limit the impact that any decrease in assets will
have on net expense ratios in the current fiscal year.
Shares of the RiverSource Short Duration U.S. Government Fund are not insured or
guaranteed by the U.S. government.
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4 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
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There are risks associated with an investment in a bond fund, including the
impact of interest rates and credit. These and other risk considerations are
discussed in the Fund's prospectus. In general, bond prices rise when interest
rates fall and vice versa. This effect is usually more pronounced for longer-
term securities.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 5
MANAGER COMMENTARY -------------------------------------------------------------
Todd White became a Portfolio Manager of RiverSource Short Duration U.S.
Government Fund effective November 17, 2008. John G. McColley joined Mr. White
as Portfolio Manager of RiverSource Short Duration U.S. Government Fund
effective March 25, 2009.
Dear Shareholders,
RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares rose
0.59% (excluding sales charge) for the 12 months ended May 31, 2009. The Fund
underperformed its benchmark, the Barclays Capital U.S. 1-3 Year Government
Index (Barclays Index), which gained 5.34% during the same period. The Fund also
underperformed the Lipper Short U.S. Government Funds Index, representing the
Fund's peer group, which advanced 3.96% during the same time frame.
SIGNIFICANT PERFORMANCE FACTORS
The annual period ended May 31, 2009 was a tale of two halves for the fixed
income market. During the first half, interest rates across the
SECTOR DIVERSIFICATION(1) (at May 31, 2009; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
Asset-Backed 4.3%
- ------------------------------------------------
Commercial Mortgage-Backed 3.5%
- ------------------------------------------------
Consumer Discretionary 0.2%
- ------------------------------------------------
Energy 0.8%
- ------------------------------------------------
FDIC -- Insured Debt(2) 4.6%
- ------------------------------------------------
Foreign Government 1.4%
- ------------------------------------------------
Government Guaranteed(3) 1.0%
- ------------------------------------------------
Industrials 0.1%
- ------------------------------------------------
Mortgage-Backed(4) 46.8%
- ------------------------------------------------
Telecommunication 1.8%
- ------------------------------------------------
U.S. Government Obligations & Agencies 30.3%
- ------------------------------------------------
Utilities 1.8%
- ------------------------------------------------
Other(5) 3.4%
- ------------------------------------------------
</Table>
(1) Percentages indicated are based upon total investments (excluding
Investments of Cash Collateral Received for Securities on Loan) as of May
31, 2009. The Fund's composition is subject to change.
(2) Debt guaranteed under the FDIC's Temporary Liquidity Guarantee Program
(TLGP).
(3) Debt guaranteed by the HM Treasury, United Kingdom.
(4) Of the 46.8%, 4.8% is due to forward commitment mortgage-backed securities
activity. Short-term securities are held as collateral for these
commitments.
(5) Cash & Cash Equivalents.
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6 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
Treasury yield curve declined dramatically as the economy weakened and the
financial markets seized up. The Treasury yield curve steepened, meaning short-
term rates declined more than long-term rates, as the Federal Reserve Board (the
Fed) reduced the targeted federal funds rate by 200 basis points (2.00%) by the
end of December 2008, bringing it to a range of 0% to 0.25%. For non-Treasury
sectors, spreads, or the difference in yields between these securities and
Treasuries, widened, as a flight to quality intensified, with investor risk
aversion remaining high.
Strong government response, led by the Fed, the Treasury Department and the
Federal Deposit Insurance Corporation, helped stabilize the financial markets
late in 2008. Since that time, interest rates across the Treasury yield curve
rose, as the economy was seen as bottoming and financial conditions improved.
Still, the Treasury
QUALITY BREAKDOWN
(at May 31, 2009; % of portfolio assets excluding cash equivalents)
- --------------------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 91.4%
- -------------------------------------------
AA bonds 0.7%
- -------------------------------------------
A bonds 3.9%
- -------------------------------------------
BBB bonds 3.4%
- -------------------------------------------
Non-investment grade bonds 0.6%
- -------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating.
Strong government response, led by the Fed, the Treasury Department and the
Federal Deposit Insurance Corporation, helped stabilize the financial markets
late in 2008.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
yield curve remained steep, as the Fed held the targeted federal funds rate near
zero in an effort to stimulate economic activity. Spreads on non-Treasury
sectors have tightened in 2009 in response to the credit and quantitative easing
by the various government arms. Quantitative easing is essentially when the Fed
actively purchases bonds in the open market.
For the annual period overall, the yield on the five-year U.S. Treasury was
still nearly 100 basis points lower at May 31, 2009 than at the start of the
fiscal year, despite a push higher in the latter months. Likewise, the Treasury
yield curve was steeper at the end of the annual period than at the beginning.
As for the non-Treasury sectors, performance of mortgage-backed securities
became bifurcated for the annual period. The Fed's credit easing initiatives
caused agency-issued mortgage-backed securities to outperform Treasuries for the
12-month period as a whole, while poor fundamentals and a lack of Fed
sponsorship caused non-agency-issued mortgage-backed securities to lag.
The Fund lagged the Barclays Index due primarily to its exposure to mortgage-
backed securities, both agency and non-agency issued, during the first half of
the year, as this sector posted positive returns but significantly
underperformed Treasuries during these months. Non-agency mortgage-backed
securities, in particular, were hurt by a lack of liquidity and experienced more
dramatic price depreciation than those mortgage securities backed by the federal
government. Similarly, a sizable exposure to commercial mortgage-backed
securities (CMBS) detracted from the Fund's results during the first half of the
annual period as spreads widened. The Fund's position in Treasury Inflation
Protected Securities, or TIPS, also hurt its performance during these months.
TIPS underperformed nominal Treasury securities, or non-inflation protected
Treasury securities, as deflationary fears emerged. During the second half of
the fiscal year, the Fund was positioned with a slight yield curve flattening
bias, which detracted as the yield curve remained steep.
The primary contributor to the Fund's performance during the first half of the
annual period was its exposure to U.S. agency subordinated debt. Subordinated
debt is debt that ranks below other securities with regard to claims on assets
or earnings, but which typically offers a higher rate of return than senior debt
due to the increased inherent risk. Subordinated debt of U.S. agencies is widely
considered to be comparatively less risky
- --------------------------------------------------------------------------------
8 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
and of greater quality than that of banks or other issuers. U.S. agency
subordinated debt prices had become distressed based on the view that the
federal government would not include the securities in programs to support the
agencies. When the announcement was made that the agencies were being placed
under conservatorship, subordinated debt payments were explicitly supported
along with senior debt obligations.
Several additional factors added value to the Fund's results during the second
six months of the fiscal year, in particular an overweight position in agency
mortgage-backed securities. Though underperforming during the first half of the
annual period, agency mortgage-backed securities outperformed Treasuries in 2009
through the end of May, as the Fed supported this fixed income sector.
Significant exposure to CMBS and TIPS, which had also detracted during the first
half, further boosted the Fund's performance during the second half of the
annual period. CMBS showed improvement, buoyed by new Treasury Department
programs designed to support this sector. TIPS also performed well, as concerns
regarding deflation gradually began to subside.
The Fund's sizable exposure to asset-backed securities also contributed to its
results during the second half of the annual period. Asset-backed securities'
performance improved following the Fed's announcement of the Term Asset-Backed
Securities Loan Facility (TALF), which is designed to improve liquidity in the
asset-backed securities market and ultimately increase the availability of
consumer lending. Lengthening the Fund's duration, relative to the Barclays
Index, helped the Fund's performance during the second half of the fiscal year
as well. Duration is a measure of the Fund's sensitivity to changes in interest
rates.
CHANGES TO THE FUND'S PORTFOLIO
Since taking over management of the Fund, we reduced the Fund's positions in
non-agency mortgage-backed securities and TIPS. We believe government supported
agency mortgage-backed securities will continue to outperform non-agency
mortgage-backed securities, and we believe prices on TIPS, which had performed
well, began to imply a more reasonable assessment of future inflation. We
correspondingly increased the Fund's exposure to asset-backed securities and
agency debentures, both through senior and subordinated debt. We also initiated
a modest exposure to investment grade corporate bonds, focusing Fund positions
on utilities and
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
less-cyclical industrials, and reduced the Fund's cash position materially.
These shifts in allocation helped the Fund's performance.
Toward the end of the annual period, we shifted the Fund's duration back to a
more neutral position, relative to the Barclays Index, given our view ahead for
the economy and for interest rates. The Fund's portfolio turnover rate for the
12-month period was 271%.*
OUR FUTURE STRATEGY
Over the last few months of the annual period, we saw signs of stabilization in
some areas of the economy, as nightmares of a coordinated collapse of the
banking system subsided. As asset prices improved from their lows, so, too, did
the lending environment, with corporate bond issuance increasing meaningfully.
It seemed, at the end of May, that the vicious cycle of declining confidence,
spending and market values finally abated as nascent signs of optimism emerged.
Looking forward, we expect further signs of stabilization through the end of the
second quarter and gradual expansion during the second half of the year. We
believe that Gross Domestic Product is likely to grow at a below trend rate of
approximately 1% during the second half of 2009, though with a cautionary note
that the recovery may stall at some point during those months. We expect labor
markets to lag, with the unemployment rate not peaking until the fourth quarter
or beyond -- although we believe peak job losses may be behind us.
In the fixed income market, we expect that Treasuries will continue to lose
appeal as a safe haven and prefer the value offered by other sectors. Indeed, in
our view, the level of Treasury yields will remain volatile in the months ahead,
given the dynamic of record Treasury issuance versus continued quantitative
easing. Supply of U.S. Treasury securities is anticipated to continue at a rate
of approximately $150 billion per month over the near term. Also causing
volatility in the Treasury market may be the question of the sustainability of
an improving economy against a still-challenged housing market. With the Fed
likely to keep the targeted federal funds rate near zero for a considerable
amount of time and the record Treasury issuance of long-term securities, the
Treasury yield curve should remain steep.
- --------------------------------------------------------------------------------
10 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
Non-Treasury sectors with government sponsorship should remain firm. Sectors
such as agency mortgage-backed securities and agency debentures already saw
significant spread tightening in the last months of the fiscal year because of
the Fed's support programs. Asset-backed securities could benefit going forward
with the commencement of credit initiatives such as TALF and the Public-Private
Investment Program, the latter of which has been proposed to further support
asset prices of historically securitized products.
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.
<Table>
Todd White John McColley
Portfolio Manager Portfolio Manager
</Table>
* A significant portion of the turnover was the result of rolling-maturity
mortgage securities, processing of prepayments and opportunistic changes we
made at the margin in response to valuations or market developments.
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 11
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Short Duration U.S. Government Fund Class A shares
(from 6/1/99 to 5/31/09) as compared to the performance of two widely cited
performance indices, the Barclays Capital U.S. 1-3 Year Government Index and the
Lipper Short U.S. Government Funds Index. In comparing the Fund's Class A shares
to these indices, you should take into account the fact that the Fund's
performance reflects the maximum sales charge of 3.00%, while such charges are
not reflected in the performance of the indices. Returns for the Fund include
the reinvestment of any distributions paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial intermediary or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at May 31, 2009
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,756 $10,694 $11,009 $13,424
- ------------------------------------------------------------------------------------------
Average annual total return -2.44% +2.26% +1.94% +2.99%
- ------------------------------------------------------------------------------------------
BARCLAYS CAPITAL U.S. 1-3 YEAR GOVERNMENT INDEX(1)
Cumulative value of $10,000 $10,534 $11,862 $12,310 $15,948
- ------------------------------------------------------------------------------------------
Average annual total return +5.34% +5.86% +4.24% +4.78%
- ------------------------------------------------------------------------------------------
LIPPER SHORT U.S. GOVERNMENT FUNDS INDEX(2)
Cumulative value of $10,000 $10,396 $11,454 $11,892 $14,913
- ------------------------------------------------------------------------------------------
Average annual total return +3.96% +4.63% +3.53% +4.08%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 3.
- --------------------------------------------------------------------------------
12 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE SHORT DURATION U.S.
GOVERNMENT FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE SHORT
DURATION U.S.
GOVERNMENT FUND BARCLAYS CAPITAL
CLASS A U.S. 1-3 LIPPER SHORT
(INCLUDES SALES YEAR U.S. U.S. GOVERNMENT
CHARGE) GOVERNMENT INDEX(1) FUNDS INDEX(2)
----------------- ------------------- ---------------
5/31/99 $ 9,700 $10,000 $10,000
8/99 9,643 10,088 10,050
11/99 9,814 10,201 10,172
2/00 9,724 10,277 10,237
5/00 9,700 10,403 10,369
8/00 10,018 10,664 10,622
11/00 10,278 10,910 10,872
2/01 10,585 11,263 11,214
5/01 10,688 11,449 11,384
8/01 10,912 11,698 11,560
11/01 11,122 11,979 11,783
2/02 11,207 12,075 11,875
5/02 11,306 12,181 11,981
8/02 11,550 12,489 12,222
11/02 11,629 12,585 12,288
2/03 11,798 12,767 12,455
5/03 11,858 12,870 12,531
8/03 11,749 12,812 12,447
11/03 11,813 12,886 12,510
2/04 11,963 13,062 12,645
5/04 11,830 12,956 12,540
8/04 11,954 13,104 12,665
11/04 11,931 13,073 12,664
2/05 11,939 13,072 12,687
5/05 12,057 13,199 12,796
8/05 12,112 13,271 12,861
11/05 12,083 13,277 12,860
2/06 12,194 13,368 12,956
5/06 12,177 13,447 13,020
8/06 12,424 13,673 13,224
11/06 12,617 13,874 13,421
2/07 12,725 14,020 13,559
5/07 12,801 14,117 13,631
8/07 12,972 14,426 13,830
11/07 13,250 14,818 14,115
2/08 13,405 15,260 14,440
5/08 13,346 15,141 14,345
8/08 13,212 15,298 14,421
11/08 13,039 15,688 14,478
2/09 13,158 15,820 14,700
5/09 13,424 15,948 14,913
</Table>
(1) The Barclays Capital U.S. 1-3 Year Government Index, an unmanaged index, is
made up of all publicly issued, non-convertible domestic debt of the U.S.
government, or agency thereof, or any quasi-federal corporation. The index
also includes corporate debt guaranteed by the U.S. government. Only notes
and bonds with a minimum maturity of one year up to a maximum maturity of
2.9 years are included. The index reflects reinvestment of all distributions
and changes in market prices.
(2) The Lipper Short U.S. Government Funds Index includes the 30 largest short
U.S. government funds tracked by Lipper Inc. The index's returns include net
reinvested dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 13
FUND EXPENSES EXAMPLE ---------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended May 31, 2009.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
14 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
DEC. 1, 2008 MAY 31, 2009 THE PERIOD(A) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,029.60 $4.50(c) .89%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.49 $4.48(c) .89%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,025.60 $8.33(c) 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30(c) 1.65%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,025.60 $8.33(c) 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30(c) 1.65%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,033.70 $2.59(c) .51%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.39 $2.57(c) .51%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,032.40 $3.85(c) .76%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.14 $3.83(c) .76%
- ------------------------------------------------------------------------------------------
Class W
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,031.40 $4.86(c) .96%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.14 $4.84(c) .96%
- ------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the annualized expense ratio for each class as
indicated above, multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended May 31, 2009: +2.96% for
Class A, +2.56% for Class B, +2.56% for Class C, +3.37% for Class I, +3.24%
for Class R4 and +3.14% for Class W.
(c) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until July 31, 2010, unless
sooner terminated at the discretion of the Fund's Board, such that net
expenses (excluding fees and expenses of acquired funds), will not exceed
0.86% for Class A, 1.62% for Class B, 1.62% for Class C, 0.48% for Class I,
0.78% for Class R4 and 0.93% for Class W. Any amounts waived will not be
reimbursed by the Fund. This change was effective June 1, 2009. Had this
change been in place for the entire six month period ended May 31, 2009, the
actual expenses paid would have been $4.35 for Class A, $8.18 for Class B,
$8.18 for Class C, $2.43 for Class I, $3.95 for Class R4 and $4.71 for Class
W; the hypothetical expenses paid would have been $4.33 for Class A, $8.15
for Class B, $8.15 for Class C, $2.42 for Class I, $3.93 for Class R4 and
$4.68 for Class W.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS ------------------------------------------------------
MAY 31, 2009
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (98.0%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
FOREIGN AGENCIES (0.9%)(C)
KfW
04-16-12 2.25% $3,795,000 $3,836,662
10-31-14 5.00 2,600,000 2,784,189
---------------
Total 6,620,851
- -------------------------------------------------------------------------------------
SUPRANATIONAL (0.5%)(c)
Asian Development Bank
09-05-13 3.63 3,726,000 3,836,280
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (32.6%)
Federal Home Loan Mtge Corp
10-20-10 1.38 3,545,000 3,549,718
01-07-11 1.50 9,070,000(p) 9,154,387
03-15-11 5.63 2,612,000(p) 2,821,684
11-18-11 1.75 6,355,000 6,372,947
03-23-12 2.13 7,420,000(p) 7,512,861
06-13-18 4.88 5,405,000(p) 5,782,949
Federal Natl Mtge Assn
03-02-11 2.00 12,270,000 12,365,669
04-28-11 1.38 5,685,000 5,715,953
04-29-11 1.15 3,121,000(l) 3,122,992
05-18-12 1.50 3,200,000(l) 3,193,509
04-09-13 3.25 14,350,000(p) 14,935,437
07-17-13 4.38 5,020,000 5,377,951
01-02-14 5.13 16,915,000 17,310,016
02-05-14 2.75 12,715,000(p) 12,772,216
11-15-30 6.63 1,945,000 2,371,214
U.S. Treasury
06-30-10 2.88 5,730,000(p) 5,875,267
10-31-10 1.50 18,575,000(p) 18,795,577
05-31-11 0.88 13,000,000(b) 12,987,780
01-15-12 1.13 17,000,000(p) 16,957,500
04-15-12 1.38 5,135,000(p) 5,140,618
05-15-12 1.38 15,000,000(p) 14,987,100
02-15-14 4.00 1,375,000 1,482,315
04-30-14 1.88 6,195,000(p) 6,065,277
02-15-15 4.00 17,240,000(p) 18,493,933
02-15-19 2.75 4,140,000(p) 3,890,648
05-15-19 3.13 7,500,000 7,285,575
U.S. Treasury Inflation-Indexed Bond
01-15-14 2.00 4,333,176(e) 4,464,873
---------------
Total 228,785,966
- -------------------------------------------------------------------------------------
ASSET-BACKED (4.6%)
Ameriquest Mtge Securities
Series 2005-R6 Cl A2
08-25-35 0.51 2,159,043(l) 1,859,664
Asset Backed Securities Corp Home Equity
Series 2005-HE2 Cl M1
02-25-35 0.76 2,672,462(l) 2,107,001
Bank of America Credit Card Trust
Series 2008-A5 Cl A5
12-16-13 1.54 1,825,000(l) 1,821,714
Capital Auto Receivables Asset Trust
Series 2006-SN1A Cl A4B
03-20-10 0.43 984,823(d,l) 979,675
Credit-Based Asset Servicing and Securitization LLC
Series 2007-CB4 Cl A1A
04-25-37 0.40 3,285,082(l) 2,182,947
Deutsche Mtge Securities
Collateralized Mtge Obligation
Series 2009-RS2 Cl 4A1
04-26-37 0.44 3,880,000(d,m) 3,336,800
First Franklin Mtge Loan Asset-backed Ctfs
Series 2005-FFH3 Cl 2A3
09-25-35 0.72 1,254,695(l) 1,147,357
First Franklin Mtge Loan Asset-backed Ctfs
Series 2006-FF18 Cl A2A
12-25-37 0.38 1,641,466(l) 1,539,102
GSAMP Trust
Series 2006-HE8 Cl A2A
01-25-37 0.38 3,943,311(l) 3,502,697
JPMorgan Mtge Acquisition Corp
Series 2006-HE2 Cl A3
07-25-36 0.53 3,506,268(l) 3,026,046
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ASSET-BACKED (CONT.)
