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(R)
SHORT DURATION U.S. GOVERNMENT FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
NOVEMBER 30, 2007
RIVERSOURCE SHORT DURATION U.S.
GOVERNMENT FUND SEEKS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF
CURRENT INCOME AND SAFETY OF
PRINCIPAL CONSISTENT WITH
INVESTMENT IN U.S. GOVERNMENT AND
GOVERNMENT AGENCY SECURITIES.
TABLE OF CONTENTS
<Table>
Fund Snapshot....................... 3
Performance Summary................. 5
Questions & Answers
with Portfolio Management........ 7
Fund Expenses Example............... 10
Portfolio of Investments............ 12
Financial Statements................ 20
Notes to Financial Statements....... 24
Proxy Voting........................ 42
Change in Independent Registered
Public Accounting Firm........... 43
</Table>
(DALBAR LOGO)
The RiverSource mutual fund
shareholder reports have been
awarded the Communications Seal
from Dalbar Inc., an independent
financial services research firm.
The Seal recognizes communications
demonstrating a level of
excellence in the industry.
- --------------------------------------------------------------------------------
2 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
FUND SNAPSHOT AT NOV. 30, 2007 (UNAUDITED)
FUND OBJECTIVE
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.
SECTOR BREAKDOWN
Percentage of portfolio assets
(PIE CHART)
<Table>
Mortgage-Backed(1) 52.5%
Cash & Cash Equivalents(2) 23.0%
U.S. Government Obligations & Agencies 20.8%
Asset-Backed 2.1%
Commercial Mortgage-Backed 1.6%
</Table>
(1) Of the 52.5%, 2.8% is due to forward commitment mortgage-backed securities
activity. Short-term securities are held as collateral for these
commitments.
(2) Of the 23.0%, 6.6% is due to security lending activity and 16.4% is the
Fund's cash equivalent position.
QUALITY BREAKDOWN
Percentage of bond portfolio assets
(PIE CHART)
<Table>
AAA bonds 99.1%
AA bonds 0.8%
A bonds 0.1%
</Table>
Bond ratings apply to the number of underlying holdings of the Fund and not the
Fund itself. Whenever possible, the Standard and Poor's rating is used to
determine the credit quality of a security. Standard and Poor's rates the
creditworthiness of corporate bonds, with 15 categories, ranging from AAA
(highest) to D (lowest). Ratings from AA to CCC may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within the major
rating categories. If Standard and Poor's doesn't rate a security, then Moody's
rating is used. RiverSource Investments, LLC, the Fund's investment manager,
rates a security using an internal rating system when Moody's doesn't provide a
rating.
Shares of the 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 -- 2007 SEMIANNUAL REPORT 3
FUND SNAPSHOT AT NOV. 30, 2007 (UNAUDITED)
STYLE MATRIX
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund generally
invests.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO MANAGERS*
<Table>
<Caption>
YEARS IN INDUSTRY
Jamie Jackson, CFA 19
Scott Kirby 28
</Table>
* The Fund is managed by teams of investment
professionals led by Jamie Jackson and Scott Kirby.
FUND FACTS
<Table>
<Caption>
TICKER SYMBOL INCEPTION DATE
Class A IFINX 08/19/85
Class B ISHOX 03/20/95
Class C AXFCX 06/26/00
Class I AGMIX 03/04/04
Class R4 IDFYX 03/20/95
Class W RSDWX 12/01/06
Total net assets $796.0 million
Number of holdings 171
Weighted average life(1) 3.0 years
Effective duration(2) 1.6 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.
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4 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
PERFORMANCE SUMMARY
PERFORMANCE COMPARISON
For the six-month period ended Nov. 30, 2007
(BAR CHART)
<Table>
RiverSource Short Duration U.S. Government Fund
Class A (excluding sales charge) +3.52%
Lehman Brothers 1-3 Year Government Index(1)
(unmanaged) +4.98%
Lipper Short U.S. Government Funds Index(2) +3.55%
</Table>
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
(1) The Lehman Brothers 1-3 Year Government Index, an unmanaged index, is made
up of all publicly issued, non-convertible domestic debt of the U.S.
government, or agency thereof, or any quasi-federal corporation. The index
also includes corporate debt guaranteed by the U.S. government. Only notes
and bonds with a minimum maturity of one year up to a maximum maturity of
2.9 years are included. The index reflects reinvestment of all
distributions and changes in market prices.
(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.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
<Table>
<Caption>
TOTAL NET EXPENSES(A)
Class A 1.03% 0.89%
Class B 1.79% 1.65%
Class C 1.80% 1.65%
Class I 0.59% 0.51%
Class R4 0.89% 0.76%
Class W 1.01% 0.96%
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until May 31, 2008,
unless sooner terminated at the discretion of the Fund's Board. Any amounts
waived will not be reimbursed by the Fund. Under this agreement, net fund
expenses (excluding fees and expenses of acquired funds) will not exceed
0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.51% for Class I,
0.76% for Class R4 and 0.96% for Class W.
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RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 5
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
AT NOV. 30, 2007
SINCE
WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
Class A (inception 8/19/85) +3.52% +5.02% +3.56% +2.65% +3.96% +6.15%
Class B (inception 3/20/95) +3.12% +4.23% +2.79% +1.88% +3.18% +4.02%
Class C (inception 6/26/00) +3.12% +4.46% +2.79% +1.88% N/A +3.34%
Class I (inception 3/4/04) +3.49% +5.41% +3.86% N/A N/A +3.12%
Class R4 (inception 3/20/95) +3.58% +5.18% +3.74% +2.82% +4.12% +4.97%
Class W (inception 12/1/06) +3.48% N/A N/A N/A N/A +4.95%*
WITH SALES CHARGE
Class A (inception 8/19/85) -1.48% -0.03% +1.89% +1.67% +3.43% +5.90%
Class B (inception 3/20/95) -1.88% -0.77% +1.51% +1.51% +3.18% +4.02%
Class C (inception 6/26/00) +2.12% +3.46% +2.79% +1.88% N/A +3.34%
</Table>
<Table>
<Caption>
AT DEC. 31, 2007 SINCE
WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
Class A (inception 8/19/85) +3.58% +5.28% +3.51% +2.47% +3.90% +6.13%
Class B (inception 3/20/95) +3.18% +4.48% +2.73% +1.70% +3.12% +4.00%
Class C (inception 6/26/00) +3.18% +4.49% +2.74% +1.70% N/A +3.32%
Class I (inception 3/4/04) +3.77% +5.89% +3.88% N/A N/A +3.16%
Class R4 (inception 3/20/95) +3.64% +5.43% +3.68% +2.64% +4.05% +4.95%
Class W (inception 12/1/06) +3.54% +5.21% N/A N/A N/A +6.00%
WITH SALES CHARGE
Class A (inception 8/19/85) -1.43% +0.20% +1.84% +1.46% +3.36% +5.89%
Class B (inception 3/20/95) -1.82% -0.52% +1.46% +1.34% +3.12% +4.00%
Class C (inception 6/26/00) +2.18% +3.49% +2.74% +1.70% N/A +3.32%
</Table>
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I, Class R4 and Class W shares. Class I and Class R4 are
available to institutional investors only. Class W shares are offered through
qualifying discretionary accounts.
* Not annualized.
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6 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT
Below, Portfolio Managers Jamie Jackson and Scott Kirby discuss the Fund's
positioning and results for the six months ended Nov. 30, 2007.
Q: How did RiverSource Short Duration U.S. Government Fund perform for the first
half of the fiscal year?
A: RiverSource Short Duration U.S. Government Fund's Class A shares
(excluding sales charge) rose 3.52% for the six months ended Nov. 30, 2007.
The Fund underperformed the Lehman Brothers 1-3 Year Government Index (Lehman
Index), which gained 4.98%. The Fund performed in line with the Lipper Short
U.S. Government Funds Index, representing the Fund's peer group, which
advanced 3.55% during the same time frame.
THE FUND MAINTAINED A LONGER DURATION THAN THE LEHMAN INDEX THROUGHOUT THE
SEMIANNUAL PERIOD, WHICH HELPED RESULTS, AS INTEREST RATES DECLINED OVER
THE SIX MONTHS.
Q: What factors most significantly affected performance during the semiannual
period?
A: The six-month period ended Nov. 30, 2007 marked a period of substantial
volatility in the global financial markets. The markets' main concerns
stemmed from the deteriorating U.S. housing market and mounting losses on
mortgage securities directly tied to the performance of lower quality,
so-called subprime borrowers. What started in the mortgage sector spread to
all corners of the fixed income markets, as investors fled riskier sectors en
masse. In response, the Federal Reserve Board lowered interest rates 75 basis
points (0.75%) over the period and made other changes designed to support
liquidity in the banking and financial systems. Interest rates fell
significantly during the period as investors fled riskier assets for the
relative safety of Treasuries, pushing yields lower. Away from Treasuries,
however, other fixed income sectors posted weaker results. Securities with
credit risk -- especially those with mortgage-related credit risk -- faced
significant selling pressure during the July and August "credit panic."
Although the market stabilized temporarily in the fall, November brought a
fresh round of panic as the market was spooked by increasing talk of an
impending recession.
The primary contributor to the Fund's performance was its duration
positioning. The Fund maintained a longer duration than the Lehman Index
through most of the semiannual period, which helped results, as interest
rates
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 7
QUESTIONS & ANSWERS
declined over the six months. Duration is a measure of the Fund's sensitivity
to changes in interest rates.
To a much more modest degree, the Fund's exposure to Treasury Inflation
Protected Securities, or TIPS, contributed to results, as TIPS slightly
outperformed nominal Treasury securities, or non-inflation protected Treasury
securities, as actual inflation came in higher than expected during the
period.
