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: 11/30
Semiannual Report
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
SHORT DURATION U.S. GOVERNMENT FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
NOVEMBER 30, 2009
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.
(SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 2
Fund Expenses Example.............. 7
Portfolio of Investments........... 10
Statement of Assets and
Liabilities...................... 22
Statement of Operations............ 24
Statements of Changes in Net
Assets........................... 26
Financial Highlights............... 28
Notes to Financial Statements...... 35
Proxy Voting....................... 52
</Table>
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RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
(UNAUDITED)
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares rose
4.05% (excluding sales charge) for the six
months ended Nov. 30, 2009.
> The Fund outperformed its benchmark, the Barclays Capital U.S. 1-3 Year
Government Index, which gained 1.52% for the same period.
> The Fund also outperformed the Lipper Short U.S. Government Funds Index,
representing the Fund's peer group, which advanced 2.50% during the same time
frame.
ANNUALIZED TOTAL RETURNS (for period ended Nov. 30, 2009)
- --------------------------------------------------------------------------------
<Table>
<Caption>
6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------
RiverSource Short Duration
U.S. Government Fund
Class A (excluding sales
charge) +4.05% +7.12% +3.45% +3.20% +3.59%
- -------------------------------------------------------------------------
Barclays Capital U.S. 1-3
Year Government Index(1)
(unmanaged) +1.52% +3.21% +5.29% +4.37% +4.73%
- -------------------------------------------------------------------------
Lipper Short U.S.
Government Funds
Index(2) +2.50% +5.58% +4.43% +3.84% +4.16%
- -------------------------------------------------------------------------
</Table>
* Not annualized.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial intermediary,
visiting riversource.com/funds or calling 1(800) 221-2450.
The 3.00% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
fees and expenses. The Fund's returns reflect the effect of fee waivers/expense
reimbursements, if any. Without such waivers/reimbursements, the Fund's returns
would be lower. See the Average Annual Total Returns table for performance of
other share classes of the Fund.
- --------------------------------------------------------------------------------
2 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes. It is not possible to invest directly in an index.
(1) The Barclays Capital U.S. 1-3 Year Government Index, an unmanaged index, is
made up of all publicly issued, non-convertible domestic debt of the U.S.
government, or agency thereof, or any quasi-federal corporation. The index
also includes corporate debt guaranteed by the U.S. government. Only notes
and bonds with a minimum maturity of one year up to a maximum maturity of
2.9 years are included. The index reflects reinvestment of all distributions
and changes in market prices.
(2) The Lipper Short U.S. Government Funds Index includes the 30 largest short
U.S. government funds tracked by Lipper Inc. The index's returns include net
reinvested dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT NOV. 30, 2009
Without sales SINCE
charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION**
Class A (inception
8/19/85) +4.05% +7.12% +3.45% +3.20% +3.59% N/A
- -------------------------------------------------------------------------------
Class B (inception
3/20/95) +3.64% +6.07% +2.59% +2.39% +2.79% N/A
- -------------------------------------------------------------------------------
Class C (inception
6/26/00) +3.64% +6.30% +2.74% +2.43% N/A +3.03%
- -------------------------------------------------------------------------------
Class I (inception
3/4/04) +4.03% +7.53% +3.84% +3.54% N/A +3.10%
- -------------------------------------------------------------------------------
Class R2
(inception
8/3/09) N/A N/A N/A N/A N/A +2.64%*
- -------------------------------------------------------------------------------
Class R4
(inception
3/20/95) +3.86% +7.23% +3.58% +3.36% +3.75% N/A
- -------------------------------------------------------------------------------
Class W (inception
12/1/06) +3.79% +7.05% N/A N/A N/A +3.31%
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SINCE
With sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION**
Class A (inception
8/19/85) +0.93% +3.90% +2.41% +2.58% +3.28% N/A
- -------------------------------------------------------------------------------
Class B (inception
3/20/95) -1.86% +1.07% +1.64% +2.02% +2.79% N/A
- -------------------------------------------------------------------------------
Class C (inception
6/26/00) +2.64% +5.30% +2.74% +2.43% N/A +3.03%
- -------------------------------------------------------------------------------
</Table>
*Not annualized.
**For classes with less than 10 years performance.
Class A share performance reflects the maximum initial sales charge of 3.00%.
Class B share performance reflects a contingent deferred sales charge (CDSC)
applied as follows: first year 5%; second year 4%; third and fourth years 3%;
fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be
subject to a 1% CDSC if shares are sold within one year after purchase. Sales
charges do not apply to Class I, Class R2, Class R4, and Class W shares. Class
I, Class R2 and Class R4 are available to qualifying institutional investors
only. Class W shares are offered through qualifying discretionary accounts.
- --------------------------------------------------------------------------------
4 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix approximates 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) 2.6 years
- --------------------------------------
Effective duration(2) 1.8 years
- --------------------------------------
Weighted average bond
rating(3) AAA
- --------------------------------------
</Table>
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
Shares of RiverSource Short Duration U.S. Government Fund are not insured or
guaranteed by the U.S. government.
There are risks associated with an investment in a bond fund, including the
impact of interest rates 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 SEMIANNUAL REPORT 5
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
PORTFOLIO BREAKDOWN(1) (at Nov. 30, 2009; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
Asset-Backed 8.3%
- ------------------------------------------------
Commercial Mortgage-Backed 1.7%
- ------------------------------------------------
FDIC - Insured Debt(2) 7.4%
- ------------------------------------------------
Foreign Government 0.1%
- ------------------------------------------------
Government Guaranteed(3) 0.1%
- ------------------------------------------------
Residential Mortgage-Backed(4) 39.9%
- ------------------------------------------------
U.S. Government Obligations & Agencies 38.7%
- ------------------------------------------------
Other(5) 3.8%
- ------------------------------------------------
</Table>
(1) Percentages indicated are based upon total investments (excluding
Investments of Cash Collateral Received for Securities on Loan) as of Nov.
30, 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 39.9%, 3.7% is due to forward commitment residential mortgage-backed
securities activity. Short-term securities are held as collateral for these
commitments.
(5) Cash & Cash Equivalents.
QUALITY BREAKDOWN (at Nov. 30, 2009; % of portfolio assets excluding
cash equivalents)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 91.8%
- ------------------------------------------------
AA bonds 3.1%
- ------------------------------------------------
A bonds 2.2%
- ------------------------------------------------
BBB bonds 1.5%
- ------------------------------------------------
Non-investment grade bonds 0.5%
- ------------------------------------------------
Non-rated bonds 0.9%
- ------------------------------------------------
</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 Investment Manager) rates a security using an
internal rating system when Moody's doesn't provide a rating.
- --------------------------------------------------------------------------------
6 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the ongoing expenses of any funds in which the Fund
invests (also referred to as "acquired funds"), including affiliated and non-
affiliated pooled investment vehicles (including mutual funds and exchange
traded funds). The Fund's indirect expense from investing in the acquired funds
is based on the Fund's pro rata portion of the ongoing expenses charged by
acquired funds using the expense ratio of each of the acquired funds as of the
acquired fund's most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period indicated and held until Nov. 30, 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.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 7
FUND EXPENSES EXAMPLE (continued) ----------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JUNE 1, 2009(a) NOV. 30, 2009 THE PERIOD(b) EXPENSE RATIO
- --------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,040.50 $4.45 .86%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.98 $4.40 .86%
- --------------------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,036.40 $8.36 1.62%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.13 $8.28 1.62%
- --------------------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,036.40 $8.36 1.62%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.13 $8.28 1.62%
- --------------------------------------------------------------------------------------------
Class I
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,040.30 $2.48 .48%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.91 $2.46 .48%
- --------------------------------------------------------------------------------------------
Class R2
- --------------------------------------------------------------------------------------------
Actual(d) $1,000 $1,026.40 $4.23 1.28%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,018.85 $6.55 1.28%
- --------------------------------------------------------------------------------------------
Class R4
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,038.60 $4.03 .78%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.39 $4.00 .78%
- --------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
8 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JUNE 1, 2009(a) NOV. 30, 2009 THE PERIOD(b) EXPENSE RATIO
- --------------------------------------------------------------------------------------------
Class W
- --------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,037.90 $4.80 .93%
- --------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.63 $4.76 .93%
- --------------------------------------------------------------------------------------------
</Table>
(a) The beginning account values for Class R2 are as of the close of business on
Aug. 3, 2009 (when shares of the class became publicly available) for actual
expense calculations, and as of June 1, 2009 for hypothetical expense
calculations.
(b) Expenses for Classes A, B, C, I, R4 and W are equal to the annualized
expense ratio for each class as indicated above, multiplied by the average
account value over the period, multiplied by 185/365 (to reflect the one-
half year period). Actual expenses for Class R2 are equal to the annualized
expense ratio for the class as indicated above, multiplied by the average
account value over the period, multiplied by 119/365 (to reflect the period
from Aug. 3, 2009 to Nov. 30, 2009). Hypothetical expenses for Class R2 are
equal to the annualized expense ratio for the class as indicated above,
multiplied by the average account value over the period, multiplied by
185/365 (to reflect the one-half year period).
(c) Based on the actual return for the six months ended Nov. 30, 2009: +4.05%
for Class A, +3.64% for Class B, +3.64% for Class C, +4.03% for Class I,
+3.86% for Class R4 and +3.79% for Class W.
(d) Based on the actual return for Class R2 of +2.64% for the period from Aug.
3, 2009 (when shares of the Class became publicly available) to Nov. 30,
2009.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 9
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
NOV. 30, 2009 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (91.6%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
FOREIGN AGENCIES (0.1%)(C)
KFW
04-16-12 2.25% $395,000 $404,966
- ----------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (40.0%)
Federal Home Loan Banks
05-20-11 2.63 2,565,000 2,643,825
09-16-11 1.23 14,000,000 14,004,844
09-28-11 1.25 14,000,000 14,009,142
09-29-11 1.30 12,000,000 12,008,400
12-28-11 1.00 14,550,000(l) 14,578,429
08-24-12 2.30 17,000,000 17,066,147
09-28-12 0.66 4,325,000(i) 4,341,448
10-18-13 3.63 2,000,000(l) 2,137,056
11-17-17 5.00 500,000(l) 555,827
Federal Home Loan Mtge Corp
06-15-11 6.00 500,000(l) 541,494
12-15-11 1.13 11,525,000(l) 11,599,773
02-24-12 2.05 5,880,000 5,899,351
03-23-12 2.13 3,105,000 3,181,892
08-17-12 2.18 6,425,000 6,447,076
08-17-12 2.25 9,640,000 9,670,925
08-20-12 5.50 2,610,000(l) 2,909,628
08-24-12 2.25 6,705,000 6,777,535
07-15-14 5.00 900,000 1,010,865
06-13-18 4.88 5,405,000 5,969,487
Federal Natl Mtge Assn
06-09-10 3.26 580,000 588,684
08-12-10 3.25 870,000 887,466
03-02-11 2.00 12,935,000 12,991,733
04-15-11 2.13 7,700,000 7,744,475
04-29-11 0.60 3,121,000(i) 3,121,120
10-29-12 1.88 15,000,000 15,096,630
11-19-12 4.75 730,000(l) 802,952
04-09-13 3.25 14,350,000(l) 15,172,915
07-17-13 4.38 5,020,000 5,476,740
01-02-14 5.13 9,000,000 9,726,660
02-05-14 2.75 7,335,000(l) 7,564,414
02-13-17 5.00 2,500,000(l) 2,805,813
Private Export Funding U.S. Govt Guaranty
10-15-14 3.05 5,675,000 5,833,686
U.S. Treasury
07-31-11 1.00 3,250,000 3,276,913
01-15-12 1.13 17,000,000 17,132,804
06-15-12 1.88 6,690,000(l) 6,856,728
11-15-12 1.38 13,890,000(l) 13,999,606
02-29-16 2.63 3,000,000 3,030,936
11-15-16 4.63 1,000,000 1,127,109
02-15-19 2.75 2,885,000 2,789,434
05-15-19 3.13 965,000 960,250
02-15-29 5.25 2,475,000(l) 2,864,040
02-15-31 5.38 375,000(l) 441,504
02-15-36 4.50 585,000 615,347
11-15-39 4.38 1,755,000 1,808,473
U.S. Treasury Inflation-Indexed Bond
04-15-14 1.25 3,183,866(g) 3,331,682
-----------
Total 281,401,258
- ----------------------------------------------------------------------------------
ASSET-BACKED (8.6%)
Ameriquest Mtge Securities
Series 2005-R6 Cl A2
08-25-35 0.44 1,974,161(i) 1,734,792
Asset Backed Securities Home Equity
Series 2005-HE2 Cl M1
02-25-35 0.69 2,146,738(i) 1,818,925
Banc of America Funding
Collateralized Mtge Obligation
Series 2009-R14A Cl 1A1
09-26-37 1.33 4,897,922(d,i) 4,702,006
Bank of America Credit Card Trust
Series 2008-A5 Cl A5
12-16-13 1.44 2,025,000(i) 2,028,871
Bear Stearns Asset Backed Securities Trust
Series 2006-HE9 Cl 1A1
11-25-36 0.29 1,118,670(i) 1,007,841
Countrywide Asset-Backed Ctfs
Series 2005-SD1 Cl A1C
05-25-35 0.63 2,799,406(d,i) 2,623,763
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
10 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ASSET-BACKED (CONT.)