NovaStar Home Equity Loan
Series 2006-4 Cl A2A (MGIC)
09-25-36 0.35% $1,618,243(i,l) $1,533,626
NovaStar Home Equity Loan
Series 2007-2 Cl A2A
09-25-37 0.40 2,467,013(l) 2,042,502
Residential Asset Securities
Series 2007-KS3 Cl AI2
12-25-32 0.49 4,050,000(l) 2,177,472
Structured Asset Investment Loan Trust
Series 2005-9 Cl A5
11-25-10 0.54 3,749,663(l) 3,192,835
Structured Asset Securities Corp
Collateralized Mtge Obligation
Series 2006-NC1 Cl A6
05-25-36 0.36 2,205,069(m) 2,045,834
---------------
Total 32,495,272
- -------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (3.7%)(f)
Crown Castle Towers LLC
Series 2005-1A Cl AFX
06-15-35 4.64 3,525,000(d) 3,436,875
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 5,402,714 5,884,186
Federal Natl Mtge Assn #381990
10-01-09 7.11 4,023,504 4,021,147
GE Capital Commercial Mtge
Series 2001-3 Cl A1
06-10-38 5.56 5,714,888 5,798,287
JPMorgan Chase Commercial Mtge Securities
Series 2004-CBX Cl A3
01-12-37 4.18 7,135,074 7,081,672
---------------
Total 26,222,167
- -------------------------------------------------------------------------------------
MORTGAGE-BACKED (50.5%)(f,o)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-1 Cl 3A21
03-25-37 6.18 1,584,469(m) 928,123
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 0.47 3,162,944(m) 751,675
American Home Mtge Investment Trust
Collateralized Mtge Obligation
Series 2007-1 Cl GA1C
05-25-47 0.50 4,151,613(m) 1,615,834
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2006-AR9 Cl 1A1
11-25-36 0.38 510,470(l) 426,900
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 1,278,861 828,973
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-OA11 Cl A3B1
09-25-46 0.49 2,693,863(l) 1,835,562
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 0.66 5,396,281(l) 1,327,812
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
01-25-38 0.81 3,616,229(l) 383,359
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 3,924,101(d) 3,127,018
Federal Home Loan Mtge Corp #1G0847
07-01-35 4.71 6,224,439(m) 6,336,940
Federal Home Loan Mtge Corp #1G2264
10-01-37 6.02 5,635,953(m) 5,881,151
Federal Home Loan Mtge Corp #1G2598
01-01-37 6.09 2,029,677(m) 2,125,973
Federal Home Loan Mtge Corp #1J0614
09-01-37 5.68 2,801,415(m) 2,926,778
Federal Home Loan Mtge Corp #A18107
01-01-34 5.50 2,705,069 2,803,382
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #A57402
02-01-37 5.00% $2,180,719 $2,233,306
Federal Home Loan Mtge Corp #A74027
03-01-38 5.00 1,290,117 1,321,156
Federal Home Loan Mtge Corp #A74458
03-01-38 5.00 704,887 721,845
Federal Home Loan Mtge Corp #A78592
06-01-38 5.00 494,336 506,229
Federal Home Loan Mtge Corp #A78614
06-01-38 5.00 329,979 337,918
Federal Home Loan Mtge Corp #A82611
10-01-38 5.00 490,670 502,475
Federal Home Loan Mtge Corp #A82694
10-01-38 5.00 172,812 176,970
Federal Home Loan Mtge Corp #A82811
11-01-38 5.00 748,683 766,695
Federal Home Loan Mtge Corp #A83067
11-01-38 5.00 184,005 188,432
Federal Home Loan Mtge Corp #A83590
12-01-38 5.00 218,563 223,821
Federal Home Loan Mtge Corp #A84206
01-01-38 5.00 115,814 118,734
Federal Home Loan Mtge Corp #C00351
07-01-24 8.00 215,238 238,273
Federal Home Loan Mtge Corp #C00385
01-01-25 9.00 358,166 399,712
Federal Home Loan Mtge Corp #C80329
08-01-25 8.00 62,965 69,851
Federal Home Loan Mtge Corp #E00398
10-01-10 7.00 129,553 133,878
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 2,552,496 2,713,846
Federal Home Loan Mtge Corp #E90650
07-01-12 5.50 85,064 87,423
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 2,184,774 2,278,899
Federal Home Loan Mtge Corp #G00363
06-01-25 8.00 262,684 291,412
Federal Home Loan Mtge Corp #G00501
05-01-26 9.00 470,374 525,824
Federal Home Loan Mtge Corp #G04699
09-01-38 5.00 678,733 695,062
Federal Home Loan Mtge Corp #G04710
09-01-38 6.00 1,784,488 1,868,482
Federal Home Loan Mtge Corp #G04723
03-01-38 5.00 91,275 93,476
Federal Home Loan Mtge Corp #G05198
12-01-37 5.00 917,497 940,052
Federal Home Loan Mtge Corp #G05290
02-01-39 5.00 1,264,854 1,295,284
Federal Home Loan Mtge Corp #G05306
12-01-38 5.00 31,074 31,821
Federal Home Loan Mtge Corp #G08307
11-01-38 5.00 1,886,530 1,931,916
Federal Home Loan Mtge Corp #G10669
03-01-12 7.50 812,132 859,829
Federal Home Loan Mtge Corp #G11243
04-01-17 6.50 10,078,382 10,673,700
Federal Home Loan Mtge Corp #G12100
11-01-13 5.00 2,237,036 2,295,490
Federal Home Loan Mtge Corp #M30074
09-01-09 6.50 3,132 3,143
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 11 Cl B
01-01-20 7.58 6,376(j) 1,470
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2471 Cl SI
03-15-32 52.06 1,184,043(j) 116,610
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2783 Cl MI
03-15-25 307.69 415,971(j) 108
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2617 Cl HD
06-15-16 7.00 4,484,335 4,732,992
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 3346 Cl FA
02-15-19 0.57 7,691,874(l) 7,582,934
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
06-01-24 5.50% $475,000(b) $495,633
06-01-39 4.50 25,225,000(b) 25,414,187
Federal Natl Mtge Assn #125032
11-01-21 8.00 105,728 117,305
Federal Natl Mtge Assn #190129
11-01-23 6.00 804,329 848,133
Federal Natl Mtge Assn #190353
08-01-34 5.00 5,924,836 6,084,128
Federal Natl Mtge Assn #190988
06-01-24 9.00 178,540 195,906
Federal Natl Mtge Assn #254384
06-01-17 7.00 246,334 262,421
Federal Natl Mtge Assn #254454
08-01-17 7.00 459,380 489,379
Federal Natl Mtge Assn #254723
05-01-23 5.50 7,296,383 7,593,505
Federal Natl Mtge Assn #254757
05-01-13 5.00 4,875,017 5,070,969
Federal Natl Mtge Assn #255501
09-01-14 6.00 495,141 517,563
Federal Natl Mtge Assn #303885
05-01-26 7.50 395,348 436,252
Federal Natl Mtge Assn #313007
07-01-11 7.50 84,491 87,814
Federal Natl Mtge Assn #336512
02-01-26 6.00 43,385 45,816
Federal Natl Mtge Assn #357485
02-01-34 5.50 10,804,551 11,218,725
Federal Natl Mtge Assn #407327
01-01-14 5.50 276,608 291,032
Federal Natl Mtge Assn #456374
12-01-13 5.50 501,560 527,714
Federal Natl Mtge Assn #508402
08-01-14 6.50 220,317 233,520
Federal Natl Mtge Assn #545818
07-01-17 6.00 10,126,036 10,690,737
Federal Natl Mtge Assn #545864
08-01-17 5.50 8,611,000 9,056,461
Federal Natl Mtge Assn #545910
08-01-17 6.00 1,575,077 1,661,789
Federal Natl Mtge Assn #555063
11-01-17 5.50 6,325,348 6,655,454
Federal Natl Mtge Assn #555367
03-01-33 6.00 7,889,568 8,337,464
Federal Natl Mtge Assn #579485
04-01-31 6.50 2,021,663(q) 2,186,861
Federal Natl Mtge Assn #593829
12-01-28 7.00 1,349,555 1,478,047
Federal Natl Mtge Assn #601416
11-01-31 6.50 749,741 813,174
Federal Natl Mtge Assn #630993
09-01-31 7.50 2,064,121 2,279,529
Federal Natl Mtge Assn #648040
06-01-32 6.50 2,039,875 2,197,583
Federal Natl Mtge Assn #648349
06-01-17 6.00 5,611,149 5,925,164
Federal Natl Mtge Assn #651284
07-01-17 6.00 1,099,903 1,161,956
Federal Natl Mtge Assn #662866
11-01-17 6.00 1,009,492 1,070,407
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,125,872 1,212,917
Federal Natl Mtge Assn #670782
11-01-12 5.00 193,702 201,367
Federal Natl Mtge Assn #670830
12-01-12 5.00 243,703 250,100
Federal Natl Mtge Assn #671415
01-01-10 5.00 137,036 138,523
Federal Natl Mtge Assn #678940
02-01-18 5.50 1,721,771 1,811,824
Federal Natl Mtge Assn #686227
02-01-18 5.50 2,310,129 2,430,921
Federal Natl Mtge Assn #696837
04-01-18 5.50 2,501,023 2,631,713
Federal Natl Mtge Assn #704610
06-01-33 5.50 9,256,205(q) 9,611,025
Federal Natl Mtge Assn #712602
06-01-13 5.00 585,408 608,939
Federal Natl Mtge Assn #722325
07-01-33 4.96 4,419,062(m) 4,561,965
Federal Natl Mtge Assn #725232
03-01-34 5.00 8,732,366 8,975,325
Federal Natl Mtge Assn #725425
04-01-34 5.50 7,904,430 8,203,004
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #725431
08-01-15 5.50% $5,408,796 $5,690,834
Federal Natl Mtge Assn #725773
09-01-34 5.50 6,712,159 6,965,263
Federal Natl Mtge Assn #730632
08-01-33 4.01 1,296,527(m) 1,328,664
Federal Natl Mtge Assn #735212
12-01-34 5.00 5,284,101 5,426,166
Federal Natl Mtge Assn #735578
06-01-35 5.00 3,967,190 4,071,370
Federal Natl Mtge Assn #739243
09-01-33 6.00 2,580,615 2,750,639
Federal Natl Mtge Assn #739331
09-01-33 6.00 1,347,318 1,422,123
Federal Natl Mtge Assn #743524
11-01-33 5.00 2,709,728 2,785,120
Federal Natl Mtge Assn #745275
02-01-36 5.00 919,886 944,043
Federal Natl Mtge Assn #753508
11-01-33 5.00 2,769,842 2,846,907
Federal Natl Mtge Assn #791447
10-01-34 6.00 3,978,422 4,191,848
Federal Natl Mtge Assn #797046
07-01-34 5.50 2,669,459 2,770,119
Federal Natl Mtge Assn #799769
11-01-34 5.04 3,066,498(m) 3,174,531
Federal Natl Mtge Assn #801344
10-01-34 5.08 3,149,346(m) 3,239,921
Federal Natl Mtge Assn #815463
02-01-35 5.50 1,737,096 1,802,599
Federal Natl Mtge Assn #832641
09-01-35 6.00 5,866,125 6,158,820
Federal Natl Mtge Assn #849082
01-01-36 5.83 2,545,481(m) 2,680,284
Federal Natl Mtge Assn #849170
01-01-36 5.93 2,801,968(m) 2,950,823
Federal Natl Mtge Assn #878661
02-01-36 5.50 7,000,101 7,194,792
Federal Natl Mtge Assn #883267
07-01-36 6.50 3,980,832 4,297,944
Federal Natl Mtge Assn #887403
07-01-36 7.00 2,455,234 2,676,772
Federal Natl Mtge Assn #888989
06-01-37 5.99 4,964,436(m) 5,246,334
Federal Natl Mtge Assn #902818
11-01-36 5.91 1,982,527(m) 2,065,793
Federal Natl Mtge Assn #919341
05-01-37 6.50 2,921,054 3,116,144
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 163 Cl 2
07-25-22 22.15 440,083(j) 72,282
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-18 Cl SE
02-25-32 39.01 2,396,640(j) 285,189
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-26 Cl MI
03-25-23 20.86 1,324,839(j) 131,474
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 29.02 3,261,423(j) 339,766
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 22.49 1,752,360(j) 148,381
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 36 Cl 2
08-01-18 26.78 3,749(j) 624
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 70 Cl 2
01-15-20 27.28 166,984(j) 33,230
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series G-15 Cl A
06-25-21 2.49% $22,103(k) $20,297
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-W11 Cl A1
06-25-33 5.40 103,627(m) 103,745
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2004-60 Cl PA
04-25-34 5.50 2,859,415 2,970,046
Govt Natl Mtge Assn
06-01-39 4.50 5,000,000(b) 5,043,750
06-01-39 5.50 5,000,000(b) 5,179,725
Govt Natl Mtge Assn #608948
06-15-36 6.00 15,146 15,843
Govt Natl Mtge Assn #615740
08-15-13 6.00 536,542 566,532
Govt Natl Mtge Assn #646487
04-15-36 6.00 65,313 68,318
Govt Natl Mtge Assn #651914
04-15-36 6.00 206,234 215,721
Govt Natl Mtge Assn #657503
07-15-36 6.00 297,959 311,666
Govt Natl Mtge Assn #676516
02-15-38 6.00 32,179 33,649
Govt Natl Mtge Assn #677228
08-15-38 6.00 763,321 798,195
Govt Natl Mtge Assn #677322
09-15-38 6.00 4,484,529 4,689,416
Govt Natl Mtge Assn #677589
12-15-37 6.00 391,977 410,253
Govt Natl Mtge Assn #678095
01-15-39 6.00 237,962 248,834
Govt Natl Mtge Assn #678101
01-15-39 6.00 372,126 389,128
Govt Natl Mtge Assn #680678
01-15-38 6.00 59,461 62,177
Govt Natl Mtge Assn #685300
11-15-38 6.00 99,907 104,471
Govt Natl Mtge Assn #689460
07-15-38 6.00 30,571 31,968
Govt Natl Mtge Assn #695654
10-15-38 6.00 23,657 24,738
Govt Natl Mtge Assn #699277
09-15-38 6.00 23,577 24,655
Govt Natl Mtge Assn #700159
01-15-39 6.00 304,398 318,305
Govt Natl Mtge Assn #700743
10-15-38 6.00 213,079 222,814
Govt Natl Mtge Assn #701589
01-15-39 6.00 378,659 395,958
Govt Natl Mtge Assn #781507
09-15-14 6.00 2,531,716 2,640,536
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-62 Cl IC
03-20-29 8,876.79 395,732(j) 1,191
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 3A
06-19-34 1.08 317,838(m) 141,797
Lehman XS Trust
Series 2006-16N Cl A1B
11-25-46 0.43 1,509,715(l) 1,209,748
Morgan Stanley Mtge Loan Trust
Series 2006-13AX Cl A1
10-25-36 0.40 1,720,974(l) 1,136,508
Residential Accredit Loans
Collateralized Mtge Obligation
Series 2002-QS14 Cl A12
09-25-32 5.50 5,609,926 4,603,673
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-14 Cl 2A1
12-25-35 5.50 2,731,470 2,284,832
---------------
Total 353,418,087
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 21
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ELECTRIC (0.7%)
FirstEnergy
Sr Unsecured Series B
11-15-11 6.45% $1,330,000 $1,390,017
NiSource Finance
11-15-10 7.88 3,590,000 3,653,321
---------------
Total 5,043,338
- -------------------------------------------------------------------------------------
GAS PIPELINES (1.2%)
CenterPoint Energy Resources
Sr Unsecured
02-15-11 7.75 2,120,000 2,203,723
Northern Natural Gas
Sr Unsecured
06-01-11 7.00 1,275,000(d) 1,378,610
Transcontinental Gas Pipe Line LLC
Sr Unsecured Series B
08-15-11 7.00 4,895,000 5,134,244
---------------
Total 8,716,577
- -------------------------------------------------------------------------------------
INDEPENDENT ENERGY (0.9%)
Anadarko Finance
Series B
05-01-11 6.75 3,595,000(c) 3,748,446
Devon Financing
09-30-11 6.88 2,060,000(c) 2,233,085
---------------
Total 5,981,531
- -------------------------------------------------------------------------------------
MEDIA CABLE (0.2%)
Comcast
03-15-11 5.50 1,440,000 1,510,109
- -------------------------------------------------------------------------------------
RAILROADS (0.2%)
CSX
Sr Unsecured
03-15-11 6.75 1,065,000 1,114,750
- -------------------------------------------------------------------------------------
WIRELINES (2.0%)
AT&T
Sr Unsecured
03-15-11 6.25 3,590,000 3,824,316
Telefonica Emisiones SAU
06-20-11 5.98 1,065,000(c) 1,124,736
Telefonica Europe
09-15-10 7.75 1,065,000(c) 1,129,774
TELUS
Sr Unsecured
06-01-11 8.00 3,565,000(c) 3,832,699
Verizon Pennsylvania
Sr Unsecured Series A
11-15-11 5.65 3,725,000 3,930,847
---------------
Total 13,842,372
- -------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $692,068,548) $687,587,300
- -------------------------------------------------------------------------------------
<Caption>
FDIC-INSURED DEBT (5.0%)(g)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
Bank of America
FDIC Govt Guaranty
04-30-12 2.10% $6,455,000(p) $6,502,051
General Electric Capital
FDIC Govt Guaranty
03-11-11 1.80 9,635,000 9,744,410
Goldman Sachs
Group FDIC Govt Guaranty
07-15-11 1.63 7,750,000(p) 7,801,414
JPMorgan Chase & Co
FDIC Govt Guaranty
02-23-11 1.65 2,655,000(p) 2,680,716
Morgan Stanley
FDIC Govt Guaranty
02-10-12 1.24 8,300,000 8,340,454
- -------------------------------------------------------------------------------------
TOTAL FDIC-INSURED DEBT
(Cost: $34,778,501) $35,069,045
- -------------------------------------------------------------------------------------
<Caption>
GOVERNMENT GUARANTEED (1.1%)(h)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
UK Barclays Bank
Govt Guaranty
03-05-12 2.70% $7,440,000(c,d) $7,535,582
- -------------------------------------------------------------------------------------
TOTAL GOVERNMENT GUARANTEED
(Cost: $7,433,602) $7,535,582
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET FUND (3.6%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.27% 25,429,221(n) $25,429,221
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $25,429,221) $25,429,221
- -------------------------------------------------------------------------------------
<Caption>
INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN (14.6%)
SHARES VALUE(a)
CASH COLLATERAL REINVESTMENT FUND
JPMorgan Prime Money Market Fund 102,551,624 $102,551,624
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN
(Cost: $102,551,624) $102,551,624
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $862,261,496)(r) $858,172,772
=====================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT MAY 31, 2009
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- ------------------------------------------------------------------------------------
U.S. Long Bond, 20-year 13 $1,529,531 Sept. 2009 $4,855
U.S. Treasury Note, 2-
year 646 140,060,875 Oct. 2009 (9,128)
U.S. Treasury Note, 3-
year (70) (15,788,281) July 2009 (6,686)
U.S. Treasury Note, 5-
year (669) (77,886,238) July 2009 685,159
U.S. Treasury Note, 10-
year (139) (16,488,875) June 2009 326,625
U.S. Treasury Note, 10-
year (75) (8,775,000) Sept. 2009 (97,396)
- ------------------------------------------------------------------------------------
Total $903,429
- ------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using policies described in Note 1 to the
financial statements.
(b) At May 31, 2009, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$48,991,523. See Note 1 to the financial statements.
(c) Foreign security values are stated in U.S. dollars. At May 31, 2009, the
value of foreign securities represented 4.3% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At May 31,
2009, the value of these securities amounted to $19,794,560 or 2.8% of net
assets.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 23
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(e) 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.
(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) This debt is guaranteed under the FDIC's Temporary Liquidity Guarantee
Program (TLGP) and is backed by the full faith and credit of the United
States.
(h) This debt is guaranteed by the HM Treasury, United Kingdom.
(i) The following abbreviation is used in the portfolio security description to
identify the insurer of the issue:
<Table>
MGIC -- Mortgage Guaranty Insurance Corporation
</Table>
(j) 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. The
interest rate disclosed represents yield based upon the estimated timing
and amount of future cash flows at May 31, 2009.
(k) 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 May 31, 2009.
(l) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on May 31,
2009.
(m) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on May 31, 2009.
(n) Affiliated Money Market Fund -- See Note 7 to the financial statements. The
rate shown is the seven-day current annualized yield at May 31, 2009.
- --------------------------------------------------------------------------------
24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(o) Represents comparable securities held to satisfy future delivery
requirements of the following open forward sale commitments at May 31,
2009:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
-----------------------------------------------------------------------------
Federal Natl Mtge Assn
05-01-39 6.00% $4,000,000 06-11-09 $4,175,000 $4,187,500
06-01-39 5.00 10,000,000 06-11-09 10,137,890 10,237,500
</Table>
(p) At May 31, 2009, security was partially or fully on loan. See Note 6 to the
financial statements.
(q) At May 31, 2009, investments in securities included securities valued at
$774,454 that were partially pledged as collateral to cover initial margin
deposits on open interest rate futures contracts.
(r) At May 31, 2009, the cost of securities for federal income tax purposes was
$871,890,260 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $15,870,846
Unrealized depreciation (29,588,334)
-----------------------------------------------------------
Net unrealized depreciation $(13,717,488)
-----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 25
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) requires
disclosures relating to the fair valuation of securities for financial statement
purposes.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
- Level 1 -- quoted prices in active markets for identical securities
- Level 2 -- other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit risks,
etc.)
- Level 3 -- significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
Observable inputs are those based on market data obtained from sources
independent of the Fund, and unobservable inputs reflect the Fund's own
assumptions based on the best information available. The input levels are not
necessarily an indication of the risk or liquidity associated with investments
at that level.
The following table is a summary of the inputs used to value the Fund's
investments as of May 31, 2009:
<Table>
<Caption>
FAIR VALUE AT MAY 31, 2009
------------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- ------------------------------------------------------------------------------------
Investments in
securities $239,942,437 $611,921,465 $6,308,870 $858,172,772
Other financial
instruments* 903,429 -- -- 903,429
- ------------------------------------------------------------------------------------
Total $240,845,866 $611,921,465 $6,308,870 $859,076,201
- ------------------------------------------------------------------------------------
</Table>
* Other financial instruments are derivative instruments, such as futures, which
are valued at the unrealized appreciation (depreciation) on the instrument.
The following table is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value.
<Table>
<Caption>
INVESTMENTS IN
SECURITIES
- ---------------------------------------------------------------
Balance as of May 31, 2008 $16,535,423
Accrued discounts/premiums 100,303
Realized gain (loss) (387,893)
Change in unrealized appreciation
(depreciation)* (363,113)
Net purchases (sales) (5,298,292)
Transfers in and/or out of Level 3 (4,277,558)
- ---------------------------------------------------------------
Balance as of May 31, 2009 $6,308,870
- ---------------------------------------------------------------
</Table>
* Change in unrealized appreciation (depreciation) relating to securities held
at May 31, 2009 was $(824,895).