The Fund's yield curve positioning detracted from performance over the
period, as the Fund maintained a yield curve flattening bias. However, while
U.S. Treasury yields moved lower across the yield curve, they did so more
significantly in the shorter segments than at the long-term end, causing the
U.S. Treasury yield curve to steepen over the semiannual period.
The Fund's sizable exposure to mortgage-backed securities also detracted from
results, as mortgage-backed securities posted positive returns, but
underperformed both agency securities and Treasuries during the semiannual
period. Conversely, issue selection within mortgage-backed securities boosted
returns, particularly the Fund's emphasis on premium coupon securities.
Higher coupon mortgage-backed securities outperformed lower coupon
mortgage-backed securities for the period.
Q: What changes did you make to the Fund and how is it currently positioned?
A: Within the Fund's allocations to both mortgage-backed securities and agency
securities, we shifted to a somewhat more aggressive strategy as spreads, or
the difference in yields between these securities and U.S. Treasuries,
widened and valuations reached compelling levels during the semiannual
period. By the end of the period, we felt the Fund was well positioned for
tighter spreads anticipated over the coming months.
As interest rates rallied over the semiannual period, we reduced the Fund's
duration relative to the Lehman Index, bringing it from a slightly longer
duration to a modestly shorter duration than the Lehman Index. We implemented
this strategy primarily by selling Treasuries with maturities at the longer
end of the 1-3 year portion of the yield curve.
The portfolio turnover rate of 126% during the semiannual period can be
attributed primarily to rolling-maturity mortgage securities, processing of
prepayments and opportunistic changes we made at the margin in response to
valuations or market developments.
- --------------------------------------------------------------------------------
8 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
QUESTIONS & ANSWERS
BY THE END OF THE PERIOD, WE FELT THE FUND WAS WELL POSITIONED FOR TIGHTER
SPREADS ANTICIPATED OVER THE COMING MONTHS.
Q: What is the Fund's tactical view and strategy for the months ahead?
A: At the end of November, we believed that fixed income market fundamentals
had taken a backseat in investors' minds to technical factors and overly
pessimistic fears regarding both liquidity and the U.S. economy. As a result,
rates declined more than was warranted, in our view. We intend to position
the Fund to take advantage of the compelling valuations that we saw in the
last months of the period and to participate in the recovery of high quality
spread sectors, or non-Treasury sectors, that we anticipate for 2008 when
fears have hopefully subsided and liquidity returned to the markets. We
expect economic growth prospects and the potential for higher inflation to
ultimately recapture investors' attention.
As trend-like growth resumes in 2008 and inflation pressures remain, we
expect rates may well move higher, and so we intend to maintain the Fund's
shorter-than-Lehman Index duration implemented toward the end of the period.
We also intend to maintain the Fund's premium coupon bias among its
mortgage-backed holdings, as prepayments are expected to remain slow. As
always, our strategy is to provide added portfolio value with a moderate
amount of risk. Quality issues and security selection remain a priority as we
continue to seek attractive buying opportunities.
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource Fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource Fund.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 9
FUND EXPENSES EXAMPLE
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the acquired funds expense ratio as of the most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Nov 30, 2007.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
10 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JUNE 1, 2007 NOV. 30, 2007 THE PERIOD(A) EXPENSE RATIO
Class A
Actual(b) $1,000 $1,035.20 $4.53 .89%
Hypothetical
(5% return before
expenses) $1,000 $1,020.55 $4.50 .89%
Class B
Actual(b) $1,000 $1,031.20 $8.38 1.65%
Hypothetical
(5% return before
expenses) $1,000 $1,016.75 $8.32 1.65%
Class C
Actual(b) $1,000 $1,031.20 $8.38 1.65%
Hypothetical
(5% return before
expenses) $1,000 $1,016.75 $8.32 1.65%
Class I
Actual(b) $1,000 $1,034.90 $2.59 .51%
Hypothetical
(5% return before
expenses) $1,000 $1,022.45 $2.58 .51%
Class R4
Actual(b) $1,000 $1,035.80 $3.87 .76%
Hypothetical
(5% return before
expenses) $1,000 $1,021.20 $3.84 .76%
Class W
Actual(b) $1,000 $1,034.80 $4.88 .96%
Hypothetical
(5% return before
expenses) $1,000 $1,020.20 $4.85 .96%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/366 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Nov. 30, 2007: +3.52%
for Class A, +3.12% for Class B, +3.12% for Class C, +3.49% for Class I,
+3.58% for Class R4 and +3.48% for Class W.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 11
PORTFOLIO OF INVESTMENTS
NOV. 30, 2007 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (84.6%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (22.9%)
Federal Farm Credit Bank
10-10-08 4.25% $6,015,000 $6,018,116
Federal Home Loan Bank
02-08-08 4.63 13,510,000 13,514,850
02-13-08 5.25 13,730,000 13,751,707
11-21-08 4.63 6,500,000 6,531,824
12-29-08 5.13 24,390,000 24,680,095
Federal Home Loan Mtge Corp
06-15-08 3.88 4,010,000 3,997,649
08-23-17 5.50 5,500,000 5,891,072
Federal Natl Mtge Assn
10-15-08 4.50 10,615,000 10,671,111
11-15-30 6.63 1,945,000 2,373,425
U.S. Treasury
02-15-08 3.38 30,815,000(b,o) 30,819,806
09-30-09 4.00 14,000,000(b) 14,227,500
10-31-09 3.63 26,810,000(b) 27,088,583
11-15-17 4.25 5,005,000(b) 5,119,960
U.S. Treasury Inflation-Indexed Bond
01-15-14 2.00 16,929,391(l) 17,520,832
---------------
Total 182,206,530
- ------------------------------------------------------------------------------------
ASSET-BACKED (2.3%)
Capital Auto Receivables Asset Trust
Series 2006-SN1A Cl A4B
03-20-10 4.85 3,250,000(d,k) 3,225,034
Countrywide Asset-backed Ctfs
Series 2007-7 Cl 2A2
10-25-37 4.95 2,600,000(k) 2,502,500
Fannie Mae Grantor Trust
Series 2005-T4 Cl A1C
09-25-35 4.93 2,628,252(k) 2,595,399
Master Asset Backed Securities Trust
Series 2006-HE1 Cl A2
01-25-36 4.93 2,200,000(k) 2,172,843
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
ASSET-BACKED (CONT.)
Residential Asset Securities
Series 2007-KS3 Cl AI2
04-25-37 4.97% $4,050,000(k) $3,869,977
Soundview Home Equity Loan Trust
Series 2006-EQ1 Cl A2
10-25-36 4.90 3,900,000(k) 3,719,625
---------------
Total 18,085,378
- ------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (1.8%)(f)
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 6,864,863 7,037,030
Federal Natl Mtge Assn #360800
01-01-09 5.74 3,040,862(o) 3,068,472
Federal Natl Mtge Assn #381990
10-01-09 7.11 4,124,010 4,208,562
---------------
Total 14,314,064
- ------------------------------------------------------------------------------------
MORTGAGE-BACKED (57.6%)(f,n)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-1 Cl 3A21
03-25-37 6.19 2,130,409(j) 2,141,255
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 4.95 3,404,356(j) 3,098,320
American Home Mtge Investment Trust
Collateralized Mtge Obligation
Series 2007-1 Cl GA1C
05-25-47 4.98 4,389,291(j) 4,226,703
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00 3,617,464 3,592,376
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
12 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Barclays Capital LLC Trust
Collateralized Mtge Obligation
Series 2007-AA4 Cl 11A1
06-25-47 6.25% $1,444,307(j) $1,450,532
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 1,617,863 1,659,529
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00 6,081,610 5,792,215
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-22 Cl 2A16
09-25-37 6.50 4,891,439 4,944,099
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
11-25-37 6.50 4,941,097 4,839,958
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 5.14 5,930,309(k) 5,437,389
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 5.28 4,067,641(k) 3,198,903
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-HYB8 17 Cl 4A1
12-20-35 5.62 3,362,341(j) 3,347,302
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 4,694,473(d) 5,080,688
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-17 Cl 2A1
10-25-37 6.50 4,872,573 4,896,175
Federal Home Loan Mtge Corp
12-01-37 6.00 8,000,000(e) 8,120,000
Federal Home Loan Mtge Corp #1G2598
01-01-37 6.14 2,757,628(j) 2,824,348
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #1J0614
09-01-37 5.72% $3,344,413(j) $3,392,874
Federal Home Loan Mtge Corp #A18107
01-01-34 5.50 3,405,094 3,411,071
Federal Home Loan Mtge Corp #C00351
07-01-24 8.00 278,772 298,546
Federal Home Loan Mtge Corp #C00385
01-01-25 9.00 424,022 459,732
Federal Home Loan Mtge Corp #C80329
08-01-25 8.00 78,660 84,216
Federal Home Loan Mtge Corp #E00398
10-01-10 7.00 363,232 372,825
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 3,883,724 4,054,029
Federal Home Loan Mtge Corp #E90650
07-01-12 5.50 226,127 229,572
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 3,104,774 3,112,882
Federal Home Loan Mtge Corp #G00363
06-01-25 8.00 350,295 375,039
Federal Home Loan Mtge Corp #G00501
05-01-26 9.00 648,714 703,522
Federal Home Loan Mtge Corp #G10669
03-01-12 7.50 1,718,648 1,788,915
Federal Home Loan Mtge Corp #G11243
04-01-17 6.50 13,903,876 14,383,936
Federal Home Loan Mtge Corp #G12100
11-01-13 5.00 3,558,867 3,576,300
Federal Home Loan Mtge Corp #M30074
09-01-09 6.50 90,942 92,773
Federal Home Loan Mtge Corp
12-01-37 6.50 12,000,000(e) 12,337,499
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 11 Cl B
01-01-20 24.81 7,375(h) 1,541
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 237 Cl IO
05-15-36 8.64 1,190,635(h) 275,043
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND - 2007 SEMIANNUAL REPORT 13
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2564 Cl IX
12-15-12 88.55% $796,029(h) $3,273