Credit-Based Asset Servicing and Securitization LLC
Series 2007-CB4 Cl A1A
04-25-37 0.33% $2,774,542(i) $2,065,203
First Franklin Mtge Loan Asset-backed Ctfs
Series 2005-FFH3 Cl 2A3
09-25-35 0.65 535,125(i) 520,507
First Franklin Mtge Loan Asset-backed Ctfs
Series 2006-FF18 Cl A2A
12-25-37 0.31 529,301(i) 517,969
GSAA Trust
Series 2006-10 Cl AV1
06-25-36 0.32 496,789(i) 482,601
GSAA Trust
Series 2006-15 Cl AV1
09-25-36 0.29 2,749,472(i) 2,736,751
Morgan Stanley Capital I
Series 2006-WMC1 Cl A2B
12-25-35 0.44 2,127,540(i) 1,920,912
Morgan Stanley Home Equity Loan Trust
Series 2006-2 Cl A3
02-25-36 0.41 1,298,578(i) 1,159,378
NovaStar Home Equity Loan
Series 2006-4 Cl A2A (MGIC)
09-25-36 0.28 201,066(b,i) 198,868
RAAC Series
Series 2006-SP4 Cl A1
11-25-36 0.34 2,441,864(i) 2,275,609
RBSSP Resecuritization Trust
Collateralized Mtge Obligation
Series 2009-10 Cl 4A1
07-26-36 0.38 3,616,720(d,i) 3,399,716
RBSSP Resecuritization Trust
Collateralized Mtge Obligation
Series 2009-10 Cl 7A1
03-26-37 0.33 3,607,399(d,i) 3,499,177
RBSSP Resecuritization Trust
Collateralized Mtge Obligation
Series 2009-11 Cl 2A1
04-26-36 0.38 5,545,225(d,i) 5,323,416
RBSSP Resecuritization Trust
Collateralized Mtge Obligation
Series 2009-12 Cl 2A1
10-26-32 4.77 2,958,400(d) 2,936,212
Residential Asset Mtge Products
Series 2004 RS8 Cl AI4
06-25-32 5.06 2,536,544 2,509,053
Residential Asset Mtge Products
Series 2006 RS4 Cl A2
07-25-36 0.35 980,017 937,972
Small Business Administration
Series 2002-P10B Cl 1
08-10-12 5.20 287,212 302,333
Structured Asset Investment Loan Trust
Series 2005-9 Cl A5
11-25-35 0.47 2,587,236(i) 2,418,241
Structured Asset Securities
Collateralized Mtge Obligation
Series 2006-NC1 Cl A6
05-25-36 0.29 1,496,367(i) 1,422,056
Structured Asset Securities
Series 2007-WF2 Cl A2
08-25-37 0.94 1,929,730(i) 1,894,988
Target Credit Card Master Trust
Series 2005-1 Cl A
10-27-14 0.30 10,250,000(i) 10,071,203
-----------
Total 60,508,363
- ----------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (1.7%)(f)
Bear Stearns Commercial Mtge Securities
Series 2004-PWR6 Cl A4
11-11-41 4.52 1,575,000 1,543,893
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 4,976,687 5,556,530
JPMorgan Chase Commercial Mtge Securities
Series 2004-CBX Cl A3
01-12-37 4.18 5,225,173 5,220,320
-----------
Total 12,320,743
- ----------------------------------------------------------------------------------
RESIDENTIAL MORTGAGE-BACKED (41.2%)(f,h)
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2006-AR9 Cl 1A1
11-25-36 0.31 346,262(i) 312,713
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 11
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2009-3 Cl 3A2
01-19-34 4.68% $2,915,000(d,i) $2,813,554
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2009-7 Cl 4A2
09-25-35 4.56 5,600,980(d,i) 777,136
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-OA11 Cl A3B1
09-25-46 0.42 1,929,708(i) 1,503,874
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 0.74 3,533,775(i) 411,515
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 3,663,216(d) 3,197,832
Credit Suisse First Boston Mtge Securities
Collateralized Mtge Obligation
Series 2003-1 Cl 1A1
02-25-33 7.00 1,082,029 1,072,486
Federal Home Loan Mtge Corp
12-01-24 4.50 3,000,000(e) 3,140,157
12-01-39 5.50 3,250,000(e) 3,459,219
12-01-39 6.00 1,000,000(e) 1,072,656
Federal Home Loan Mtge Corp #1G2547
12-01-36 6.10 1,263,020(i) 1,350,997
Federal Home Loan Mtge Corp #1G2598
01-01-37 6.08 1,769,703(i) 1,876,756
Federal Home Loan Mtge Corp #1J0614
09-01-37 5.68 2,676,846(i) 2,836,145
Federal Home Loan Mtge Corp #1Q0140
08-01-36 6.16 671,445(i) 713,424
Federal Home Loan Mtge Corp #A18107
01-01-34 5.50 2,301,780 2,460,656
Federal Home Loan Mtge Corp #A75929
04-01-38 7.00 286,033 313,593
Federal Home Loan Mtge Corp #B10459
10-01-18 5.50 888,147 959,347
Federal Home Loan Mtge Corp #C00351
07-01-24 8.00 189,740 218,274
Federal Home Loan Mtge Corp #C00385
01-01-25 9.00 324,557 365,525
Federal Home Loan Mtge Corp #C80329
08-01-25 8.00 61,159 70,380
Federal Home Loan Mtge Corp #E00398
10-01-10 7.00 73,383 75,174
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 2,224,465 2,419,918
Federal Home Loan Mtge Corp #E90650
07-01-12 5.50 64,859 67,125
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 1,933,567 2,076,792
Federal Home Loan Mtge Corp #E96624
05-01-18 5.00 1,081,369 1,159,441
Federal Home Loan Mtge Corp #G00363
06-01-25 8.00 241,044 277,388
Federal Home Loan Mtge Corp #G00501
05-01-26 9.00 426,479 492,581
Federal Home Loan Mtge Corp #G04710
09-01-38 6.00 1,540,062 1,654,006
Federal Home Loan Mtge Corp #G10669
03-01-12 7.50 583,936 618,969
Federal Home Loan Mtge Corp #G11243
04-01-17 6.50 8,914,777 9,679,223
Federal Home Loan Mtge Corp #G12100
11-01-13 5.00 1,831,813 1,914,657
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 11 Cl B
01-01-20 2.97 6,050(j) 1,703
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2471 Cl SI
03-15-32 20.43 1,076,553(j) 167,108
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 3517 Cl JI
12-15-12 36.33 2,392,322(j) 34,010
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
12 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 3550 Cl GS
07-15-39 22.65% $11,454,955(j) $1,288,223
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 3578
04-15-12 31.61 47,665,045(j) 989,240
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 3600 Cl DI
01-15-13 0.00 38,102,622(j) 1,089,497
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2617 Cl HD
06-15-16 7.00 3,482,095 3,674,096
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K003 Cl A1
07-25-13 2.23 4,954,482 5,029,633
Federal Natl Mtge Assn
12-01-39 6.00 15,000,000(e) 16,078,124
12-01-39 6.50 3,000,000(e) 3,240,468
Federal Natl Mtge Assn #125032
11-01-21 8.00 90,237 102,852
Federal Natl Mtge Assn #190129
11-01-23 6.00 711,314 766,214
Federal Natl Mtge Assn #190988
06-01-24 9.00 162,405 177,471
Federal Natl Mtge Assn #254384
06-01-17 7.00 209,372 228,247
Federal Natl Mtge Assn #254454
08-01-17 7.00 414,555 451,927
Federal Natl Mtge Assn #254723
05-01-23 5.50 6,178,295 6,649,749
Federal Natl Mtge Assn #255501
09-01-14 6.00 416,860 441,656
Federal Natl Mtge Assn #256901
09-01-37 6.50 1,736,083 1,871,952
Federal Natl Mtge Assn #303885
05-01-26 7.50 320,902 364,630
Federal Natl Mtge Assn #313007
07-01-11 7.50 52,608 53,723
Federal Natl Mtge Assn #336512
02-01-26 6.00 41,141 44,478
Federal Natl Mtge Assn #357485
02-01-34 5.50 9,120,105 9,742,480
Federal Natl Mtge Assn #407327
01-01-14 5.50 225,820 243,782
Federal Natl Mtge Assn #456374
12-01-13 5.50 399,367 431,133
Federal Natl Mtge Assn #508402
08-01-14 6.50 201,949 219,381
Federal Natl Mtge Assn #545818
07-01-17 6.00 8,721,925 9,483,305
Federal Natl Mtge Assn #545864
08-01-17 5.50 7,601,596 8,241,641
Federal Natl Mtge Assn #545910
08-01-17 6.00 1,380,415 1,500,915
Federal Natl Mtge Assn #555063
11-01-17 5.50 5,735,799 6,228,394
Federal Natl Mtge Assn #555367
03-01-33 6.00 6,931,029 7,507,035
Federal Natl Mtge Assn #579485
04-01-31 6.50 1,708,678 1,884,678
Federal Natl Mtge Assn #593829
12-01-28 7.00 1,286,492 1,433,875
Federal Natl Mtge Assn #601416
11-01-31 6.50 605,488 661,066
Federal Natl Mtge Assn #630993
09-01-31 7.50 1,911,680 2,175,876
Federal Natl Mtge Assn #648040
06-01-32 6.50 1,816,568 1,980,308
Federal Natl Mtge Assn #648349
06-01-17 6.00 5,038,743 5,478,462
Federal Natl Mtge Assn #651284
07-01-17 6.00 989,513 1,075,922
Federal Natl Mtge Assn #662866
11-01-17 6.00 954,675 1,036,552
Federal Natl Mtge Assn #665752
09-01-32 6.50 934,841 1,019,105
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 13
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #678940
02-01-18 5.50% $1,542,628 $1,675,413
Federal Natl Mtge Assn #686227
02-01-18 5.50 2,073,496 2,254,666
Federal Natl Mtge Assn #696837
04-01-18 5.50 2,318,469 2,522,197
Federal Natl Mtge Assn #704610
06-01-33 5.50 8,445,941(n) 9,022,310
Federal Natl Mtge Assn #722325
07-01-33 4.95 4,223,434(i) 4,466,307
Federal Natl Mtge Assn #725425
04-01-34 5.50 6,943,650 7,429,968
Federal Natl Mtge Assn #725431
08-01-15 5.50 4,417,366 4,768,730
Federal Natl Mtge Assn #725773
09-01-34 5.50 5,944,232 6,347,093
Federal Natl Mtge Assn #739243
09-01-33 6.00 2,438,087 2,666,729
Federal Natl Mtge Assn #739331
09-01-33 6.00 1,222,996 1,322,340
Federal Natl Mtge Assn #743524
11-01-33 5.00 2,610,233 2,747,117
Federal Natl Mtge Assn #745275
02-01-36 5.00 830,843 873,115
Federal Natl Mtge Assn #745392
12-01-20 4.50 807,308 854,653
Federal Natl Mtge Assn #753508
11-01-33 5.00 2,625,712 2,763,408
Federal Natl Mtge Assn #791447
10-01-34 6.00 3,868,086 4,176,248
Federal Natl Mtge Assn #797046
07-01-34 5.50 2,455,359 2,621,767
Federal Natl Mtge Assn #799843
11-01-34 2.63 870,143(i) 881,118
Federal Natl Mtge Assn #815463
02-01-35 5.50 1,429,644 1,526,536
Federal Natl Mtge Assn #829597
08-01-35 4.73 1,096,678(i) 1,137,467
Federal Natl Mtge Assn #832641
09-01-35 6.00 5,237,756 5,641,943
Federal Natl Mtge Assn #881886
04-01-36 5.36 677,886(i) 713,691
Federal Natl Mtge Assn #883267
07-01-36 6.50 3,790,090 4,157,169
Federal Natl Mtge Assn #886764
08-01-36 6.00 556,996(i) 591,767
Federal Natl Mtge Assn #887403
07-01-36 7.00 2,362,087 2,632,706
Federal Natl Mtge Assn #888989
06-01-37 5.92 3,947,249(i) 4,223,557
Federal Natl Mtge Assn #895834
04-01-36 6.02 1,054,608(i) 1,119,783
Federal Natl Mtge Assn #919341
05-01-37 6.50 2,813,003 3,042,383
Federal Natl Mtge Assn #946609
09-01-37 5.80 839,041(i) 889,888
Federal Natl Mtge Assn #967656
12-01-37 6.50 3,101,630 3,354,546
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 163 Cl 2
07-25-22 22.15 394,671(j) 68,631
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-18 Cl SE
02-25-32 32.60 2,121,184(j) 282,202
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-26 Cl MI
03-25-23 15.70 1,112,303(j) 133,975
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 8.63 2,946,794(j) 375,830
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 5.34 1,586,467(j) 183,717
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2008-40 Cl AI
08-25-12 12.75% $10,083,986(j) $194,310
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 36 Cl 2
08-01-18 18.30 3,458(j) 630
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 70 Cl 2
01-15-20 16.12 152,522(j) 34,822
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series G-15 Cl A
06-25-21 2.49 19,892(k) 18,576
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-W11 Cl A1
06-25-33 4.33 99,506(i) 90,614
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2004-60 Cl PA
04-25-34 5.50 2,560,497 2,745,857
Govt Natl Mtge Assn #615740
08-15-13 6.00 435,709 471,092
Govt Natl Mtge Assn #648339
10-15-35 5.50 1,307,964 1,400,096
Govt Natl Mtge Assn #716007
08-15-39 6.00 6,117,582 6,556,507
Govt Natl Mtge Assn #781507
09-15-14 6.00 2,031,813 2,150,806
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Series 2004-3 Cl JB
05-20-29 5.00 152,358 153,772
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Series 2009-105 Cl A
12-16-50 3.46 7,150,000 7,225,969
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Series 2009-63 Cl A
01-16-38 3.40 4,796,887 4,883,104
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Series 2009-71 Cl A
04-16-38 3.30 7,124,178 7,269,440
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Series 2009-90 Cl AC
01-16-33 3.14 5,400,000 5,436,471
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 3A
06-19-34 0.99 279,145(i) 175,361
Jefferies & Co
Collateralized Mtge Obligation
Series 2009-R10 Cl 1A1
06-26-47 0.36 534,040(d,i) 520,689
Jefferies & Co
Collateralized Mtge Obligation
Series 2009-R10 Cl 2A1
05-26-48 0.33 844,723(d,i) 819,381
Lehman XS Trust
Series 2006-16N Cl A1B
11-25-46 0.36 848,187(i) 797,555
LVII Resecuritization Trust
Collateralized Mtge Obligation
Series 2009-3 Cl A1
11-27-37 5.76 1,425,009(d,i) 1,425,009
Morgan Stanley Mtge Loan Trust
Series 2006-13AX Cl A1
10-25-36 0.33 1,451,183(i) 883,057
Structured Adjustable Rate Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-18 Cl 9A1
09-25-35 5.25 1,613,190(i) 1,551,997
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-14 Cl 2A1
12-25-35 5.50% $2,541,096 $2,316,467
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-12 Cl A1
10-25-36 6.00 3,701,241 3,630,110
-----------
Total 290,671,086
- ----------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $630,044,809) $645,306,416
- ----------------------------------------------------------------------------------
<Caption>
FDIC-INSURED DEBT (7.6%)(o)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
U.S. AGENCIES
Bank of America
FDIC Govt Guaranty
04-30-12 2.10% $4,175,000(l) $4,267,476
06-15-12 3.13 3,810,000 3,998,039
06-22-12 2.38 3,055,000(l) 3,152,500
Citigroup Funding
FDIC Govt Guaranty
07-12-12 2.13 15,000,000(l) 15,354,159
General Electric Capital
FDIC Govt Guaranty
12-28-12 2.63 7,580,000(l) 7,850,432
Goldman Sachs Group
FDIC Govt Guaranty
07-15-11 1.63 7,750,000 7,863,414
JPMorgan Chase & Co
FDIC Govt Guaranty
02-23-11 1.65 2,940,000(l) 2,983,625
Morgan Stanley
FDIC Govt Guaranty
02-10-12 0.55 8,300,000 8,357,411
- ----------------------------------------------------------------------------------
TOTAL FDIC-INSURED DEBT
(Cost: $52,703,058) $53,827,056
- ----------------------------------------------------------------------------------
<Caption>
GOVERNMENT GUARANTEED (0.1%)(m)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
UK Barclays Bank
Govt Guaranty
03-05-12 2.70% $780,000(c,d) $805,449
- ----------------------------------------------------------------------------------
TOTAL GOVERNMENT GUARANTEED
(Cost: $779,329) $805,449
- ----------------------------------------------------------------------------------
<Caption>
U.S. GOVERNMENT AGENCIES (1.4%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
Federal Home Loan Bank Disc Nts
12-18-09 0.05% $10,000,000 $9,999,775
- ----------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost: $9,999,788) $9,999,775
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (2.5%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.20% 17,695,714(p) $17,695,714
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $17,695,714) $17,695,714
- -------------------------------------------------------------------------------------
<Caption>
INVESTMENTS OF CASH COLLATERAL
RECEIVED FOR SECURITIES ON
LOAN (12.4%)
SHARES VALUE(a)
CASH COLLATERAL REINVESTMENT FUND
JPMorgan Prime Money Market Fund 87,374,221 $87,374,221
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS OF CASH COLLATERAL RECEIVED FOR SECURITIES ON LOAN
(Cost: $87,374,221) $87,374,221
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $798,596,919)(q) $815,008,631
=====================================================================================
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT NOV. 30, 2009
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION/
CONTRACT DESCRIPTION LONG/(SHORT) MARKET VALUE DATE (DEPRECIATION)
- ------------------------------------------------------------------------------------
U.S. Long Bond, 20-year 12 $1,472,625 March 2010 $24,545
U.S. Treasury Note, 2- 75 16,341,797 April 2010 45,590
year
U.S. Treasury Note, 5- (51) (5,980,547) April 2010 (160,585)
year
U.S. Treasury Note, 10- 209 25,066,938 March 2010 233,803
year
- ------------------------------------------------------------------------------------
Total $143,353
- ------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using policies described in Note 2 to the
financial statements.
(b) The following abbreviation is used in the portfolio security description to
identify the insurer of the issue:
<Table>
MGIC -- Mortgage Guaranty Insurance Corporation
</Table>
(c) Foreign security values are stated in U.S. dollars. At Nov. 30, 2009, the
value of foreign securities, excluding short-term securities, represented
0.2% 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 Nov. 30,
2009, the value of these securities amounted to $32,843,340 or 4.7% of net
assets.
(e) At Nov. 30, 2009, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$26,726,155. See Note 2 to the financial statements.
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) 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.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(h) Represents comparable securities held to satisfy future delivery
requirements of the following open forward sale commitments at Nov. 30,
2009:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
---------------------------------------------------------------------------
Federal Natl Mtge
Assn
12-01-39 5.50% $16,000,000 12-14-09 $16,793,124 $17,015,008
</Table>
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Nov. 30,
2009.
(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 Nov. 30, 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 Nov. 30, 2009.