- --------------------------------------------------------------------------------
26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S QUARTERLY PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as filed on Form N-Q,
can be obtained without charge, upon request, by calling the RiverSource
Family of Funds at 1(800) 221-2450.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 27
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
MAY 31, 2009
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers* (identified cost $734,280,651) $730,191,927
Affiliated money market fund (identified cost $25,429,221) 25,429,221
Investments of cash collateral received for securities on loan
(identified cost $102,551,624) 102,551,624
- --------------------------------------------------------------------------------------
Total investments in securities (identified cost $862,261,496) 858,172,772
Capital shares receivable 752,784
Dividends and accrued interest receivable 3,781,009
Receivable for investment securities sold 87,645,201
- --------------------------------------------------------------------------------------
Total assets 950,351,766
- --------------------------------------------------------------------------------------
LIABILITIES
Forward sale commitments, at value (proceeds receivable $14,312,890) 14,425,000
Dividends payable to shareholders 175,365
Capital shares payable 927,045
Payable for investment securities purchased 80,449,998
Payable for securities purchased on a forward-commitment basis 48,991,523
Payable upon return of securities loaned 102,551,624
Variation margin payable on futures contracts 467,305
Accrued investment management services fees 9,213
Accrued distribution fees 134,353
Accrued transfer agency fees 3,282
Accrued administrative services fees 1,316
Accrued plan administration services fees 848
Other accrued expenses 575,682
- --------------------------------------------------------------------------------------
Total liabilities 248,712,554
- --------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $701,639,212
- --------------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 1,514,025
Additional paid-in capital 802,474,911
Undistributed net investment income 430,828
Accumulated net realized gain (loss) (99,483,147)
Unrealized appreciation (depreciation) on investments (3,297,405)
- --------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $701,639,212
- --------------------------------------------------------------------------------------
*Including securities on loan, at value $132,128,881
- --------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $529,368,837 114,236,678 $4.63(1)
Class B $113,216,242 24,431,558 $4.63
Class C $ 12,866,781 2,776,585 $4.63
Class I $ 41,851,347 9,022,598 $4.64
Class R4 $ 4,331,129 934,061 $4.64
Class W $ 4,876 1,053 $4.63
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $4.77. The offering
price is calculated by dividing the net asset value by 1.0 minus the maximum
sales charge of 3.00%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 29
STATEMENT OF OPERATIONS --------------------------------------------------------
YEAR ENDED MAY 31, 2009
<Table>
<Caption>
INVESTMENT INCOME
Income:
Interest $ 29,489,899
Income distributions from affiliated money market fund 64,532
Fee income from securities lending 259,895
Less foreign taxes withheld (2,823)
- --------------------------------------------------------------------------
Total income 29,811,503
- --------------------------------------------------------------------------
Expenses:
Investment management services fees 3,665,529
Distribution fees
Class A 1,393,600
Class B 1,284,921
Class C 111,382
Class W 11
Transfer agency fees
Class A 979,619
Class B 240,149
Class C 20,239
Class R4 2,188
Class W 10
Administrative services fees 521,265
Plan administration services fees -- Class R4 10,939
Compensation of board members 22,801
Custodian fees 73,685
Printing and postage 107,869
Registration fees 95,951
Professional fees 53,153
Other 31,755
- --------------------------------------------------------------------------
Total expenses 8,615,066
Expenses waived/reimbursed by the Investment Manager and
its affiliates (987,699)
Earnings and bank fee credits on cash balances (8,100)
- --------------------------------------------------------------------------
Total net expenses 7,619,267
- --------------------------------------------------------------------------
Investment income (loss) -- net 22,192,236
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (16,858,870)
Futures contracts (7,152,235)
- --------------------------------------------------------------------------
Net realized gain (loss) on investments (24,011,105)
Net change in unrealized appreciation (depreciation) on
investments 4,441,905
- --------------------------------------------------------------------------
Net gain (loss) on investments (19,569,200)
- --------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 2,623,036
- --------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
YEAR ENDED MAY 31, 2009 2008
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 22,192,236 $ 29,999,961
Net realized gain (loss) on investments (24,011,105) 1,099,985
Net change in unrealized appreciation (depreciation) on
investments 4,441,905 (800,569)
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 2,623,036 30,299,377
- ------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (16,331,022) (21,333,414)
Class B (2,826,872) (5,699,109)
Class C (237,025) (312,941)
Class I (2,172,593) (2,868,438)
Class R4 (134,786) (183,760)
Class W (139) (196)
- ------------------------------------------------------------------------------------------
Total distributions (21,702,437) (30,397,858)
- ------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 246,924,684 206,496,511
Class B shares 33,777,836 42,734,598
Class C shares 7,040,083 2,621,382
Class I shares 13,901,496 69,048,377
Class R4 shares 2,274,007 2,801,130
Reinvestment of distributions at net asset value
Class A shares 14,899,763 19,605,781
Class B shares 2,659,409 5,406,615
Class C shares 215,459 299,079
Class I shares 2,176,497 2,844,139
Class R4 shares 134,521 185,296
Payments for redemptions
Class A shares (258,638,948) (200,741,788)
Class B shares (78,504,697) (105,920,795)
Class C shares (3,812,662) (3,568,542)
Class I shares (64,443,360) (33,540,963)
Class R4 shares (2,725,737) (2,086,457)
- ------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions (84,121,649) 6,184,363
- ------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (103,201,050) 6,085,882
Net assets at beginning of year 804,840,262 798,754,380
- ------------------------------------------------------------------------------------------
Net assets at end of year $ 701,639,212 $ 804,840,262
- ------------------------------------------------------------------------------------------
Undistributed (excess of distributions over) net investment
income $ 430,828 $ (195,666)
- ------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 31
FINANCIAL HIGHLIGHTS ----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14(b) .19(b) .19 .15 .12
Net gains (losses) (both realized and
unrealized) (.11) .01 .05 (.10) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .03 .20 .24 .05 .09
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.19) (.19) (.16) (.12)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $529 $539 $514 $641 $894
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.02% 1.04% 1.03% 1.06% 1.01%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .89% .89% .89% .89% .93%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.00% 3.93% 3.99% 3.27% 2.49%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return(h) .59% 4.27% 5.12% 1.00% 1.92%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2009 were
less than 0.01% of average net assets. The ratio of net expenses after
expense waiver/reimbursement and after reduction for earnings and bank fee
credits was 0.88% for the year ended May 31, 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 199% for the year ended May
31, 2009.
(h) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10(b) .15(b) .15 .12 .08
Net gains (losses) (both realized and
unrealized) (.11) .01 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .16 .20 .01 .05
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.15) (.15) (.12) (.08)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $113 $159 $216 $338 $588
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.78% 1.80% 1.79% 1.82% 1.76%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.68%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.26% 3.18% 3.23% 2.50% 1.73%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (.18%) 3.48% 4.34% .26% 1.16%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2009 were
less than 0.01% of average net assets. The ratio of net expenses after
expense waiver/reimbursement and after reduction for earnings and bank fee
credits was 1.64% for the year ended May 31, 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 199% for the year ended May
31, 2009.
(h) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 33
FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10(b) .15(b) .15 .12 .08
Net gains (losses) (both realized and
unrealized) (.11) .02 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .17 .20 .01 .05
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.16) (.15) (.12) (.08)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.63 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $13 $10 $10 $15 $24
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.78% 1.80% 1.80% 1.83% 1.77%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.68%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.21% 3.18% 3.24% 2.51% 1.73%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return(h) (.17%) 3.49% 4.34% .26% 1.16%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2009 were
less than 0.01% of average net assets. The ratio of net expenses after
expense waiver/reimbursement and after reduction for earnings and bank fee
credits was 1.64% for the year ended May 31, 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 199% for the year ended May
31, 2009.
(h) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.74 $4.69 $4.79 $4.83
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .16(b) .20(b) .20 .17 .14
Net gains (losses) (both realized and
unrealized) (.11) .01 .05 (.10) (.04)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .21 .25 .07 .10
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.15) (.21) (.20) (.17) (.14)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.64 $4.74 $4.74 $4.69 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $42 $93 $55 $62 $31
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .60% .60% .59% .62% .57%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .51% .51% .54% .58% .57%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.49% 4.23% 4.37% 3.66% 2.98%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return 1.18% 4.45% 5.50% 1.56% 2.06%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2009 were
less than 0.01% of average net assets. The ratio of net expenses after
expense waiver/reimbursement and after reduction for earnings and bank fee
credits was 0.50% for the year ended May 31, 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 199% for the year ended May
31, 2009.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 35
FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15(b) .19(b) .19 .16 .13
Net gains (losses) (both realized and
unrealized) (.11) .02 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .04 .21 .24 .05 .10
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.20) (.19) (.16) (.13)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.64 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $4 $5 $4 $19 $100
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .90% .90% .86% .88% .84%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .76% .76% .72% .72% .76%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.15% 4.06% 4.09% 3.27% 2.66%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(g) 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return .93% 4.41% 5.31% 1.19% 2.10%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2009 were
less than 0.01% of average net assets. The ratio of net expenses after
expense waiver/reimbursement and after reduction for earnings and bank fee
credits was 0.75% for the year ended May 31, 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 199% for the year ended May
31, 2009.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
36 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007(B)
Net asset value, beginning of period $4.74 $4.73 $4.75
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14(c) .18(c) .08
Net gains (losses) (both realized and
unrealized) (.12) .02 (.02)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .02 .20 .06
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.13) (.19) (.08)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.63 $4.74 $4.73
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.04% 1.06% 1.00%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .96% .95% .95%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.95% 3.87% 4.02%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(i) 271% 209% 168%
- --------------------------------------------------------------------------------------------------------------
Total return .52% 4.21% 1.42%(j)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the years ended May 31, 2009 and 2008.
(i) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 199% for the year ended May
31, 2009.
(j) Not annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Short Duration U.S. Government Fund (the Fund) is a series of
RiverSource Government Income Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. RiverSource 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 of Directors (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, Class I, Class R4 and Class W shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership. However, Class B shares are closed to new investors and new
purchases.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
- - Class W shares are sold without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At May 31, 2009, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of
Class I shares, and the Investment Manager owned 100% of Class W shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
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.
- --------------------------------------------------------------------------------
38 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
VALUATION OF SECURITIES
Effective June 1, 2008, the Fund adopted Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. There was no impact to the
Fund's net assets or results of operations upon adoption. The fair valuation
measurements disclosure can be found following the Notes to Portfolio of
Investments.
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
When market quotes are not readily available, the pricing service, in
determining fair values of debt securities, takes into consideration such
factors as current quotations by broker/dealers, coupon, maturity, quality, type
of issue, trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. The procedures adopted by the Board
generally contemplate the use of fair valuation in the event that price
quotations or valuations are not readily available, price quotations or
valuations from other sources are not reflective of market value and thus deemed
unreliable, or a significant event has occurred in relation to a security or
class of securities that is not reflected in price quotations or valuations from
other sources. A fair value price is a good faith estimate of the value of a
security at a given point in time.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost, which
approximates fair value. Investments in money market funds are valued at net
asset value.
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-
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
commitments. At May 31, 2009, the Fund has outstanding when-issued securities of
$48,991,523.
The Fund also enters into transactions to sell purchase commitments to third
parties at current market values and concurrently acquires other purchase
commitments for similar securities at later dates. As an inducement for the Fund
to "roll over" its purchase commitments, the Fund receives negotiated amounts in
the form of reductions of the purchase price of the commitment. The Fund records
the incremental difference between the forward purchase and sale of each forward
roll as realized gain or loss. Losses may arise due to changes in the value of
the securities or if a counterparty does not perform under the terms of the
agreement. If a counterparty files for bankruptcy or becomes insolvent, the
Fund's right to repurchase or sell securities may be limited.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are used
to satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the Notes to Portfolio of
Investments.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
- --------------------------------------------------------------------------------
40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Management of the Fund has concluded that there are no significant uncertain tax
positions that would require recognition in the financial statements. Generally,
the tax authorities can examine all the tax returns filed for the last three
years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures and options
contracts, recognition of unrealized appreciation (depreciation) for certain
derivative investments, post-October losses and losses deferred due to wash
sales. The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
In the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $136,695
and accumulated net realized loss has been decreased by $117,395,747 resulting
in a net reclassification adjustment to decrease paid-in capital by
$117,532,442.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED MAY 31,
2009 2008
-------------------------- --------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME CAPITAL GAIN INCOME CAPITAL GAIN
- --------------------------------------------------------------------------------
Class A $16,331,022 $-- $21,333,414 $--
Class B 2,826,872 -- 5,699,109 --
Class C 237,025 -- 312,941 --
Class I 2,172,593 -- 2,868,438 --
Class R4 134,786 -- 183,760 --
Class W 139 -- 196 --
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 41
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
At May 31, 2009, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income.................. $ 821,385
Undistributed accumulated long-term gain....... $ --
Accumulated realized loss...................... $(88,365,852)
Unrealized appreciation (depreciation)......... $(14,629,892)
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
The Fund has adopted FASB Staff Position No. 133-1 and FIN No. 45-4 (FSP FAS
133-1 and FIN 45-4), "Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.
45." The amendments to FSP FAS 133-1 and FIN 45-4 require enhanced disclosures
about a fund's derivatives and guarantees. Funds are required to provide
enhanced disclosures about (a) how and why a fund uses derivative instruments,
(b) how derivative instruments and related hedged items are accounted for under
SFAS 133 and its related interpretations, (c) how derivative instruments and
related hedged items affect a fund's financial position, financial performance,
and cash flows and (d) the current status of the payment/performance risk of the
credit derivative. The amendments to FSP FAS 133-1 and FIN 45-4 also require
additional disclosures about the current status of the payment/performance risk
of a guarantee. At May 31, 2009, the Fund did not own nor was it a party to any
credit derivative contracts within the scope of these amendments.
The Fund has adopted Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities -- an amendment
of FASB Statement No. 133," which requires enhanced disclosures about a fund's
derivative and hedging activities. See Investments in Derivatives below for more
information.
On April 9, 2009, the FASB issued Staff Position No. 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
157-4). FSP 157-4 provides additional guidance for estimating fair value in
accordance with SFAS 157 when the volume and level of activity for the asset or
liability have significantly decreased. FSP 157-4 also requires additional
disaggregation of the current SFAS 157 required disclosures. FSP 157-4 is
effective for interim and annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. Management is currently evaluating the
impact that the adoption of FSP 157-4 will have on the amounts and disclosures
within the Fund's financial statements.
- --------------------------------------------------------------------------------
42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income, if any, is recognized on the ex-dividend date and
interest income, including amortization of premium, market discount and original
issue discount using the effective interest method, is accrued daily.
2. INVESTMENTS IN DERIVATIVES
The Fund may invest in certain derivative instruments which are transactions
whose values depend on or are derived from (in whole or in part) the value of
one or more other assets, such as securities, currencies, commodities or
indices. Such derivative instruments may be used to maintain cash reserves while
maintaining exposure to certain other assets, to offset anticipated declines in
values of investments, to facilitate trading, to reduce transaction costs, and
to pursue higher investment returns. The Fund may also use derivative
instruments to mitigate certain investment risks, such as foreign currency
exchange rate risk, interest rate risk, and credit risk.
FUTURES TRANSACTIONS
The Fund may buy and sell financial futures contracts traded on any U.S. or
foreign exchange to produce incremental earnings, hedge existing positions or
protect against market changes in the value of equities, interest rates or
foreign currencies. The Fund may also buy and write put and call options on
these futures contracts. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a specified date.
Futures and options on futures are valued daily based upon the last sale price
at the close of the market on the principal exchange on which they are traded.
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.
Upon entering into futures contracts, the Fund bears the risk of interest rates,
exchange rates or securities prices moving unexpectedly, in which case, the Fund
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 43
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
may not achieve the anticipated benefits of the futures contracts and may
realize a loss. Additional risks include counterparty credit risk, the
possibility of an illiquid market, and that a change in the value of the
contract or option may not correlate with changes in the value of the underlying
securities.
The gross notional amount of long and short futures contracts were $142 million
and $119 million, respectively, at May 31, 2009. The monthly average gross
notional amounts for long and short contracts were $162 million and $144
million, respectively, for the year ended May 31, 2009.
EFFECTS OF DERIVATIVE TRANSACTIONS ON THE FINANCIAL STATEMENTS
The following tables are intended to provide additional information about the
effect of derivatives on the financial statements of the Fund, including: 1) the
fair value of derivatives by risk category and the location of those fair values
in the Statement of Assets and Liabilities and 2) the impact of derivatives
transactions on the Fund's operations over the period including realized gains
or losses and unrealized gains or losses. The derivative schedules following the
Portfolio of Investments present additional information regarding derivative
instruments outstanding at the end of the period, if any.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF MAY 31, 2009
<Table>
<Caption>
ASSET DERIVATIVES LIABILITY DERIVATIVES
-------------------------------- --------------------------------
STATEMENT OF ASSETS STATEMENT OF ASSETS
RISK EXPOSURE AND LIABILITIES AND LIABILITIES
CATEGORY LOCATION FAIR VALUE LOCATION FAIR VALUE
- ----------------------------------------------------------------------------------------
Net Net
Interest rate Assets--Unrealized Assets--Unrealized
contracts appreciation $1,016,639* depreciation $113,210*
- ----------------------------------------------------------------------------------------
TOTAL $1,016,639 $113,210
- ----------------------------------------------------------------------------------------
</Table>
* Includes cumulative appreciation (depreciation) of futures contracts as
reported in the Futures Contracts Outstanding table following the Portfolio
of Investments. Only the current day's variation margin of futures contracts
is reported in receivables or payables in the Statement of Assets and
Liabilities.
EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2009
<Table>
<Caption>
AMOUNT OF REALIZED GAIN OR (LOSS) ON
DERIVATIVES RECOGNIZED IN INCOME
- --------------------------------------------
RISK EXPOSURE
CATEGORY FUTURES
- --------------------------------------------
Interest rate contracts $(7,152,235)
- --------------------------------------------
TOTAL $(7,152,235)
- --------------------------------------------
</Table>
- --------------------------------------------------------------------------------
44 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
CHANGE IN UNREALIZED APPRECIATION OR
(DEPRECIATION) ON DERIVATIVES RECOGNIZED IN
INCOME
- --------------------------------------------
RISK EXPOSURE
CATEGORY FUTURES
- --------------------------------------------
Interest rate contracts $(1,578,737)
- --------------------------------------------
TOTAL $(1,578,737)
- --------------------------------------------
</Table>
3. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is equal to a percentage of the Fund's average daily net assets that declines
from 0.48% to 0.25% annually as the Fund's net assets increase. The management
fee for the year ended May 31, 2009 was 0.48% of the Fund's average daily net
assets.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial,
Inc. (Ameriprise Financial), parent company of the Investment Manager, a fee for
administration and accounting services equal to a percentage of the Fund's
average daily net assets that declines from 0.07% to 0.04% annually as the
Fund's net assets increase. The fee for the year ended May 31, 2009 was 0.07% of
the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended May 31,
2009, other expenses paid to this company were $4,802.
COMPENSATION OF BOARD MEMBERS
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 funds
in the RiverSource Family of 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.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 45
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50
for Class B and $21.00 for Class C for this service. The Fund also pays the
Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's
average daily net assets attributable to Class R4 shares and an annual asset-
based fee at a rate of 0.20% of the Fund's average daily net assets attributable
to Class W shares.
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees in the Statement of Operations.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R4 shares for the provision of various administrative,
recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has agreements with RiverSource Distributors, Inc. and RiverSource Fund
Distributors, Inc. (collectively, the Distributor) for distribution and
shareholder services. Under a Plan and Agreement of Distribution pursuant to
Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's
average daily net assets attributable to Class A and Class W shares and a fee at
an annual rate of up to 1.00% of the Fund's average daily net assets
attributable to Class B and Class C shares. For Class B and Class C shares, of
the 1.00% fee, up to 0.75% is reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed (unreimbursed expense) was approximately $4,253,000 and $121,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of April 30, 2009, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$431,785 for Class A, $93,928 for Class B and $4,452 for Class C for the year
ended May 31, 2009.
- --------------------------------------------------------------------------------
46 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended May 31, 2009, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*) were as follows:
<Table>
Class A ............................................ 0.89%
Class B ............................................ 1.65
Class C ............................................ 1.65
Class I ............................................ 0.51
Class R4 ........................................... 0.76
Class W ............................................ 0.96
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A ......................................... $251,512
Class B ......................................... 57,978
Class C ......................................... 5,025
Class R4 ........................................ 2,170
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R4 .......................................... $106
</Table>
The management fees waived/reimbursed at the Fund level were $670,908.
Under an agreement which was effective until May 31, 2009, the Investment
Manager and its affiliates contractually agreed to waive certain fees and
expenses such that net expenses (excluding fees and expenses of acquired
funds*), would not exceed the following percentage of the class average daily
net assets:
<Table>
Class A ............................................ 0.89%
Class B ............................................ 1.65
Class C ............................................ 1.65
Class I ............................................ 0.51
Class R4 ........................................... 0.76
Class W ............................................ 0.96
</Table>
Effective June 1, 2009, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until July 31, 2010,
unless sooner terminated at the discretion of the Board, such that net expenses
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 47
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
(excluding fees and expenses of acquired funds*), will not exceed the following
percentage of the class average daily net assets:
<Table>
Class A ............................................ 0.86%
Class B ............................................ 1.62
Class C ............................................ 1.62
Class I ............................................ 0.48
Class R4 ........................................... 0.78
Class W ............................................ 0.93
</Table>
* In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in
which it invests (also referred to as "acquired funds"), including
affiliated and non-affiliated pooled investment vehicles (including mutual
funds and exchange traded funds). Because the acquired funds have varied
expense and fee levels and the Fund may own different proportions of
acquired funds at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
BANK FEE CREDITS
During the year ended May 31, 2009, the Fund's transfer agency fees were reduced
by $8,100 as a result of bank fee credits from overnight cash balances.
CUSTODIAN FEES
Effective Dec. 15, 2008, the Fund pays custodian fees to JPMorgan Chase Bank,
N.A. For the period from June 1, 2008 to Dec. 15, 2008, the Fund paid custodian
fees amounting to $63,466 to Ameriprise Trust Company, a subsidiary of
Ameriprise Financial.
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations, but including mortgage dollar rolls) aggregated $1,843,940,420 and
$1,785,408,253, respectively, for the year ended May 31, 2009. Realized gains
and losses are determined on an identified cost basis.