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2590 Cl BI
02-15-14 21.35 2,285,639(h) 44,021
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2783 Cl MI
03-15-25 12.92 4,443,190(h) 174,657
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2471 Cl SI
03-15-32 11.07 1,460,376(g,h) 150,197
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2882 Cl XS
11-15-19 2.30 7,023,541(g,h) 676,623
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2617 Cl HD
06-15-16 7.00 7,168,552 7,450,783
Federal Natl Mtge Assn
12-01-37 6.00 4,000,000(e) 4,065,000
Federal Natl Mtge Assn #125032
11-01-21 8.00 148,854 158,997
Federal Natl Mtge Assn #190129
11-01-23 6.00 1,054,473 1,077,546
Federal Natl Mtge Assn #190353
08-01-34 5.00 6,937,274 6,811,318
Federal Natl Mtge Assn #190785
05-01-09 7.50 141,340 141,543
Federal Natl Mtge Assn #190988
06-01-24 9.00 261,371 280,171
Federal Natl Mtge Assn #254384
06-01-17 7.00 378,159 393,865
Federal Natl Mtge Assn #254454
08-01-17 7.00 627,548 653,611
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #254723
05-01-23 5.50% $9,490,602 $9,615,078
Federal Natl Mtge Assn #254748
04-01-13 5.50 6,203,394 6,283,359
Federal Natl Mtge Assn #254757
05-01-13 5.00 8,583,702 8,683,742
Federal Natl Mtge Assn #254774
05-01-13 5.50 2,024,649 2,063,178
Federal Natl Mtge Assn #255501
09-01-14 6.00 870,075(o) 903,828
Federal Natl Mtge Assn #303885
05-01-26 7.50 489,499 523,741
Federal Natl Mtge Assn #313007
07-01-11 7.50 238,216 244,979
Federal Natl Mtge Assn #313428
12-01-08 7.50 13,930 13,950
Federal Natl Mtge Assn #336512
02-01-26 6.00 64,204 65,787
Federal Natl Mtge Assn #357485
02-01-34 5.50 14,029,551 14,088,486
Federal Natl Mtge Assn #407327
01-01-14 5.50 455,460 461,240
Federal Natl Mtge Assn #456374
12-01-13 5.50 845,222 855,948
Federal Natl Mtge Assn #508402
08-01-14 6.50 280,044 290,092
Federal Natl Mtge Assn #545818
07-01-17 6.00 14,838,271 15,220,545
Federal Natl Mtge Assn #545864
08-01-17 5.50 12,027,634 12,227,153
Federal Natl Mtge Assn #545910
08-01-17 6.00 2,291,306 2,350,374
Federal Natl Mtge Assn #555063
11-01-17 5.50 8,578,655 8,717,753
Federal Natl Mtge Assn #555367
03-01-33 6.00 10,326,415 10,535,396
Federal Natl Mtge Assn #579485
04-01-31 6.50 2,373,734 2,473,412
Federal Natl Mtge Assn #593829
12-01-28 7.00 1,586,926 1,668,865
Federal Natl Mtge Assn #601416
11-01-31 6.50 910,869 948,389
Federal Natl Mtge Assn #630993
09-01-31 7.50 2,490,417 2,664,035
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #648040
06-01-32 6.50% $2,281,130 $2,358,430
Federal Natl Mtge Assn #648349
06-01-17 6.00 7,592,557 7,788,289
Federal Natl Mtge Assn #651284
07-01-17 6.00 1,511,333 1,548,789
Federal Natl Mtge Assn #662866
11-01-17 6.00 1,213,333 1,248,959
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,386,500 1,433,484
Federal Natl Mtge Assn #670782
11-01-12 5.00 447,630 452,695
Federal Natl Mtge Assn #670830
12-01-12 5.00 487,601 493,892
Federal Natl Mtge Assn #671415
01-01-10 5.00 358,477 359,101
Federal Natl Mtge Assn #678940
02-01-18 5.50 2,347,588 2,385,357
Federal Natl Mtge Assn #686227
02-01-18 5.50 3,069,512 3,118,528
Federal Natl Mtge Assn #696837
04-01-18 5.50 3,341,982 3,395,110
Federal Natl Mtge Assn #704610
06-01-33 5.50 11,022,757 11,069,061
Federal Natl Mtge Assn #712602
06-01-13 5.00 1,146,492 1,159,860
Federal Natl Mtge Assn #722325
07-01-33 4.97 5,277,915(j) 5,284,298
Federal Natl Mtge Assn #725232
03-01-34 5.00 10,325,162 10,142,845
Federal Natl Mtge Assn #725425
04-01-34 5.50 9,747,854 9,791,725
Federal Natl Mtge Assn #725431
08-01-15 5.50 8,873,520 8,986,120
Federal Natl Mtge Assn #725773
09-01-34 5.50 8,265,976 8,293,621
Federal Natl Mtge Assn #730632
08-01-33 4.08 1,891,874(j) 1,869,707
Federal Natl Mtge Assn #735212
12-01-34 5.00 6,126,791 6,015,551
Federal Natl Mtge Assn #739243
09-01-33 6.00 3,070,799 3,139,238
Federal Natl Mtge Assn #739331
09-01-33 6.00 1,578,515 1,608,536
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #743524
11-01-33 5.00% $3,199,945 $3,143,442
Federal Natl Mtge Assn #753508
11-01-33 5.00 3,470,871(o) 3,409,584
Federal Natl Mtge Assn #791447
10-01-34 6.00 4,845,700 4,933,071
Federal Natl Mtge Assn #797046
07-01-34 5.50 2,908,100 2,917,826
Federal Natl Mtge Assn #799769
11-01-34 5.04 4,175,733(j) 4,188,343
Federal Natl Mtge Assn #801344
10-01-34 5.07 4,755,483(j) 4,797,427
Federal Natl Mtge Assn #815463
02-01-35 5.50 1,952,556 1,959,086
Federal Natl Mtge Assn #832641
09-01-35 6.00 6,364,063 6,471,430
Federal Natl Mtge Assn #849082
01-01-36 5.82 2,690,510(j) 2,736,079
Federal Natl Mtge Assn #849170
01-01-36 5.95 3,729,936(j) 3,800,596
Federal Natl Mtge Assn #878661
02-01-36 5.50 8,200,193 8,171,328
Federal Natl Mtge Assn #883267
07-01-36 6.50 4,530,217 4,686,883
Federal Natl Mtge Assn #887096
07-01-36 5.81 4,936,522(j) 4,980,533
Federal Natl Mtge Assn #887403
07-01-36 7.00 2,962,017 3,088,577
Federal Natl Mtge Assn #902818
11-01-36 5.93 2,516,362(j) 2,555,793
Federal Natl Mtge Assn #919341
05-01-37 6.50 4,196,839 4,316,639
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 163 Cl 2
07-25-22 28.60 607,394(h) 95,536
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-24 Cl PI
12-25-12 105.86 283,756(h) 358
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND - 2007 SEMIANNUAL REPORT 15
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-26 Cl MI
03-25-23 10.20% $1,803,952(h) $327,442
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 16.45 4,098,844(h) 807,789
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 10.85 2,126,841(h) 357,488
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-81 Cl LI
11-25-13 20.00 4,460,552(h) 124,895
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 36 Cl 2
08-01-18 14.21 4,615(h) 1,103
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 367 Cl 2
01-01-36 8.59 2,939,695(h) 683,734
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 70 Cl 2
01-15-20 27.28 212,116(h) 41,054
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2002-18 Cl SE
02-25-32 12.22 3,125,099(g,h) 323,821
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2005-92 CL SC
10-25-35 9.47 6,953,154(g,h) 408,150
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series G-15 Cl A
06-25-21 4.50% $28,345(i) $25,128
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 2,107,869 2,245,019
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-94 Cl QB
07-25-23 5.50 6,202,029 6,198,299
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-W11 Cl A1
06-25-33 8.00 142,738(j) 143,991
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2004-60 Cl PA
04-25-34 5.50 3,508,707 3,553,304
Govt Natl Mtge Assn #615740
08-15-13 6.00 887,900 908,764
Govt Natl Mtge Assn #781507
09-15-14 6.00 4,166,165 4,265,219
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-62 Cl IC
03-20-29 20.00 2,157,762(h) 89,072
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-32 Cl A
01-16-30 5.08 9,042,878 9,086,329
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 3A
06-19-34 6.25 495,343(j) 488,765
Lehman XS Net Interest Margin Nts
Collateralized Mtge Obligation
Series 2006-GPM6 Cl A1
10-28-46 6.25 266,710(d) 262,715
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
0x
Lehman XS Trust
Collateralized Mtge Obligation
Series 2006-16N Cl A1B
11-25-46 4.91% $2,985,881(k) $2,928,495
Merrill Lynch Alternative Note Asset
Collateralized Mtge Obligation
Series 2007-OAR1 Cl A1
02-25-37 4.96 5,590,235(k) 5,404,595
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR3 Cl A1A
02-25-46 5.86 2,029,903(j) 1,974,122
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 5,987,907 5,765,636
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-14 Cl 2A1
12-25-35 5.50 2,965,807 2,899,977
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 4,571,572 4,553,002
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 1A1
09-25-36 6.03 1,771,636(j) 1,784,432
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR6 Cl 5A1
03-25-36 5.11 3,714,658(j) 3,658,698
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-11 Cl A68
08-25-37 6.00 4,904,036 4,937,580
---------------
Total 459,025,387
- ------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $670,935,976) $673,631,359
- ------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (0.1%)(c)
SHARES VALUE(A)
RiverSource Short-Term Cash Fund
628,445(m) $628,445
- -----------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $628,445) $628,445
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHORT-TERM SECURITIES (25.3%)(c)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUER YIELD MATURITY VALUE(A)
U.S. GOVERNMENT AGENCIES
Federal Home Loan Bank Disc Nts
12-11-07 4.29% $15,000,000 $14,980,613
12-13-07 4.21 20,000,000 19,970,028
12-17-07 4.35 26,100,000 26,047,249
12-20-07 4.22 19,925,000 19,879,062
03-07-08 3.46 24,000,000 23,946,912
Federal Home Loan Mtge Disc Nts
12-04-07 4.06 18,300,000 18,291,867
01-07-08 4.28 40,000,000 39,822,666
Federal Natl Mtge Assn Disc Nts
12-03-07 3.90 38,100,000 38,087,935
- ----------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost: $201,099,609) $201,026,332
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $872,664,030)(p) $875,286,136
==================================================================================
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND - 2007 SEMIANNUAL REPORT 17
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT NOV. 30, 2007
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION/
CONTRACT DESCRIPTION LONG/(SHORT) MARKET VALUE DATE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------
U.S. Long Bond, 20-year 48 $5,625,000 March 2008 $(45,431)
U.S. Treasury Note, 2-year 727 152,749,519 March 2008 (455,734)
U.S. Treasury Note, 5-year (437) (48,233,875) Dec. 2007 (1,555,920)
U.S. Treasury Note, 5-year (275) (30,280,079) March 2008 (11,071)
U.S. Treasury Note, 10-year (551) (62,770,956) Dec. 2007 (2,467,928)
U.S. Treasury Note, 10-year (29) (3,282,891) March 2008 (3,702)
- -------------------------------------------------------------------------------------------------
Total $(4,539,786)
- -------------------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) At Nov. 30, 2007, security was partially or fully on loan. See Note 5 to
the financial statements.