(l) At Nov. 30, 2009, security was partially or fully on loan. See Note 7 to
the financial statements.
(m) This debt is guaranteed by the HM Treasury, United Kingdom.
(n) At Nov. 30, 2009, investments in securities included securities valued at
$455,372 that were partially pledged as collateral to cover initial margin
deposits on open interest rate futures contracts.
(o) 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.
(p) Affiliated Money Market Fund -- See Note 8 to the financial statements. The
rate shown is the seven-day current annualized yield at Nov. 30, 2009.
(q) At Nov. 30, 2009, the cost of securities for federal income tax purposes
was approximately $798,597,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $21,924,000
Unrealized depreciation (5,512,000)
-----------------------------------------------------------
Net unrealized appreciation $16,412,000
-----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS
Generally accepted accounting principles (GAAP) require disclosure regarding the
inputs and valuation techniques used to measure fair value and any changes in
valuation inputs or techniques. In addition, investments shall be disclosed by
major category.
The Fund categorizes its fair value measurements according to a three-level
hierarchy that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by prioritizing that the most observable input be used when
available. Observable inputs are those that market participants would use in
pricing an investment based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are those that reflect the Fund's
assumptions about the information market participants would use in pricing an
investment. An investment's level within the fair value hierarchy is based on
the lowest level of any input that is deemed significant to the asset or
liability's fair value measurement. The input levels are not necessarily an
indication of the risk or liquidity associated with investments at that level.
For example, certain U.S. government securities are generally high quality and
liquid, however, they are reflected as Level 2 because the inputs used to
determine fair value may not always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels listed below:
- Level 1 -- Valuations based on quoted prices for investments in active
markets that the Fund has the ability to access at the measurement date.
Valuation adjustments are not applied to Level 1 investments.
- Level 2 -- Valuations based on other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment speeds, credit risks, etc.).
- Level 3 -- Valuations based on significant unobservable inputs (including
the Fund's own assumptions and judgment in determining the fair value of
investments).
Inputs that are used in determining fair value of an investment may include
price information, credit data, volatility statistics, and other factors. These
inputs can be either observable or unobservable. The availability of observable
inputs can vary between investments, and is affected by various factors such as
the type of investment, and the volume and level of activity for that investment
or similar investments in the marketplace. The inputs will be considered by the
Fund Administrator, along with any other relevant factors in the calculation of
an investment's fair value. The Fund uses prices and inputs that are current as
of the measurement date, which may include periods of market dislocations.
During these periods, the availability of prices and inputs may be reduced for
many investments. This condition could cause an investment to be reclassified
between the various levels within the hierarchy.
Investments falling into the Level 3 category are primarily supported by quoted
prices from brokers and dealers participating in the market for those
investments. However, these may be classified as Level 3 investments due to lack
of market transparency and corroboration to support these quoted prices.
Additionally, valuation models may be used as the pricing source for any
remaining investments classified as Level 3. These models rely on one or more
significant unobservable inputs and/or significant assumptions by the Fund
Administrator. Inputs used in a valuation model
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
FAIR VALUE MEASUREMENTS (CONTINUED)
may include, but are not limited to, financial statement analysis, discount
rates and estimated cash flows, and comparable company data.
The following table is a summary of the inputs used to value the Fund's
investments as of Nov. 30, 2009:
<Table>
<Caption>
FAIR VALUE AT NOV. 30, 2009
----------------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- ---------------------------------------------------------------------------------------------
Bonds
Foreign Government
Obligations &
Agencies $-- $404,966 $-- $404,966
U.S. Government
Obligations &
Agencies 54,903,145 226,498,113 -- 281,401,258
Asset-Backed Securities -- 40,647,836 19,860,527 60,508,363
Commercial Mortgage-
Backed Securities -- 12,320,743 -- 12,320,743
Residential Mortgage-
Backed Securities -- 284,741,940 5,929,146 290,671,086
- ---------------------------------------------------------------------------------------------
Total Bonds 54,903,145 564,613,598 25,789,673 645,306,416
- ---------------------------------------------------------------------------------------------
Short-Term Securities
U.S. Government
Agencies -- 9,999,775 -- 9,999,775
- ---------------------------------------------------------------------------------------------
Total Short-Term
Securities -- 9,999,775 -- 9,999,775
- ---------------------------------------------------------------------------------------------
Other
FDIC-Insured Debt
Securities -- 53,827,056 -- 53,827,056
Government Guaranteed -- 805,449 -- 805,449
Affiliated Money Market
Fund(a) 17,695,714 -- -- 17,695,714
Investments of Cash
Collateral Received
for Securities on
Loan 87,374,221 -- -- 87,374,221
- ---------------------------------------------------------------------------------------------
Total Other 105,069,935 54,632,505 -- 159,702,440
- ---------------------------------------------------------------------------------------------
Investments in Securities 159,973,080 629,245,878 25,789,673 815,008,631
Other Financial
Instruments(b) 143,353 -- -- 143,353
- ---------------------------------------------------------------------------------------------
Total $160,116,433 $629,245,878 $25,789,673 $815,151,984
- ---------------------------------------------------------------------------------------------
</Table>
(a) Money market fund that is a sweep investment for cash balances in the Fund
at Nov. 30, 2009.
(b) Other Financial Instruments are derivative instruments, which are valued at
the unrealized appreciation (depreciation) on the instrument. Derivative
descriptions are located in the Investments in Derivatives section of the
Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS (CONTINUED)
The following table is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value.
<Table>
<Caption>
RESIDENTIAL
ASSET-BACKED MORTGAGE-BACKED
SECURITIES SECURITIES TOTAL
- ----------------------------------------------------------------------------------
Balance as of May 31, 2009 $-- $6,308,870 $6,308,870
Accrued discounts/premiums 24,328 65,987 90,315
Realized gain (loss) 46,561 276,744 323,305
Change in unrealized
appreciation (depreciation)* 95,423 415,714 511,137
Net purchases (sales) 19,694,215 (4,074,381) 15,619,837
Transfers in and/or out of
Level 3 -- 2,936,212 2,936,212
- ----------------------------------------------------------------------------------
Balance as of Nov. 30, 2009 $19,860,527 $5,929,146 $25,789,673
- ----------------------------------------------------------------------------------
</Table>
* Change in unrealized appreciation (depreciation) relating to securities
held at Nov. 30, 2009 was $530,340.
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 SEMIANNUAL REPORT 21
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
NOV. 30, 2009 (UNAUDITED)
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers* (identified cost $693,526,984) $ 709,938,696
Affiliated money market fund (identified cost $17,695,714) 17,695,714
Investments of cash collateral received for securities on loan
(identified cost $87,374,221) 87,374,221
- --------------------------------------------------------------------------------
Total investments in securities (identified cost $798,596,919) 815,008,631
Capital shares receivable 1,184,366
Dividends and accrued interest receivable 3,339,477
Receivable for investment securities sold 22,868,026
- --------------------------------------------------------------------------------
Total assets 842,400,500
- --------------------------------------------------------------------------------
LIABILITIES
Forward sale commitments, at value (proceeds receivable
$16,793,124) 17,015,008
Disbursements in excess of cash 31,301
Dividends payable to shareholders 315,353
Capital shares payable 944,397
Payable for investment securities purchased 31,757,492
Payable upon return of securities loaned 87,374,221
Variation margin payable on futures contracts 15,344
Accrued investment management services fees 27,768
Accrued distribution fees 147,881
Accrued transfer agency fees 10,644
Accrued administrative services fees 3,966
Accrued plan administration services fees 1,546
Other accrued expenses 655,775
- --------------------------------------------------------------------------------
Total liabilities 138,300,696
- --------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $ 704,099,804
- --------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 1,483,565
Additional paid-in capital 792,754,667
Excess of distributions over net investment income (517,772)
Accumulated net realized gain (loss) (105,953,837)
Unrealized appreciation (depreciation) on investments 16,333,181
- --------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $ 704,099,804
- --------------------------------------------------------------------------------
*Including securities on loan, at value $ 115,626,918
- --------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $531,544,102 112,007,326 $4.75(1)
Class B $ 77,530,554 16,338,338 $4.75
Class C $ 28,399,208 5,984,363 $4.75
Class I $ 59,449,516 12,514,613 $4.75
Class R2 $ 3,043,745 641,411 $4.75
Class R4 $ 4,127,685 869,397 $4.75
Class W $ 4,994 1,053 $4.74
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $4.90. 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 SEMIANNUAL REPORT 23
STATEMENT OF OPERATIONS -------------------------------------------------------
SIX MONTHS ENDED NOV. 30, 2009 (UNAUDITED)
<Table>
<Caption>
INVESTMENT INCOME
Income:
Interest 12,004,428
Income distributions from affiliated money market fund 10,076
Income from securities lending -- net 119,015
- ------------------------------------------------------------------------------
Total income 12,133,519
- ------------------------------------------------------------------------------
Expenses:
Investment management services fees 1,686,583
Distribution fees
Class A 668,648
Class B 460,126
Class C 106,616
Class R2 4,181
Class W 6
Transfer agency fees
Class A 455,544
Class B 85,429
Class C 18,820
Class R2 62
Class R4 632
Class W 5
Administrative services fees 241,063
Plan administration services fees
Class R2 2,091
Class R4 5,208
Compensation of board members 10,170
Custodian fees 6,705
Printing and postage 116,332
Registration fees 39,100
Licensing fees 188
Professional fees 14,675
Other 13,380
- ------------------------------------------------------------------------------
Total expenses 3,935,564
Expenses waived/reimbursed by the Investment Manager and its
affiliates (573,599)
- ------------------------------------------------------------------------------
Total net expenses 3,361,965
- ------------------------------------------------------------------------------
Investment income (loss) -- net 8,771,554
- ------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions $(2,465,646)
Futures contracts 1,303,257
- ------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,162,389)
Net change in unrealized appreciation (depreciation) on
investments 18,116,568
- ------------------------------------------------------------------------------
Net gain (loss) on investments 16,954,179
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $25,725,733
- ------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 25
STATEMENTS OF CHANGES IN NET ASSETS -------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2009 MAY 31, 2009
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 8,771,554 $ 22,192,236
Net realized gain (loss) on investments (1,162,389) (24,011,105)
Net change in unrealized appreciation (depreciation) on
investments 18,116,568 4,441,905
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 25,725,733 2,623,036
- --------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (7,481,265) (16,331,022)
Class B (951,552) (2,826,872)
Class C (228,900) (237,025)
Class I (760,142) (2,172,593)
Class R2 (22,527) N/A
Class R4 (59,807) (134,786)
Class W (68) (139)
- --------------------------------------------------------------------------------------------------
Total distributions (9,504,261) (21,702,437)
- --------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2009 MAY 31, 2009
(UNAUDITED)
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares $ 42,364,516 $ 226,294,351
Class B shares 4,259,880 33,777,836
Class C shares 3,125,110 7,040,083
Class I shares 17,406,287 13,901,496
Class R2 shares 407,355 N/A
Class R4 shares 1,105,889 2,274,007
Fund merger (Note 10)
Class A shares 33,719,721 N/A
Class B shares 4,922,961 N/A
Class C shares 16,708,376 N/A
Class R2 shares 3,419,969 N/A
Reinvestment of distributions at net asset value
Class A shares 6,694,460 14,899,763
Class B shares 874,055 2,659,409
Class C shares 160,442 215,459
Class I shares 741,008 2,176,497
Class R2 shares 3,304 N/A
Class R4 shares 59,015 134,521
Conversions from Class B to Class A
Class A shares 25,761,662 20,630,333
Class B shares (25,761,662) (20,630,333)
Payments for redemptions
Class A shares (118,708,435) (258,638,948)
Class B shares (22,075,172) (57,874,364)
Class C shares (4,949,294) (3,812,662)
Class I shares (1,713,307) (64,443,360)
Class R2 shares (822,293) N/A
Class R4 shares (1,464,727) (2,725,737)
- --------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (13,760,880) (84,121,649)
- --------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 2,460,592 (103,201,050)
Net assets at beginning of period 701,639,212 804,840,262
- --------------------------------------------------------------------------------------------------
Net assets at end of period $ 704,099,804 $ 701,639,212
- --------------------------------------------------------------------------------------------------
Undistributed (excess of distributions over) net investment
income $ (517,772) $ 430,828
- --------------------------------------------------------------------------------------------------
</Table>
Certain line items from the prior year have been renamed to conform to the
current year presentation.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 27
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
The following tables are intended to help you understand the Fund's financial
performance. Certain information reflects financial results for a single share
of a class held for the periods shown. For the periods 2008 and after, per share
net investment income (loss) amounts are calculated based on average shares
outstanding during the period. Total returns assume reinvestment of all
dividends and distributions. Total returns do not reflect payment of sales
charges, if any, and are not annualized for periods of less than one year.
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED MAY 31,
CLASS A NOV. 30, 2009 -------------------------------------------------
PER SHARE DATA (UNAUDITED) 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.63 $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06 .14 .19 .19 .15 .12
Net gains (losses) (both realized and
unrealized) .13 (.11) .01 .05 (.10) (.03)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .19 .03 .20 .24 .05 .09
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.14) (.19) (.19) (.16) (.12)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.63 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.05% .59% 4.27% 5.12% 1.00% 1.92%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.03%(b) 1.02% 1.04% 1.03% 1.06% 1.01%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c) .86%(b) .89% .89%(d) .89% .89% .93%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.59%(b) 3.00% 3.93% 3.99% 3.27% 2.49%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $532 $529 $539 $514 $641 $894
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 191% 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED MAY 31,
CLASS B NOV. 30, 2009 -------------------------------------------------
PER SHARE DATA (UNAUDITED) 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.63 $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .04 .10 .15 .15 .12 .08
Net gains (losses) (both realized and
unrealized) .13 (.11) .01 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .17 (.01) .16 .20 .01 .05
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.10) (.15) (.15) (.12) (.08)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.63 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.64% (.18%) 3.48% 4.34% .26% 1.16%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.79%(b) 1.78% 1.80% 1.79% 1.82% 1.76%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c) 1.62%(b) 1.65% 1.65%(d) 1.64% 1.64% 1.68%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.87%(b) 2.26% 3.18% 3.23% 2.50% 1.73%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $78 $113 $159 $216 $338 $588
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 191% 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 29
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED MAY 31,
CLASS C NOV. 30, 2009 -------------------------------------------------
PER SHARE DATA (UNAUDITED) 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.63 $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .04 .10 .15 .15 .12 .08
Net gains (losses) (both realized and
unrealized) .13 (.11) .02 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .17 (.01) .17 .20 .01 .05
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.10) (.16) (.15) (.12) (.08)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.63 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.64% (.17%) 3.49% 4.34% .26% 1.16%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.79%(b) 1.78% 1.80% 1.80% 1.83% 1.77%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c) 1.62%(b) 1.65% 1.65%(d) 1.64% 1.64% 1.68%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1.74%(b) 2.21% 3.18% 3.24% 2.51% 1.73%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $28 $13 $10 $10 $15 $24
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 191% 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED MAY 31,
CLASS I NOV. 30, 2009 -------------------------------------------------
PER SHARE DATA (UNAUDITED) 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.64 $4.74 $4.74 $4.69 $4.79 $4.83
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .16 .20 .20 .17 .14
Net gains (losses) (both realized and
unrealized) .11 (.11) .01 .05 (.10) (.04)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .18 .05 .21 .25 .07 .10
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.15) (.21) (.20) (.17) (.14)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.64 $4.74 $4.74 $4.69 $4.79
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.03% 1.18% 4.45% 5.50% 1.56% 2.06%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .59%(b) .60% .60% .59% .62% .57%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c) .48%(b) .51% .51%(d) .54% .58% .57%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.95%(b) 3.49% 4.23% 4.37% 3.66% 2.98%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $59 $42 $93 $55 $62 $31
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 191% 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 31
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
<Table>
<Caption>
PERIOD ENDED
CLASS R2 NOV. 30, 2009(f)
PER SHARE DATA (UNAUDITED)
Net asset value, beginning of period $4.66
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03
Net gains (losses) (both realized and
unrealized) .09
- -------------------------------------------------------------------
Total from investment operations .12
- -------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03)
- -------------------------------------------------------------------
Net asset value, end of period $4.75
- -------------------------------------------------------------------
TOTAL RETURN 2.64%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.39%(b)
- -------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c) 1.28%(b)
- -------------------------------------------------------------------
Net investment income (loss) 1.91%(b)
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $3
- -------------------------------------------------------------------
Portfolio turnover rate(e) 191%
- -------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED MAY 31,
CLASS R4 NOV. 30, 2009 -------------------------------------------------
PER SHARE DATA (UNAUDITED) 2009 2008 2007 2006 2005
Net asset value, beginning of period $4.64 $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06 .15 .19 .19 .16 .13
Net gains (losses) (both realized and
unrealized) .12 (.11) .02 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .18 .04 .21 .24 .05 .10
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.14) (.20) (.19) (.16) (.13)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $4.64 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.86% .93% 4.41% 5.31% 1.19% 2.10%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .89%(b) .90% .90% .86% .88% .84%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c) .78%(b) .76% .76%(d) .72% .72% .76%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.69%(b) 3.15% 4.06% 4.09% 3.27% 2.66%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $4 $4 $5 $4 $19 $100
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 191% 271% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 33
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED MAY 31,
CLASS W NOV. 30, 2009 -----------------------------
PER SHARE DATA (UNAUDITED) 2009 2008 2007(g)
Net asset value, beginning of period $4.63 $4.74 $4.73 $4.75
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06 .14 .18 .08
Net gains (losses) (both realized and
unrealized) .11 (.12) .02 (.02)
- ------------------------------------------------------------------------------------------------------
Total from investment operations .17 .02 .20 .06
- ------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) (.13) (.19) (.08)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.74 $4.63 $4.74 $4.73
- ------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.79% .52% 4.21% 1.42%
- ------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.02%(b) 1.04% 1.06% 1.00%(b)
- ------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c) .93%(b) .96% .95% .95%(b)
- ------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.55%(b) 2.95% 3.87% 4.02%(b)
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $-- $--
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 191% 271% 209% 168%
- ------------------------------------------------------------------------------------------------------
</Table>
NOTES TO FINANCIAL HIGHLIGHTS
(a) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
reported expense ratios.