- --------------------------------------------------------------------------------
48 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
YEAR ENDED MAY 31, 2009
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 53,272,239 3,226,458 (56,089,954) 408,743
Class B 7,298,534 575,044 (16,904,640) (9,031,062)
Class C 1,525,411 46,643 (827,332) 744,722
Class I 2,986,449 469,925 (13,974,458) (10,518,084)
Class R4 491,850 29,090 (590,144) (69,204)
- ----------------------------------------------------------------------------------
<Caption>
YEAR ENDED MAY 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 43,400,136 4,118,107 (42,186,985) 5,331,258
Class B 8,957,341 1,135,754 (22,307,379) (12,214,284)
Class C 549,369 62,833 (750,024) (137,822)
Class I 14,458,872 596,542 (7,078,714) 7,976,700
Class R4 587,072 38,907 (437,399) 188,580
- ----------------------------------------------------------------------------------
</Table>
6. LENDING OF PORTFOLIO SECURITIES
Effective Dec. 1, 2008, the Fund has entered into a Master Securities Lending
Agreement (the Agreement) with JPMorgan Chase Bank, National Association
(JPMorgan). The Agreement authorizes JPMorgan as lending agent to lend
securities to authorized borrowers in order to generate additional income on
behalf of the Fund. Pursuant to the Agreement, the securities loaned are secured
by cash or U.S. government securities equal to at least 100% of the market value
of the loaned securities. Any additional collateral required to maintain those
levels due to market fluctuations of the loaned securities is delivered the
following business day. Cash collateral received is invested by the lending
agent on behalf of the Fund into authorized investments pursuant to the
Agreement. The investments made with the cash collateral are listed in the
Portfolio of Investments. The values of such investments and any uninvested cash
collateral balance are disclosed in the Statement of Assets and Liabilities
along with the related obligation to return the collateral upon the return of
the securities loaned. At May 31, 2009, securities valued at $132,128,881 were
on loan, secured by U.S. government securities valued at $31,834,802 and by cash
collateral of $102,551,624 invested in short-term securities or in cash
equivalents.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 49
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
Pursuant to the Agreement, the Fund receives income for lending its securities
either in the form of fees or by earning interest on invested cash collateral,
net of negotiated rebates paid to borrowers and fees paid to the lending agent
for services provided and any other securities lending expenses. Income of
$241,833 earned from securities lending from Dec. 1, 2008 through May 31, 2009
is included in the Statement of Operations. The Fund also continues to earn
interest and dividends on the securities loaned.
Risks of delay in recovery of securities or even loss of rights in the
securities may occur should the borrower of the securities fail financially.
Risks may also arise to the extent that the value of the securities loaned
increases above the value of the collateral received. JPMorgan will indemnify
the Fund from losses resulting from a borrower's failure to return a loaned
security when due. Such indemnification does not extend to losses associated
with declines in the value of cash collateral investments. Loans are subject to
termination by the Fund or the borrower at any time, and are, therefore, not
considered to be illiquid investments.
Prior to Dec. 1, 2008, the Investment Manager served as securities lending agent
for the Fund under the Securities Lending Agency Agreement pursuant to which the
Fund agreed to reimburse the Investment Manager for expenses incurred by it in
connection with the lending program. Expenses paid to the Investment Manager as
securities lending agent were $2,629 through Nov. 30, 2008 and are included in
other expenses in the Statement of Operations. Cash collateral received on
loaned securities had been invested in an affiliated money market fund. Income
of $18,062 earned from securities lending from June 1, 2008 through Nov. 30,
2008 is included in the Statement of Operations.
7. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the funds in the
RiverSource Family of Funds and other institutional clients of RiverSource
Investments. The cost of the Fund's purchases and proceeds from sales of shares
of RiverSource Short-Term Cash Fund aggregated $455,393,792 and $442,866,545,
respectively, for the year ended May 31, 2009. The income distributions received
with respect to the Fund's investment in RiverSource Short-Term Cash Fund can be
found in the Statement of Operations and the Fund's invested balance in
RiverSource Short-Term Cash Fund at May 31, 2009, can be found in the Portfolio
of Investments.
- --------------------------------------------------------------------------------
50 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
8. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund
may borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility became effective on Oct.
16, 2008, replacing a prior credit facility. The credit facility agreement,
which is a collective agreement between the Fund and certain other funds in the
RiverSource Family of Funds, severally and not jointly, permits collective
borrowings up to $475 million. The borrowers shall have the right, upon written
notice to the Administrative Agent to request an increase of up to $175 million
in the aggregate amount of the credit facility from new or existing lenders,
provided that the aggregate amount of the credit facility shall at no time
exceed $650 million. Participation in such increase by any existing lender shall
be at such lender's sole discretion. Interest is charged to each Fund based on
its borrowings at a rate equal to the federal funds rate plus 0.75%. Each
borrowing under the credit facility matures no later than 60 days after the date
of borrowing. The Fund also pays a commitment fee equal to its pro rata share of
the amount of the credit facility at a rate of 0.06% per annum, in addition to
an upfront fee equal to its pro rata share of 0.02% of the amount of the credit
facility. The Fund had no borrowings during the year ended May 31, 2009.
Under the prior credit facility which was effective until Oct. 15, 2008, the
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A., whereby the Fund was permitted to borrow
for the temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The credit facility agreement, which was a collective
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permitted collective borrowings up to $500 million. Interest was
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matured no later
than 60 days after the date of borrowing. The Fund also paid a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum.
9. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS
For federal income tax purposes, the Fund had a capital loss carry-over of
$70,163,196 at May 31, 2009, that if not offset by capital gains will expire as
follows:
<Table>
<Caption>
2013 2014 2015 2017
$36,267,962 $20,469,230 $9,579,187 $3,846,817
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 51
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
Because the measurement periods for a regulated investment company's income are
different for excise tax purposes versus income tax purposes, special rules are
in place to protect the amount of earnings and profits needed to support excise
tax distributions. As a result, the Fund is permitted to treat net capital
losses realized between Nov. 1, 2008 and its fiscal year end (post-October loss)
as occurring on the first day of the following tax year. At May 31, 2009, the
Fund had a post-October loss of $18,202,656 that is treated for income tax
purposes as occurring on June 1, 2009.
For the year ended May 31, 2009, $117,356,906 of capital loss carry-over expired
unused. It is unlikely the Board will authorize a distribution of any net
realized capital gains until the available capital loss carry-over has been
offset or expires.
10. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company (now known as
RiverSource) mutual funds and they purport to bring the action derivatively on
behalf of those funds under the Investment Company Act of 1940. The plaintiffs
allege that fees allegedly paid to the defendants by the funds for investment
advisory and administrative services are excessive. The plaintiffs seek remedies
including restitution and rescission of investment advisory and distribution
agreements. The plaintiffs voluntarily agreed to transfer this case to the
United States District Court for the District of Minnesota (the District Court).
In response to defendants' motion to dismiss the complaint, the District Court
dismissed one of plaintiffs' four claims and granted plaintiffs limited
discovery. Defendants moved for summary judgment in April 2007. Summary judgment
was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a
notice of appeal with the Eighth Circuit Court of Appeals (the Eighth Circuit)
on August 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary
judgment and remanded to the District Court for further proceedings.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any
- --------------------------------------------------------------------------------
52 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
violations of certain provisions of the Investment Advisers Act of 1940, the
Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to retain an independent distribution consultant to assist in developing
a plan for distribution of all disgorgement and civil penalties ordered by the
SEC in accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003,
Seligman conducted an extensive internal review concerning mutual fund trading
practices. Seligman's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies managed by Seligman (the Seligman Funds); this arrangement
was in the process of being closed down by Seligman before September 2003.
Seligman identified three other arrangements that permitted frequent trading,
all of which had been terminated by September 2002. In January 2004, Seligman,
on a voluntary basis, publicly disclosed these four arrangements to its clients
and to shareholders of the Seligman Funds. Seligman also provided information
concerning mutual fund trading practices to the SEC and the Office of the
Attorney General of the State of New York (NYAG).
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc. (which is now known as
RiverSource Fund Distributors, Inc.), Seligman Data Corp. and Brian T. Zino
(collectively, the Seligman Parties), alleging, in substance, that the Seligman
Parties permitted various persons to engage in frequent trading and, as a
result, the prospectus disclosure used by the registered investment companies
then managed by Seligman was and had been misleading. The NYAG included other
related claims and also claimed that the fees charged by Seligman to the
Seligman Funds were excessive. On March 13, 2009, without admitting or denying
any violations of law or wrongdoing, the Seligman Parties entered into a
stipulation of settlement with the NYAG and settled the claims made by the NYAG.
Under the terms of the settlement, Seligman paid $11.3 million to four Seligman
Funds. This settlement resolved all outstanding matters between the Seligman
Parties and the NYAG. In addition to the foregoing matter, the New York staff of
the SEC indicated in September 2005 that it was considering recommending to the
Commissioners of the SEC the instituting of a formal action against Seligman and
Seligman Advisors, Inc. relating to frequent trading
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 53
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
in the Seligman Funds. Seligman responded to the staff in October 2005 that it
believed that any action would be both inappropriate and unnecessary, especially
in light of the fact that Seligman had previously resolved the underlying issue
with the Independent Directors of the Seligman Funds and made recompense to the
affected Seligman Funds. There have been no further developments with the SEC on
this matter.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the consolidated financial
condition or results of operations of Ameriprise Financial.
- --------------------------------------------------------------------------------
54 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource Short Duration U.S. Government Fund
(the Fund) (one of the portfolios constituting the RiverSource Government Income
Series, Inc.) as of May 31, 2009, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the Fund for the periods presented through May 31, 2007, were
audited by other auditors whose report dated July 20, 2007, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of May 31, 2009, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) -----------
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of RiverSource Short Duration U.S. Government Fund of the RiverSource
Government Income Series, Inc. at May 31, 2009, the results of its operations
for the year then ended, and changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 21, 2009
- --------------------------------------------------------------------------------
56 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
FEDERAL INCOME TAX INFORMATION -------------------------------------------------
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
Fiscal year ended May 31, 2009
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals.................... 0.00%
Dividends Received Deduction for corporations................ 0.00%
U.S. Government Obligations.................................. 17.76%
</Table>
The Fund designates as distributions of long-term gains, to the extent necessary
to fully distribute such capital gains, earnings and profits distributed to
shareholders on the redemption of shares.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 57
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board. The following is a list of the Fund's Board members.
The RiverSource Family of Funds that each Board member oversees consists of 149
funds, which includes 105 RiverSource funds and 44 Seligman funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the Board.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
Kathleen Blatz Board member since Chief Justice, Minnesota Supreme Court, 1998-2006; None
901 S. Marquette Ave. 2006 Attorney
Minneapolis, MN 55402
Age 55
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Family of Funds, 1999-2006; former None
901 S. Marquette Ave. 1999 Governor of Minnesota
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None
901 S. Marquette Ave. 2007 Leadership (consulting company)
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None
901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley University
Age 58
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Chair of the Board President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. since 2007, College Inc. (manufactures
Minneapolis, MN 55402 Board member since irrigation systems)
Age 70 2002
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
58 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
John F. Maher Board member since Retired President and Chief Executive Officer and None
901 S. Marquette Ave. 2008 former Director, Great Western Financial Corporation
Minneapolis, MN 55402 (financial services), 1986-1997
Age 66
- ------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None
901 S. Marquette Ave. 2004 real estate and asset management company)
Minneapolis, MN 55402
Age 56
- ------------------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Board member since Counsel, Lewis & Munday, P.C. since 1987; Vice Digital Ally, Inc.
901 S. Marquette Ave. 2008 President and General Counsel, Automotive Legal (digital imaging);
Minneapolis, MN 55402 Affairs, Chrysler Corporation, 1990-1997 Infinity, Inc. (oil
Age 67 and gas exploration
and production); OGE
Energy Corp. (energy
and energy services)
- ------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera
901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceuticals,
Minneapolis, MN 55402 Biotech Inc.
Age 65 (biotechnology);
Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 59
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
William F. Truscott Board member since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. since 2005;
Financial Center Vice President since President, Chairman of the Board and Chief Investment
Minneapolis, MN 55474 2002 Officer, RiverSource Investments, LLC since 2001;
Age 48 Director, President and Chief Executive Officer,
Ameriprise Certificate Company since 2006; Chairman of
the Board and Chief Executive Officer, RiverSource
Distributors, Inc. since 2006 and of RiverSource Fund
Distributors, Inc. since 2008; Senior Vice
President -- Chief Investment Officer, Ameriprise
Financial, Inc., 2001-2005
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments or Ameriprise Financial.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling the RiverSource Family of
Funds at 1(800) 221-2450; contacting your financial intermediary; or visiting
riversource.com/funds.
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management,
172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC
Center and Director and Vice President -- Asset Management,
Minneapolis, MN 55474 Products and Marketing, RiverSource Distributors, Inc.
Age 43 since 2006 and of RiverSource Fund Distributors, Inc.
since 2008; Managing Director and Global Head of
Product, Morgan Stanley Investment Management, 2004-
2006; President, Touchstone Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
60 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income,
172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments,
Center LLC since 2006; Vice President -- Investments,
Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice
Age 45 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Chief Administrative Officer, RiverSource Investments,
5228 Ameriprise Financial 2006 LLC since 2009; Vice President -- Asset Management and
Center Minneapolis, MN Trust Company Services, RiverSource Investments, LLC,
55474 2006-2009; Vice President -- Operations and Compliance,
Age 43 RiverSource Investments, LLC, 2004-2006; Director of
Product Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- --------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise
105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer,
Center RiverSource Distributors, Inc. since 2006
Minneapolis, MN 55474
Age 54
- --------------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management,
5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel,
Center Secretary since 2006 RiverSource Distributors, Inc. and Chief Legal Officer
Minneapolis, MN 55474 and Assistant Secretary, RiverSource Investments, LLC
Age 50 since 2006; Chief Counsel, RiverSource Fund
Distributors, Inc. since 2008; Vice President, General
Counsel and Secretary, Ameriprise Certificate Company
since 2005; Vice President -- Asset Management
Compliance, Ameriprise Financial, Inc., 2004-2005;
Senior Vice President and Chief Compliance Officer,
USBancorp Asset Management, 2002-2004
- --------------------------------------------------------------------------------------------------------
Eleanor T.M. Hoagland Chief Compliance Chief Compliance Officer, RiverSource Investments, LLC,
100 Park Avenue Officer since 2009 Kenwood Capital Management LLC, Ameriprise Certificate
New York, NY 10010 Company, RiverSource Service Corporation and Seligman
Age 58 Data Corp. since 2009; Chief Compliance Officer for
each of the Seligman funds since 2004 and all funds in
the RiverSource Family of Funds since 2009; Anti-Money
Laundering Prevention Officer and Identity Theft
Prevention Officer for each of the Seligman funds since
2008; Managing Director, J. & W. Seligman & Co.
Incorporated and Vice-President for each of the
Seligman funds, 2004-2008
- --------------------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Vice President -- Compliance, Ameriprise Financial,
2934 Ameriprise Financial Prevention Officer Inc. since 2008; Anti-Money Laundering Officer,
Center since 2004 Ameriprise Financial, Inc. since 2004; Compliance
Minneapolis, MN 55474 Director, Ameriprise Financial, Inc., 2004-2008
Age 45
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 61
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the Fund. Under an investment
management services agreement (the "IMS Agreement"), RiverSource Investments
provides investment advice and other services to the Fund and all funds in the
RiverSource Family of Funds (collectively, the "Funds").
On an annual basis, the Fund's Board of Directors (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2009, including reports
based on data provided by independent organizations to assist the Board in
making this determination. In addition, throughout the year, the Board (or its
committees) reviews information prepared by RiverSource Investments addressing
the services RiverSource Investments provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts, Investment Review and Compliance Committees in determining whether to
continue the IMS Agreement. At the April 7-8, 2009 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the Fund's operations, most notably, the large
investment made in the acquisition of J. & W. Seligman & Co. Incorporated,
including its portfolio management operations, personnel and infrastructure
(including the addition of two new offices in New York City and Palo Alto).
Further, in connection with the Board's evaluation of the overall package of
services provided by RiverSource Investments, the Board considered the quality
of the administrative and transfer agency services provided by RiverSource
Investments' affiliates to the Fund. The Board also reviewed the financial
condition of RiverSource Investments (and its affiliates) and each entity's
ability to carry out its responsibilities under the IMS
- --------------------------------------------------------------------------------
62 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
Agreement. Further, the Board considered RiverSource Investments' ability to
retain key personnel and its expectations in this regard. The Board also
discussed the acceptability of the terms of the IMS Agreement (including the
relatively broad scope of services required to be performed by RiverSource
Investments). The Board concluded that the services being performed under the
IMS Agreement were of a reasonably high quality, particularly in light of recent
market conditions.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods, recent Fund inflows (and outflows) and
a comparison of the Fund's net assets from December 2007 to December 2008. The
Board observed that the Fund's investment performance reflected the
interrelationship of exceptionally challenging market conditions with the
investment strategies employed by the portfolio management team. Further, the
Board noted that appropriate measures have been taken by replacing the portfolio
management team.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with the
Fund: The Board reviewed comparative fees and the costs of services to be
provided under the IMS Agreement. The Board members considered detailed
comparative information set forth in an annual report on fees and expenses,
including, among other things, data (prepared by an independent organization)
showing a comparison of the Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing the Fund's contribution to
RiverSource Investments' profitability.
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 63
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio of each fund (excluding the effect of a performance incentive
adjustment, if applicable), with few exceptions, is at or below the median
expense ratio of funds in the same comparison group). The Board took into
account that the Fund's total expense ratio (after considering proposed expense
caps/waivers) approximated the peer group's median expense ratio.
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating the Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the Funds on portfolio transactions. The
Board noted that the fees paid by the Fund should permit the investment manager
to offer competitive compensation to its personnel, make necessary investments
in its business and earn an appropriate profit. The Board concluded that
profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 8, 2009, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement for an additional annual period.
- --------------------------------------------------------------------------------
64 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling the RiverSource Family of Funds at 1(800) 221-2450; contacting your
financial intermediary; visiting riversource.com/funds; or searching the website
of the Securities and Exchange Commission (SEC) at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio
securities is filed with the SEC by August 31 for the most recent 12-month
period ending June 30 of that year, and is available without charge by visiting
riversource.com/funds; or searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 ANNUAL REPORT 65
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus. RiverSource(R) mutual funds are
distributed by RiverSource Distributors, Inc., and
RiverSource Fund Distributors, Inc., Members FINRA, and
managed by RiverSource Investments, LLC. RiverSource is part
of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C)2009 RiverSource Investments, LLC. S-6042 AF (7/09)
</Table>
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
U.S. GOVERNMENT MORTGAGE FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
MAY 31, 2009
(Prospectus also enclosed)
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND SEEKS TO
PROVIDE SHAREHOLDERS WITH CURRENT INCOME AS ITS
PRIMARY OBJECTIVE AND, AS ITS SECONDARY OBJECTIVE,
PRESERVATION OF CAPITAL.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective,
investment strategy, risks, sales charges,
fees and other matters of interest. Please
read the prospectus carefully before you
invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 2
Manager Commentary................. 5
The Fund's Long-term Performance... 12
Fund Expenses Example.............. 14
Portfolio of Investments........... 16
Statement of Assets and
Liabilities...................... 29
Statement of Operations............ 30
Statements of Changes in Net
Assets........................... 31
Financial Highlights............... 32
Notes to Financial Statements...... 37
Report of Independent Registered
Public Accounting Firm........... 53
Federal Income Tax Information..... 55
Board Members and Officers......... 56
Approval of Investment Management
Services Agreement............... 60
Proxy Voting....................... 63
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource U.S. Government Mortgage Fund (the Fund) Class A shares rose 0.79%
(excluding sales charge) for the 12 months ended May 31, 2009.
> The Fund underperformed the Barclays Capital U.S. Mortgage-Backed Securities
Index (Barclays Index), which gained 9.19% during the same period.
> The Fund underperformed the Lipper U.S. Mortgage Funds Index, representing the
Fund's peer group, which advanced 5.21% during the same time frame.
ANNUALIZED TOTAL RETURNS (for period ended May 31, 2009)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Since
inception
1 year 3 years 5 years 2/14/02
- ---------------------------------------------------------------------
RiverSource U.S. Government
Mortgage Fund Class A
(excluding sales charge) +0.79% +3.78% +3.43% +3.71%
- ---------------------------------------------------------------------
Barclays Capital U.S. Mortgage-
Backed Securities Index
(unmanaged) +9.19% +7.89% +6.14% +5.58%
- ---------------------------------------------------------------------
Lipper U.S. Mortgage Funds Index +5.21% +5.29% +4.26% +4.18%
- ---------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial intermediary
or visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes. It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
2 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT MAY 31, 2009
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS INCEPTION
Class A (inception 2/14/02) +0.79% +3.78% +3.43% +3.71%
- ----------------------------------------------------------------------
Class B (inception 2/14/02) +0.03% +2.93% +2.61% +2.94%
- ----------------------------------------------------------------------
Class C (inception 2/14/02) +0.03% +2.93% +2.62% +2.94%
- ----------------------------------------------------------------------
Class I (inception 3/4/04) +1.21% +4.18% +3.80% +3.35%
- ----------------------------------------------------------------------
Class R4 (inception 2/14/02) +2.82% +4.59% +3.99% +4.15%
- ----------------------------------------------------------------------
With sales charge
Class A (inception 2/14/02) -4.00% +2.11% +2.43% +3.02%
- ----------------------------------------------------------------------
Class B (inception 2/14/02) -4.75% +1.70% +2.27% +2.94%
- ----------------------------------------------------------------------
Class C (inception 2/14/02) -0.92% +2.93% +2.62% +2.94%
- ----------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third* years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I and Class R4 shares. Class I and Class R4 shares are
available to institutional investors only.