(c) Cash collateral received from security lending activity is invested in an
affiliated money market fund/short-term securities and represents 7.2% of
net assets. See Note 5 to the financial statements. The Fund's cash
equivalent position is 18.2% 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
has been determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At Nov. 30,
2007, the value of these securities amounted to $8,568,437 or 1.1% of net
assets.
(e) At Nov. 30, 2007, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$24,468,958.
(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) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in the LIBOR (London InterBank Offering Rate) Index.
Interest rate disclosed is the rate in effect on Nov. 30, 2007. At Nov. 30,
2007, the value of inverse floaters represented 0.2% of net assets.
(h) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. The principal
amount shown is the notional amount of the underlying mortgages. Interest
rate disclosed represents yield based upon the estimated timing and amount
of future cash flows at Nov. 30, 2007.
- --------------------------------------------------------------------------------
18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(i) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only 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, 2007.
(j) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Nov. 30, 2007.
(k) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Nov. 30,
2007.
(l) 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.
(m) Affiliated Money Market Fund - See Note 6 to the financial statements.
(n) Comparable securities are held to satisfy future delivery requirements of
the following open forward sale commitments at Nov. 30, 2007:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
- --------------------------------------------------------------------------------------
Federal Natl Mtge
Assn
12-01-22 5.50% $1,275,000 12-17-07 $1,277,988 $1,289,742
</Table>
(o) At Nov. 30, 2007, investments in securities included securities valued at
$750,968 that were partially pledged as collateral to cover initial margin
deposits on open interest rate futures contracts.
(p) At Nov. 30, 2007, the cost of securities for federal income tax purposes
was approximately $872,664,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $7,648,000
Unrealized depreciation (5,026,000)
- -------------------------------------------------------------------------
Net unrealized appreciation $2,622,000
- -------------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 19
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOV. 30, 2007 (UNAUDITED)
<Table>
ASSETS
Investments in securities, at value
Unaffiliated issuers* (identified cost $872,035,585) $ 874,657,691
Affiliated money market fund (identified cost $628,445) 628,445
- ------------------------------------------------------------------------------
Total investments in securities (identified cost
$872,664,030) 875,286,136
Capital shares receivable 838,462
Accrued interest receivable 4,348,152
Receivable for investment securities sold 5,381,275
Variation margin receivable 33,470
- ------------------------------------------------------------------------------
Total assets 885,887,495
- ------------------------------------------------------------------------------
LIABILITIES
Forward sale commitments, at value (proceeds receivable
$1,277,988) 1,289,742
Dividends payable to shareholders 503,309
Capital shares payable 1,261,394
Payable for investment securities purchased 28,509,815
Payable upon return of securities loaned 57,413,750
Accrued investment management services fee 10,476
Accrued distribution fee 156,093
Accrued transfer agency fee 2,977
Accrued administrative services fee 1,487
Accrued plan administration services fee 942
Other accrued expenses 715,510
- ------------------------------------------------------------------------------
Total liabilities 89,865,495
- ------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $ 796,022,000
==============================================================================
</Table>
- --------------------------------------------------------------------------------
20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
NOV. 30, 2007 (UNAUDITED)
<Table>
REPRESENTED BY
Capital stock -- $.01 par value $ 1,662,045
Additional paid-in capital 1,017,297,044
Excess of distributions over net investment income (694,985)
Accumulated net realized gain (loss) (220,312,671)
Unrealized appreciation (depreciation) on investments (1,929,433)
- ------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $ 796,022,000
==============================================================================
</Table>
<Table>
Net assets applicable to outstanding
shares: Class A $ 536,838,797
Class B $ 171,657,937
Class C $ 9,399,699
Class I $ 73,722,182
Class R4 $ 4,398,346
Class W $ 5,039
Net asset value per share of outstanding Class A
capital stock: shares(1) 112,102,656 $ 4.79
Class B shares 35,841,268 $ 4.79
Class C shares 1,962,790 $ 4.79
Class I shares 15,378,700 $ 4.79
Class R4 shares 918,007 $ 4.79
Class W shares 1,053 $ 4.79
- -------------------------------------------------------------------------------------------
*Including securities on loan, at value $ 56,455,200
- -------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $5.03. The offering
price is calculated by dividing the net asset value by 1.0 minus the
maximum sales charge of 4.75%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 21
STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOV. 30, 2007 (UNAUDITED)
<Table>
INVESTMENT INCOME
Income:
Interest $19,718,408
Income distributions from affiliated money market fund 87,570
Fee income from securities lending 67,211
- ---------------------------------------------------------------------------
Total income 19,873,189
- ---------------------------------------------------------------------------
Expenses:
Investment management services fee 1,869,175
Distribution fee
Class A 662,921
Class B 923,601
Class C 49,091
Class W 6
Transfer agency fee
Class A 507,040
Class B 186,413
Class C 9,721
Class R4 1,090
Class W 5
Administrative services fee 265,652
Plan administration services fee -- Class R4 5,451
Compensation of board members 7,129
Custodian fees 30,884
Printing and postage 92,560
Registration fees 40,389
Professional fees 25,603
Other 13,578
- ---------------------------------------------------------------------------
Total expenses 4,690,309
Expenses waived/reimbursed by the Investment Manager and
its affiliates (582,560)
- ---------------------------------------------------------------------------
4,107,749
Earnings and bank fee credits on cash balances (35,595)
- ---------------------------------------------------------------------------
Total net expenses 4,072,154
- ---------------------------------------------------------------------------
Investment income (loss) -- net 15,801,035
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (645,176)
Futures contracts 5,208,052
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments 4,562,876
Net change in unrealized appreciation (depreciation) on
investments 5,009,308
- ---------------------------------------------------------------------------
Net gain (loss) on investments 9,572,184
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $25,373,219
===========================================================================
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2007 MAY 31, 2007
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 15,801,035 $ 34,864,001
Net realized gain (loss) on investments 4,562,876 (3,231,933)
Net change in unrealized appreciation (depreciation)
on investments 5,009,308 13,960,710
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 25,373,219 45,592,778
- ----------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (11,635,525) (23,143,295)
Class B (3,333,192) (8,304,295)
Class C (178,026) (382,419)
Class I (1,181,895) (2,092,223)
Class R4 (98,645) (521,296)
Class W (108) (92)
- ----------------------------------------------------------------------------------------
Total distributions (16,427,391) (34,443,620)
- ----------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 107,889,792 123,697,762
Class B shares 20,541,809 39,042,955
Class C shares 1,036,378 1,714,861
Class I shares 45,324,841 28,598,207
Class R4 shares 1,319,506 1,928,332
Class W shares -- 5,000
Reinvestment of distributions at net asset value
Class A shares 10,556,230 20,974,512
Class B shares 3,104,057 7,756,733
Class C shares 167,579 362,001
Class I shares 1,127,184 2,093,754
Class R4 shares 98,210 523,566
Payments for redemptions
Class A shares (101,535,475) (279,123,681)
Class B shares (70,140,648) (172,096,057)
Class C shares (2,185,223) (6,479,313)
Class I shares (28,052,746) (38,743,791)
Class R4 shares (929,702) (17,374,573)
- ----------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions (11,678,208) (287,119,732)
- ----------------------------------------------------------------------------------------
Total increase (decrease) in net assets (2,732,380) (275,970,574)
Net assets at beginning of period 798,754,380 1,074,724,954
- ----------------------------------------------------------------------------------------
Net assets at end of period $ 796,022,000 $ 798,754,380
========================================================================================
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 23
NOTES TO FINANCIAL STATEMENTS
(Unaudited as to Nov. 30, 2007)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Short Duration U.S. Government Fund (the Fund) is a series of
RiverSource Government Income Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. RiverSource Government Income Series, Inc. has 10
billion authorized shares of capital stock that can be allocated among the
separate series as designated by the Board. The Fund invests in direct
obligations of the U.S. government, such as Treasury bonds, bills and notes, and
of its agencies and instrumentalities.