(b) Annualized.
(c) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(d) For the year ended May 31, 2008, the ratio of net expenses after reduction
for waiver/reimbursement, if any, and after reduction for earnings and bank
fee credits was 0.88% for Class A, 1.64% for Class B, 1.64% for Class C,
0.50% for Class I and 0.75% for Class R4.
(e) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 173% for the six months
ended Nov. 30, 2009 and 199% for the year ended May 31, 2009.
(f) For the period from Aug. 3, 2009 (when shares became publicly available) to
Nov. 30, 2009.
(g) For the period from Dec. 1, 2006 (when shares became publicly available) to
May 31, 2007.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
(UNAUDITED AS OF NOV. 30, 2009)
1. ORGANIZATION
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 (the 1940 Act) 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 Fund's 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 R2, Class R4 and Class
W shares.
- - Class A shares are offered with a front-end sales charge, which may be waived
under certain circumstances.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares one month after the completion of
the eighth year of ownership if originally purchased in a RiverSource fund on
or after May 21, 2005 or originally purchased in a Seligman fund on or after
June 13, 2009. Class B shares originally purchased in a RiverSource fund
prior to May 21, 2005 will convert to Class A shares in the ninth calendar
year of ownership. Class B shares originally purchased in a Seligman fund
prior to June 13, 2009 will convert to Class A shares in the month prior to
the ninth year of ownership.
- - Class C shares may be subject to a CDSC.
- - Class I, Class R2 and Class R4 shares are offered without a front-end sales
charge or CDSC to qualifying institutional investors. Class R2 became
available effective Aug. 3, 2009.
- - Class W shares are offered without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At Nov. 30, 2009, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and affiliated funds-of-funds in the RiverSource Family 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.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 35
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ADOPTION OF NEW ACCOUNTING STANDARD
In June 2009, the Financial Accounting Standards Board (FASB) established the
FASB Accounting Standards Codification(TM )(Codification) as the single source
of authoritative accounting principles recognized by the FASB in the preparation
of financial statements in conformity with U.S. generally accepted accounting
principles (GAAP). The Codification supersedes existing non-grandfathered, non-
SEC accounting and reporting standards. The Codification did not change GAAP but
rather organized it into a hierarchy where all guidance within the Codification
carries an equal level of authority. The Codification became effective for
financial statements issued for interim and annual periods ending after Sept.
15, 2009. The Codification did not have a material effect on the Fund's
financial statements.
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
All securities are valued at the close of business of the New York Stock
Exchange (NYSE). Securities traded on national securities exchanges or included
in national market systems are valued at the last quoted sales price. Debt
securities are generally traded in the over-the-counter market and are valued by
an independent pricing service using an evaluated bid. When market quotes are
not readily available, the pricing service, in determining fair values of debt
securities, takes into consideration such factors as current quotations by
broker/dealers, coupon, maturity, quality, type of issue, trading
characteristics, and other yield and risk factors it deems relevant in
determining valuations. The procedures adopted by the Board generally
contemplate the use of fair valuation in the event that price quotations or
valuations are not readily available, price quotations or valuations from other
sources are not reflective of market value and thus deemed unreliable, or a
significant event has occurred in relation to a security or class of securities
that is not reflected in price quotations or valuations from other sources. A
fair value price is a good faith estimate of the value of a security at a given
point in time.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates. Typically, those maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at amortized cost
using the
- --------------------------------------------------------------------------------
36 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
market value on the 61st day before maturity. Short-term securities maturing in
60 days or less at acquisition date are valued at amortized cost. Amortized cost
is an approximation of market 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-
commitments. At Nov. 30, 2009, the Fund has outstanding when-issued securities
of $26,726,155.
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
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
price established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the Notes to Portfolio of
Investments.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income (which includes net short-term capital gains) to
shareholders. No provision for income or excise taxes is thus required.
Management of the Fund has concluded that there are no significant uncertain tax
positions that would require recognition in the financial statements. Generally,
the tax authorities can examine all the tax returns filed for the last three
years.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are 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.
3. 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
- --------------------------------------------------------------------------------
38 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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.
EFFECTS OF DERIVATIVE TRANSACTIONS ON THE FINANCIAL STATEMENTS
The following tables are intended to provide additional information about the
effect of derivatives on the financial statements of the Fund including: the
fair value of derivatives by risk category and the location of those fair values
in the Statement of Assets and Liabilities; the impact of derivative
transactions on the Fund's operations over the period including realized gains
or losses and unrealized gains or losses. The derivative schedules following the
Portfolio of Investments present additional information regarding derivative
instruments outstanding at the end of the period, if any.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
FAIR VALUES OF DERIVATIVE INSTRUMENTS AT NOV. 30, 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
contracts assets -- unrealiz-
ed appreciation on
investments $143,353* N/A N/A
- -------------------------------------------------------------------------------------------
Total $143,353 N/A
- -------------------------------------------------------------------------------------------
</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 is reported in
receivables or payables in the Statement of Assets and Liabilities.
EFFECT OF DERIVATIVE INSTRUMENTS IN THE STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOV. 30, 2009
<Table>
<Caption>
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED IN INCOME
- ------------------------------------------------------------------
RISK EXPOSURE CATEGORY FUTURES
- ------------------------------------------------------------------
Interest rate contracts $1,303,257
- ------------------------------------------------------------------
Total $1,303,257
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES
RECOGNIZED IN INCOME
- -----------------------------------------------------------------
RISK EXPOSURE CATEGORY FUTURES
- -----------------------------------------------------------------
Interest rate contracts $(760,076)
- -----------------------------------------------------------------
Total $(760,076)
- -----------------------------------------------------------------
</Table>
VOLUME OF DERIVATIVE ACTIVITY
FUTURES
The gross notional amount of long and short contracts outstanding was $42.9
million and $6.0 million, respectively, at Nov. 30, 2009. The monthly average
gross notional amounts for long and short contracts was $107.5 million and $61.6
million, respectively, for the six months ended Nov. 30, 2009. The fair value of
such contracts on Nov. 30, 2009 is set forth in the table above.
4. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is an annual fee that is equal to a percentage of the Fund's average daily net
assets that declines from 0.48% to 0.25% as the Fund's net assets increase. The
- --------------------------------------------------------------------------------
40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
management fee for the six months ended Nov. 30, 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, an annual
fee for administration and accounting services equal to a percentage of the
Fund's average daily net assets that declines from 0.07% to 0.04% as the Fund's
net assets increase. The fee for the six months ended Nov. 30, 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 six months ended Nov.
30, 2009, there were no expenses incurred for these particular items.
COMPENSATION OF BOARD MEMBERS
Under a Deferred Compensation Plan (the Plan), the board members who are not
"interested persons" of the Fund under the 1940 Act may defer receipt of their
compensation. Deferred amounts are treated as though equivalent dollar amounts
had been invested in shares of the Fund or 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 funds until distributed in accordance with the Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains Fund shareholder accounts and records and provides Fund
shareholder services. 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 Transfer Agent also charges an annual fee of $3
per account serviced directly by the Fund or its designated agent for Class A,
Class B and Class C shares. The Fund also pays the Transfer Agent an annual
asset-based fee at a rate of 0.05% of the Fund's average daily net assets
attributable to Class R2 and 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 the 12 month period from the date the account
becomes inactive. These fees are included in the transfer agency fees in the
Statement of Operations.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 41
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
In connection with the acquisition of Seligman U.S. Government Securities Fund
(see Note 10), the Fund assumed the obligations of Seligman U.S. Government
Securities Fund, which, together with certain other associated investment
companies (together, the Guarantors), has severally, but not jointly, guaranteed
the performance and observance of all terms and conditions of a lease entered
into by Seligman Data Corp. (SDC), the former transfer agent of Seligman U.S.
Government Securities Fund, including the payment of rent by SDC (the Guaranty).
The lease and the Guaranty expire in January 2019. At Nov. 30, 2009, the Fund's
total potential future obligation over the life of the Guaranty is $99,095.
Seligman U.S. Government Securities Fund expensed $50,896 related to the
Guaranty prior to acquisition by the Fund. This amount is included within other
accrued expenses in the Fund's Statement of Assets and Liabilities.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R2 and Class R4 shares for the provision of various
administrative, recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has an agreement with RiverSource Fund Distributors, Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an
annual rate of up to 0.25% of the Fund's average daily net assets attributable
to Class A and Class W shares, a fee at an annual rate of up to 0.50% of the
Fund's average daily net assets attributable to Class R2 shares and a fee at an
annual rate of up to 1.00% of the Fund's average daily net assets attributable
to Class B and Class C shares. For Class B and Class C shares, of the 1.00% fee,
up to 0.75% is reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed (unreimbursed expense) was approximately $3,765,000 and $112,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of Oct. 31, 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, including front-end and CDSCs, received by the Distributor for
distributing Fund shares were $167,725 for Class A, $15,049 for Class B and
$1,577 for Class C for the six months ended Nov. 30, 2009.
- --------------------------------------------------------------------------------
42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the six months ended Nov. 30, 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............................................. 0.86%
Class B............................................. 1.62
Class C............................................. 1.62
Class I............................................. 0.48
Class R2............................................ 1.28
Class R4............................................ 0.78
Class W............................................. 0.93
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A.......................................... $167,915
Class B.......................................... 29,366
Class C.......................................... 6,863
</Table>
The management fees waived/reimbursed at the Fund level were $369,455.
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............................................. 0.86%
Class B............................................. 1.62
Class C............................................. 1.62
Class I............................................. 0.48
Class R2............................................ 1.28
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.
5. SECURITIES TRANSACTIONS
Cost of purchases of securities (other than short-term obligations, but
including mortgage dollar rolls) aggregated $1,379,087,754 for the six months
ended Nov. 30, 2009 including $68,506,478* from Seligman U.S. Government
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 43
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
Securities Fund that was acquired in the fund merger as described in Note 10.
Proceeds from sales of securities (other than short-term obligations, but
including mortgage dollar rolls) aggregated $1,430,081,661 for the six months
ended Nov. 30, 2009, including $2,166,264* of sales to realign the Fund's
portfolio following the fund merger. Realized gains and losses are determined on
an identified cost basis.
* Amounts are excluded for purposes of calculating the Fund's portfolio
turnover rate.
6. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2009 MAY 31, 2009*
- ---------------------------------------------------------------------
CLASS A
Sold 9,023,928 48,901,406
Fund merger 7,186,369 N/A
Converted from Class B** 5,515,899 4,370,833
Reinvested distributions 1,430,117 3,226,458
Redeemed (25,385,665) (56,089,954)
- ---------------------------------------------------------------------
Net increase (decrease) (2,229,352) 408,743
- ---------------------------------------------------------------------
CLASS B
Sold 908,581 7,298,534
Fund merger 1,049,408 N/A
Reinvested distributions 187,039 575,044
Converted to Class A** (5,515,913) (4,370,833)
Redeemed (4,722,335) (12,533,807)
- ---------------------------------------------------------------------
Net increase (decrease) (8,093,220) (9,031,062)
- ---------------------------------------------------------------------
CLASS C
Sold 666,421 1,525,411
Fund merger 3,561,144 N/A
Reinvested distributions 34,220 46,643
Redeemed (1,054,007) (827,332)
- ---------------------------------------------------------------------
Net increase (decrease) 3,207,778 744,722
- ---------------------------------------------------------------------
CLASS I
Sold 3,700,308 2,986,449
Reinvested distributions 157,996 469,925
Redeemed (366,289) (13,974,458)
- ---------------------------------------------------------------------
Net increase (decrease) 3,492,015 (10,518,084)
- ---------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
44 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2009 MAY 31, 2009*
- ---------------------------------------------------------------------
CLASS R2
Sold 86,367 N/A
Fund merger 728,900 N/A
Reinvested distributions 701 N/A
Redeemed (174,557) N/A
- ---------------------------------------------------------------------
Net increase (decrease) 641,411 N/A
- ---------------------------------------------------------------------
CLASS R4
Sold 235,697 491,850
Reinvested distributions 12,601 29,090
Redeemed (312,962) (590,144)
- ---------------------------------------------------------------------
Net increase (decrease) (64,664) (69,204)
- ---------------------------------------------------------------------
</Table>
* Certain line items from the prior year have been renamed to conform to the
current year presentation.
** Automatic conversion of Class B shares to Class A shares based on the
original purchase date.
7. LENDING OF PORTFOLIO SECURITIES
The Fund has entered into a Master Securities Lending Agreement (the Agreement)
with JPMorgan Chase Bank, National Association (JPMorgan). The Agreement
authorizes JPMorgan as lending agent to lend securities to authorized borrowers
in order to generate additional income on behalf of the Fund. Pursuant to the
Agreement, the securities loaned are secured by cash or U.S. government
securities equal to at least 100% of the market value of the loaned securities.
Any additional collateral required to maintain those levels due to market
fluctuations of the loaned securities is delivered the following business day.
Cash collateral received is invested by the lending agent on behalf of the Fund
into authorized investments pursuant to the Agreement. The investments made with
the cash collateral are listed in the Portfolio of Investments. The values of
such 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 Nov. 30, 2009,
securities valued at $115,626,918 were on loan, secured by U.S. government
securities valued at $30,176,610 and by cash collateral of $87,374,221 invested
in short-term securities or in cash equivalents.
Risks of delay in recovery of securities or even loss of rights in the
securities may occur should the borrower of the securities fail financially.
Risks may also arise to the extent that the value of the securities loaned
increases above the value of the collateral received. JPMorgan will indemnify
the Fund from losses resulting from a borrower's failure to return a loaned
security when due. Such
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 45
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
indemnification does not extend to losses associated with declines in the value
of cash collateral investments. Loans are subject to termination by the Fund or
the borrower at any time, and are, therefore, not considered to be illiquid
investments.
Pursuant to the Agreement, the Fund receives income for lending its securities
either in the form of fees or by earning interest on invested cash collateral,
net of negotiated rebates paid to borrowers and fees paid to the lending agent
for services provided and any other securities lending expenses. Net income of
$119,015 earned from securities lending for the six months ended Nov. 30, 2009
is included in the Statement of Operations. The Fund also continues to earn
interest and dividends on the securities loaned.
8. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in 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 $55,852,309 and $63,585,816,
respectively, for the six months ended Nov. 30, 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 Nov. 30, 2009, can be found in the
Portfolio of Investments.
9. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund
may borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility became effective on Oct.
15, 2009, 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 $300 million. The borrowers shall have the right, upon written
notice to the Administrative Agent to request an increase of up to $200 million
in the aggregate amount of the credit facility from new or existing lenders,
provided that the aggregate amount of the credit facility shall at no time
exceed $500 million. Participation in such increase by any existing lender shall
be at such lender's sole discretion. Interest is charged to each Fund based on
its borrowings at a rate equal to the sum of the federal funds rate plus (A)
1.25% per annum plus (B) if one-month LIBOR exceeds the federal funds rate, the
- --------------------------------------------------------------------------------
46 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
amount of such excess. Each borrowing under the credit facility matures no later
than 60 days after the date of borrowing. The Fund also pays a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.10% per annum, in addition to an upfront fee equal to its pro rata share of
0.04% of the amount of the credit facility. Prior to Oct. 15, 2009, the credit
facility agreement, which was a collective agreement between the Fund and
certain other funds in the RiverSource Family of Funds, severally and not
jointly, permitted collective borrowings up to $475 million. Interest was
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.75%. 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, 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 six months ended Nov.
30, 2009.
10. FUND MERGER
At the close of business on Aug. 28, 2009, RiverSource Short Duration U.S.
Government Fund acquired the assets and assumed the identified liabilities of
Seligman U.S. Government Securities Fund. The reorganization was completed after
shareholders approved the plan on June 29, 2009.
The aggregate net assets of RiverSource Short Duration U.S. Government Fund
immediately before the acquisition were $655,221,348 and the combined net assets
immediately after the acquisition were $713,992,375.
The merger was accomplished by a tax-free exchange of 8,071,788 shares of
Seligman U.S. Government Securities Fund valued at $58,771,027.
In exchange for Seligman U.S. Government Securities Fund shares and net assets,
RiverSource Short Duration U.S. Government Fund issued the following number of
shares:
<Table>
<Caption>
SHARES
- ------------------------------------------------------------
Class A.......................................... 7,186,369
Class B.......................................... 1,049,408
Class C.......................................... 3,561,144
Class R2......................................... 728,900
</Table>
For financial reporting purposes, net assets received and shares issued by the
RiverSource Short Duration U.S. Government Fund were recorded at fair value;
however, the Seligman U.S. Government Fund's cost of investments was carried
forward to align ongoing reporting of the RiverSource Short Duration U.S.
Government Fund's realized and unrealized gains and losses with amounts
distributable to shareholders for tax purposes.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 47
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
The components of Seligman U.S. Government Securities Fund's net assets at the
merger date were as follows:
<Table>
<Caption>
EXCESS OF
ACCUMULATED DISTRIBUTIONS OVER
TOTAL CAPITAL UNREALIZED NET NET
NET ASSETS STOCK APPRECIATION REALIZED LOSS INVESTMENT INCOME
- ---------------------------------------------------------------------------------
$58,771,027 $62,781,203 $1,514,018 $(5,308,301) $(215,893)
</Table>
The financial statements reflect the operations of the RiverSource Short
Duration U.S. Government Fund for the period prior to the merger and the
combined Fund for the period subsequent to the merger. Because the combined
investment portfolios have been managed as a single integrated portfolio since
the merger was completed, it is not practicable to separate the amounts of
revenue and earnings of the Seligman U.S. Government Fund that have been
included in the combined Fund's Statement of Operations since the merger was
completed. Assuming the merger had been completed on June 1, 2009, the
RiverSource Short Duration U.S. Government Fund's pro-forma net investment
income, net gain on investments, and net increase in net assets from operations
for the six months ended Nov. 30, 2009 would have been $5.7 million, $17.3
million, and $23.0 million, respectively.
11. FEDERAL TAX INFORMATION
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures and options
contracts, recognition of unrealized appreciation (depreciation) for certain
derivative investments, 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.
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>
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
- --------------------------------------------------------------------------------
48 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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. There is no assurance that the Fund will be able to utilize
all of its capital loss carry-over before it expires.
12. SUBSEQUENT EVENTS
Management has evaluated Fund related events and transactions that occurred
during the period from the date of the Statement of Assets and Liabilities
through Jan. 20, 2010, the date of issuance of the Fund's financial statements.
There were no events or transactions that occurred during the period that
materially impacted the amounts or disclosures in the Fund's financial
statements.
13. 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. On August
6, 2009, defendants filed a writ of certiorari with the U.S. Supreme Court,
asking the U.S. Supreme Court to stay the District Court proceedings
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 49
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
while the U.S. Supreme Court considers and rules in a case captioned Jones v.
Harris Associates, which involves issues of law similar to those presented in
the Gallus case.
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.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co. Incorporated (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. (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
- --------------------------------------------------------------------------------
50 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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 believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the consolidated financial
condition or results of operations of Ameriprise Financial.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT 51
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.
- --------------------------------------------------------------------------------
52 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2009 SEMIANNUAL REPORT
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 Fund Distributors, Inc., Member
FINRA, and managed by RiverSource Investments, LLC.
RiverSource is part of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C)2010 RiverSource Investments, LLC. S-6442 AA (1/10)
</Table>
Semiannual Report
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
U.S. GOVERNMENT MORTGAGE FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
NOVEMBER 30, 2009
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.
(SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 2
Fund Expenses Example.............. 6
Portfolio of Investments........... 8
Statement of Assets and
Liabilities...................... 20
Statement of Operations............ 21
Statements of Changes in Net
Assets........................... 22
Financial Highlights............... 24
Notes to Financial Statements...... 29
Proxy Voting....................... 43
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
(UNAUDITED)
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource U.S. Government Mortgage Fund (the Fund) Class A shares rose 8.89%
(excluding sales charge) for the six months ended Nov. 30, 2009.
> The Fund outperformed the Barclays Capital U.S. Mortgage-Backed Securities
Index (Barclays Index), which gained 4.49% for the same period.
> The Fund also outperformed the Lipper U.S. Mortgage Funds Index, representing
the Fund's peer group, which advanced 6.49% during the same time frame.
ANNUALIZED TOTAL RETURNS (for period ended Nov. 30, 2009)
- --------------------------------------------------------------------------------
<Table>
<Caption>
SINCE
INCEPTION
6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 2/14/02
- --------------------------------------------------------------------------
RiverSource U.S.
Government Mortgage
Fund Class A (excluding
sales charge) +8.89% +14.14% +4.95% +4.43% +4.58%
- --------------------------------------------------------------------------
Barclays Capital U.S.
Mortgage-Backed
Securities Index(1)
(unmanaged) +4.49% +9.19% +7.45% +6.23% +5.81%
- --------------------------------------------------------------------------
Lipper U.S. Mortgage
Funds Index(2) +6.49% +12.28% +5.64% +4.94% +4.89%
- --------------------------------------------------------------------------
</Table>
* Not annualized.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial intermediary,
visiting riversource.com/funds or calling 1(800) 221-2450.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
fees and expenses. The Fund's returns reflect the effect of fee waivers/
- --------------------------------------------------------------------------------
2 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
expense reimbursements, if any. Without such waivers/reimbursements, the Fund's
returns would be lower. See the Average Annual Total Returns table for
performance of other share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes. It is not possible to invest directly in an index.
(1) The Barclays Capital U.S. Mortgage-Backed Securities Index, an unmanaged
index, includes 15- and 30-year fixed-rate securities backed by mortgage
pools of the Government National Mortgage Association (GNMA), Federal Home
Loan Mortgage Corporation (FHLMC), and Federal National Mortgage Association
(FNMA). The index reflects reinvestment of all distributions and changes in
market prices.
(2) The Lipper U.S. Mortgage Funds Index includes the 10 largest U.S. mortgage
funds tracked by Lipper Inc. The index's returns include net reinvested
dividends.
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT NOV. 30, 2009
SINCE
Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS INCEPTION
Class A (inception
2/14/02) +8.89% +14.14% +4.95% +4.43% +4.58%
- --------------------------------------------------------------------------
Class B (inception
2/14/02) +8.48% +13.27% +4.16% +3.65% +3.80%
- --------------------------------------------------------------------------
Class C (inception
2/14/02) +8.48% +13.28% +4.16% +3.65% +3.80%
- --------------------------------------------------------------------------
Class I (inception
3/4/04) +8.92% +14.86% +5.44% +4.86% +4.59%
- --------------------------------------------------------------------------
Class R4 (inception
2/14/02) +8.76% +14.56% +5.83% +4.99% +5.00%
- --------------------------------------------------------------------------
With sales charge
Class A (inception
2/14/02) +3.73% +8.73% +3.26% +3.42% +3.93%
- --------------------------------------------------------------------------
Class B (inception
2/14/02) +3.48% +8.27% +3.23% +3.31% +3.80%
- --------------------------------------------------------------------------
Class C (inception
2/14/02) +7.48% +12.28% +4.16% +3.65% +3.80%
- --------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum initial sales charge of 4.75%.
Class B share performance reflects a contingent deferred sales charge (CDSC)
applied as follows: first year 5%; second year 4%; third and fourth years 3%;
fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be
subject to a 1% CDSC if shares are sold within one year after purchase. Sales
charges do not apply to Class I and Class R4 shares. Class I and Class R4 shares
are available to qualifying institutional investors only.
* Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL 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 approximates 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) 3.2 years
- --------------------------------------
Effective duration(2) 1.5 years
- --------------------------------------
Weighted average bond
rating(3) AAA
- --------------------------------------
</Table>
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
Shares of 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 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION(1) (at Nov. 30, 2009; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Asset-Backed 3.7%
- ------------------------------------------------
Commercial Mortgage-Backed 4.7%
- ------------------------------------------------
Residential Mortgage-Backed(2) 89.2%
- ------------------------------------------------
Other(3) 2.4%
- ------------------------------------------------
</Table>
(1) Percentages indicated are based upon total investments (excluding
Investments of Cash Collateral Received for Securities on Loan) as of Nov.
30, 2009. The Fund's composition is subject to change.
(2) Of the 89.2%, 24.4% is due to forward commitment residential mortgage-backed
securities activity. Short-term securities are held as collateral for these
commitments.
(3) Cash & Cash Equivalents.
QUALITY BREAKDOWN (at Nov. 30, 2009;
% of portfolio assets excluding cash equivalents and equities)
- ---------------------------------------------------------------------
<Table>
AAA bonds 95.4%
- ------------------------------------------------
AA bonds 1.2%
- ------------------------------------------------
A bonds 0.8%
- ------------------------------------------------
BBB bonds 0.6%
- ------------------------------------------------
Non-investment grade bonds 1.0%
- ------------------------------------------------
Non-rated bonds 1.0%
- ------------------------------------------------
</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 Investment Manager) rates a security using an
internal rating system when Moody's doesn't provide a rating.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 5
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 ongoing expenses of any funds in which the Fund
invests (also referred to as "acquired funds"), including affiliated and non-
affiliated pooled investment vehicles (including mutual funds and exchange
traded funds). The Fund's indirect expense from investing in the acquired funds
is based on the Fund's pro rata portion of the ongoing expenses charged by
acquired funds using the expense ratio of each of the acquired funds as of the
acquired fund's most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Nov. 30, 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.
- --------------------------------------------------------------------------------
6 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JUNE 1, 2009 NOV. 30, 2009 THE PERIOD(a) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,088.90 $4.71 .89%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.83 $4.56 .89%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,084.80 $8.72 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.98 $8.43 1.65%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,084.80 $8.72 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.98 $8.43 1.65%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,089.20 $2.49 .47%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.96 $2.41 .47%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,087.60 $4.07 .77%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.44 $3.94 .77%
- ------------------------------------------------------------------------------------------
</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 185/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Nov. 30, 2009: +8.89%
for Class A, +8.48% for Class B, +8.48% for Class C, +8.92% for Class I and
+8.76% for Class R4.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 7
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
NOV. 30, 2009 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (122.4%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ASSET-BACKED (4.6%)
Asset Backed Securities Home Equity
Series 2005-HE2 Cl M1
02-25-35 0.69% $984,632(i) $834,276
Bear Stearns Asset Backed Securities Trust
Series 2006-HE9 Cl 1A1
11-25-36 0.29 485,424(i) 437,332
Chase Funding Mtge Loan Asset-Backed Ctfs
Series 2004-1 Cl 1A4
08-25-30 4.11 580,523 521,228
Countrywide Asset-Backed Ctfs
Series 2005-3 Cl AF3
08-25-35 4.82 316,966 312,884
Countrywide Asset-Backed Ctfs
Series 2005-SD1 Cl A1C
05-25-35 0.63 1,293,434(d,i) 1,212,280
Credit-Based Asset Servicing and Securitization LLC
Series 2006-RP2 Cl A1
07-25-36 0.39 110,054(d,i) 107,489
First Franklin Mtge Loan Asset-backed Ctfs
Series 2005-FFH3 Cl 2A3
09-25-35 0.65 248,097(i) 241,319
First Franklin Mtge Loan Asset-backed Ctfs
Series 2006-FF18 Cl A2A
12-25-37 0.31 240,322(i) 235,177
Fremont Home Loan Trust
Series 2005-A Cl M1
01-25-35 0.67 721,405(i) 716,524
JPMorgan Mtge Acquisition
Series 2006-RM1 Cl A2
08-25-36 0.32 81,666(i) 62,074
JPMorgan Mtge Acquisition
Series 2006-WMC3 Cl A2
08-25-36 0.29 12,814(i) 12,649
Long Beach Mtge Loan Trust
Series 2006-4 Cl 2A2
05-25-36 0.34 313,459(i) 305,134
MASTR Asset Backed Securities Trust
Series 2005-FRE1 Cl A4
10-25-35 0.49 467,657(i) 423,094
Morgan Stanley Home Equity Loan Trust
Series 2006-2 Cl A3
02-25-36 0.41 486,967(i) 434,767
NovaStar Home Equity Loan
Series 2006-4 Cl A2A (MGIC)
09-25-36 0.28 134,044(e,i) 132,579
RAAC Series
Series 2006-SP4 Cl A1
11-25-36 0.34 963,081(i) 897,509
RBSSP Resecuritization Trust
Collateralized Mtge Obligation
Series 2009-9 Cl 10A1
10-26-36 0.33 488,369(d,i) 474,953
Renaissance Home Equity Loan Trust
Series 2006-4 Cl AF1
01-25-37 5.55 97,020 96,260
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M4
06-25-37 6.31 195,000(h) 10,357
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M5
06-25-37 6.66 130,000(h) 5,482
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M6
06-25-37 7.01 190,000(h) 6,074
Residential Asset Mtge Products
Series 2006 RS4 Cl A2
07-25-36 0.35 458,926 439,237
Structured Asset Investment Loan Trust
Series 2005-9 Cl A5
11-25-35 0.47 1,199,766(i) 1,121,399
Structured Asset Securities
Collateralized Mtge Obligation
Series 2006-NC1 Cl A6
05-25-36 0.29 315,900(i) 300,212
Structured Asset Securities
Series 2007-BC1 Cl A2
02-25-37 0.29 1,557,458(i) 1,459,656
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
8 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
ASSET-BACKED (CONT.)