* For Class B shares purchased on or after June 13, 2009 the CDSC percentage for
the third year will be 3%.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 4.0 years
- --------------------------------------
Effective duration(2) 2.5 years
- --------------------------------------
Weighted average bond
rating(3) AAA
- --------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO*
(as of the current prospectus)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Total Net
fund fund
expenses expenses(a)
- ----------------------------------------
Class A 1.08% 0.89%
- ----------------------------------------
Class B 1.84% 1.65%
- ----------------------------------------
Class C 1.83% 1.65%
- ----------------------------------------
Class I 0.61% 0.47%
- ----------------------------------------
Class R4 0.89% 0.77%
- ----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until July 31, 2010, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding fees and expenses of acquired funds) will not exceed 0.89% for
Class A, 1.65% for Class B, 1.65% for Class C, 0.47% for Class I and 0.77%
for Class R4.
(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.
* Fund expense ratios are calculated based on the fund's average net assets
during the fund's most recently completed fiscal year, and have not been
adjusted for current asset levels, including any decrease or increase in
assets, which, if adjusted, would result in expense ratios that are higher
or lower, respectively, than those that are expressed herein. Any fee
waivers/expense caps would limit the impact that any decrease in assets will
have on net expense ratios in the current fiscal year.
Shares of the RiverSource 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 and credit. These and other risk considerations are
discussed in the fund's prospectus. In general, bond prices rise when interest
rates fall and vice versa. This effect is usually more pronounced for longer-
term securities.
- --------------------------------------------------------------------------------
4 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
At May 31, 2009, approximately 67% of the Fund's shares were owned in the
aggregate by affiliated funds-of-funds managed by RiverSource Investments, LLC
(RiverSource). As a result of asset allocation decisions by RiverSource, it is
possible that RiverSource U.S. Government Mortgage Fund may experience
relatively large purchases or redemptions from affiliated funds-of-funds (see
page 48, Class I capital share transactions for related activity during the most
recent fiscal period). RiverSource seeks to minimize the impact of these
transactions by structuring them over a reasonable period of time. RiverSource
U.S. Government Mortgage Fund may experience increased expenses as it buys and
sells securities as a result of purchases or redemptions by affiliated funds-of-
funds. For more information on the Fund's expenses, see the discussions
beginning on pages 14 and 44.
Todd White replaced Scott Kirby as Portfolio Manager of RiverSource U.S.
Government Mortgage Fund effective November 17, 2008. Jason Callan joined Mr.
White as Co-Portfolio Manager of RiverSource U.S. Government Mortgage Fund
effective April 21, 2009.
Dear Shareholders,
RiverSource U.S. Government Mortgage Fund (the Fund) Class A shares rose 0.79%
(excluding sales charge) for the 12 months ended May 31, 2009. The Fund
underperformed the Barclays Capital U.S. Mortgage-Backed Securities Index
(Barclays Index), which gained 9.19% during the same period. The Fund also
underperformed the Lipper U.S. Mortgage
SECTOR DIVERSIFICATION (at May 31, 2009; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
Asset-Backed 4.8%
- ------------------------------------------------
Commercial Mortgage-Backed 3.1%
- ------------------------------------------------
Consumer Discretionary 0.1%
- ------------------------------------------------
Energy 0.3%
- ------------------------------------------------
Industrials 0.1%
- ------------------------------------------------
Mortgage-Backed(1) 88.2%
- ------------------------------------------------
Telecommunication 0.6%
- ------------------------------------------------
Utilities 0.7%
- ------------------------------------------------
Other(2) 2.1%
- ------------------------------------------------
</Table>
(1) Of the 88.2%, 17.6% is due to forward commitment mortgage-backed securities
activity. Short-term securities are held as collateral for these
commitments.
(2) Cash & Cash Equivalents.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 5
MANAGER COMMENTARY (continued) -------------------------------------------------
Funds Index, representing the Fund's peer group, which advanced 5.21% during the
same time frame.
SIGNIFICANT PERFORMANCE FACTORS
The annual period ended May 31, 2009 was a tale of two halves for the mortgage
market. During the first half, the mortgage market posted positive
results -- but with returns of only about half that of posted Treasury returns.
Mortgage securities, including high quality, premium coupon securities, were
swept up in the bond market turmoil, as a wave of record-breaking bad economic
news dominated and the flight to quality that began in the prior fiscal year
intensified. Heightened fears, in turn, virtually froze liquidity. In response,
the Federal Reserve Board (the Fed) lowered interest rates by an additional 100
basis points (1.00%) over these months. The Fed, along with the U.S. Treasury
Department, also waged an aggressive campaign to stabilize credit markets and
stimulate lending. Early in the period, mortgage-backed security spreads, or the
difference in yields between these securities and Treasuries, widened to levels
near the highest they had ever been, given ongoing deterioration in the housing
market and continued interest rate volatility. Then, in September, amidst the
demise of several global financial institutions, mortgage-backed securities
actually performed reasonably well, generally keeping up with Treasury
securities for the month. Mortgage-backed securities subsequently lagged
Treasuries, but continued to perform well,
QUALITY BREAKDOWN
(at May 31, 2009; % of portfolio assets excluding cash equivalents)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 96.0%
- ------------------------------------------------
AA bonds 0.6%
- ------------------------------------------------
A bonds 0.9%
- ------------------------------------------------
BBB bonds 1.3%
- ------------------------------------------------
Non-investment grade bonds 1.2%
- ------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating.
- --------------------------------------------------------------------------------
6 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
compared to other fixed income sectors through November. Commercial mortgage-
backed securities (CMBS), on the other hand, lost nearly a third of their value
during the first half of the fiscal year. The market for CMBS was particularly
weak in November on fear that real estate investors would struggle to refinance
their debt amidst tight credit conditions.
During the second half of the annual period, strong government response, led by
the Fed, the Treasury Department and the Federal Deposit Insurance Corporation
(FDIC) served to stabilize and support the non-Treasury sectors of the fixed
income market in general and the mortgage market in particular. Further, the
economy was seen as bottoming, and, in turn, investor risk aversion ebbed. More
specifically, the Fed reduced its targeted federal funds rate to a range of 0%
to 0.25% and initiated quantitative easing measures -- purchasing Treasuries,
agency debt and agency-issued mortgage-backed securities. The Fed initially
announced it would buy $600 billion of agency-issued mortgage-backed securities
alone -- a figure that was raised to $1.3 trillion in March. The creation of the
Term Asset-Backed Securities Loan Facility (TALF), designed to increase the
availability of consumer lending, and the introduction of the Public-Private
Investment Program (PPIP) by the Treasury Department, proposed to further
support asset prices of historically securitized products, further boosted the
performance of both residential and commercial mortgage-backed securities.
Overall, the performance of mortgage-backed securities became bifurcated for the
annual period. The Fed's credit easing initiatives caused agency-
All told, then, non-agency mortgage-backed securities experienced more
dramatic price depreciation during the period than those mortgage securities
backed by the federal government.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
issued mortgage-backed securities to outperform Treasuries for the 12-month
period as a whole, while poor fundamentals and a lack of Fed sponsorship caused
non-agency-issued mortgage-backed securities to lag. Long-term interest rates
were relatively stable throughout the annual period. Short-term interest rates,
however, though pushed higher toward the end of the annual period, declined
significantly overall during the 12 months.
The Fund lagged the Barclays Index due primarily to its exposure to non-agency
mortgage-backed securities during the first half of the annual period. These
non-agency mortgage-backed securities, including both fixed-rate and adjustable-
rate prime mortgages, were hurt both by a lack of liquidity due to massive
deleveraging and by worsening housing fundamentals. The agency market was
essentially guaranteed by the government, while the non-agency sector was left
to falter. While the Fund's positions were primarily enhanced AAA-rated
securities, lack of enough buyers in the market for these securities pushed
yields well above 10%, contributing to the market loss. All told, non-agency
mortgage-backed securities experienced more dramatic price depreciation during
the first half of the period than those mortgage securities backed by the
federal government.
Similarly, the Fund's allocation to CMBS detracted from its results during the
first half of the fiscal year, as spreads widened. The lack of buyers for these
securities pushed yields to as high as 15%, even though fundamentals did not
justify the valuations. Neither CMBS nor non-agency mortgage-backed securities
are components of the Barclays Index, and the Fund's allocations to these poorly
performing out-of-Index sectors hurt its results, relative to the Index, during
the first half of the annual period. When we took over management of the Fund in
mid-November, we rotated substantially out of non-agency mortgage-backed
securities and re-positioned the Fund's exposure to CMBS, both of which helped
the Fund's performance during the second half of the annual period.
In addition to the implementation of these two strategies, our increase of the
portfolio's allocation to agency mortgage-backed securities and our lengthening
of its duration relative to the Barclays Index late in 2008 further boosted the
Fund's performance during the second half of the
- --------------------------------------------------------------------------------
8 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
annual period. Duration is a measure of the Fund's sensitivity to changes in
interest rates.
CHANGES TO THE FUND'S PORTFOLIO
Since taking over management of the Fund in late 2008, we reduced the Fund's
positions in non-agency mortgage-backed securities, CMBS, structured agency
assets, and higher coupon mortgage securities. We correspondingly increased the
Fund's exposure to lower coupon agency mortgages and, as mentioned, lengthened
the Fund's duration.
Toward the end of the annual period, we shifted the Fund's duration back to a
more neutral position relative to the Barclays Index, given our view ahead for
the economy and for interest rates. The Fund's portfolio turnover rate for the
12-month period was 431%.*
* A significant portion of the turnover was the result of rolling-maturity
mortgage securities, processing of prepayments and opportunistic changes we
made at the margin in response to valuations or market developments.
OUR FUTURE STRATEGY
Over the last few months of the annual period, we saw signs of stabilization in
some areas of the economy, as nightmares of a coordinated collapse of the
banking system subsided. As asset prices improved from their lows, so, too, did
the lending environment, with corporate bond issuance increasing meaningfully.
It seemed, at the end of May, that the vicious cycle of declining confidence,
spending and market values finally abated as nascent signs of optimism emerged.
Looking forward, we expect further signs of stabilization through the end of the
second quarter and gradual expansion during the second half of the year. We
believe that Gross Domestic Product (GDP) is likely to grow at a below trend
rate of approximately 1% during the second half of 2009, though with a
cautionary note that the recovery may stall at some point during those months.
We expect labor markets to lag, with the unemployment rate not peaking until the
fourth quarter or beyond -- although we believe peak job losses are likely
behind us.
If the recovery in the economy and in financial market conditions is real, there
is a likelihood that the Fed may reduce some of the quantitative easing measures
it has put in place. On the one hand, this may calm concerns that such measures
may lead to inflation. On the other hand, the
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
Fed's reduction of its quantitative measures could add substantial volatility to
the mortgage market once again. When interest rates were lower, the Fed was the
buyer of last resort for mortgages. However, as long-term interest rates rose
late in the period, it appears that the Fed will not be able to support the
resulting lengthened duration in the mortgage market at its current pace of
purchase. Any reduction in its rate of purchase of mortgage securities would
only exacerbate market concerns.
In our view, while some sectors of the economy have indeed improved, we believe
we are still a long way from stabilization in both commercial and residential
real estate prices. Therefore, until we see the true direction of the economy,
we intend to position the Fund fairly conservatively (on a relative basis). We
currently intend to maintain the Fund's neutral-to-the-Barclays Index duration.
We further intend to maintain our focus on the purchase of mortgage-backed
securities issued by U.S. government agencies that we believe will be targeted
for ongoing purchase by the U.S. Treasury and the Fed. These are primarily lower
coupon agency 30-year mortgage-backed securities, which should benefit from the
government's announced massive buying programs. As always, our strategy is to
look 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.
<Table>
Todd White Jason Callan
Portfolio Manager Co-Portfolio Manager
</Table>
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
10 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
THIS PAGE LEFT BLANK INTENTIONALLY
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource U.S. Government Mortgage Fund Class A shares (from
2/14/02 to 5/31/09) as compared to the performance of two widely cited
performance indices, the Barclays Capital U.S. Mortgage-Backed Securities Index
and the Lipper U.S. Mortgage Funds Index. In comparing the Fund's Class A shares
to these indices, you should take into account the fact that the Fund's
performance reflects the maximum sales charge of 4.75%, while such charges are
not reflected in the performance of the indices. Returns for the Fund include
the reinvestment of any distributions paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial intermediary or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at May 31, 2009 SINCE
INCEPTION
1 YEAR 3 YEARS 5 YEARS 2/14/2002
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,600 $10,647 $11,274 $12,425
- -------------------------------------------------------------------------------------------
Average annual total return -4.00% +2.11% +2.43% +3.02%
- -------------------------------------------------------------------------------------------
BARCLAYS CAPITAL U.S. MORTGAGE-BACKED SECURITIES INDEX(1)
Cumulative value of $10,000 $10,919 $12,558 $13,473 $14,857
- -------------------------------------------------------------------------------------------
Average annual total return +9.19% +7.89% +6.14% +5.58%
- -------------------------------------------------------------------------------------------
LIPPER U.S. MORTGAGE FUNDS INDEX(2)
Cumulative value of $10,000 $10,521 $11,672 $12,317 $13,479
- -------------------------------------------------------------------------------------------
Average annual total return +5.21% +5.29% +4.26% +4.18%
- -------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 3.
- --------------------------------------------------------------------------------
12 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE U.S. GOVERNMENT
MORTGAGE FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE U.S.
GOVERNMENT MORTGAGE BARCLAYS CAPITAL
FUND CLASS FIXED RATE LIPPER U.S.
A (INCLUDES MORTGAGE BACKED MORTGAGE FUNDS
SALES CHARGE) SECURITIES INDEX(1) INDEX(2)
------------------- ------------------- --------------
2/14/02 $ 9,525 $10,000 $10,000
2/02 9,574 10,056 10,054
5/02 9,692 10,212 10,183
8/02 9,961 10,496 10,475
11/02 10,080 10,603 10,553
2/03 10,282 10,812 10,755
5/03 10,364 10,867 10,802
8/03 10,239 10,757 10,718
11/03 10,406 10,925 10,860
2/04 10,667 11,205 11,101
5/04 10,496 11,029 10,945
8/04 10,813 11,399 11,229
11/04 10,869 11,480 11,280
2/05 10,933 11,569 11,341
5/05 11,103 11,766 11,523
8/05 11,170 11,853 11,607
11/05 11,075 11,747 11,506
2/06 11,242 11,956 11,646
5/06 11,116 11,833 11,548
8/06 11,434 12,201 11,871
11/06 11,682 12,517 12,175
2/07 11,785 12,644 12,279
5/07 11,817 12,667 12,277
8/07 11,931 12,848 12,391
11/07 12,219 13,306 12,727
2/08 13,351 13,592 12,916
5/08 12,326 13,608 12,813
8/08 12,091 13,751 12,789
11/08 11,831 14,271 12,785
2/09 12,013 14,565 13,096
5/09 12,425 14,857 13,479
</Table>
(1) The Barclays Capital U.S. Mortgage-Backed Securities Index, an unmanaged
index, includes 15- and 30-year fixed-rate securities backed by mortgage
pools of the Government National Mortgage Association (GNMA), Federal Home
Loan Mortgage Corporation (FHLMC), and Federal National Mortgage Association
(FNMA). The index reflects reinvestment of all distributions and changes in
market prices.
(2) The Lipper U.S. Mortgage Funds Index includes the 10 largest U.S. mortgage
funds tracked by Lipper Inc. The index's returns include net reinvested
dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 13
FUND EXPENSES EXAMPLE ---------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended May 31, 2009.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
14 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
DEC. 1, 2008 MAY 31, 2009 THE PERIOD(A) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,050.20 $4.55(c) .89%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.49 $4.48(c) .89%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,046.20 $8.42(c) 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30(c) 1.65%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,046.20 $8.42(c) 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30(c) 1.65%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,054.60 $2.46(c) .48%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.54 $2.42(c) .48%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,053.30 $3.84(c) .75%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.19 $3.78(c) .75%
- ------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the annualized expense ratio for each class as
indicated above, multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended May 31, 2009: +5.02% for
Class A, +4.62% for Class B, +4.62% for Class C, +5.46% for Class I and
+5.33% for Class R4.
(c) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until July 31, 2010, unless
sooner terminated at the discretion of the Fund's Board, such that net
expenses (excluding fees and expenses of acquired funds), will not exceed
0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.47% for Class I
and 0.77% for Class R4. Any amounts waived will not be reimbursed by the
Fund. This change was effective June 1, 2009. Had this change been in place
for the entire six month period ended May 31, 2009, the actual expenses paid
would have been $2.41 for Class I and $3.94 for Class R4; the hypothetical
expenses paid would have been $2.37 for Class I and $3.88 for Class R4. The
actual and hypothetical expenses for Class A, Class B and Class C would have
been the same as those expenses presented in the table above.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS ------------------------------------------------------
MAY 31, 2009
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (119.1%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ASSET-BACKED (5.8%)
Asset Backed Securities Corp Home Equity
Series 2005-HE2 Cl M1
02-25-35 0.76% $1,225,764(h) $966,407
Credit-Based Asset Servicing and Securitization LLC
Series 2006-RP2 Cl A1
07-25-36 0.46 309,698(d,h) 287,973
Deutsche Mtge Securities
Collateralized Mtge Obligation
Series 2009-RS2 Cl 4A1
04-25-37 0.44 1,795,000(d,g) 1,543,700
First Franklin Mtge Loan Asset Backed Ctfs
Series 2005-FF2 Cl A2C
03-25-35 0.62 357,051(h) 328,397
First Franklin Mtge Loan Asset-backed Ctfs
Series 2005-FFH3 Cl 2A3
09-25-35 0.72 581,706(h) 531,941
First Franklin Mtge Loan Asset-backed Ctfs
Series 2006-FF18 Cl A2A
12-25-37 0.38 745,285(h) 698,808
GSAMP Trust
Series 2006-HE8 Cl A2A
01-25-37 0.38 2,111,328(h) 1,875,413
JPMorgan Mtge Acquisition Corp
Series 2006-HE2 Cl A3
07-25-36 0.53 1,616,800(h) 1,395,362
JPMorgan Mtge Acquisition Corp
Series 2006-RM1 Cl A2
08-25-36 0.39 341,327(h) 294,327
JPMorgan Mtge Acquisition Corp
Series 2006-WMC3 Cl A2
08-25-36 0.36 64,154(h) 61,325
Long Beach Mtge Loan Trust
Series 2006-4 Cl 2A2
05-25-36 0.41 788,257(h) 745,775
MASTR Asset Backed Securities Trust
Series 2005-FRE1 Cl A4
10-25-35 0.56 613,947(h) 528,131
NovaStar Home Equity Loan
Series 2006-4 Cl A2A (MGIC)
09-25-36 0.35 1,078,828(h,n) 1,022,417
Novistar Home Equity Loan
Series 2007-2 Cl A2A
09-25-37 0.40 1,552,906(h) 1,285,690
RAAC Series
Series 2006-SP4 Cl A1
11-25-36 0.41 1,554,217(h) 1,321,625
Renaissance Home Equity Loan Trust
Series 2006-4 Cl AF1
01-25-37 5.55 132,416 127,736
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M4
06-25-37 6.31 195,000(k) 9,066
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M5
06-25-37 6.66 130,000(k) 5,301
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M6
06-25-37 7.01 190,000(k) 6,581
Residential Asset Mtge Products
Series 2006-EFC1 Cl A2
02-25-36 0.51 537,998(h) 428,991
Residential Asset Securities
Series 2007-KS3 Cl AI2
04-25-37 0.49 1,700,000(h) 914,001
Resmae Mtge Loan Trust
Series 2006-1 Cl A2A
02-25-36 0.41 155,118(d,h) 152,350
Soundview Home Equity Loan Trust
Series 2008-1 Cl A1 (FSA)
02-25-38 1.81 1,376,499(d,h,n) 982,944
Structured Asset Investment Loan Trust
Series 2005-9 Cl A5
11-25-35 0.54 1,738,813(h) 1,480,598
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ASSET-BACKED (CONT.)