The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
- - Class W shares are sold without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At Nov. 30, 2007, RiverSource Investments, LLC (the Investment Manager) and the
affiliated funds-of-funds owned 100% of Class I shares.
At Nov. 30, 2007, the Investment Manager owned 100% of Class W shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Foreign securities are valued based on quotations from the principal market in
which such securities are normally traded. The procedures adopted by the Board
of Directors of the funds generally contemplate the use of fair valuation in the
event that price quotations or valuations are not readily available, price
quotations or valuations from other sources are not reflective of market value
and thus deemed unreliable, or a significant event has occurred in relation to a
security or class of securities (such as foreign securities) that is not
reflected in price quotations or valuations from other sources. A fair value
price is a good faith estimate of the value of a security at a given point in
time.
Many securities markets and exchanges outside the U.S. close prior to the close
of the New York Stock Exchange and therefore the closing prices for securities
in such markets or on such exchanges may not fully reflect events that occur
after such close but before the close of the New York Stock Exchange, including
significant movements in the U.S. market after foreign exchanges have closed.
Accordingly, in those situations, Ameriprise Financial, Inc. (Ameriprise
Financial), parent company of the Investment Manager, as administrator to the
Fund, will fair value foreign securities pursuant to procedures adopted by the
Board of Directors of the funds, including utilizing a third party pricing
service to determine these fair values. These procedures take into account
multiple factors, including movements in the U.S. securities markets, to
determine a good faith estimate that reasonably reflects the current market
conditions as of the close of the New York Stock Exchange.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS
Delivery and payment for securities that have been purchased by the Fund on a
forward-commitment basis, including when-issued securities and other forward-
commitments, can take place one month or more after the transaction date. During
this period, such securities are subject to market fluctuations, and they may
affect the Fund's net assets the same as owned securities. The Fund designates
cash or liquid securities at least equal to the amount of its
forward-commitments. At Nov. 30, 2007, the Fund has entered into outstanding
when-issued securities of $24,468,958.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 25
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 purchases 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.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Fund may buy and sell put and call options
and write put and call options. This may include purchasing mortgage-backed
security (MBS) put spread options and writing covered MBS call spread options.
MBS spread options are based upon the changes in the price spread between a
specified mortgage-backed security and a like-duration Treasury security. The
Fund also may write over-the-counter options where completing the obligation
depends upon the credit standing of the other party. Cash collateral may be
collected by the Fund to secure certain over-the-counter options trades. Cash
collateral held by the Fund for such option trades must be returned to the
counterparty upon closure, exercise or expiration of the contract. The risk in
writing a call option is that the Fund gives up the opportunity for profit if
the market price of the security increases. The risk in writing a put option is
that the Fund may incur a loss if the market price of the security decreases and
the option is exercised. The risk in buying an option is that the Fund pays a
premium whether or not the option is exercised. The Fund also has the additional
risk of being unable to enter into a closing transaction if a liquid secondary
market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Fund will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid. During the six months ended Nov. 30, 2007, the Fund had no
outstanding option contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts. Risks of entering into futures contracts and
related options include the possibility of an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
- --------------------------------------------------------------------------------
26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
Futures are valued daily based upon the last sale price at the close of 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.
SHORT SALES
The Fund may engage in short sales. In these transactions, the Fund sells a
security that it does not own. The Fund is obligated to replace the security
that was short by purchasing it at the market price at the time of replacement
or entering into an offsetting transaction with the broker. The price at such
time may be more or less than the price at which the Fund sold the security. At
Nov. 30, 2007, the Fund had no outstanding short sales.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are used
to satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the "Notes to Portfolio of
Investments."
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 27
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to the shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts and losses deferred due to "wash sale" transactions.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
RECENT ACCOUNTING PRONOUNCEMENTS
On Sept. 20, 2006, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 157 "Fair Value Measurements"
(SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional disclosures
about fair-value measurements. The application of SFAS 157 is required for
fiscal years beginning after Nov. 15, 2007 and interim periods within those
fiscal years. The impact of SFAS 157 on the Fund's financial statements is being
evaluated.
In June 2006, the FASB issued FASB Interpretation 48 (FIN 48), "Accounting for
Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in accordance with FASB Statement 109, "Accounting for
Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a
tax position taken or expected to be taken in a tax return. The first step is to
determine whether a tax position has met the more-likely-than-not recognition
threshold and the second step is to measure a tax position that meets the
threshold to determine the amount of benefit to recognize. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. FIN 48 has been adopted by the Fund
and there is no material impact on the Fund.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.48%
to 0.25% annually as the Fund's assets increase. The management fee for the six
months ended Nov. 30, 2007, was 0.48% of the Fund's average daily net assets.
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial a
fee for administration and accounting services at a percentage of the Fund's
average daily net assets that declines from 0.07% to 0.04% annually as the
Fund's assets increase. The fee for the six months ended Nov. 30, 2007, was
0.07% of the Fund's average daily net assets.
Other expenses in the amount of $3,293 are for, among other things, certain
expenses of the Fund or the Board including: Fund boardroom and office expense,
employee compensation, employee health and retirement benefits, and certain
other expenses. Payment of these Fund and Board expenses is facilitated by a
company providing limited administrative services to the Fund and the Board.
Compensation of Board members includes, for a former Board Chair, compensation
as well as retirement benefits. Certain other aspects of a former Board Chair's
compensation, including health benefits and payment of certain other expenses,
are included under other expenses.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
RiverSource funds. The Fund's liability for these amounts is adjusted for market
value changes and remains in the Fund until distributed in accordance with the
Plan.
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual fee per shareholder account for this service as follows:
- - Class A $20.50
- - Class B $21.50
- - Class C $21.00
The Fund pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of
the Fund's average daily net assets attributable to Class R4 shares and an
annual asset-based fee at a rate of 0.20% of the Fund's average daily net assets
attributable to Class W shares.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 29
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of operations.
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.
The Fund has an agreement with RiverSource Distributors, Inc. (the Distributor)
for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise
Financial Services, Inc. also served as a principal underwriter and distributor
to the Fund. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1,
the Fund pays a fee at an annual rate of up to 0.25% of the Fund's average daily
net assets attributable to Class A and Class W shares and a fee at an annual
rate of up to 1.00% of the Fund's average daily net assets attributable to Class
B and Class C shares.
Sales charges received by the Distributor for distributing Fund shares were
$254,598 for Class A, $82,327 for Class B and $589 for Class C for the six
months ended Nov. 30, 2007.
In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in which
it invests (also referred to as "acquired funds"), including affiliated and non-
affiliated pooled investment vehicles (including mutual funds and exchange
traded funds). Because the acquired funds have varied expense and fee levels and
the Fund may own different proportions of acquired funds at different times, the
amount of fees and expenses incurred indirectly by the Fund will vary.
For the six months ended Nov. 30, 2007, the Investment Manager and its
affiliates waived/reimbursed certain fees and expenses such that net expenses
(excluding fees and expenses of acquired funds) were 0.89% for Class A, 1.65%
for Class B, 1.65% for Class C, 0.51% for Class I, 0.76% for Class R4 and 0.95%
for Class W. Of these waived/reimbursed fees and expenses, the transfer agency
fees at the class level were $162,321, $57,109, $3,005 and $1,090 for Class A,
Class B, Class C and Class R4, respectively, and the plan administration
services fee at the class level was $64 for Class R4. The management fees at the
Fund level were $358,971. In addition, the Investment Manager and its affiliates
have contractually agreed to waive certain fees and expenses until May 31, 2008,
such that net expenses (excluding fees and expenses of acquired funds) will not
exceed 0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.51% for Class
I, 0.76% for Class R4 and 0.96% for Class W of the Fund's average daily net
assets, unless sooner terminated at the discretion of the Board.
- --------------------------------------------------------------------------------
30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
During the six months ended Nov. 30, 2007, the Fund's transfer agency fees were
reduced by $35,595 as a result of bank fee credits from overnight cash balances.
The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of
Ameriprise Financial.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $880,901,809 and $917,474,247, respectively, for the six
months ended Nov. 30, 2007. Realized gains and losses are determined on an
identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED NOV. 30, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------------------
Class A 22,773,711 2,220,634 (21,388,366) 3,605,979
Class B 4,324,428 653,016 (14,813,080) (9,835,636)
Class C 218,238 35,260 (460,393) (206,895)
Class I 9,507,969 236,551 (5,929,802) 3,814,718
Class R4 278,282 20,650 (195,610) 103,322
Class W -- -- -- --
- ----------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED MAY 31, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------------------
Class A 26,249,182 4,438,028 (59,067,555) (28,380,345)
Class B 8,265,255 1,641,653 (36,500,655) (26,593,747)
Class C 362,929 76,605 (1,372,316) (932,782)
Class I 6,032,035 442,337 (8,233,131) (1,758,759)
Class R4 409,261 110,927 (3,673,601) (3,153,413)
Class W 1,053 -- -- 1,053
- ----------------------------------------------------------------------------------------------
</Table>
5. LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend securities
representing up to one-third of the value of its total assets (which includes
collateral for securities on loan) to broker-dealers, banks, or other
institutional borrowers of securities. The Fund receives collateral in the form
of cash and U.S. government securities, equal to at least 100% of the value of
securities loaned, which is marked to the market value of the loaned securities
daily until the securities are returned,
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 31
e.g., if the value of the securities on loan increases, additional cash
collateral is provided by the borrower. The Investment Manager serves as
securities lending agent for the Fund under the Investment Management Services
Agreement pursuant to which the Fund has agreed to reimburse the Investment
Manager for expenses incurred by it in connection with the lending program, and
pursuant to guidelines adopted by and under the oversight of the Board. At Nov.