Target Credit Card Master Trust
Series 2005-1 Cl A
10-27-14 0.30% $1,500,000(i) $1,473,834
---------------
Total 12,273,779
- -------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (5.9%)(f)
Bear Stearns Commercial Mtge Securities
Series 2004-PWR5 Cl A3
07-11-42 4.57 3,122,000 3,135,951
Bear Stearns Commercial Mtge Securities
Series 2004-PWR6 Cl A4
11-11-41 4.52 3,100,000 3,038,774
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2007-CD4 Cl A2B
12-11-49 5.21 3,000,000 3,024,480
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 1,673,014 1,867,940
GS Mtge Securities II
Series 2007-EOP Cl J
03-06-20 1.09 1,000,000(d,i) 814,806
LB-UBS Commercial Mtge Trust
Series 2004-C6 Cl A6
08-15-29 5.02 2,000,000 1,907,722
Wachovia Bank Commercial Mtge Trust
Series 2003-C7 Cl A2
10-15-35 5.08 2,000,000(d) 2,033,888
---------------
Total 15,823,561
- -------------------------------------------------------------------------------------
RESIDENTIAL MORTGAGE-BACKED (111.9%)(f)
Banc of America Funding
Collateralized Mtge Obligation
Series 2007-8 Cl 1A1
10-25-37 6.00 853,066 460,194
Banc of America Funding
Collateralized Mtge Obligation
Series 2009-R7A Cl 4A2
08-26-35 5.39 5,410,975(d,i) 882,665
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50 492,429 408,793
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2009-3 Cl 3A2
01-19-34 4.68 3,335,000(d,i) 3,218,938
Citigroup Mtge Loan Trust
Collateralized Mtge Obligation
Series 2009-9 Cl 1A3
04-25-34 4.91 2,489,441(d,i) 497,888
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-8CB Cl A13
05-25-37 41.52 1,481,856(g) 129,737
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-50CB Cl 2A1
11-25-35 6.00 828,442 548,542
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-45T1 Cl 2A5
02-25-37 6.00 448,860 301,578
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 0.74 1,713,986(i) 199,597
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 383,550(d) 334,823
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.30 354,243(i) 187,922
Credit Suisse Mtge Capital Ctfs
Collateralized Mtge Obligation
Series 2009-2R Cl 1A16
09-26-34 3.12 17,500,000(d,i) 4,812,500
Federal Home Loan Mtge Corp
12-01-39 4.50 3,000,000(b) 3,075,468
12-01-39 5.00 3,050,000(b) 3,197,257
12-01-39 5.50 2,500,000(b) 2,660,938
12-01-39 6.00 8,400,000(b) 9,010,311
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 9
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #555300
10-01-17 8.00% $148,377 $159,328
Federal Home Loan Mtge Corp #A10892
07-01-33 6.00 508,019 550,746
Federal Home Loan Mtge Corp #A15111
10-01-33 6.00 662,215 716,111
Federal Home Loan Mtge Corp #A21059
04-01-34 6.50 433,634 470,814
Federal Home Loan Mtge Corp #A25174
08-01-34 6.50 290,915 315,859
Federal Home Loan Mtge Corp #A82297
10-01-38 6.50 753,186 814,076
Federal Home Loan Mtge Corp #A83607
12-01-38 5.50 5,423,044 5,780,109
Federal Home Loan Mtge Corp #C53098
06-01-31 8.00 231,588 266,631
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 744,259 796,968
Federal Home Loan Mtge Corp #C68876
07-01-32 7.00 127,947 142,053
Federal Home Loan Mtge Corp #C69665
08-01-32 6.50 1,461,437 1,592,224
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 989,868 1,058,965
Federal Home Loan Mtge Corp #D95232
03-01-22 6.50 214,819 235,650
Federal Home Loan Mtge Corp #D95371
04-01-22 6.50 251,252 276,112
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 440,456 479,157
Federal Home Loan Mtge Corp #E88036
02-01-17 6.50 707,857 766,597
Federal Home Loan Mtge Corp #E88468
12-01-16 6.50 191,567 210,245
Federal Home Loan Mtge Corp #E89232
04-01-17 7.00 309,343 336,373
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 980,220 1,052,828
Federal Home Loan Mtge Corp #E93685
01-01-18 5.50 695,600 752,124
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 266,203 287,135
Federal Home Loan Mtge Corp #G01169
01-01-30 5.50 1,027,879 1,100,914
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 1,579,370 1,731,387
Federal Home Loan Mtge Corp #G02757
06-01-36 5.00 6,684,770 7,023,839
Federal Home Loan Mtge Corp #G03117
11-01-36 6.50 88,605 95,787
Federal Home Loan Mtge Corp #G03419
07-01-37 6.00 3,714,801 3,993,919
Federal Home Loan Mtge Corp #G03994
03-01-38 6.50 19,344 20,908
Federal Home Loan Mtge Corp #G05058
12-01-38 6.00 3,378,884 3,628,876
Federal Home Loan Mtge Corp #G12101
11-01-18 5.00 547,810 587,360
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2471 Cl SI
03-15-32 20.43 207,019(g) 32,134
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2639 Cl UI
03-15-22 10.09 790,100(g) 86,299
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2795 Cl IY
07-15-17 60.42 211,432(g) 6,692
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2817 Cl SA
06-15-32 45.07 582,278(g) 30,603
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2824 Cl EI
09-15-20 0.00 1,274,615(g) 46,457
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
10 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 3155 Cl PS
05-15-36 20.38% $1,422,326(g) $192,764
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 3550 Cl GS
07-15-39 22.65 5,015,614(g) 564,055
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 3588 Cl WI
10-15-12 17.14 20,376,345(g) 1,898,982
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 3600 Cl DI
01-15-13 15.00 14,410,000(g) 412,036
Federal Natl Mtge Assn
12-01-24 4.50 7,000,000(b) 7,332,500
12-01-24 5.00 20,215,000(b) 21,472,131
12-01-39 5.50 7,800,000(b) 8,294,817
12-01-39 6.00 6,000,000(b) 6,431,250
Federal Natl Mtge Assn #190353
08-01-34 5.00 1,260,887 1,327,010
Federal Natl Mtge Assn #252409
03-01-29 6.50 997,915 1,088,471
Federal Natl Mtge Assn #254759
06-01-18 4.50 1,363,759 1,450,131
Federal Natl Mtge Assn #254793
07-01-33 5.00 1,638,810 1,724,751
Federal Natl Mtge Assn #254916
09-01-23 5.50 1,321,611 1,422,460
Federal Natl Mtge Assn #313470
08-01-10 7.50 21,996 22,150
Federal Natl Mtge Assn #323362
11-01-28 6.00 1,835,004 1,992,090
Federal Natl Mtge Assn #323715
05-01-29 6.00 334,486 363,120
Federal Natl Mtge Assn #344909
04-01-25 8.00 508,666 571,733
Federal Natl Mtge Assn #357514
03-01-34 5.50 1,782,649 1,904,301
Federal Natl Mtge Assn #483691
12-01-28 7.00 1,026,239 1,162,030
Federal Natl Mtge Assn #487757
09-01-28 7.50 597,116 677,007
Federal Natl Mtge Assn #514704
01-01-29 6.00 268,964 291,988
Federal Natl Mtge Assn #545008
06-01-31 7.00 1,191,586 1,343,655
Federal Natl Mtge Assn #545339
11-01-31 6.50 176,156 194,827
Federal Natl Mtge Assn #545818
07-01-17 6.00 1,567,307 1,704,125
Federal Natl Mtge Assn #545864
08-01-17 5.50 938,080 1,017,065
Federal Natl Mtge Assn #555458
05-01-33 5.50 1,358,429 1,448,004
Federal Natl Mtge Assn #555528
04-01-33 6.00 1,444,142 1,564,158
Federal Natl Mtge Assn #555734
07-01-23 5.00 557,832 591,969
Federal Natl Mtge Assn #581418
06-01-31 7.00 724,522 808,845
Federal Natl Mtge Assn #583088
06-01-29 6.00 2,362,484 2,583,978
Federal Natl Mtge Assn #592270
01-01-32 6.50 513,131 560,190
Federal Natl Mtge Assn #596505
08-01-16 6.50 103,368 112,368
Federal Natl Mtge Assn #601416
11-01-31 6.50 225,137 245,802
Federal Natl Mtge Assn #624979
01-01-32 6.00 518,231 566,184
Federal Natl Mtge Assn #626670
03-01-32 7.00 475,651 537,444
Federal Natl Mtge Assn #627426
03-01-17 6.50 339,477 369,601
Federal Natl Mtge Assn #630992
09-01-31 7.00 1,439,482 1,631,608
Federal Natl Mtge Assn #630993
09-01-31 7.50 1,484,131 1,689,240
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 11
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #631388
05-01-32 6.50% $1,226,335 $1,351,132
Federal Natl Mtge Assn #632856
03-01-17 6.00 341,482 371,272
Federal Natl Mtge Assn #633674
06-01-32 6.50 793,178 878,057
Federal Natl Mtge Assn #635231
04-01-32 7.00 72,413 80,717
Federal Natl Mtge Assn #635908
04-01-32 6.50 912,328 1,008,412
Federal Natl Mtge Assn #636812
04-01-32 7.00 92,106 103,243
Federal Natl Mtge Assn #640200
10-01-31 9.50 100,072 115,061
Federal Natl Mtge Assn #640207
03-01-17 7.00 33,519 35,208
Federal Natl Mtge Assn #640208
04-01-17 7.50 38,719 40,256
Federal Natl Mtge Assn #644805
05-01-32 7.00 822,919 927,345
Federal Natl Mtge Assn #645053
05-01-32 7.00 466,171 517,687
Federal Natl Mtge Assn #646189
05-01-32 6.50 337,537(j) 367,962
Federal Natl Mtge Assn #654071
09-01-22 6.50 438,642 480,956
Federal Natl Mtge Assn #654685
11-01-22 6.00 468,582 510,297
Federal Natl Mtge Assn #655635
08-01-32 6.50 570,961 625,032
Federal Natl Mtge Assn #656514
09-01-17 6.50 806,077 878,753
Federal Natl Mtge Assn #660186
11-01-32 6.00 1,850,362 2,026,728
Federal Natl Mtge Assn #665752
09-01-32 6.50 875,326 954,225
Federal Natl Mtge Assn #667302
01-01-33 7.00 485,696 547,084
Federal Natl Mtge Assn #670382
09-01-32 6.00 828,716 897,587
Federal Natl Mtge Assn #676683
12-01-32 6.00 920,806 997,330
Federal Natl Mtge Assn #677089
01-01-33 5.50 410,585(j) 438,989
Federal Natl Mtge Assn #677294
01-01-33 6.00 1,196,212 1,295,624
Federal Natl Mtge Assn #681080
02-01-18 5.00 562,653 603,363
Federal Natl Mtge Assn #684585
02-01-33 5.50 1,159,747 1,248,417
Federal Natl Mtge Assn #684843
02-01-18 5.50 1,113,151 1,210,783
Federal Natl Mtge Assn #684853
03-01-33 6.50 209,076 228,597
Federal Natl Mtge Assn #688002
03-01-33 5.50 1,112,326 1,200,863
Federal Natl Mtge Assn #689026
05-01-33 5.50 315,044 338,994
Federal Natl Mtge Assn #689093
07-01-28 5.50 693,939 745,849
Federal Natl Mtge Assn #694628
04-01-33 5.50 1,631,799 1,760,554
Federal Natl Mtge Assn #694795
04-01-33 5.50 1,997,623 2,155,828
Federal Natl Mtge Assn #695460
04-01-18 5.50 1,391,546 1,511,575
Federal Natl Mtge Assn #697145
03-01-23 5.50 804,703 861,403
Federal Natl Mtge Assn #699424
04-01-33 5.50 1,295,161 1,397,598
Federal Natl Mtge Assn #701101
04-01-33 6.00 1,592,906 1,722,298
Federal Natl Mtge Assn #704610
06-01-33 5.50 1,630,992 1,742,294
Federal Natl Mtge Assn #705655
05-01-33 5.00 583,598 614,203
Federal Natl Mtge Assn #708503
05-01-33 6.00 257,839 281,628
Federal Natl Mtge Assn #708504
05-01-33 6.00 549,697 600,435
Federal Natl Mtge Assn #710780
05-01-33 6.00 166,896 180,453
Federal Natl Mtge Assn #711206
05-01-33 5.50 809,417 864,654
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
12 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #711239
07-01-33 5.50% $518,048 $553,401
Federal Natl Mtge Assn #711501
05-01-33 5.50 590,174 631,651
Federal Natl Mtge Assn #723771
08-01-28 5.50 687,788 739,237
Federal Natl Mtge Assn #725017
12-01-33 5.50 2,336,677 2,524,431
Federal Natl Mtge Assn #725232
03-01-34 5.00 1,325,572 1,395,087
Federal Natl Mtge Assn #725424
04-01-34 5.50 6,870,698 7,339,569
Federal Natl Mtge Assn #725425
04-01-34 5.50 1,994,899 2,134,618
Federal Natl Mtge Assn #725684
05-01-18 6.00 506,992 551,354
Federal Natl Mtge Assn #725773
09-01-34 5.50 1,393,820 1,488,284
Federal Natl Mtge Assn #726940
08-01-23 5.50 1,089,378 1,170,737
Federal Natl Mtge Assn #730153
08-01-33 5.50 534,110 570,559
Federal Natl Mtge Assn #733367
08-01-23 5.50 771,409 829,328
Federal Natl Mtge Assn #735212
12-01-34 5.00 7,125,097 7,498,748
Federal Natl Mtge Assn #743524
11-01-33 5.00 1,587,892 1,671,163
Federal Natl Mtge Assn #743579
11-01-33 5.50 1,157,136 1,236,102
Federal Natl Mtge Assn #745275
02-01-36 5.00 2,858,098 3,003,515
Federal Natl Mtge Assn #745355
03-01-36 5.00 2,978,921 3,130,485
Federal Natl Mtge Assn #747339
10-01-23 5.50 939,662 1,010,040
Federal Natl Mtge Assn #753507
12-01-18 5.00 699,108 753,344
Federal Natl Mtge Assn #759342
01-01-34 6.50 336,735 371,195
Federal Natl Mtge Assn #770403
04-01-34 5.00 1,268,534 1,335,057
Federal Natl Mtge Assn #776962
04-01-29 5.00 1,099,399 1,164,543
Federal Natl Mtge Assn #779676
06-01-34 5.00 1,982,604 2,086,574
Federal Natl Mtge Assn #793622
09-01-34 5.50 5,096,579 5,441,992
Federal Natl Mtge Assn #797232
09-01-34 5.50 4,066,355 4,341,946
Federal Natl Mtge Assn #826585
08-01-35 5.00 1,871,467 1,966,685
Federal Natl Mtge Assn #845109
05-01-36 6.00 4,481,772 4,819,218
Federal Natl Mtge Assn #886020
07-01-36 6.50 840,968 919,405
Federal Natl Mtge Assn #886291
07-01-36 7.00 595,963 662,884
Federal Natl Mtge Assn #888414
11-01-35 5.00 3,172,343 3,333,749
Federal Natl Mtge Assn #889565
08-01-37 5.50 57 61
Federal Natl Mtge Assn #893101
10-01-36 6.50 2,141,980 2,318,986
Federal Natl Mtge Assn #928046
01-01-37 6.00 2,885,247 3,102,486
Federal Natl Mtge Assn #928870
11-01-37 8.50 198,576 220,217
Federal Natl Mtge Assn #933966
07-01-23 6.00 2,087,707 2,250,714
Federal Natl Mtge Assn #933985
08-01-23 5.50 1,716,107 1,839,910
Federal Natl Mtge Assn #941285
06-01-37 6.00 3,709,602 3,983,693
Federal Natl Mtge Assn #960606
10-01-36 5.50 3,151,316 3,364,892
Federal Natl Mtge Assn #984458
05-01-38 6.00 3,885,956 4,170,647
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-119 Cl GI
12-25-33 5.44 668,690(g) 138,717
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 13
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 8.63% $1,520,756(g) $193,955
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 5.34 352,548(g) 40,826
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 7.82 131,759(g) 10,112
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2005-70 Cl YJ
08-25-35 0.00 1,535,290(g) 63,883
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2007-22 Cl JS
03-25-37 31.01 1,151,163(g) 123,822
Govt Natl Mtge Assn
12-01-39 4.50 10,000,000(b) 10,281,251
12-01-39 5.00 7,000,000(b) 7,357,659
12-01-39 6.00 2,500,000(b) 2,675,780
Govt Natl Mtge Assn #3931
12-20-36 6.00 2,527,380 2,718,399
Govt Natl Mtge Assn #518371
02-15-30 7.00 115,850 129,418
Govt Natl Mtge Assn #528344
03-15-30 7.00 208,563 232,989
Govt Natl Mtge Assn #556293
12-15-31 6.50 303,118 330,345
Govt Natl Mtge Assn #583182
02-15-32 6.50 545,622 593,098
Govt Natl Mtge Assn #595256
12-15-32 6.00 267,422 289,450
Govt Natl Mtge Assn #619613
09-15-33 5.00 1,041,120 1,103,058
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 0.00 4,902,377(c,g) --
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-AR25 Cl 3A3
09-25-36 20.00 9,247,385(g) 99,076
Jefferies & Co
Collateralized Mtge Obligation
Series 2009-R10 Cl 1A1
06-26-47 0.36 249,713(d,i) 243,470
Jefferies & Co
Collateralized Mtge Obligation
Series 2009-R10 Cl 2A1
05-26-48 0.33 396,730(d,i) 384,828
Jefferies & Co
Collateralized Mtge Obligation
Series 2009-R6 Cl 4A2
04-26-35 4.87 5,125,699(d) 1,025,140
JP Morgan Reremic
Collateralized Mtge Obligation
Series 2009-3 Cl 1A2
02-26-35 4.49 1,449,242(d,i) 154,431
JPMorgan Mtge Trust
Collateralized Mtge Obligation
Series 2004-S2 Cl 4A5
11-25-34 6.00 799,321 712,644
JPMorgan Mtge Trust
Collateralized Mtge Obligation
Series 2006-S4 Cl A6
01-25-37 6.00 668,695 639,200
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00 270,884 257,245
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00 399,732 379,506
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
RESIDENTIAL MORTGAGE-BACKED (CONT.)