Structured Asset Securities Corp
Collateralized Mtge Obligation
Series 2006-NC1 Cl A6
05-25-36 0.36% $465,515(g) $431,898
Structured Asset Securities Corp
Series 2007-BC1 Cl A2
02-25-37 0.36 1,985,383(h) 1,793,962
---------------
Total 19,220,719
- -------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (3.7%)(f)
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2007-CD4 Cl A2B
12-11-49 5.21 3,000,000 2,782,149
Crown Castle Towers LLC
Series 2005-1A Cl AFX
06-15-35 4.64 3,450,000(d) 3,363,750
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 1,816,232 1,978,088
GS Mtge Securities II
Series 2007-EOP Cl J
03-06-20 1.26 1,000,000(d,h) 640,382
LB-UBS Commercial Mtge Trust
Series 2004-C6 Cl A6
08-15-29 5.02 2,000,000 1,713,264
Wachovia Bank Commercial Mtge Trust
Series 2003-C7 Cl A2
10-15-35 5.08 2,000,000(d) 1,868,364
---------------
Total 12,345,997
- -------------------------------------------------------------------------------------
MORTGAGE-BACKED (107.4%)(f,m)
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 0.47 1,167,530(g) 277,464
American Home Mtge Investment Trust
Collateralized Mtge Obligation
Series 2007-1 Cl GA1C
05-25-47 0.50 1,740,999(g) 677,608
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 1A1
01-25-34 6.00 487,048 438,689
Banc of America Funding
Collateralized Mtge Obligation
Series 2007-8 Cl 1A1
10-25-37 6.00 904,976 485,859
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50 501,901 434,301
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-8CB Cl A13
05-25-37 24.86 1,625,925(j) 212,538
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-20CB Cl 1A1
10-25-33 5.50 4,347,854 3,484,737
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-50CB Cl 2A1
11-25-35 6.00 860,378 484,937
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 315,654 204,610
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-45T1 Cl 2A5
02-25-37 6.00 473,741 249,602
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
11-25-37 6.50 859,937 476,761
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 0.66 1,190,054(h) 292,825
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 0.81 1,753,979(h) 185,940
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00% $410,865(d) $327,408
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.32 377,303(g) 177,336
Credit Suisse Mtge Capital Ctfs
Collateralized Mtge Obligation
Series 2009-2R Cl 1A16
09-26-34 3.69 15,000,000(d,e,g) 1,650,000
Federal Home Loan Mtge Corp #G05058
12-01-38 6.00 3,758,395 3,935,298
Federal Home Loan Mtge Corp
06-01-39 4.50 3,000,000(e) 3,017,814
06-01-39 5.00 8,000,000(e) 8,182,496
06-01-39 5.50 2,500,000(e) 2,582,030
06-01-39 6.00 8,400,000(e) 8,785,879
06-01-39 6.50 1,000,000(e) 1,064,062
Federal Home Loan Mtge Corp #1B7116
08-01-36 5.90 3,548,320(g) 3,705,230
Federal Home Loan Mtge Corp #1J0149
11-01-36 6.09 1,865,539(g) 1,958,325
Federal Home Loan Mtge Corp #1J1621
05-01-37 5.87 2,621,251(g) 2,741,777
Federal Home Loan Mtge Corp #555300
10-01-17 8.00 160,074 170,769
Federal Home Loan Mtge Corp #A10892
07-01-33 6.00 512,747 539,642
Federal Home Loan Mtge Corp #A15111
10-01-33 6.00 716,474 754,604
Federal Home Loan Mtge Corp #A21059
04-01-34 6.50 437,582 468,354
Federal Home Loan Mtge Corp #A25174
08-01-34 6.50 293,967 314,639
Federal Home Loan Mtge Corp #A83607
12-01-38 5.50 6,031,377 6,236,105
Federal Home Loan Mtge Corp #C53098
06-01-31 8.00 233,475 256,358
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 784,879 815,275
Federal Home Loan Mtge Corp #C68876
07-01-32 7.00 129,031 139,145
Federal Home Loan Mtge Corp #C69665
08-01-32 6.50 1,873,794 2,014,934
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 1,126,995 1,169,539
Federal Home Loan Mtge Corp #D95232
03-01-22 6.50 220,857 237,503
Federal Home Loan Mtge Corp #D95371
04-01-22 6.50 258,768 278,899
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 505,408 537,356
Federal Home Loan Mtge Corp #E88036
02-01-17 6.50 841,613 891,397
Federal Home Loan Mtge Corp #E88468
12-01-16 6.50 204,932 219,427
Federal Home Loan Mtge Corp #E89232
04-01-17 7.00 389,415 415,306
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 1,107,570 1,155,286
Federal Home Loan Mtge Corp #E93685
01-01-18 5.50 904,222 950,241
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 298,465 309,542
Federal Home Loan Mtge Corp #G01169
01-01-30 5.50 1,208,730 1,255,870
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 1,722,269 1,831,143
Federal Home Loan Mtge Corp #G02757
06-01-36 5.00 7,317,302 7,501,759
Federal Home Loan Mtge Corp #G03419
07-01-37 6.00 4,010,927 4,199,942
Federal Home Loan Mtge Corp #G12101
11-01-18 5.00 606,238 632,355
Federal Home Loan Mtge Corp #G03180
08-01-37 5.00 9,534,691 9,764,616
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2471 Cl SI
03-15-32 52.06 227,689(j) 22,424
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
18 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2639 Cl UI
03-15-22 14.96% $882,813(j) $86,639
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2795 Cl IY
07-15-17 82.15 279,960(j) 7,922
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2817 Cl SA
06-15-32 45.09 710,503(j) 54,453
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2824 Cl EI
09-15-20 49.66 1,762,683(j) 52,767
Federal Natl Mtge Assn
06-01-39 4.50 19,100,000(e) 19,243,251
06-01-39 5.50 10,000,000(e) 10,337,501
Federal Natl Mtge Assn #190353
08-01-34 5.00 1,392,337 1,429,770
Federal Natl Mtge Assn #252409
03-01-29 6.50 1,087,936 1,169,665
Federal Natl Mtge Assn #254759
06-01-18 4.50 1,562,822 1,616,039
Federal Natl Mtge Assn #254793
07-01-33 5.00 1,859,149 1,910,876
Federal Natl Mtge Assn #254916
09-01-23 5.50 1,500,390 1,561,489
Federal Natl Mtge Assn #256135
02-01-36 5.50 6,398,166 6,605,440
Federal Natl Mtge Assn #313470
08-01-10 7.50 49,064 49,928
Federal Natl Mtge Assn #323362
11-01-28 6.00 2,111,761 2,236,926
Federal Natl Mtge Assn #323715
05-01-29 6.00 395,252 418,678
Federal Natl Mtge Assn #344909
04-01-25 8.00 537,219 587,522
Federal Natl Mtge Assn #357514
03-01-34 5.50 1,948,064 2,022,739
Federal Natl Mtge Assn #483691
12-01-28 7.00 1,043,911 1,161,673
Federal Natl Mtge Assn #487757
09-01-28 7.50 659,028 726,472
Federal Natl Mtge Assn #514704
01-01-29 6.00 464,561 492,096
Federal Natl Mtge Assn #545008
06-01-31 7.00 1,241,795 1,365,007
Federal Natl Mtge Assn #545339
11-01-31 6.50 195,865 212,380
Federal Natl Mtge Assn #545818
07-01-17 6.00 1,819,622 1,921,098
Federal Natl Mtge Assn #545864
08-01-17 5.50 1,062,646 1,117,619
Federal Natl Mtge Assn #555458
05-01-33 5.50 1,447,857 1,498,083
Federal Natl Mtge Assn #555528
04-01-33 6.00 1,672,023 1,766,945
Federal Natl Mtge Assn #555734
07-01-23 5.00 614,657 633,430
Federal Natl Mtge Assn #581418
06-01-31 7.00 774,433 847,660
Federal Natl Mtge Assn #583088
06-01-29 6.00 2,407,612 2,574,761
Federal Natl Mtge Assn #592270
01-01-32 6.50 574,177 617,789
Federal Natl Mtge Assn #596505
08-01-16 6.50 118,398 126,438
Federal Natl Mtge Assn #601416
11-01-31 6.50 278,774 302,360
Federal Natl Mtge Assn #624979
01-01-32 6.00 564,510 600,486
Federal Natl Mtge Assn #626670
03-01-32 7.00 479,783 532,364
Federal Natl Mtge Assn #627426
03-01-17 6.50 380,927 406,813
Federal Natl Mtge Assn #630992
09-01-31 7.00 1,503,596 1,672,750
Federal Natl Mtge Assn #630993
09-01-31 7.50 1,602,478 1,769,710
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #631388
05-01-32 6.50% $1,387,290 $1,506,993
Federal Natl Mtge Assn #632856
03-01-17 6.00 364,269 384,267
Federal Natl Mtge Assn #633674
06-01-32 6.50 802,900 873,741
Federal Natl Mtge Assn #635231
04-01-32 7.00 73,036 79,941
Federal Natl Mtge Assn #635908
04-01-32 6.50 995,342 1,080,757
Federal Natl Mtge Assn #636812
04-01-32 7.00 101,424 111,397
Federal Natl Mtge Assn #640200
10-01-31 9.50 100,838 114,778
Federal Natl Mtge Assn #640207
03-01-17 7.00 35,221 36,483
Federal Natl Mtge Assn #640208
04-01-17 7.50 41,716 42,938
Federal Natl Mtge Assn #644805
05-01-32 7.00 834,187 916,250
Federal Natl Mtge Assn #645053
05-01-32 7.00 508,950 555,589
Federal Natl Mtge Assn #646189
05-01-32 6.50 341,130(l) 367,504
Federal Natl Mtge Assn #654071
09-01-22 6.50 467,619 502,765
Federal Natl Mtge Assn #654685
11-01-22 6.00 479,934 507,564
Federal Natl Mtge Assn #655635
08-01-32 6.50 662,522 719,688
Federal Natl Mtge Assn #656514
09-01-17 6.50 894,056 954,143
Federal Natl Mtge Assn #660186
11-01-32 6.00 1,953,064 2,084,276
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,054,195 1,135,698
Federal Natl Mtge Assn #667302
01-01-33 7.00 490,794 538,920
Federal Natl Mtge Assn #670382
09-01-32 6.00 949,925 1,003,853
Federal Natl Mtge Assn #676683
12-01-32 6.00 1,041,809 1,100,953
Federal Natl Mtge Assn #677089
01-01-33 5.50 481,584(l) 500,496
Federal Natl Mtge Assn #677294
01-01-33 6.00 1,208,860(l) 1,277,488
Federal Natl Mtge Assn #681080
02-01-18 5.00 644,323 671,790
Federal Natl Mtge Assn #682229
03-01-33 5.50 3,697,675 3,842,886
Federal Natl Mtge Assn #684585
02-01-33 5.50 1,250,111 1,305,956
Federal Natl Mtge Assn #684843
02-01-18 5.50 1,239,438 1,304,270
Federal Natl Mtge Assn #684853
03-01-33 6.50 210,990 226,873
Federal Natl Mtge Assn #688002
03-01-33 5.50 1,181,143 1,231,183
Federal Natl Mtge Assn #689026
05-01-33 5.50 342,519 357,512
Federal Natl Mtge Assn #689093
07-01-28 5.50 854,933 893,316
Federal Natl Mtge Assn #694628
04-01-33 5.50 1,790,532 1,874,190
Federal Natl Mtge Assn #694795
04-01-33 5.50 2,167,890 2,269,549
Federal Natl Mtge Assn #695460
04-01-18 5.50 1,598,165 1,681,742
Federal Natl Mtge Assn #697145
03-01-23 5.50 989,609 1,034,107
Federal Natl Mtge Assn #699424
04-01-33 5.50 1,393,595 1,459,000
Federal Natl Mtge Assn #701101
04-01-33 6.00 1,821,885 1,923,038
Federal Natl Mtge Assn #704610
06-01-33 5.50 1,787,461 1,855,981
Federal Natl Mtge Assn #705655
05-01-33 5.00 640,171 657,982
Federal Natl Mtge Assn #708503
05-01-33 6.00 262,826 279,462
Federal Natl Mtge Assn #708504
05-01-33 6.00 557,745(l) 593,214
Federal Natl Mtge Assn #710780
05-01-33 6.00 188,988 199,481
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #711206
05-01-33 5.50% $1,040,946 $1,080,849
Federal Natl Mtge Assn #711239
07-01-33 5.50 524,371 544,472
Federal Natl Mtge Assn #711501
05-01-33 5.50 663,529 695,367
Federal Natl Mtge Assn #723771
08-01-28 5.50 697,797 729,125
Federal Natl Mtge Assn #725017
12-01-33 5.50 2,505,862 2,623,873
Federal Natl Mtge Assn #725232
03-01-34 5.00 1,465,790 1,506,573
Federal Natl Mtge Assn #725424
04-01-34 5.50 7,855,423 8,156,548
Federal Natl Mtge Assn #725425
04-01-34 5.50 2,270,930 2,356,710
Federal Natl Mtge Assn #725684
05-01-18 6.00 580,388 616,621
Federal Natl Mtge Assn #725773
09-01-34 5.50 1,573,886 1,633,234
Federal Natl Mtge Assn #726940
08-01-23 5.50 1,139,860 1,193,666
Federal Natl Mtge Assn #730153
08-01-33 5.50 582,009 604,319
Federal Natl Mtge Assn #733367
08-01-23 5.50 847,783 888,039
Federal Natl Mtge Assn #735212
12-01-34 5.00 7,850,664 8,061,732
Federal Natl Mtge Assn #735841
11-01-19 4.50 4,990,662 5,154,364
Federal Natl Mtge Assn #743524
11-01-33 5.00 1,648,418 1,694,282
Federal Natl Mtge Assn #743579
11-01-33 5.50 1,403,448 1,457,247
Federal Natl Mtge Assn #745275
02-01-36 5.00 3,164,409 3,247,508
Federal Natl Mtge Assn #745355
03-01-36 5.00 3,304,360 3,391,134
Federal Natl Mtge Assn #747339
10-01-23 5.50 1,029,629 1,078,285
Federal Natl Mtge Assn #753507
12-01-18 5.00 781,935 811,530
Federal Natl Mtge Assn #759342
01-01-34 6.50 350,860 379,424
Federal Natl Mtge Assn #770403
04-01-34 5.00 1,337,034 1,372,981
Federal Natl Mtge Assn #776962
04-01-29 5.00 1,198,202 1,238,953
Federal Natl Mtge Assn #779676
06-01-34 5.00 2,281,807 2,343,154
Federal Natl Mtge Assn #785506
06-01-34 5.00 4,882,506 5,013,774
Federal Natl Mtge Assn #793622
09-01-34 5.50 5,448,938 5,654,408
Federal Natl Mtge Assn #797232
09-01-34 5.50 5,381,965 5,584,910
Federal Natl Mtge Assn #826585
08-01-35 5.00 2,055,481 2,109,459
Federal Natl Mtge Assn #841764
07-01-35 5.50 3,716,778 3,853,447
Federal Natl Mtge Assn #845109
05-01-36 6.00 5,076,462 5,324,997
Federal Natl Mtge Assn #869867
04-01-21 5.50 3,419,241 3,574,028
Federal Natl Mtge Assn #878661
02-01-36 5.50 1,741,405 1,789,837
Federal Natl Mtge Assn #881629
02-01-36 5.50 1,139,279 1,170,965
Federal Natl Mtge Assn #886020
07-01-36 6.50 897,193 968,780
Federal Natl Mtge Assn #886291
07-01-36 7.00 655,786 715,395
Federal Natl Mtge Assn #888414
11-01-35 5.00 3,490,547 3,582,210
Federal Natl Mtge Assn #893101
10-01-36 6.50 2,470,258 2,635,379
Federal Natl Mtge Assn #902818
11-01-36 5.91 2,621,523(g) 2,731,627
Federal Natl Mtge Assn #928046
01-01-37 6.00 3,224,195 3,382,046
Federal Natl Mtge Assn #928870
11-01-37 8.50 215,499 235,823
Federal Natl Mtge Assn #933966
07-01-23 6.00 2,270,436 2,398,277
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 21
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #933985
08-01-23 5.50% $1,805,781 $1,886,579
Federal Natl Mtge Assn #941285
06-01-37 6.00 3,879,967 4,066,892
Federal Natl Mtge Assn #960606
10-01-36 5.50 3,245,178 3,367,548
Federal Natl Mtge Assn #984458
05-01-38 6.00 4,107,633 4,305,296
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-119 Cl GI
12-25-33 10.48 449,449(j) 73,633
12-25-33 10.74 256,728(j) 42,059
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 29.02 1,683,127(j) 175,344
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 22.49 389,413(j) 32,973
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 27.35 158,055(j) 10,200
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2005-70 Cl YJ
08-25-35 129.13 1,869,992(j) 44,986
Govt Natl Mtge Assn
06-01-39 4.50 10,000,000(e) 10,087,501
06-01-39 5.00 7,000,000(e) 7,201,250
Govt Natl Mtge Assn #3931
12-20-36 6.00 3,262,467 3,407,983
Govt Natl Mtge Assn #518371
02-15-30 7.00 117,064 127,828
Govt Natl Mtge Assn #528344
03-15-30 7.00 284,298 310,439
Govt Natl Mtge Assn #556293
12-15-31 6.50 337,251 361,870
Govt Natl Mtge Assn #583182
02-15-32 6.50 551,120 590,663
Govt Natl Mtge Assn #595256
12-15-32 6.00 281,382 296,524
Govt Natl Mtge Assn #619613
09-15-33 5.00 1,110,411 1,148,651
Govt Natl Mtge Assn #646077
12-15-37 6.00 427,182 447,099
Govt Natl Mtge Assn #656213
08-15-36 6.00 442,807 463,176
Govt Natl Mtge Assn #673220
10-15-38 6.00 425,102 444,524
Govt Natl Mtge Assn #677322
09-15-38 6.00 270,675 283,042
Govt Natl Mtge Assn #684307
02-15-38 6.00 416,665 435,701
Govt Natl Mtge Assn #691269
07-15-38 6.00 137,680 143,971
Govt Natl Mtge Assn #699075
09-15-38 6.00 435,208 455,092
Govt Natl Mtge Assn #699837
01-15-39 6.00 444,750 465,070
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 0.00 4,902,377(b,i,j) --
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-AR25 Cl 3A3
09-25-36 6.72 9,803,607(j) 101,255
JPMorgan Mtge Trust
Collateralized Mtge Obligation
Series 2004-S2 4A5
11-25-34 6.00 854,202 650,161
Lehman XS Trust
Collateralized Mtge Obligation
Series 2007-5H Cl 1A1
05-25-37 6.50 4,530,769 2,108,224
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
22 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00% $298,277 $276,572
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00 421,873 377,230
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-3 Cl 1A2
04-25-35 5.50 1,537,000 986,143
Nomura Asset Acceptance Corp
Collateralized Mtge Obligation
Series 2006-AF1 Cl 1A1A
05-25-36 0.41 1,416,424(h) 947,427
Residential Accredit Loans
Collateralized Mtge Obligation
Series 2002-QS14 Cl A12
09-25-32 5.50 2,578,849 2,116,280
Structured Asset Securities
Collateralized Mtge Obligation
Series 2003-33H Cl 1A1
10-25-33 5.50 520,617 474,534
Washington Mutual Alternative Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-5 Cl 3A1B
07-25-36 0.37 728,945(h) 659,776
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 2A1
09-25-36 6.10 1,827,838(g) 1,254,566
---------------
Total 353,124,923
- -------------------------------------------------------------------------------------
ELECTRIC (0.3%)
FirstEnergy
Sr Unsecured Series B
11-15-11 6.45 245,000 256,056
NiSource Finance
11-15-10 7.88 660,000 671,641
---------------
Total 927,697
- -------------------------------------------------------------------------------------
GAS PIPELINES (0.6%)
CenterPoint Energy Resources
Sr Unsecured
02-15-11 7.75 400,000 415,797
Northern Natural Gas
Sr Unsecured
06-01-11 7.00 500,000(d) 540,632
Transcontinental Gas Pipe Line LLC
Sr Unsecured Series B
08-15-11 7.00 900,000 943,987
---------------
Total 1,900,416
- -------------------------------------------------------------------------------------
INDEPENDENT ENERGY (0.3%)
Anadarko Finance
Series B
05-01-11 6.75 655,000(c) 682,958
Devon Financing
09-30-11 6.88 380,000(c) 411,928
---------------
Total 1,094,886
- -------------------------------------------------------------------------------------
MEDIA CABLE (0.1%)
Comcast
03-15-11 5.50 260,000 272,659
- -------------------------------------------------------------------------------------
RAILROADS (0.1%)
CSX
Sr Unsecured
03-15-11 6.75 195,000 204,109
- -------------------------------------------------------------------------------------
WIRELINES (0.8%)
AT&T
Sr Unsecured
03-15-11 6.25 660,000 703,078
Telefonica Emisiones SAU
06-20-11 5.98 195,000(c) 205,938
Telefonica Europe
09-15-10 7.75 195,000(c) 206,860
TELUS
Sr Unsecured
06-01-11 8.00 655,000(c) 704,185
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 23
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
WIRELINES (CONT.)
Verizon Pennsylvania
Sr Unsecured Series A
11-15-11 5.65% $685,000 $722,853
---------------
Total 2,542,914
- -------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $393,955,076) $391,634,320
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (2.6%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.27% 8,620,461(o) $8,620,461
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $8,620,461) $8,620,461
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $402,575,537)(p) $400,254,781
=====================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT MAY 31, 2009
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- ------------------------------------------------------------------------------------
U.S. Treasury Note, 2-
year (23) $(5,013,281) July 2009 $(2,197)
U.S. Treasury Note, 5-
year (17) (1,979,172) July 2009 12,455
U.S. Treasury Note, 10-
year (67) (7,947,875) June 2009 198,758
U.S. Treasury Note, 10-
year (35) (4,095,000) Sept. 2009 (45,452)
- ------------------------------------------------------------------------------------
Total $163,564
- ------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using policies described in Note 1 to the
financial statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in U.S. dollar currency unless otherwise
noted. At May 31, 2009, the value of foreign securities represented 0.7% of
net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At May 31,
2009, the value of these securities amounted to $11,357,503 or 3.5% of net
assets.
(e) At May 31, 2009, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$72,304,471. See Note 1 to the financial statements.
- --------------------------------------------------------------------------------
24 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(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) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on May 31, 2009.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on May 31,
2009.
(i) Negligible market value.
(j) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only security is extremely sensitive to the rate of principal
payments on the underlying mortgage assets. A rapid (slow) rate of
principal repayments may have an adverse (positive) effect on yield to
maturity. The principal amount shown is the notional amount of the
underlying mortgages. The interest rate disclosed represents yield based
upon the estimated timing and amount of future cash flows at May 31, 2009.
(k) This position is in bankruptcy.
(l) At May 31, 2009, investments in securities included securities valued at
$540,421 that were partially pledged as collateral to cover initial margin
deposits on open interest rate futures contracts.
(m) Represents comparable securities held to satisfy future delivery
requirements of the following open forward sale commitments at May 31,
2009:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
--------------------------------------------------------------------------
Federal Natl Mtge Assn
06-01-39 5.00% $8,200,000 06-11-09 $8,339,453 $8,394,750
</Table>
(n) The following abbreviations are used in the portfolio security descriptions
to identify the insurer of the issue:
<Table>
FSA -- Financial Security Assurance
MGIC -- Mortgage Guaranty Insurance Corporation
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 25
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(o) Affiliated Money Market Fund -- See Note 6 to the financial statements. The
rate shown is the seven-day current annualized yield at May 31, 2009.