30, 2007, securities valued at $56,455,200 were on loan to brokers. For
collateral, the Fund received $57,413,750 in cash. Cash collateral received is
invested in an affiliated money market fund and short-term securities, including
U.S. government securities or other high-grade debt obligations, which are
included in the "Portfolio of Investments." Income from securities lending
amounted to $67,211 for the six months ended Nov. 30, 2007. Expenses paid to the
Investment Manager were $2,042 for the six months ended Nov. 30, 2007, which are
included in other expenses on the Statement of operations. The risks to the Fund
of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
6. AFFILIATED MONEY MARKET FUND
The fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the RiverSource funds
and other institutional clients of RiverSource Investments. The cost of the
Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term
Cash Fund aggregated $220,597,282 and $233,255,683, respectively, for the six
months ended Nov. 30, 2007.
7. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the
temporary funding of shareholder redemptions or for other temporary or emergency
purposes. The credit facility became effective on Oct. 18, 2007, replacing a
prior credit facility. The credit facility agreement, which is a collective
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permits collective borrowings up to $500 million. Interest is
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matures no later
than 60 days after the date of borrowing. The Fund also pays a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum. Under the prior credit facility, a Fund paid interest on its
outstanding borrowings at a rate equal to either the higher of the federal funds
effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. The Fund
had no borrowings during the six months ended Nov. 30, 2007.
- --------------------------------------------------------------------------------
32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
8. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$220,701,443 at May 31, 2007, that if not offset by capital gains will expire as
follows:
<Table>
<Caption>
2008 2009 2013 2014 2015 2016
$35,174,077 $117,356,906 $36,267,962 $20,469,230 $9,579,187 $1,854,081
</Table>
It is unlikely the Board will authorize a distribution of any net realized
capital gains until the available capital loss carry-over has been offset or
expires.
9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendants' motion to dismiss the
complaint, the 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 on
August 8, 2007.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), the parent company of RiverSource Investments, LLC
(RiverSource Investments), entered into settlement agreements with the
Securities and Exchange Commission (SEC) and Minnesota Department of Commerce
(MDOC) related to market timing activities. In connection with these matters,
the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain
provisions of the federal and Minnesota securities laws by failing to adequately
disclose market timing activities by allowing certain identified market timers
to continue to market time contrary to disclosures in mutual fund and variable
annuity product prospectuses. The Orders also alleged that AEFC failed to
implement procedures to detect and prevent market timing in 401(k) plans for
employees of AEFC and related companies and failed to adequately disclose that
there were no such procedures. Pursuant to the MDOC Order, the MDOC also
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 33
alleged that AEFC allowed inappropriate market timing to occur by failing to
have written policies and procedures and failing to properly supervise its
employees.
As a result of the Orders, AEFC was censured and ordered to cease and desist
from committing or causing any violations of certain provisions of the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and various
Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to make presentations at least annually to its board of directors and the
relevant mutual funds' board that include an overview of policies and procedures
to prevent market timing, material changes to these policies and procedures and
whether disclosures related to market timing are consistent with the SEC order
and federal securities laws. AEFC also agreed to retain an independent
distribution consultant to assist in developing a plan for distribution of all
disgorgement and civil penalties ordered by the SEC in accordance with various
undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In
addition, AEFC agreed to complete and submit to the MDOC a compliance review of
its procedures regarding market timing within one year of the MDOC Order,
including a summary of actions taken to ensure compliance with applicable laws
and regulations and certification by a senior officer regarding compliance and
supervisory procedures.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Funds' Boards of Directors/Trustees.
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
- --------------------------------------------------------------------------------
34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
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 -- 2007 SEMIANNUAL REPORT 35
10. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(I) 2007 2006 2005 2004
Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10(b) .19 .15 .12 .11
Net gains (losses) (both realized and
unrealized) .06 .05 (.10) (.03) (.12)
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .16 .24 .05 .09 (.01)
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.19) (.16) (.12) (.11)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.79 $4.73 $4.68 $4.79 $4.82
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $537 $514 $641 $894 $1,188
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.04%(e) 1.03% 1.06% 1.01% .97%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c),(d) .89%(e),(f) .89%(f) .89%(f) .93%(f) .97%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.23%(e) 3.99% 3.27% 2.49% 2.19%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 126% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------------
Total return(g) 3.52%(h) 5.12% 1.00% 1.92% (.24%)
- -----------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
36 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(I) 2007 2006 2005 2004
Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08(b) .15 .12 .08 .07
Net gains (losses) (both realized and
unrealized) .07 .05 (.11) (.03) (.12)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .15 .20 .01 .05 (.05)
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.15) (.12) (.08) (.07)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.79 $4.73 $4.68 $4.79 $4.82
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $172 $216 $338 $588 $963
- -----------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.80%(e) 1.79% 1.82% 1.76% 1.72%
- -----------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c),(d) 1.65%(e),(f) 1.64%(f) 1.64%(f) 1.68%(f) 1.72%
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.45%(e) 3.23% 2.50% 1.73% 1.44%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 126% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------------------
Total return(g) 3.12%(h) 4.34% .26% 1.16% (.99%)
- -----------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 37
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(I) 2007 2006 2005 2004
Net asset value, beginning of
period $4.73 $4.68 $4.79 $4.82 $4.94
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss) .08(b) .15 .12 .08 .07
Net gains (losses) (both
realized and unrealized) .07 .05 (.11) (.03) (.12)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .15 .20 .01 .05 (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income ( .09) (.15) (.12) (.08) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.79 $4.73 $4.68 $4.79 $4.82
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $10 $10 $15 $24 $38
- ---------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.80%(e) 1.80% 1.83% 1.77% 1.73%
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c),(d) 1.65%(e),(f) 1.64%(f) 1.64%(f) 1.68%(f) 1.73%
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.47%(e) 3.24% 2.51% 1.73% 1.44%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 126% 168% 194% 169% 125%
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(g) 3.12%(h) 4.34% .26% 1.16% (.99%)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
38 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(J) 2007 2006 2005 2004(B)
Net asset value, beginning of period $4.74 $4.69 $4.79 $4.83 $4.90
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11(c) .20 .17 .14 .03
Net gains (losses) (both realized and
unrealized) .05 .05 (.10) (.04) (.07)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .16 .25 .07 .10 (.04)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.20) (.17) (.14) (.03)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.79 $4.74 $4.69 $4.79 $4.83
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $74 $55 $62 $31 $4
- -----------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .60%(f) .59% .62% .57% .63%(f)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e) .51%(f),(g) .54%(g) .58%(g) .57% .63%(f)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.60%(f) 4.37% 3.66% 2.98% 2.74%(f)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 126% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------------------------
Total return(h) 3.49%(i) 5.50% 1.56 2.06% (.87%)(i)
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (inception date) to May 31, 2004.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 39
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(I) 2007 2006 2005 2004
Net asset value, beginning of period $4.73 $4.68 $4.79 $4.82 $4.94
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10(b) .19 .16 .13 .12
Net gains (losses) (both realized and
unrealized) .07 .05 (.11) (.03) (.12)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations .17 .24 .05 .10 --
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.19) (.16) (.13) (.12)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.79 $4.73 $4.68 $4.79 $4.82
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $4 $4 $19 $100 $115
- -----------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .90%(e) .86% .88% .84% .81%
- -----------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c),(d) .76%(e),(f) .72%(f) .72%(f) .76%(f) .81%
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.36%(e) 4.09% 3.27% 2.66% 2.35%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 126% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------------------
Total return(g) 3.58%(h) 5.31% 1.19% 2.10% (.08%)
- -----------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(J) 2007(B)
Net asset value, beginning of period $4.73 $4.75
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10(c) .08
Net gains (losses) (both realized and
unrealized) .06 (.02)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .16 .06
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.08)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.79 $4.73
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.05%(f) 1.00%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(g) .95%(f) .95%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.16%(f) 4.02%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 126% 168%
- -----------------------------------------------------------------------------------------------------------
Total return(h) 3.48%(i) 1.42%(i)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 41
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 RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities 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.
- --------------------------------------------------------------------------------
42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On April 12, 2007, Ernst & Young LLP was selected as the Fund's independent
registered public accounting firm for the 2008 fiscal year. A majority of the
Fund's Board of Directors, including a majority of the Independent Directors,
approved the appointment of Ernst & Young LLP. The predecessor independent
registered public accounting firm's reports on the Fund's financial statements
for the year ended May 31, 2007 and the year ended May 31, 2006 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. During such fiscal periods
and through April 12, 2007 there were no disagreements between the Fund and the
predecessor independent registered public accounting firm on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which such disagreements, if not resolved to the
satisfaction of the predecessor independent registered public accounting firm,
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports on the financial statements for
such fiscal periods.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2007 SEMIANNUAL REPORT 43
RIVERSOURCE(R) SHORT DURATION U.S. GOVERNMENT FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by
the Fund's current prospectus. RiverSource(R)
mutual funds are distributed by RiverSource
Distributors, Inc., Member FINRA, and managed
by RiverSource Investments, LLC. These
companies are part of Ameriprise Financial,
Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6442 Y (1/08)
</Table>
Semiannual Report
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE(R)
U.S. GOVERNMENT MORTGAGE FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
NOVEMBER 30, 2007
RIVERSOURCE U.S. GOVERNMENT
MORTGAGE FUND SEEKS TO PROVIDE
SHAREHOLDERS WITH CURRENT INCOME
AS ITS PRIMARY OBJECTIVE AND, AS
ITS SECONDARY OBJECTIVE,
PRESERVATION OF CAPITAL.