Washington Mutual Alternative Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-5 Cl 3A1B
07-25-36 0.30% $59,563(i) $58,420
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2004-AR9 Cl A6
08-25-34 2.95 1,212,021(i) 1,195,437
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2004-F Cl A3
06-25-34 4.72 1,020,502(i) 1,009,338
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-12 Cl A1
10-25-36 6.00 1,369,459 1,343,141
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-8 Cl 2A7
07-25-37 6.00 1,841,209 1,751,125
---------------
Total 299,118,287
- -------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $312,384,581) $327,215,627
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (3.0%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.20% 8,133,522(k) $8,133,522
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $8,133,522) $8,133,522
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $320,518,103)(l) $335,349,149
=====================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT NOV. 30, 2009
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- ------------------------------------------------------------------------------------
U.S. Treasury Note, 2-
year (265) $(58,022,579) Jan. 2010 $(309,460)
U.S. Treasury Note, 5-
year (9) (1,066,148) Jan. 2010 (24,881)
U.S. Treasury Note, 10-
year 133 15,951,687 March 2010 102,535
- ------------------------------------------------------------------------------------
Total $(231,806)
- ------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using policies described in Note 2 to the
financial statements.
(b) At Nov. 30, 2009, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$81,094,933. See Note 2 to the financial statements.
(c) Negligible market value.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At Nov. 30,
2009, the value of these securities amounted to $16,198,099 or 6.1% of net
assets.
(e) The following abbreviation is used in the portfolio security description to
identify the insurer of the issue:
MGIC -- Mortgage Guaranty Insurance Corporation
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only security is extremely sensitive to the rate of principal
payments on the underlying mortgage assets. A rapid (slow) rate of
principal repayments may have an adverse (positive) effect on yield to
maturity. The principal amount shown is the notional amount of the
underlying mortgages. The interest rate disclosed represents yield based
upon the estimated timing and amount of future cash flows at Nov. 30, 2009.
(h) This position is in bankruptcy.
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Nov. 30,
2009.
(j) At Nov. 30, 2009, investments in securities included securities valued at
$164,494 that were partially pledged as collateral to cover initial margin
deposits on open interest rate futures contracts.
(k) Affiliated Money Market Fund -- See Note 7 to the financial statements. The
rate shown is the seven-day current annualized yield at Nov. 30, 2009.
(l) At Nov. 30, 2009, the cost of securities for federal income tax purposes
was approximately $320,518,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $18,555,000
Unrealized depreciation (3,724,000)
-----------------------------------------------------------
Net unrealized appreciation $14,831,000
-----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
16 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS
Generally accepted accounting principles (GAAP) require disclosure regarding the
inputs and valuation techniques used to measure fair value and any changes in
valuation inputs or techniques. In addition, investments shall be disclosed by
major category.
The Fund categorizes its fair value measurements according to a three-level
hierarchy that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by prioritizing that the most observable input be used when
available. Observable inputs are those that market participants would use in
pricing an investment based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are those that reflect the Fund's
assumptions about the information market participants would use in pricing an
investment. An investment's level within the fair value hierarchy is based on
the lowest level of any input that is deemed significant to the asset or
liability's fair value measurement. The input levels are not necessarily an
indication of the risk or liquidity associated with investments at that level.
For example, certain U.S. government securities are generally high quality and
liquid, however, they are reflected as Level 2 because the inputs used to
determine fair value may not always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels listed below:
- Level 1 -- Valuations based on quoted prices for investments in active
markets that the Fund has the ability to access at the measurement date.
Valuation adjustments are not applied to Level 1 investments.
- Level 2 -- Valuations based on other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment speeds, credit risks, etc.).
- Level 3 -- Valuations based on significant unobservable inputs (including
the Fund's own assumptions and judgment in determining the fair value of
investments).
Inputs that are used in determining fair value of an investment may include
price information, credit data, volatility statistics, and other factors. These
inputs can be either observable or unobservable. The availability of observable
inputs can vary between investments, and is affected by various factors such as
the type of investment, and the volume and level of activity for that investment
or similar investments in the marketplace. The inputs will be considered by the
Fund Administrator, along with any other relevant factors in the calculation of
an investment's fair value. The Fund uses prices and inputs that are current as
of the measurement date, which may include periods of market dislocations.
During these periods, the availability of prices and inputs may be reduced for
many investments. This condition could cause an investment to be reclassified
between the various levels within the hierarchy.
Investments falling into the Level 3 category are primarily supported by quoted
prices from brokers and dealers participating in the market for those
investments. However, these may be classified as Level 3 investments due to lack
of market transparency and corroboration to support these quoted prices.
Additionally, valuation models may be used as the pricing source for any
remaining investments classified as Level 3. These models rely on one or more
significant unobservable inputs and/or significant assumptions by the Fund
Administrator. Inputs used in a valuation model may include, but are not limited
to, financial statement analysis, discount rates and estimated cash flows, and
comparable company data.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
FAIR VALUE MEASUREMENTS (CONTINUED)
The following table is a summary of the inputs used to value the Fund's
investments as of Nov. 30, 2009:
<Table>
<Caption>
FAIR VALUE AT NOV. 30, 2009
----------------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- ---------------------------------------------------------------------------------------------
Bonds
Asset-Backed Securities $-- $12,273,779 $-- $12,273,779
Commercial Mortgage-
Backed Securities -- 15,823,561 -- 15,823,561
Residential Mortgage-
Backed Securities -- 290,305,645 8,812,642 299,118,287
- ---------------------------------------------------------------------------------------------
Total Bonds -- 318,402,985 8,812,642 327,215,627
- ---------------------------------------------------------------------------------------------
Other
Affiliated Money Market
Fund(a) 8,133,522 -- -- 8,133,522
- ---------------------------------------------------------------------------------------------
Total Other 8,133,522 -- -- 8,133,522
- ---------------------------------------------------------------------------------------------
Investments in Securities 8,133,522 318,402,985 8,812,642 335,349,149
Other Financial
Instruments(b) (231,806) -- -- (231,806)
- ---------------------------------------------------------------------------------------------
Total $7,901,716 $318,402,985 $8,812,642 $335,117,343
- ---------------------------------------------------------------------------------------------
</Table>
(a) Money market fund that is a sweep investment for cash balances in the Fund
at Nov. 30, 2009.
(b) Other Financial Instruments are derivative instruments, which are valued at
the unrealized appreciation (depreciation) on the instrument. Derivative
descriptions are located in the Investments in Derivatives section of the
Portfolio of Investments.
The following table is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value.
<Table>
<Caption>
RESIDENTIAL
MORTGAGE-BACKED
SECURITIES
- -----------------------------------------------------------------
Balance as of May 30, 2009 $8,941,664
Accrued discounts/premiums 78,815
Realized gain (loss) (1,263,316)
Change in unrealized appreciation
(depreciation)* 6,033,254
Net purchases (sales) (3,072,394)
Transfers in and/or out of Level 3 (1,905,381)
- -----------------------------------------------------------------
Balance as of Nov. 30, 2009 $8,812,642
- -----------------------------------------------------------------
</Table>
* Change in unrealized appreciation (depreciation) relating to securities
held at Nov. 30, 2009 was $7,056,216.
- --------------------------------------------------------------------------------
18 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL 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 U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 19
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
NOV. 30, 2009 (UNAUDITED)
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $312,384,581) $327,215,627
Affiliated money market fund (identified cost $8,133,522) 8,133,522
- -------------------------------------------------------------------------------
Total investments in securities (identified cost $320,518,103) 335,349,149
Capital shares receivable 133,490
Dividends and accrued interest receivable 1,661,949
Receivable for investment securities sold 23,022,814
- -------------------------------------------------------------------------------
Total assets 360,167,402
- -------------------------------------------------------------------------------
LIABILITIES
Disbursements in excess of cash 192,683
Dividends payable to shareholders 273,919
Capital shares payable 420,798
Payable for investment securities purchased 10,635,729
Payable for securities purchased on a forward-commitment basis 81,094,933
Variation margin payable on futures contracts 31,064
Accrued investment management services fees 10,548
Accrued distribution fees 23,983
Accrued transfer agency fees 1,824
Accrued administrative services fees 1,538
Accrued plan administration services fees 14
Other accrued expenses 56,909
- -------------------------------------------------------------------------------
Total liabilities 92,743,942
- -------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $267,423,460
- -------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 527,176
Additional paid-in capital 273,702,727
Undistributed net investment income 446,264
Accumulated net realized gain (loss) (21,851,947)
Unrealized appreciation (depreciation) on investments 14,599,240
- -------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $267,423,460
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $ 78,953,667 15,557,288 $5.08(1)
Class B $ 19,647,042 3,869,743 $5.08
Class C $ 4,530,027 892,122 $5.08
Class I $164,228,429 32,385,757 $5.07
Class R4 $ 64,295 12,685 $5.07
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $5.33. 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.
- --------------------------------------------------------------------------------
20 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
STATEMENT OF OPERATIONS -------------------------------------------------------
SIX MONTHS ENDED NOV. 30, 2009 (UNAUDITED)
<Table>
<Caption>
INVESTMENT INCOME
Income:
Interest $ 8,465,945
Income distributions from affiliated money market fund 12,571
- ------------------------------------------------------------------------------
Total income 8,478,516
- ------------------------------------------------------------------------------
Expenses:
Investment management services fees 731,827
Distribution fees
Class A 99,593
Class B 108,031
Class C 21,549
Transfer agency fees
Class A 88,308
Class B 25,370
Class C 4,896
Class R4 16
Administrative services fees 106,725
Plan administration services fees -- Class R4 81
Compensation of board members 4,374
Custodian fees 7,775
Printing and postage 20,349
Registration fees 27,600
Professional fees 16,438
Other 7,349
- ------------------------------------------------------------------------------
Total expenses 1,270,281
Expenses waived/reimbursed by the Investment Manager and its
affiliates (233,479)
- ------------------------------------------------------------------------------
Total net expenses 1,036,802
- ------------------------------------------------------------------------------
Investment income (loss) -- net 7,441,714
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions 853,136
Futures contracts 195,043
- ------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,048,179
Net change in unrealized appreciation (depreciation) on
investments 16,811,729
- ------------------------------------------------------------------------------
Net gain (loss) on investments 17,859,908
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $25,301,622
- ------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 21
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2009 MAY 31, 2009
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 7,441,714 $ 17,054,737
Net realized gain (loss) on investments 1,048,179 (18,382,125)
Net change in unrealized appreciation (depreciation) on
investments 16,811,729 2,926,890
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 25,301,622 1,599,502
- -------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (1,762,018) (3,899,777)
Class B (393,043) (1,013,132)
Class C (79,203) (152,824)
Class I (4,795,772) (11,827,943)
Class R4 (1,470) (290,189)
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 (7,031,506) (19,851,352)
- -------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
22 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2009 MAY 31, 2009
(UNAUDITED)
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares $ 7,869,828 $ 16,869,316
Class B shares 1,300,996 7,170,065
Class C shares 744,596 1,148,620
Class I shares 4,319,981 73,431,416
Class R4 shares 287 75,985
Reinvestment of distributions at net asset value
Class A shares 1,537,866 4,107,536
Class B shares 346,739 1,103,090
Class C shares 70,459 167,436
Class I shares 4,705,400 13,610,360
Class R4 shares 1,208 161,216
Conversions from Class B to Class A
Class A shares 2,147,725 3,005,081
Class B shares (2,147,725) (3,005,081)
Payments for redemptions
Class A shares (16,374,691) (36,083,563)
Class B shares (5,321,668) (13,405,861)
Class C shares (639,706) (1,228,211)
Class I shares (78,257,415) (75,837,805)
Class R4 shares (5,098) (41,377,098)
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (79,701,218) (50,087,498)
- -------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (61,431,102) (68,339,348)
Net assets at beginning of period 328,854,562 397,193,910
- -------------------------------------------------------------------------------------------------
Net assets at end of period $267,423,460 $328,854,562
- -------------------------------------------------------------------------------------------------
Undistributed net investment income $ 446,264 $ 36,056
- -------------------------------------------------------------------------------------------------
</Table>
Certain line items from the prior year have been renamed to conform to the
current year presentation.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 23
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
The following tables are intended to help you understand the Fund's financial
performance. Certain information reflects financial results for a single share
of a class held for the periods shown. For periods ended 2008 and after, per
share net investment income (loss) amounts are calculated based on average
shares outstanding during the period. Total returns assume reinvestment of all
dividends and distributions. Total returns do not reflect payment of sales
charges, if any, and are not annualized for periods of less than one year.