(p) At May 31, 2009, the cost of securities for federal income tax purposes was
$412,001,636 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $11,368,343
Unrealized depreciation (23,115,198)
-----------------------------------------------------------
Net unrealized depreciation $(11,746,855)
-----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
26 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) requires
disclosures relating to the fair valuation of securities for financial statement
purposes.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
- Level 1 -- quoted prices in active markets for identical securities
- Level 2 -- other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit risks,
etc.)
- Level 3 -- significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
Observable inputs are those based on market data obtained from sources
independent of the Fund, and unobservable inputs reflect the Fund's own
assumptions based on the best information available. The input levels are not
necessarily an indication of the risk or liquidity associated with investments
at that level.
The following table is a summary of the inputs used to value the Fund's
investments as of May 31, 2009:
<Table>
<Caption>
FAIR VALUE AT MAY 31, 2009
----------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- ----------------------------------------------------------------------------------
Investments in
securities $8,620,461 $382,692,656 $8,941,664 $400,254,781
Other financial
instruments* 163,564 -- -- 163,564
- ----------------------------------------------------------------------------------
Total $8,784,025 $382,692,656 $8,941,664 $400,418,345
- ----------------------------------------------------------------------------------
</Table>
* Other financial instruments are derivative instruments, such as futures,
which are valued at the unrealized appreciation (depreciation) on the
instrument.
The following table is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value.
<Table>
<Caption>
INVESTMENTS IN
SECURITIES
- ---------------------------------------------------------------
Balance as of May 31, 2008 $8,131,384
Accrued discounts/premiums (56,711)
Realized gain (loss) 1,379,691
Change in unrealized appreciation
(depreciation)* (2,386,164)
Net purchases (sales) 1,762,837
Transfers in and/or out of Level 3 110,627
- ---------------------------------------------------------------
Balance as of May 31, 2009 $8,941,664
- ---------------------------------------------------------------
</Table>
* Change in unrealized appreciation (depreciation) relating to securities held
at May 31, 2009 was $(2,419,533).
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 27
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S QUARTERLY PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as filed on Form N-Q,
can be obtained without charge, upon request, by calling the RiverSource
Family of Funds at 1(800) 221-2450.
- --------------------------------------------------------------------------------
28 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
MAY 31, 2009
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $393,955,076) $391,634,320
Affiliated money market fund (identified cost $8,620,461) 8,620,461
- --------------------------------------------------------------------------------------
Total investments in securities (identified cost $402,575,537) 400,254,781
Capital shares receivable 109,397
Dividends and accrued interest receivable 1,556,505
Receivable for investment securities sold 83,957,550
- --------------------------------------------------------------------------------------
Total assets 485,878,233
- --------------------------------------------------------------------------------------
LIABILITIES
Forward sale commitments, at value (proceeds receivable $8,339,453) 8,394,750
Dividends payable to shareholders 119,892
Capital shares payable 331,942
Payable for investment securities purchased 75,619,285
Payable for securities purchased on a forward-commitment basis 72,304,471
Variation margin payable on futures contracts 127,773
Accrued investment management services fees 4,298
Accrued distribution fees 21,992
Accrued transfer agency fees 670
Accrued administrative services fees 627
Accrued plan administration services fees 13
Other accrued expenses 97,958
- --------------------------------------------------------------------------------------
Total liabilities 157,023,671
- --------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $328,854,562
- --------------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 689,532
Additional paid-in capital 353,241,589
Undistributed net investment income 36,056
Accumulated net realized gain (loss) (22,900,126)
Unrealized appreciation (depreciation) on investments (2,212,489)
- --------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $328,854,562
- --------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $ 78,939,541 16,543,068 $4.77(1)
Class B $ 24,176,629 5,064,728 $4.77
Class C $ 4,090,259 856,738 $4.77
Class I $221,584,142 46,475,255 $4.77
Class R4 $ 63,991 13,427 $4.77
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $5.01. The offering
price is calculated by dividing the net asset value by 1.0 minus the maximum
sales charge of 4.75%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 29
STATEMENT OF OPERATIONS -------------------------------------------------------
YEAR ENDED MAY 31, 2009
<Table>
<Caption>
INVESTMENT INCOME
Income:
Interest $ 19,301,247
Income distributions from affiliated money market fund 213,377
Less foreign taxes withheld (517)
- --------------------------------------------------------------------------
Total income 19,514,107
- --------------------------------------------------------------------------
Expenses:
Investment management services fees 1,731,277
Distribution fees
Class A 213,851
Class B 267,370
Class C 40,318
Transfer agency fees
Class A 189,770
Class B 62,602
Class C 9,207
Class R4 3,392
Administrative services fees 252,478
Plan administration service fees -- Class R4 16,960
Compensation of board members 10,561
Custodian fees 60,875
Printing and postage 33,096
Registration fees 53,920
Professional fees 40,630
Other 15,303
- --------------------------------------------------------------------------
Total expenses 3,001,610
Expenses waived/reimbursed by the Investment Manager and
its affiliates (541,040)
Earnings and bank fee credits on cash balances (1,200)
- --------------------------------------------------------------------------
Total net expenses 2,459,370
- --------------------------------------------------------------------------
Investment income (loss) -- net 17,054,737
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (7,615,426)
Futures contracts (10,766,699)
- --------------------------------------------------------------------------
Net realized gain (loss) on investments (18,382,125)
Net change in unrealized appreciation (depreciation) on
investments 2,926,890
- --------------------------------------------------------------------------
Net gain (loss) on investments (15,455,235)
- --------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 1,599,502
- --------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
30 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
YEAR ENDED MAY 31, 2009 2008
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 17,054,737 $ 19,201,708
Net realized gain (loss) on investments (18,382,125) (883,804)
Net change in unrealized appreciation (depreciation) on
investments 2,926,890 282,877
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 1,599,502 18,600,781
- ----------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (3,899,777) (4,636,312)
Class B (1,013,132) (1,375,945)
Class C (152,824) (166,238)
Class I (11,827,943) (10,669,521)
Class R4 (290,189) (1,927,487)
Net realized gain
Class A (635,778) --
Class B (193,543) --
Class C (29,317) --
Class I (1,808,398) --
Class R4 (451) --
- ----------------------------------------------------------------------------------------
Total distributions (19,851,352) (18,775,503)
- ----------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 19,874,397 21,261,899
Class B shares 7,170,065 7,521,919
Class C shares 1,148,620 493,948
Class I shares 73,431,416 60,497,906
Class R4 shares 75,985 3,560,740
Reinvestment of distributions at net asset value
Class A shares 4,107,536 4,221,397
Class B shares 1,103,090 1,272,184
Class C shares 167,436 153,418
Class I shares 13,610,360 10,765,444
Class R4 shares 161,216 1,945,056
Payments for redemptions
Class A shares (36,083,563) (40,583,767)
Class B shares (16,410,942) (19,411,598)
Class C shares (1,228,211) (1,336,741)
Class I shares (75,837,805) (57,241,980)
Class R4 shares (41,377,098) (2,867,441)
- ----------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions (50,087,498) (9,747,616)
- ----------------------------------------------------------------------------------------
Total increase (decrease) in net assets (68,339,348) (9,922,338)
Net assets at beginning of year 397,193,910 407,116,248
- ----------------------------------------------------------------------------------------
Net assets at end of year $328,854,562 $397,193,910
- ----------------------------------------------------------------------------------------
Undistributed net investment income $ 36,056 $ 69,436
- ----------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 31
FINANCIAL HIGHLIGHTS ----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.92 $5.12 $5.03
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .21(b) .23(b) .22 .21 .19
Net gains (losses) (both realized and
unrealized) (.18) (.02) .09 (.20) .10
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .03 .21 .31 .01 .29
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.22) (.23) (.20) (.20)
Distributions from realized gains (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.22) (.23) (.21) (.20)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.12
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $79 $95 $111 $126 $159
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.08% 1.09% 1.17% 1.19% 1.10%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .89% .89% .89% .89% .95%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.51% 4.56% 4.45% 4.08% 3.67%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 431%(g) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return(h) .79% 4.31% 6.30% .12% 5.78%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the years ended May 31, 2009 and 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 162% for the year ended May
31, 2009.
(h) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
32 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.93 $5.12 $5.04
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18(b) .19(b) .19 .17 .15
Net gains (losses) (both realized and
unrealized) (.18) (.01) .07 (.19) .09
- --------------------------------------------------------------------------------------------------------------
Total from investment operations -- .18 .26 (.02) .24
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.19) (.19) (.16) (.16)
Distributions from realized gains (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.19) (.19) (.17) (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.77 $4.99 $5.00 $4.93 $5.12
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $24 $34 $44 $64 $98
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.84% 1.86% 1.94% 1.95% 1.86%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.69%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.75% 3.79% 3.70% 3.31% 2.90%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 431%(g) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return(h) .03% 3.53% 5.30% (.42%) 4.78%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the years ended May 31, 2009 and 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 162% for the year ended May
31, 2009.
(h) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 33
FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.93 $5.12 $5.04
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18(b) .19(b) .19 .17 .15
Net gains (losses) (both realized and
unrealized) (.18) (.01) .07 (.19) .09
- --------------------------------------------------------------------------------------------------------------
Total from investment operations -- .18 .26 (.02) .24
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.19) (.19) (.16) (.16)
Distributions from realized gains (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.19) (.19) (.17) (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.77 $4.99 $5.00 $4.93 $5.12
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $4 $4 $5 $7 $11
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.83% 1.85% 1.94% 1.95% 1.85%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.65% 1.65% 1.64% 1.64% 1.70%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.76% 3.80% 3.70% 3.31% 2.90%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 431%(g) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return(h) .03% 3.53% 5.30% (.43%) 4.79%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the years ended May 31, 2009 and 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 162% for the year ended May
31, 2009.
(h) Total return does not reflect payment of a sales charge.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
34 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.92 $5.11 $5.03
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23(b) .25(b) .24 .22 .20
Net gains (losses) (both realized and
unrealized) (.18) (.02) .08 (.19) .09
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .05 .23 .32 .03 .29
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.23) (.24) (.24) (.21) (.21)
Distributions from realized gains (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.24) (.24) (.22) (.21)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.11
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $222 $222 $207 $6 $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .61% .63% .63% .73% .66%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .48% .48% .54% .54% .62%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.93% 4.97% 4.90% 4.99% 3.99%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 431%(g) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return 1.21% 4.74% 6.68% .59% 5.92%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the years ended May 31, 2009 and 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 162% for the year ended May
31, 2009.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 35
FINANCIAL HIGHLIGHTS (continued) ----------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.92 $5.11 $5.03
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .23(b) .23(b) .23 .21 .20
Net gains (losses) (both realized and
unrealized) (.10) (.01) .08 (.19) .08
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .22 .31 .02 .28
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.31) (.23) (.23) (.20) (.20)
Distributions from realized gains (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.23) (.23) (.21) (.20)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.77 $4.99 $5.00 $4.92 $5.11
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $42 $40 $35 $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .89% .93% .99% 1.04% .94%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .70% .75% .71% .71% .77%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.38% 4.69% 4.63% 4.40% 3.99%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 431%(g) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return 2.82% 4.46% 6.51% .49% 5.75%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the years ended May 31, 2009 and 2008.
(g) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 162% for the year ended May
31, 2009.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
36 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource U.S. Government Mortgage Fund (the Fund) is a series of RiverSource
Government Income Series, Inc. and is registered under the Investment Company
Act of 1940 (as amended) as a diversified, open-end management investment
company. RiverSource 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 of Directors (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, Class I and Class R4 shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
At May 31, 2009, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of
Class I shares. At May 31, 2009, the Investment Manager, RiverSource Life
Insurance Company and the RiverSource affiliated funds-of-funds owned
approximately 67% of the total outstanding Fund shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
VALUATION OF SECURITIES
Effective June 1, 2008, the Fund adopted Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. There was no impact to the
Fund's net assets or results of operations upon adoption. The fair valuation
measurements disclosure can be found following the Notes to Portfolio of
Investments.
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
When market quotes are not readily available, the pricing service, in
determining fair values of debt securities, takes into consideration such
factors as current quotations by broker/dealers, coupon, maturity, quality, type
of issue, trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. The procedures adopted by the Board
generally contemplate the use of fair valuation in the event that price
quotations or valuations are not readily available, price quotations or
valuations from other sources are not reflective of market value and thus deemed
unreliable, or a significant event has occurred in relation to a security or
class of securities that is not reflected in price quotations or valuations from
other sources. A fair value price is a good faith estimate of the value of a
security at a given point in time. Swap transactions are valued through an
authorized pricing service, broker, or an internal model.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost, which
approximates fair value. Investments in money market funds are valued at net
asset value.
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-
- --------------------------------------------------------------------------------
38 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
commitments. At May 31, 2009, the Fund has outstanding when-issued securities of
$70,723,354 and other forward-commitments of $1,581,117.
The Fund also enters into transactions to sell purchase commitments to third
parties at current market values and concurrently acquires other purchase
commitments for similar securities at later dates. As an inducement for the Fund
to "roll over" its purchase commitments, the Fund receives negotiated amounts in
the form of reductions of the purchase price of the commitment. The Fund records
the incremental difference between the forward purchase and sale of each forward
roll as realized gain or loss. Losses may arise due to changes in the value of
the securities or if a counterparty does not perform under the terms of the
agreement. If a counterparty files for bankruptcy or becomes insolvent, the
Fund's right to repurchase or sell securities may be limited.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are used
to satisfy the commitment.
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.
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.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Management of the Fund has concluded that there are no significant uncertain tax
positions that would require recognition in the financial statements. Generally,
the tax authorities can examine all the tax returns filed for the last three
years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures and options
contracts, recognition of unrealized appreciation (depreciation) for certain
derivative investments, post-October losses and losses deferred due to wash
sales. The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
In the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $95,748
and accumulated net realized loss has been increased by $95,748.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED MAY 31,
2009 2008
-------------------------- --------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME CAPITAL GAIN INCOME CAPITAL GAIN
-------------------------------------------------------
Class A $ 4,535,555 $-- $ 4,636,312 $--
Class B 1,206,675 -- 1,375,945 --
Class C 182,141 -- 166,238 --
Class I 13,636,341 -- 10,669,521 --
Class R4 290,640 -- 1,927,487 --
</Table>
At May 31, 2009, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income.................. $ 342,467
Undistributed accumulated long-term gain....... $ --
Accumulated realized loss...................... $(13,435,568)
Unrealized appreciation (depreciation)......... $(11,863,566)
</Table>
- --------------------------------------------------------------------------------
40 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
The Fund has adopted FASB Staff Position No. 133-1 and FIN No. 45-4 (FSP FAS
133-1 and FIN 45-4), "Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.
45." The amendments to FSP FAS 133-1 and FIN 45-4 require enhanced disclosures
about a fund's derivatives and guarantees. Funds are required to provide
enhanced disclosures about (a) how and why a fund uses derivative instruments,
(b) how derivative instruments and related hedged items are accounted for under
SFAS 133 and its related interpretations, (c) how derivative instruments and
related hedged items affect a fund's financial position, financial performance,
and cash flows and (d) the current status of the payment/performance risk of the
credit derivative. The amendments to FSP FAS 133-1 and FIN 45-4 also require
additional disclosures about the current status of the payment/performance risk
of a guarantee. At May 31, 2009, the Fund did not own nor was it a party to any
credit derivative contracts within the scope of these amendments.
The Fund has adopted Statement of Financial Accounting Standards No. 161 (SFAS
161), "Disclosures about Derivative Instruments and Hedging Activities -- an
amendment of FASB Statement No. 133," which requires enhanced disclosures about
a fund's derivative and hedging activities. See Investments in Derivatives below
for more information.
On April 9, 2009, the FASB issued Staff Position No. 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
157-4). FSP 157-4 provides additional guidance for estimating fair value in
accordance with SFAS 157 when the volume and level of activity for the asset or
liability have significantly decreased. FSP 157-4 also requires additional
disaggregation of the current SFAS 157 required disclosures. FSP 157-4 is
effective for interim and annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. Management is currently evaluating the
impact that the adoption of FSP 157-4 will have on the amounts and disclosures
within the Fund's financial statements.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 41
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income, if any, is recognized on the ex-dividend date and
interest income, including amortization of premium, market discount and original
issue discount using the effective interest method, is accrued daily.
2. INVESTMENTS IN DERIVATIVES
The Fund may invest in certain derivative instruments, which are transactions
whose values depend on or are derived from (in whole or in part) the value of
one or more other assets, such as securities, currencies, commodities or
indices. Such derivative instruments may be used to maintain cash reserves while
maintaining exposure to certain other assets, to offset anticipated declines in
values of investments, to facilitate trading, to reduce transaction costs, and
to pursue higher investment returns. The Fund may also use derivative
instruments to mitigate certain investment risks, such as foreign currency
exchange rate risk, interest rate risk, and credit risk.
FUTURES TRANSACTIONS
The Fund may buy and sell financial futures contracts traded on any U.S. or
foreign exchange to produce incremental earnings, hedge existing positions or
protect against market changes in the value of equities, interest rates or
foreign currencies. The Fund may also buy and write put and call options on
these futures contracts. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a specified date.
Futures and options on futures are valued daily based upon the last sale price
at the close of the market on the principal exchange on which they are traded.
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.
Upon entering into futures contracts, the Fund bears the risk of interest rates,
exchange rates or securities prices moving unexpectedly, in which case, the Fund
may not achieve the anticipated benefits of the futures contracts and may
realize a loss. Additional risks include counterparty credit risk, the
possibility of an illiquid market, and that a change in the value of the
contract or option may not correlate with changes in the value of the underlying
securities.
- --------------------------------------------------------------------------------
42 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
The gross notional amount of short contracts was $19 million at May 31, 2009.
The monthly average gross notional contract amount for these contracts was $63
million for the year ended May 31, 2009.
TOTAL RETURN SWAP TRANSACTIONS
The Fund may enter into total return swap agreements to gain exposure to the
total return on a specified security, a basket of securities or a security index
during the specified period, in return for periodic payments based on a fixed or
variable interest rate. Total return swap agreements may be used to obtain
exposure to a security or market without owning or taking physical custody of
such security or securities in a market. Under the terms of a total return swap
agreement, payments made by the Fund or the counterparty are based on the total
return of a particular reference asset or assets (such as an equity security, a
combination of equity securities, a mortgage-backed security, a combination of
mortgage-backed securities, or an index) in exchange for a specified interest
rate.
The notional amounts of swap contracts are not recorded in the financial
statements. Swap contracts are valued daily, and the change in value is recorded
as unrealized appreciation (depreciation) until the termination of the swap, at
which time the Fund will realize a gain or (loss). Periodic payments received
(or made) by the Fund over the term of the contract are recorded as realized
gains (losses).
Total return swap agreements may be subject to liquidity risk, which exists when
a particular swap is difficult to purchase or sell. It may not be possible for
the Fund to initiate a transaction or liquidate a position at an advantageous
time or price, which may result in significant losses. Total return swaps are
subject to the risk associated with the investment in the underlying securities.
The risk in the case of short total return swap transactions is unlimited based
on the potential for unlimited increases in the market value of the referenced
securities. This risk may be offset if the Fund holds any of the referenced
assets. The risk in the case of long total return swap transactions is limited
to the current notional amount of the total return swap. Total return swaps are
also subject to the risk of the counterparty not fulfilling its obligations
under the agreement. The counterparty risk may be offset by any collateral held
by the Fund related to the swap transactions. At May 31, 2009, and for the year
then ended, the Fund had no outstanding total return swap contracts.
EFFECTS OF DERIVATIVE TRANSACTIONS ON THE FINANCIAL STATEMENTS
The following tables are intended to provide additional information about the
effect of derivatives on the financial statements of the Fund including: the
fair value of derivatives by risk category and the location of those fair values
in the Statement of Assets and Liabilities; the impact of derivative
transactions on the
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 43
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
Fund's operations over the period including realized gains or losses and
unrealized gains or losses. The derivative schedules following the Portfolio of
Investments present additional information regarding derivative instruments
outstanding at the end of the period, if any.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF MAY 31, 2009
<Table>
<Caption>
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------------------------------------------------
STATEMENT OF ASSETS STATEMENT OF ASSETS
RISK EXPOSURE AND LIABILITIES AND LIABILITIES
CATEGORY LOCATION FAIR VALUE LOCATION FAIR VALUE
- -----------------------------------------------------------------------------------------------
Interest rate Net Assets -- Net Assets --
contracts Unrealized appreciation 211,213* Unrealized depreciation $47,649*
- -----------------------------------------------------------------------------------------------
Total 211,213 47,649
- -----------------------------------------------------------------------------------------------
</Table>
* Includes cumulative appreciation (depreciation) of futures contracts as
reported in the Futures Contracts Outstanding table following the Portfolio
of Investments. Only the current day's variation margin of futures contracts
is reported in receivables or payables in the Statement of Assets and
Liabilities.
EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE YEAR
ENDED MAY 31, 2009
<Table>
<Caption>
AMOUNT OF REALIZED GAIN OR (LOSS) ON DERIVATIVES RECOGNIZED IN INCOME
- -----------------------------------------------------------------------------------------------
RISK EXPOSURE CATEGORY FUTURES
- -----------------------------------------------------------------------------------------------
Interest rate contracts $(10,766,699)
- -----------------------------------------------------------------------------------------------
TOTAL $(10,766,699)
- -----------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CHANGE IN UNREALIZED APPRECIATION OR (DEPRECIATION) ON DERIVATIVES RECOGNIZED IN INCOME
- -----------------------------------------------------------------------------------------------
RISK EXPOSURE CATEGORY FUTURES
- -----------------------------------------------------------------------------------------------
Interest rate contracts $(691,566)
- -----------------------------------------------------------------------------------------------
TOTAL $(691,566)
- -----------------------------------------------------------------------------------------------
</Table>
3. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.48%
to 0.29% annually as the Fund's net assets increase. The management fee for the
year ended May 31, 2009 was 0.48% of the Fund's average daily net assets.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial,
Inc. (Ameriprise Financial), parent company of the Investment Manager, a fee for
administration and accounting services at a percentage of the
- --------------------------------------------------------------------------------
44 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
Fund's average daily net assets that declines from 0.07% to 0.04% annually as
the Fund's net assets increase. The fee for the year ended May 31, 2009 was
0.07% of the Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended May 31,
2009, other expenses paid to this company were $2,147.