TABLE OF CONTENTS
<Table>
Fund Snapshot....................... 3
Performance Summary................. 5
Questions & Answers
with Portfolio Management........ 7
Fund Expenses Example............... 11
Portfolio of Investments............ 13
Financial Statements................ 24
Notes to Financial Statements....... 28
Proxy Voting........................ 44
Change in Independent Registered
Public Accounting Firm........... 45
</Table>
(DALBAR LOGO)
The RiverSource mutual fund
shareholder reports have been
awarded the Communications Seal
from Dalbar Inc., an independent
financial services research firm.
The Seal recognizes communications
demonstrating a level of
excellence in the industry.
- --------------------------------------------------------------------------------
2 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
FUND SNAPSHOT AT NOV. 30, 2007 (UNAUDITED)
FUND OBJECTIVE
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.
SECTOR BREAKDOWN
Percentage of portfolio assets
(PIE CHART)
<Table>
Cash & Cash Equivalents 3.2%
Commercial Mortgage-Backed 3.5%
Asset-Backed 0.9%
Mortgage-Backed* 92.4%
</Table>
* Of the 92.4%, 23.5% is due to forward commitment mortgage-backed securities
activity. Short-term securities are held as collateral for these
commitments.
QUALITY BREAKDOWN
Percentage of bond portfolio assets
(PIE CHART)
<Table>
AA bonds 0.2%
BBB bonds 0.6%
AAA bonds 99.2%
</Table>
Bond ratings apply to the number of underlying holdings of the Fund and not the
Fund itself. Whenever possible, the Standard and Poor's rating is used to
determine the credit quality of a security. Standard and Poor's rates the
creditworthiness of corporate bonds, with 15 categories, ranging from AAA
(highest) to D (lowest). Ratings from AA to CCC may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within the major
rating categories. If Standard and Poor's doesn't rate a security, then Moody's
rating is used. RiverSource Investments, LLC, the Fund's investment manager,
rates a security using an internal rating system when Moody's doesn't provide a
rating.
Shares of the RiverSource U.S. Government Mortgage Fund are not insured or
guaranteed by the U.S. government.
There are risks associated with an investment in a bond fund, including the
impact of interest rates and credit. These and other risk considerations are
discussed in the fund's prospectus. In general, bond prices rise when interest
rates fall and vice versa. This effect is usually more pronounced for
longer-term securities.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 3
FUND SNAPSHOT AT NOV. 30, 2007 (UNAUDITED)
STYLE MATRIX
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund generally
invests.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO MANAGER
<Table>
<Caption>
YEARS IN INDUSTRY
Scott Kirby* 28
* The Fund is managed by a team of
investment professionals led by Scott
Kirby.
</Table>
FUND FACTS
<Table>
<Caption>
TICKER SYMBOL INCEPTION DATE
Class A AUGAX 02/14/02
Class B AUGBX 02/14/02
Class C AUGCX 02/14/02
Class I RVGIX 03/04/04
Class R4 RSGYX 02/14/02
Total net assets $417.9 million
Number of holdings 263
Weighted average life(1) 6.3 years
Effective duration(2) 2.8 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.
- --------------------------------------------------------------------------------
4 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
PERFORMANCE SUMMARY
PERFORMANCE COMPARISON
For the six-month period ended Nov. 30, 2007
(BAR CHART)
<Table>
RiverSource U.S. Government Mortgage Fund Class A
(excluding sales charge) +3.41%
Lehman Brothers Mortgage-Backed Securities
Index(1) (unmanaged) +5.05%
Lipper U.S. Mortgage Funds Index(2) +3.67%
</Table>
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
(1) The Lehman Brothers Mortgage-Backed Securities Index, an unmanaged index,
includes 15- and 30-year fixed-rate securities backed by mortgage pools of
the Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), and Federal National Mortgage Association
(FNMA). The index reflects reinvestment of all distributions and changes in
market prices.
(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.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
<Table>
<Caption>
TOTAL NET EXPENSES(A)
Class A 1.17% 0.89%
Class B 1.94% 1.65%
Class C 1.94% 1.65%
Class I 0.63% 0.48%
Class R4 0.99% 0.75%
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to
waive certain fees and to absorb certain expenses until May 31, 2008,
unless sooner terminated at the discretion of the Fund's Board. Any amounts
waived will not be reimbursed by the Fund. Under this agreement, net fund
expenses (excluding fees and expenses of acquired funds) will not exceed
0.89% for Class A, 1.65% for Class B, 1.65% for Class C, 0.48% for Class I
and 0.75% for Class R4.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 5
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
AT NOV. 30, 2007
SINCE
WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS INCEPTION
Class A (inception 2/14/02) +3.41% +4.60% +3.98% +3.92% +4.39%
Class B (inception 2/14/02) +3.01% +3.82% +3.20% +3.14% +3.62%
Class C (inception 2/14/02) +3.22% +4.03% +3.27% +3.19% +3.65%
Class I (inception 3/4/04) +3.62% +5.21% +4.39% N/A +4.08%
Class R4 (inception 2/14/02) +3.48% +4.99% +4.16% +4.10% +4.57%
WITH SALES CHARGE
Class A (inception 2/14/02) -1.52% -0.33% +2.27% +2.90% +3.52%
Class B (inception 2/14/02) -1.99% -1.18% +1.95% +2.80% +3.47%
Class C (inception 2/14/02) +2.22% +3.03% +3.27% +3.19% +3.65%
</Table>
<Table>
<Caption>
AT DEC. 31, 2007
SINCE
WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS INCEPTION
Class A (inception 2/14/02) +4.12% +5.04% +3.86% +3.73% +4.37%
Class B (inception 2/14/02) +3.72% +4.24% +3.09% +2.96% +3.60%
Class C (inception 2/14/02) +3.93% +4.45% +3.16% +3.00% +3.63%
Class I (inception 3/4/04) +4.55% +5.66% +4.28% N/A +4.07%
Class R4 (inception 2/14/02) +4.20% +5.42% +4.04% +3.91% +4.55%
WITH SALES CHARGE
Class A (inception 2/14/02) -0.87% +0.05% +2.16% +2.72% +3.51%
Class B (inception 2/14/02) -1.28% -0.76% +1.84% +2.61% +3.45%
Class C (inception 2/14/02) +2.93% +3.45% +3.16% +3.00% +3.63%
</Table>
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I and Class R4 shares. Class I and Class R4 shares are
available to institutional investors only.
* Not annualized.
- --------------------------------------------------------------------------------
6 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Scott Kirby discusses the Fund's positioning and
results for the six months ended Nov. 30, 2007.
At Nov. 30, 2007, approximately 54% of the Fund's shares were owned in the
aggregate by affiliated funds-of-funds managed by RiverSource Investments, LLC
(RiverSource). As a result of asset allocation decisions by RiverSource, it is
possible that RiverSource U.S. Government Mortgage Fund may experience
relatively large purchases or redemptions from affiliated funds-of-funds (see
page 35, Class I capital share transactions for related activity during the most
recent fiscal period). RiverSource seeks to minimize the impact of these
transactions by structuring them over a reasonable period of time. RiverSource
U.S. Government Mortgage Fund may experience increased expenses as it buys and
sells securities as a result of purchases or redemptions by affiliated funds-of-
funds. For more information on the Fund's expenses, see the discussions
beginning on pages 11 and 33.
Q: How did RiverSource U.S. Government Mortgage Fund perform for the first half
of the fiscal year?
A: RiverSource U.S. Government Mortgage Fund's Class A shares (excluding
sales charge) rose 3.41% for the six months ended Nov. 30, 2007. The Fund
underperformed the Lehman Brothers Mortgage-Backed Securities Index (Lehman
Index), which gained 5.05%. The Fund also underperformed the Lipper U.S.
Mortgage Funds Index, representing the Fund's peer group, which advanced
3.67% during the same time frame.
Q: What factors most significantly affected performance during the semiannual
period?
A: Overall, the mortgage market struggled, posting positive results but
underperforming U.S. Treasuries during the six-month period. Mortgage
securities were swept up in the bond market turmoil, as concerns regarding
subprime mortgages surfaced and significant losses on these lower quality
mortgage securities became evident. What started in the mortgage sector
spread to all corners of the bond market, as an en masse flight to quality
ensued. In response, the Federal Reserve Board (the Fed) lowered interest
rates 75 basis points (0.75%) over the period and made other changes designed
to support liquidity in the banking and financial systems. Securities with
credit risk - especially those with mortgage-related credit risk - faced
significant selling pressure during the July and August "credit panic."
Although the market stabilized temporarily in the fall, November brought a
fresh round of panic, as the market was spooked by increasing talk of an
impending recession. Interest
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 7
QUESTIONS & ANSWERS
rates fell significantly during the period overall, as investors fled riskier
assets for the relative safety of U.S. Treasuries, pushing yields sharply
lower. While yields moved lower across the yield curve, they did so more
significantly in the shorter segments than at the long-term end, causing the
U.S. Treasury yield curve to steepen over the semiannual period.