<Table>
<Caption>
YEAR ENDED MAY 31,
CLASS A SIX MONTHS ENDED -------------------------------------------------
PER SHARE DATA NOV. 30, 2009 2009 2008 2007 2006 2005
(UNAUDITED)
Net asset value, beginning of period $4.77 $4.99 $5.00 $4.92 $5.12 $5.03
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .12 .21 .23 .22 .21 .19
Net gains (losses) (both realized and
unrealized) .30 (.18) (.02) .09 (.20) .10
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .42 .03 .21 .31 .01 .29
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.21) (.22) (.23) (.20) (.20)
Distributions from realized gains -- (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.25) (.22) (.23) (.21) (.20)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.08 $4.77 $4.99 $5.00 $4.92 $5.12
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 8.89% .79% 4.31% 6.30% .12% 5.78%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.08%(b) 1.08% 1.09% 1.17% 1.19% 1.10%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement(c) .89%(b) .89% .89% .89% .89% .95%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.68%(b) 4.51% 4.56% 4.45% 4.08% 3.67%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $79 $79 $95 $111 $126 $159
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 266% 431% 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
24 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED MAY 31,
CLASS B SIX MONTHS ENDED -------------------------------------------------
PER SHARE DATA NOV. 30, 2009 2009 2008 2007 2006 2005
(UNAUDITED)
Net asset value, beginning of period $4.77 $4.99 $5.00 $4.93 $5.12 $5.04
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10 .18 .19 .19 .17 .15
Net gains (losses) (both realized and
unrealized) .30 (.18) (.01) .07 (.19) .09
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .40 -- .18 .26 (.02) .24
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.18) (.19) (.19) (.16) (.16)
Distributions from realized gains -- (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.22) (.19) (.19) (.17) (.16)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.08 $4.77 $4.99 $5.00 $4.93 $5.12
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 8.48% .03% 3.53% 5.30% (.42%) 4.78%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.84%(b) 1.84% 1.86% 1.94% 1.95% 1.86%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement(c) 1.65%(b) 1.65% 1.65% 1.64% 1.64% 1.69%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.92%(b) 3.75% 3.79% 3.70% 3.31% 2.90%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $20 $24 $34 $44 $64 $98
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 266% 431% 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 25
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
<Table>
<Caption>
YEAR ENDED MAY 31,
CLASS C SIX MONTHS ENDED -------------------------------------------------
PER SHARE DATA NOV. 30, 2009 2009 2008 2007 2006 2005
(UNAUDITED)
Net asset value, beginning of period $4.77 $4.99 $5.00 $4.93 $5.12 $5.04
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10 .18 .19 .19 .17 .15
Net gains (losses) (both realized and
unrealized) .30 (.18) (.01) .07 (.19) .09
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .40 -- .18 .26 (.02) .24
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.18) (.19) (.19) (.16) (.16)
Distributions from realized gains -- (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.22) (.19) (.19) (.17) (.16)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.08 $4.77 $4.99 $5.00 $4.93 $5.12
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 8.48% .03% 3.53% 5.30% (.43%) 4.79%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement 1.84%(b) 1.83% 1.85% 1.94% 1.95% 1.85%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement(c) 1.65%(b) 1.65% 1.65% 1.64% 1.64% 1.70%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.94%(b) 3.76% 3.80% 3.70% 3.31% 2.90%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $5 $4 $4 $5 $7 $11
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 266% 431% 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
26 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED MAY 31,
CLASS I SIX MONTHS ENDED -------------------------------------------------
PER SHARE DATA NOV. 30, 2009 2009 2008 2007 2006 2005
(UNAUDITED)
Net asset value, beginning of period $4.77 $4.99 $5.00 $4.92 $5.11 $5.03
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .13 .23 .25 .24 .22 .20
Net gains (losses) (both realized and
unrealized) .29 (.18) (.02) .08 (.19) .09
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .42 .05 .23 .32 .03 .29
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.23) (.24) (.24) (.21) (.21)
Distributions from realized gains -- (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.27) (.24) (.24) (.22) (.21)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.07 $4.77 $4.99 $5.00 $4.92 $5.11
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 8.92% 1.21% 4.74% 6.68% .59% 5.92%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .60%(b) .61% .63% .63% .73% .66%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement(c) .47%(b) .48% .48% .54% .54% .62%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 5.09%(b) 4.93% 4.97% 4.90% 4.99% 3.99%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $164 $222 $222 $207 $6 $--
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 266% 431% 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 27
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
<Table>
<Caption>
YEAR ENDED MAY 31,
CLASS R4 SIX MONTHS ENDED -------------------------------------------------
PER SHARE DATA NOV. 30, 2009 2009 2008 2007 2006 2005
(UNAUDITED)
Net asset value, beginning of period $4.77 $4.99 $5.00 $4.92 $5.11 $5.03
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .12 .23 .23 .23 .21 .20
Net gains (losses) (both realized and
unrealized) .29 (.10) (.01) .08 (.19) .08
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations .41 .13 .22 .31 .02 .28
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.31) (.23) (.23) (.20) (.20)
Distributions from realized gains -- (.04) -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.35) (.23) (.23) (.21) (.20)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.07 $4.77 $4.99 $5.00 $4.92 $5.11
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 8.76% 2.82% 4.46% 6.51% .49% 5.75%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(a)
Gross expenses prior to expense
waiver/reimbursement .91%(b) .89% .93% .99% 1.04% .94%
- --------------------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement(c) .77%(b) .70% .75% .71% .71% .77%
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.80%(b) 4.38% 4.69% 4.63% 4.40% 3.99%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $-- $42 $40 $35 $--
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 266% 431% 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------------------
</Table>
NOTES TO FINANCIAL HIGHLIGHTS
(a) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
reported expense ratios.
(b) Annualized.
(c) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(d) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 136% for the six months
ended Nov. 30, 2009 and 162% for the year ended May 31, 2009.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
28 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
(UNAUDITED AS OF NOV. 30, 2009)
1. ORGANIZATION
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 (the 1940 Act) 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 Fund's 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 offered with a front-end sales charge, which may be waived
under certain circumstances.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares one month after the completion of
the eighth year of ownership if originally purchased in a RiverSource fund on
or after May 21, 2005 or originally purchased in a Seligman fund on or after
June 13, 2009. Class B shares originally purchased in a RiverSource fund
prior to May 21, 2005 will convert to Class A shares in the ninth calendar
year of ownership. Class B shares originally purchased in a Seligman fund
prior to June 13, 2009 will convert to Class A shares in the month prior to
the ninth year of ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are offered without a front-end sales charge or
CDSC to qualifying institutional investors.
At Nov. 30, 2009, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and affiliated funds-of-funds in the RiverSource Family of
Funds owned 100% of Class I shares. At Nov. 30, 2009, the Investment Manager,
RiverSource Life Insurance Company and affiliated funds-of-funds in the
RiverSource Family of Funds owned approximately 61% 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.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 29
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ADOPTION OF NEW ACCOUNTING STANDARD
In June 2009, the Financial Accounting Standards Board (FASB) established the
FASB Accounting Standards Codification(TM) (Codification) as the single source
of authoritative accounting principles recognized by the FASB in the preparation
of financial statements in conformity with U.S. generally accepted accounting
principles (GAAP). The Codification supersedes existing non-grandfathered, non-
SEC accounting and reporting standards. The Codification did not change GAAP but
rather organized it into a hierarchy where all guidance within the Codification
carries an equal level of authority. The Codification became effective for
financial statements issued for interim and annual periods ending after Sept.
15, 2009. The Codification did not have a material effect on the Fund's
financial statements.
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
All securities are valued at the close of business of the New York Stock
Exchange (NYSE). Securities traded on national securities exchanges or included
in national market systems are valued at the last quoted sales price. Debt
securities are generally traded in the over-the-counter market and are valued by
an independent pricing service using an evaluated bid. When market quotes are
not readily available, the pricing service, in determining fair values of debt
securities, takes into consideration such factors as current quotations by
broker/dealers, coupon, maturity, quality, type of issue, trading
characteristics, and other yield and risk factors it deems relevant in
determining valuations. The procedures adopted by the Board generally
contemplate the use of fair valuation in the event that price quotations or
valuations are not readily available, price quotations or valuations from other
sources are not reflective of market value and thus deemed unreliable, or a
significant event has occurred in relation to a security or class of securities
that is not reflected in price quotations or valuations from other sources. A
fair value price is a good faith estimate of the value of a security at a given
point in time.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates. Typically, those maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at amortized cost
using the
- --------------------------------------------------------------------------------
30 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
market value on the 61st day before maturity. Short-term securities maturing in
60 days or less at acquisition date are valued at amortized cost. Amortized cost
is an approximation of market 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-
commitments. At Nov. 30, 2009, the Fund has outstanding when-issued securities
of $81,094,933.
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
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 31
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
price established at the date the commitment was entered into. At Nov. 30, 2009,
the Fund had no outstanding forward sale commitments.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income (which includes net short-term capital gains) to
shareholders. No provision for income or excise taxes is thus required.
Management of the Fund has concluded that there are no significant uncertain tax
positions that would require recognition in the financial statements. Generally,
the tax authorities can examine all the tax returns filed for the last three
years.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are 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.
3. 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
- --------------------------------------------------------------------------------
32 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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.
EFFECTS OF DERIVATIVE TRANSACTIONS ON THE FINANCIAL STATEMENTS
The following tables are intended to provide additional information about the
effect of derivatives on the financial statements of the Fund including: the
fair value of derivatives by risk category and the location of those fair values
in the Statement of Assets and Liabilities; the impact of derivative
transactions on the Fund's operations over the period including realized gains
or losses and unrealized gains or losses. The derivative schedules following the
Portfolio of Investments present additional information regarding derivative
instruments outstanding at the end of the period, if any.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 33
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
FAIR VALUES OF DERIVATIVE INSTRUMENTS AT NOV. 30, 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
contracts assets -- unrealiz-
ed depreciation on
N/A N/A investments $231,806*
- -------------------------------------------------------------------------------------------
Total N/A $231,806
- -------------------------------------------------------------------------------------------
</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 is reported in
receivables or payables in the Statement of Assets and Liabilities.
EFFECT OF DERIVATIVE INSTRUMENTS IN THE STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOV. 30, 2009
<Table>
<Caption>
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED IN INCOME
- --------------------------------------------------------------------------------------
RISK EXPOSURE CATEGORY FUTURES
- --------------------------------------------------------------------------------------
Interest rate contracts $195,043
- --------------------------------------------------------------------------------------
Total $195,043
- --------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED IN INCOME
- --------------------------------------------------------------------------------------
RISK EXPOSURE CATEGORY FUTURES
- --------------------------------------------------------------------------------------
Interest rate contracts $(395,370)
- --------------------------------------------------------------------------------------
Total $(395,370)
- --------------------------------------------------------------------------------------
</Table>
VOLUME OF DERIVATIVE ACTIVITY
FUTURES
The gross notional amount of long and short contracts outstanding was $16
million and $59.1 million, respectively, at Nov. 30, 2009. The monthly average
gross notional amount for long and short contracts was $4.1 million and $23.1
million, respectively, for the six months ended Nov. 30, 2009. The fair value of
such contracts on Nov. 30, 2009 is set forth in the table above.
4. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is an annual fee that is equal to a percentage of the Fund's average daily net
assets that declines from 0.48% to 0.29% as the Fund's net assets increase. The
- --------------------------------------------------------------------------------
34 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
management fee for the six months ended Nov. 30, 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), the parent company of the Investment Manager, an
annual fee for administration and accounting services equal to a percentage of
the Fund's average daily net assets that declines from 0.07% to 0.04% as the
Fund's net assets increase. The fee for the six months ended Nov. 30, 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 six months ended Nov.
30, 2009, other expenses paid to this company were $915.
COMPENSATION OF BOARD MEMBERS
Under a Deferred Compensation Plan (the Plan), the board members who are not
"interested persons" of the Fund under the 1940 Act may defer receipt of their
compensation. Deferred amounts are treated as though equivalent dollar amounts
had been invested in shares of the Fund or 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 funds until distributed in accordance with the Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains Fund shareholder accounts and records and provides Fund
shareholder services. 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 Transfer Agent also charges an annual fee of $3
per account serviced directly by the Fund or its designated agent for Class A,
Class B and Class C shares. 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 the 12 month period from
the date the account becomes inactive. These fees are included in the transfer
agency fees in the Statement of Operations.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 35
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 an agreement with RiverSource Fund Distributors, Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution pursuant to Rule 12b-1, the Fund pays a fee at an
annual rate of up to 0.25% of the Fund's average daily net assets attributable
to Class A shares and a fee at an annual rate of up to 1.00% of the Fund's
average daily net assets attributable to Class B and Class C shares. For Class B
and Class C shares, of the 1.00% fee, up to 0.75% is reimbursed for distribution
expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed (unreimbursed expense) was approximately $927,000 and $39,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of Oct. 31, 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, including front-end and CDSCs, received by the Distributor for
distributing Fund shares were $37,424 for Class A, $2,455 for Class B and $64
for Class C for the six months ended Nov. 30, 2009.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the six months ended Nov. 30, 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............................................. 0.47
Class R4............................................ 0.77
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A........................................... $20,584
Class B........................................... 5,924
Class C........................................... 1,114
</Table>
- --------------------------------------------------------------------------------
36 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
The management fees waived/reimbursed at the Fund level were $205,857.
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.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations, but including mortgage-dollar rolls) aggregated $969,330,057 and
$1,044,138,971, respectively, for the six months ended Nov. 30, 2009. Realized
gains and losses are determined on an identified cost basis.
6. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2009 MAY 31, 2009*
- ---------------------------------------------------------------------
CLASS A
Sold 1,610,275 3,541,015
Converted from Class B** 441,920 607,087
Reinvested distributions 312,897 866,721
Redeemed (3,350,872) (7,573,975)
- ---------------------------------------------------------------------
Net increase (decrease) (985,780) (2,559,152)
- ---------------------------------------------------------------------
CLASS B
Sold 265,685 1,504,114
Reinvested distributions 70,620 232,629
Converted to Class A** (441,920) (607,087)
Redeemed (1,089,370) (2,806,248)
- ---------------------------------------------------------------------
Net increase (decrease) (1,194,985) (1,676,592)
- ---------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2009 MAY 31, 2009*
- ---------------------------------------------------------------------
CLASS C
Sold 151,854 240,131
Reinvested distributions 14,322 35,345
Redeemed (130,792) (256,741)
- ---------------------------------------------------------------------
Net increase (decrease) 35,384 18,735
- ---------------------------------------------------------------------
CLASS I
Sold 889,677 15,087,681
Reinvested distributions 959,782 2,874,393
Redeemed (15,938,957) (15,906,305)
- ---------------------------------------------------------------------
Net increase (decrease) (14,089,498) 2,055,769
- ---------------------------------------------------------------------
CLASS R4
Sold 59 22,129
Reinvested distributions 246 32,732
Redeemed (1,047) (8,546,518)
- ---------------------------------------------------------------------
Net increase (decrease) (742) (8,491,657)
- ---------------------------------------------------------------------
</Table>
* Certain line items from the prior year have been renamed to conform to the
current year presentation.
** Automatic conversion of Class B shares to Class A shares based on the
original purchase date.
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 $97,015,317 and $97,502,256,
respectively, for the six months ended Nov. 30, 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 Nov. 30, 2009, can be found in the
Portfolio of Investments.
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.
15, 2009, replacing a prior credit facility. The credit facility agreement,
which is a collective agreement between the Fund and certain other funds in the
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38 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Family of Funds, severally and not jointly, permits collective
borrowings up to $300 million. The borrowers shall have the right, upon written
notice to the Administrative Agent to request an increase of up to $200 million
in the aggregate amount of the credit facility from new or existing lenders,
provided that the aggregate amount of the credit facility shall at no time
exceed $500 million. Participation in such increase by any existing lender shall
be at such lender's sole discretion. Interest is charged to each Fund based on
its borrowings at a rate equal to the sum of the federal funds rate plus (A)
1.25% per annum plus (B) if one-month LIBOR exceeds the federal funds rate, the
amount of such excess. Each borrowing under the credit facility matures no later
than 60 days after the date of borrowing. The Fund also pays a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.10% per annum, in addition to an upfront fee equal to its pro rata share of
0.04% of the amount of the credit facility. Prior to Oct. 15, 2009, the credit
facility agreement, which was a collective agreement between the Fund and
certain other funds in the RiverSource Family of Funds, severally and not
jointly, permitted collective borrowings up to $475 million. Interest was
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.75%. 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, 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 six months ended Nov.
30, 2009.
9. FEDERAL TAX INFORMATION
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures and options
contracts, recognition of unrealized appreciation (depreciation) for certain
derivative investments, 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.
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
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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.
It is unlikely the Board will authorize a distribution of any net realized
capital gains until the available capital loss carry-over has been offset or
expires. There is no assurance that the Fund will be able to utilize all of its
capital loss carry-over before it expires.
10. SUBSEQUENT EVENTS
Management has evaluated Fund related events and transactions that occurred
during the period from the date of the Statement of Assets and Liabilities
through Jan. 20, 2010, the date of issuance of the Fund's financial statements.
There were no events or transactions that occurred during the period that
materially impacted the amounts or disclosures in the Fund's financial
statements.
11. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc. was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company (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. On August
6, 2009, defendants filed a writ of certiorari with the U.S. Supreme Court,
asking the U.S. Supreme Court to stay the District Court proceedings while the
U.S. Supreme Court considers and rules in a case captioned Jones v.
- --------------------------------------------------------------------------------
40 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
Harris Associates, which involves issues of law similar to those presented in
the Gallus case.
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.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co. Incorporated (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. (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
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL REPORT 41
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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 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.
- --------------------------------------------------------------------------------
42 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2009 SEMIANNUAL 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 SEMIANNUAL REPORT 43
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 Fund Distributors, Inc., Member
FINRA, and managed by RiverSource Investments, LLC.
RiverSource is part of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C)2010 RiverSource Investments, LLC. S-6256 J (1/10)
</Table>
Item 2. Code of Ethics. Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert. Not applicable for semi-annual
reports.
Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual
reports.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. Investments.
(a) The complete schedule of investments is included in Item 1 of this Form
N-CSR.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's Principal Financial Officer and Principal Executive Officer
have concluded that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal controls over financial
reporting that occurred during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of
1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached
as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Government Income Series, Inc.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date February 3, 2010
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 February 3, 2010
By /s/ Jeffrey P. Fox
----------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial
Officer
Date February 3, 2010