COMPENSATION OF BOARD MEMBERS
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 funds
in the RiverSource Family of Funds. The Fund's liability for these amounts is
adjusted for market value changes and remains in the Fund until distributed in
accordance with the Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50
for Class B and $21.00 for Class C for this service. The Fund also pays the
Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's
average daily net assets attributable to Class R4 shares.
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees in the Statement of Operations.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R4 shares for the provision of various administrative,
recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has agreements with RiverSource Distributors, Inc. and RiverSource Fund
Distributors, Inc. (collectively, the Distributor) for distribution and
shareholder services. Under a Plan and Agreement of Distribution pursuant to
Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's
average daily net assets attributable to Class A shares and a fee at an annual
rate
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 45
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
of up to 1.00% of the Fund's average daily net assets attributable to Class B
and Class C shares. For Class B and Class C shares, of the 1.00% fee, up to
0.75% is reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed (unreimbursed expense) was approximately $1,009,000 and $36,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of April 30, 2009, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$78,259 for Class A, $22,751 for Class B and $197 for Class C for the year ended
May 31, 2009.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended May 31, 2009, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*) were as follows:
<Table>
Class A............................................. 0.89%
Class B............................................. 1.65
Class C............................................. 1.65
Class I............................................. 0.48
Class R4............................................ 0.70
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A........................................... $52,313
Class B........................................... 16,615
Class C........................................... 2,466
Class R4.......................................... 2,916
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R4.......................................... $1,183
</Table>
The management fees waived/reimbursed at the Fund level were $465,547.
Under an agreement which was effective until May 31, 2009, the Investment
Manager and its affiliates have contractually agreed to waive certain fees and
expenses such that net expenses (excluding fees and expenses of acquired
- --------------------------------------------------------------------------------
46 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
funds*), would not exceed the following percentage of the class average daily
net assets:
<Table>
Class A............................................. 0.89%
Class B............................................. 1.65
Class C............................................. 1.65
Class I............................................. 0.48
Class R4............................................ 0.75
</Table>
Effective June 1, 2009, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until July 31, 2010,
unless sooner terminated at the discretion of the Board, such that net expenses
(excluding fees and expenses of acquired funds*), will not exceed the following
percentage of the class average daily net assets:
<Table>
Class A............................................. 0.89%
Class B............................................. 1.65
Class C............................................. 1.65
Class I............................................. 0.47
Class R4............................................ 0.77
</Table>
* In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in
which it invests (also referred to as "acquired funds"), including
affiliated and non-affiliated pooled investment vehicles (including mutual
funds and exchange traded funds). Because the acquired funds have varied
expense and fee levels and the Fund may own different proportions of
acquired funds at different times, the amount of fees and expenses incurred
indirectly by the Fund will vary.
BANK FEE CREDITS
During the year ended May 31, 2009, the Fund's transfer agency fees were reduced
by $1,200 as a result of bank fee credits from overnight cash balances.
CUSTODIAN FEES
Effective Dec. 15, 2008, the Fund pays custodian fees to JPMorgan Chase Bank,
N.A. For the period from June 1, 2008 to Dec. 15, 2008, the Fund paid custodian
fees amounting to $63,152 to Ameriprise Trust Company, a subsidiary of
Ameriprise Financial.
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations, but including mortgage-dollar rolls) aggregated $1,906,701,335 and
$2,023,202,969, respectively, for the year ended May 31, 2009. Realized gains
and losses are determined on an identified cost basis.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 47
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
5. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
YEAR ENDED MAY 31, 2009
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 4,148,102 866,721 (7,573,975) (2,559,152)
Class B 1,504,114 232,629 (3,413,335) (1,676,592)
Class C 240,131 35,345 (256,741) 18,735
Class I 15,087,681 2,874,393 (15,906,305) 2,055,769
Class R4 22,129 32,732 (8,546,518) (8,491,657)
- ----------------------------------------------------------------------------------
<Caption>
YEAR ENDED MAY 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 4,250,751 842,644 (8,112,975) (3,019,580)
Class B 1,496,899 253,951 (3,883,104) (2,132,254)
Class C 98,644 30,621 (266,401) (137,136)
Class I 12,137,691 2,151,644 (11,378,602) 2,910,733
Class R4 715,755 388,748 (571,898) 532,605
- ----------------------------------------------------------------------------------
</Table>
6. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the funds in the
RiverSource Family of Funds and other institutional clients of RiverSource
Investments. The cost of the Fund's purchases and proceeds from sales of shares
of the RiverSource Short-Term Cash Fund aggregated $219,092,879 and
$235,368,190, respectively, for the year ended May 31, 2009. The income
distributions received with respect to the Fund's investment in RiverSource
Short-Term Cash Fund can be found in the Statement of Operations and the Fund's
invested balance in RiverSource Short-Term Cash Fund at May 31, 2009, can be
found in the Portfolio of Investments.
7. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund
may borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility became effective on Oct.
16, 2008, replacing a prior credit facility. The credit facility agreement,
- --------------------------------------------------------------------------------
48 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
which is a collective agreement between the Fund and certain other funds in the
RiverSource Family of Funds, severally and not jointly, permits collective
borrowings up to $475 million. The borrowers shall have the right, upon written
notice to the Administrative Agent to request an increase of up to $175 million
in the aggregate amount of the credit facility from new or existing lenders,
provided that the aggregate amount of the credit facility shall at no time
exceed $650 million. Participation in such increase by any existing lender shall
be at such lender's sole discretion. Interest is charged to each Fund based on
its borrowings at a rate equal to the federal funds rate plus 0.75%. Each
borrowing under the credit facility matures no later than 60 days after the date
of borrowing. The Fund also pays a commitment fee equal to its pro rata share of
the amount of the credit facility at a rate of 0.06% per annum, in addition to
an upfront fee equal to its pro rata share of 0.02% of the amount of the credit
facility. The Fund had no borrowings during the year ended May 31, 2009.
Under the prior credit facility which was effective until Oct. 15, 2008, the
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A., whereby the Fund was permitted to borrow
for the temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The credit facility agreement, which was a collective
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permitted collective borrowings up to $500 million. Interest was
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matured no later
than 60 days after the date of borrowing. The Fund also paid a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum.
8. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS
For federal income tax purposes, the Fund had a capital loss carry-over of
$410,120 at May 31, 2009, that if not offset by capital gains will expire in
2017.
Because the measurement periods for a regulated investment company's income are
different for excise tax purposes versus income tax purposes, special rules are
in place to protect the amount of earnings and profits needed to support excise
tax distributions. As a result, the Fund is permitted to treat net capital
losses realized between Nov. 1, 2008 and its fiscal year end (post-October loss)
as occurring on the first day of the following tax year. At May 31, 2009, the
Fund had a post-October loss of $13,025,448 that is treated for income tax
purposes as occurring on June 1, 2009.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 49
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
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.
9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company (now known as
RiverSource) mutual funds and they purport to bring the action derivatively on
behalf of those funds under the Investment Company Act of 1940. The plaintiffs
allege that fees allegedly paid to the defendants by the funds for investment
advisory and administrative services are excessive. The plaintiffs seek remedies
including restitution and rescission of investment advisory and distribution
agreements. The plaintiffs voluntarily agreed to transfer this case to the
United States District Court for the District of Minnesota (the District Court).
In response to defendants' motion to dismiss the complaint, the District Court
dismissed one of plaintiffs' four claims and granted plaintiffs limited
discovery. Defendants moved for summary judgment in April 2007. Summary judgment
was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a
notice of appeal with the Eighth Circuit Court of Appeals (the Eighth Circuit)
on August 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary
judgment and remanded to the District Court for further proceedings.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any violations of certain
provisions of the Investment Advisers Act of 1940, the Investment Company Act of
1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million
and civil money penalties of $7 million. AEFC also agreed to retain an
independent distribution consultant to assist in developing a plan for
distribution of all disgorgement and civil penalties ordered by the SEC in
accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
- --------------------------------------------------------------------------------
50 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003,
Seligman conducted an extensive internal review concerning mutual fund trading
practices. Seligman's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies managed by Seligman (the Seligman Funds); this arrangement
was in the process of being closed down by Seligman before September 2003.
Seligman identified three other arrangements that permitted frequent trading,
all of which had been terminated by September 2002. In January 2004, Seligman,
on a voluntary basis, publicly disclosed these four arrangements to its clients
and to shareholders of the Seligman Funds. Seligman also provided information
concerning mutual fund trading practices to the SEC and the Office of the
Attorney General of the State of New York (NYAG).
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc. (which is now known as
RiverSource Fund Distributors, Inc.), Seligman Data Corp. and Brian T. Zino
(collectively, the Seligman Parties), alleging, in substance, that the Seligman
Parties permitted various persons to engage in frequent trading and, as a
result, the prospectus disclosure used by the registered investment companies
then managed by Seligman was and had been misleading. The NYAG included other
related claims and also claimed that the fees charged by Seligman to the
Seligman Funds were excessive. On March 13, 2009, without admitting or denying
any violations of law or wrongdoing, the Seligman Parties entered into a
stipulation of settlement with the NYAG and settled the claims made by the NYAG.
Under the terms of the settlement, Seligman paid $11.3 million to four Seligman
Funds. This settlement resolved all outstanding matters between the Seligman
Parties and the NYAG. In addition to the foregoing matter, the New York staff of
the SEC indicated in September 2005 that it was considering recommending to the
Commissioners of the SEC the instituting of a formal action against Seligman and
Seligman Advisors, Inc. relating to frequent trading in the Seligman Funds.
Seligman responded to the staff in October 2005 that it believed that any action
would be both inappropriate and unnecessary, especially in light of the fact
that Seligman had previously resolved the underlying issue with the Independent
Directors of the Seligman Funds and made recompense to the affected Seligman
Funds. There have been no further developments with the SEC on this matter.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 51
NOTES TO FINANCIAL STATEMENTS (continued) -------------------------------------
believes that the Funds are not currently the subject of, and that neither
Ameriprise Financial nor any of its affiliates are the subject of, any pending
legal, arbitration or regulatory proceedings that are likely to have a material
adverse effect on the Funds or the ability of Ameriprise Financial or its
affiliates to perform under their contracts with the Funds. Ameriprise Financial
is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the consolidated financial
condition or results of operations of Ameriprise Financial.
- --------------------------------------------------------------------------------
52 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource U.S. Government Mortgage Fund (the
Fund) (one of the portfolios constituting the RiverSource Government Income
Series, Inc.) as of May 31, 2009, and the related statement of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the Fund for the periods presented through May 31, 2007, were
audited by other auditors whose report dated July 20, 2007, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of May 31, 2009, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued) -----------
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of RiverSource U.S. Government Mortgage Fund of the RiverSource
Government Income Series, Inc. at May 31, 2009, the results of its operations
for the year then ended, and changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 21, 2009
- --------------------------------------------------------------------------------
54 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
FEDERAL INCOME TAX INFORMATION -------------------------------------------------
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
Fiscal year ended May 31, 2009
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals.................... 0.00%
Dividends Received Deduction for corporations................ 0.00%
U.S. Government Obligations.................................. 3.56%
</Table>
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 55
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board. The following is a list of the Fund's Board members.
The RiverSource Family of Funds that each Board member oversees consists of 149
funds, which includes 105 RiverSource funds and 44 Seligman funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the Board.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
Kathleen Blatz Board member since Chief Justice, Minnesota Supreme Court, 1998-2006; None
901 S. Marquette Ave. 2006 Attorney
Minneapolis, MN 55402
Age 55
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Family of Funds, 1999-2006; former None
901 S. Marquette Ave. 1999 Governor of Minnesota
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None
901 S. Marquette Ave. 2007 Leadership (consulting company)
Minneapolis, MN 55402
Age 54
- ------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None
901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley University
Age 58
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Chair of the Board President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. since 2007, College Inc. (manufactures
Minneapolis, MN 55402 Board member since irrigation systems)
Age 70 2002
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
56 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
John F. Maher Board member since Retired President and Chief Executive Officer and None
901 S. Marquette Ave. 2008 former Director, Great Western Financial Corporation
Minneapolis, MN 55402 (financial services), 1986-1997
Age 66
- ------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None
901 S. Marquette Ave. 2004 real estate and asset management company)
Minneapolis, MN 55402
Age 56
- ------------------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Board member since Counsel, Lewis & Munday, P.C. since 1987; Vice Digital Ally, Inc.
901 S. Marquette Ave. 2008 President and General Counsel, Automotive Legal (digital imaging);
Minneapolis, MN 55402 Affairs, Chrysler Corporation, 1990-1997 Infinity, Inc. (oil
Age 67 and gas exploration
and production); OGE
Energy Corp. (energy
and energy services)
- ------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera
901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceuticals,
Minneapolis, MN 55402 Biotech Inc.
Age 65 (biotechnology);
Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 57
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
William F. Truscott Board member since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. since 2005;
Financial Center Vice President since President, Chairman of the Board and Chief Investment
Minneapolis, MN 55474 2002 Officer, RiverSource Investments, LLC since 2001;
Age 48 Director, President and Chief Executive Officer,
Ameriprise Certificate Company since 2006; Chairman of
the Board and Chief Executive Officer, RiverSource
Distributors, Inc. since 2006 and of RiverSource Fund
Distributors, Inc. since 2008; Senior Vice
President -- Chief Investment Officer, Ameriprise
Financial, Inc., 2001-2005
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments or Ameriprise Financial.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling the RiverSource Family of
Funds at 1(800) 221-2450; contacting your financial intermediary; or visiting
riversource.com/funds.
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management,
172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC
Center and Director and Vice President -- Asset Management,
Minneapolis, MN 55474 Products and Marketing, RiverSource Distributors, Inc.
Age 43 since 2006 and of RiverSource Fund Distributors, Inc.
since 2008; Managing Director and Global Head of
Product, Morgan Stanley Investment Management, 2004-
2006; President, Touchstone Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
58 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income,
172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments,
Center LLC since 2006; Vice President -- Investments,
Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice
Age 45 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Chief Administrative Officer, RiverSource Investments,
5228 Ameriprise Financial 2006 LLC since 2009; Vice President -- Asset Management and
Center Minneapolis, MN Trust Company Services, RiverSource Investments, LLC,
55474 2006-2009; Vice President -- Operations and Compliance,
Age 43 RiverSource Investments, LLC, 2004-2006; Director of
Product Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- --------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise
105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer,
Center RiverSource Distributors, Inc. since 2006
Minneapolis, MN 55474
Age 54
- --------------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management,
5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel,
Center Secretary since 2006 RiverSource Distributors, Inc. and Chief Legal Officer
Minneapolis, MN 55474 and Assistant Secretary, RiverSource Investments, LLC
Age 50 since 2006; Chief Counsel, RiverSource Fund
Distributors, Inc. since 2008; Vice President, General
Counsel and Secretary, Ameriprise Certificate Company
since 2005; Vice President -- Asset Management
Compliance, Ameriprise Financial, Inc., 2004-2005;
Senior Vice President and Chief Compliance Officer,
USBancorp Asset Management, 2002-2004
- --------------------------------------------------------------------------------------------------------
Eleanor T.M. Hoagland Chief Compliance Chief Compliance Officer, RiverSource Investments, LLC,
100 Park Avenue Officer since 2009 Kenwood Capital Management LLC, Ameriprise Certificate
New York, NY 10010 Company, RiverSource Service Corporation and Seligman
Age 58 Data Corp. since 2009; Chief Compliance Officer for
each of the Seligman funds since 2004 and all funds in
the RiverSource Family of Funds since 2009; Anti-Money
Laundering Prevention Officer and Identity Theft
Prevention Officer for each of the Seligman funds since
2008; Managing Director, J. & W. Seligman & Co.
Incorporated and Vice-President for each of the
Seligman funds, 2004-2008
- --------------------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Vice President -- Compliance, Ameriprise Financial,
2934 Ameriprise Financial Prevention Officer Inc. since 2008; Anti-Money Laundering Officer,
Center since 2004 Ameriprise Financial, Inc. since 2004; Compliance
Minneapolis, MN 55474 Director, Ameriprise Financial, Inc., 2004-2008
Age 45
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 59
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the Fund. Under an investment
management services agreement (the "IMS Agreement"), RiverSource Investments
provides investment advice and other services to the Fund and all funds in the
RiverSource Family of Funds (collectively, the "Funds").
On an annual basis, the Fund's Board of Directors (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2009, including reports
based on data provided by independent organizations to assist the Board in
making this determination. In addition, throughout the year, the Board (or its
committees) reviews information prepared by RiverSource Investments addressing
the services RiverSource Investments provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts, Investment Review and Compliance Committees in determining whether to
continue the IMS Agreement. At the April 7-8, 2009 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the Fund's operations, most notably, the large
investment made in the acquisition of J. & W. Seligman & Co. Incorporated,
including its portfolio management operations, personnel and infrastructure
(including the addition of two new offices in New York City and Palo Alto).
Further, in connection with the Board's evaluation of the overall package of
services provided by RiverSource Investments, the Board considered the quality
of the administrative and transfer agency services provided by RiverSource
Investments' affiliates to the Fund. The Board also reviewed the financial
condition of RiverSource Investments (and its affiliates) and each entity's
ability to carry out its responsibilities under the IMS
- --------------------------------------------------------------------------------
60 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
Agreement. Further, the Board considered RiverSource Investments' ability to
retain key personnel and its expectations in this regard. The Board also
discussed the acceptability of the terms of the IMS Agreement (including the
relatively broad scope of services required to be performed by RiverSource
Investments). The Board concluded that the services being performed under the
IMS Agreement were of a reasonably high quality, particularly in light of recent
market conditions.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods, recent Fund inflows (and outflows) and
a comparison of the Fund's net assets from December 2007 to December 2008. The
Board observed that the Fund's investment performance was appropriate in light
of the particular management style and the exceptionally challenging market
conditions involved.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with the
Fund: The Board reviewed comparative fees and the costs of services to be
provided under the IMS Agreement. The Board members considered detailed
comparative information set forth in an annual report on fees and expenses,
including, among other things, data (prepared by an independent organization)
showing a comparison of the Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing the Fund's contribution to
RiverSource Investments' profitability.
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 61
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
of each fund (excluding the effect of a performance incentive adjustment, if
applicable), with few exceptions, is at or below the median expense ratio of
funds in the same comparison group). The Board took into account that the Fund's
total expense ratio (after considering proposed expense caps/waivers) was below
the peer group's median expense ratio shown in the reports.
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating the Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the Funds on portfolio transactions. The
Board noted that the fees paid by the Fund should permit the investment manager
to offer competitive compensation to its personnel, make necessary investments
in its business and earn an appropriate profit. The Board concluded that
profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 8, 2009, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement for an additional annual period.
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62 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling the RiverSource Family of Funds at 1(800) 221-2450; contacting your
financial intermediary; visiting riversource.com/funds; or searching the website
of the Securities and Exchange Commission (SEC) at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to portfolio
securities is filed with the SEC by August 31 for the most recent 12-month
period ending June 30 of that year, and is available without charge by visiting
riversource.com/funds; or searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 ANNUAL REPORT 63
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus. RiverSource(R) mutual funds are
distributed by RiverSource Distributors, Inc., and
RiverSource Fund Distributors, Inc., Members FINRA, and
managed by RiverSource Investments, LLC. RiverSource is part
of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C)2009 RiverSource Investments, LLC. S-6245 L (7/09)
</Table>
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Pamela G. Carlton, Jeffrey Laikind, John F. Maher and Anne
P. Jones, each qualify as audit committee financial experts.
Item 4. Principal Accountant Fees and Services
Fund - Related Fees
(a) Audit Fees. The fees for the year ended May 31, to Ernst & Young LLP for
professional services rendered for the audit of the annual financial
statements for RiverSource Government Income Series, Inc. were as follows:
2009 - $52,766 2008 - $49,300
(b) Audit - Related Fees. The fees for the year ended May 31, to Ernst & Young
LLP for additional professional services rendered in connection with the
registrant's security count pursuant to Rule 17f-2 and the semiannual
financial statement review for RiverSource Government Income Series, Inc.
were as follows:
2009 - $2,833 2008 - $1,590
(c) Tax Fees. The fees for the year ended May 31, to Ernst & Young LLP for tax
compliance related services for RiverSource Government Income Series, Inc.
were as follows:
2009 - $8,514 2008 - $6,600
(d) All Other Fees. The fees for the year ended May 31, to Ernst & Young LLP
for additional professional services rendered for RiverSource Government
Income Series, Inc. were as follows:
2009 - $0 2008 - $0
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by Ernst & Young LLP for
the registrant and to the registrant's investment adviser and any entity
controlling, controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant must be pre-approved by the
audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above during
2009 and 2008 were pre-approved by the audit committee.
(f) Not applicable.
(g) Non-Audit Fees. The fees for the year ended May 31, to Ernst & Young LLP by
the registrant for non-audit fees and by the registrant's investment
adviser, and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant were as
follows:
2009 - $587,353 2008 - $619,990
(h) 100% of the services performed in item (g) above during 2009 and 2008 were
pre-approved by the Ameriprise Financial Audit Committee and/or the
RiverSource Mutual Funds Audit Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing
date of this Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant
on this report is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under
the Investment Company Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Government Income Series, Inc.
By /s/ Patrick T. Bannigan
---------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date August 4, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Patrick T. Bannigan
---------------------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date August 4, 2009
By /s/ Jeffrey P. Fox
---------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial
Officer
Date August 4, 2009