The Fund produced solid positive absolute returns for the semiannual period,
but underperformed the Lehman Index for three primary reasons. First,
spreads, or the difference in yields between mortgage-backed securities and
U.S. Treasuries, widened to compelling levels during the semiannual period,
and as spreads widened, we shifted somewhat from the Fund's conservative
posture to a more aggressive strategy within the mortgage sector, adding to
lower coupon and non-agency pass-through mortgage allocations. This shift in
stance proved premature, detracting from results relative to the Lehman
Index, as spreads widened even further in the latter months of the period
instead of tightening as anticipated.
ISSUE SELECTION HELPED THE FUND'S RESULTS, PARTICULARLY AN EMPHASIS ON
PREMIUM COUPON SECURITIES.
Second, we felt that interest rates had already declined to levels that
appeared too low given our view that the economy would slow even with the
Fed's two interest rate cuts during the semiannual period and that rates
would ultimately move higher. Given this view, we maintained the Fund's
duration shorter than that of the Lehman Index. However, this position
detracted from relative results, as rates instead continued to decline with
the unexpectedly strong flight-to-quality during the period. Duration is a
measure of the Fund's sensitivity to changes in interest rates.
The third reason for the Fund's results relative to the Lehman Index was its
significant allocation to AAA-rated super-senior commercial mortgage-backed
securities (CMBS). CMBS, which are not part of the Lehman Index, historically
perform well in a rising rate environment and thus lagged the Lehman Index
for the period.
On the positive side, issue selection helped the Fund's results, particularly
an emphasis on premium coupon securities. Higher coupon mortgage-backed
securities outperformed lower coupon mortgage-backed securities for the
- --------------------------------------------------------------------------------
8 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
QUESTIONS & ANSWERS
period. Also, many of the Fund's long-held specified pools of mortgages
helped its results during the period, as interest rates declined. The Fund's
yield curve steepening bias, maintained throughout the semiannual period,
contributed to the Fund's performance, as short-term rates declined more than
longer-term rates.
Q: What changes did you make to the Fund and how is it currently positioned?
A: As mentioned above, we sought to take advantage of weakness in the mortgage
market during the semiannual period by shifting to a somewhat more aggressive
strategy within the mortgage sector. We reduced the Fund's position in agency
pass-through mortgages and increased its exposure to non-agency pass-through
mortgages, as spreads on these latter securities were comparatively more
compelling. We added to the Fund's position in CMBS, and increased the Fund's
spread duration. By the end of the period, we felt the Fund was well
positioned for tighter spreads anticipated over the coming months.
Even with this shift in posture, we continued to emphasize higher quality
issues, namely those securities issued by government mortgage agencies,
including Ginnie Mae, Fannie Mae and Freddie Mac, and those rated AAA. We
maintained our focus on higher coupon mortgage securities and emphasized
investment in more seasoned pools of mortgages. We kept the Fund's duration
shorter than the Lehman Index throughout. The portfolio turnover rate of 163%
during the semiannual period can be attributed primarily to rolling-maturity
mortgage securities, processing of prepayments and opportunistic changes we
made in response to valuations or market developments.
WE MAINTAINED OUR FOCUS ON HIGHER COUPON MORTGAGE SECURITIES AND
EMPHASIZED INVESTMENT IN MORE SEASONED POOLS OF MORTGAGES.
Q: What is the Fund's tactical view and strategy for the months ahead?
A: At the end of November, we believed that fixed income market fundamentals
had taken a backseat in investors' minds to technical factors and to overly-
pessimistic fears regarding both liquidity and the U.S. economy. As a result,
rates declined more than was warranted, in our view. Thus, we intend to
position the Fund to take advantage of the compelling valuations that we saw
in the last months of the period and to participate in the recovery of high
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 9
QUESTIONS & ANSWERS
quality spread sectors, or non-Treasury sectors, that we anticipate for 2008
when fears have hopefully subsided and liquidity returned to the markets. We
expect economic growth prospects and the potential for higher inflation to
ultimately recapture investors' attention.
As trend-like growth resumes in 2008 and inflation pressures remain, we
expect rates may well move higher, and so we intend to maintain the Fund's
shorter-than-Lehman Index duration. We further intend to maintain the Fund's
premium coupon bias among its mortgage-backed holdings, as prepayments are
expected to remain slow. We also intend to maintain the Fund's allocation to
AAA-rated super-senior CMBS, as we continue to view these securities as
attractive substitutes for lower-coupon pass-through mortgages. As always,
our strategy is to provide added portfolio value with a moderate amount of
risk. Quality issues and security selection remain a priority as we continue
to seek attractive buying opportunities.
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource Fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource Fund.
- --------------------------------------------------------------------------------
10 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
FUND EXPENSES EXAMPLE
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the acquired funds expense ratio as of the most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Nov. 30, 2007.
ACTUAL EXPENSES
The first line of the table provides information about actual account values and
actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 11
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JUNE 1, 2007 NOV. 30, 2007 THE PERIOD(A) EXPENSE RATIO
Class A
Actual(b) $1,000 $1,034.10 $ 4.53 .89%
Hypothetical
(5% return before
expenses) $1,000 $1,020.55 $ 4.50 .89%
Class B
Actual(b) $1,000 $1,030.10 $ 8.37 1.65%
Hypothetical
(5% return before
expenses) $1,000 $1,016.75 $ 8.32 1.65%
Class C
Actual(b) $1,000 $1,032.20 $ 8.38 1.65%
Hypothetical
(5% return before
expenses) $1,000 $1,016.75 $ 8.32 1.65%
Class I
Actual(b) $1,000 $1,036.20 $ 2.44 .48%
Hypothetical
(5% return before
expenses) $1,000 $1,022.60 $ 2.43 .48%
Class R4
Actual(b) $1,000 $1,034.80 $ 3.82 .75%
Hypothetical
(5% return before
expenses) $1,000 $1,021.25 $ 3.79 .75%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/366 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Nov. 30, 2007: +3.41%
for Class A, +3.01% for Class B, +3.22% for Class C, +3.62% for Class I and
+3.48% for Class R4.
- --------------------------------------------------------------------------------
12 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
PORTFOLIO OF INVESTMENTS
NOV. 30, 2007 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (125.8%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
ASSET-BACKED (1.2%)
Countrywide Asset-backed Ctfs
Series 2007-7 Cl 2A2
10-25-37 4.95% $1,200,000(h) $1,155,000
Fannie Mae Grantor Trust
Series 2005-T4 Cl A1C
09-25-35 4.93 1,174,749(h) 1,160,065
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M4
06-25-37 6.31 195,000 68,935
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M5
06-25-37 6.66 130,000 44,416
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M6
06-25-37 7.01 190,000 46,431
Residential Asset Securities
Series 2006-KS1 Cl A2
02-25-36 4.93 830,000(h) 815,864
Residential Asset Securities
Series 2007-KS3 Cl AI2
04-25-37 4.97 1,700,000(h) 1,624,435
---------------
Total 4,915,146
- ----------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (4.5%)(f)
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2007-CD4 Cl A2B
12-11-49 5.21 3,000,000 2,996,010
Commercial Mtge Pass-Through Ctfs
Series 2007-FL14 Cl MKL1
06-15-22 5.59 2,000,000(d,h) 1,940,312
Credit Suisse Mtge Capital Ctfs
Series 2007-C3 Cl A4
06-15-39 5.91 3,000,000 3,056,416
GS Mtge Securities II
Series 2007-EOP Cl J
03-06-20 5.53 1,000,000(d,h) 930,749
JPMorgan Chase Commercial Mtge Securities
Series 2007-LDPX Cl A3
01-15-49 5.42 4,000,000 3,942,566
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
COMMERCIAL MORTGAGE-BACKED (CONT.)
Wachovia Bank Commercial Mtge Trust
Series 2006-C29 Cl A4
11-15-48 5.31% $6,000,000 $5,923,656
---------------
Total 18,789,709
- ----------------------------------------------------------------------------------
MORTGAGE-BACKED (120.1%)(f)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2005-12 Cl 2A1
03-25-36 5.69 643,416(c) 637,514
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2006-1 Cl 2A1
03-25-36 5.93 177,535(c) 178,737
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 4.95 1,256,641(c) 1,143,675
American Home Mtge Investment Trust
Collateralized Mtge Obligation
Series 2007-1 Cl GA1C
05-25-47 4.98 1,840,671(c) 1,772,488
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 1A1
01-25-34 6.00 553,159 552,025
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 4A1
01-25-19 4.75 290,787 285,971
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00 2,713,098 2,694,282
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-2 Cl N1
11-25-46 7.25 121,192(d) 96,954
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 13
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-A Cl 3A2
02-20-36 5.88% $708,381(c) $714,487
Banc of America Funding
Collateralized Mtge Obligation
Series 2007-8 Cl 1A1
10-25-37 6.00 998,593 986,111
Banc of America Mtge Securities
Collateralized Mtge Obligation
Series 2005-9 Cl 3A3
10-25-20 5.00 1,659,509 1,624,161
Banc of America Mtge Securities
Collateralized Mtge Obligation
Series 2007-3 Cl 1A2
09-25-37 6.00 984,728 986,155
Barclays Capital LLC Trust
Collateralized Mtge Obligation
Series 2007-AA4 Cl 11A1
06-25-47 6.25 962,871(c) 967,021
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50 564,979 578,927
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-8CB Cl A13
05-25-37 7.73 2,057,909(e) 337,929
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-20CB Cl 1A1
10-25-33 5.50 5,097,576 4,983,603
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-50CB Cl 2A1
11-25-35 6.00 983,080 976,595
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-54CB Cl 2A3
11-25-35 5.50 484,899 498,318
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 399,328 409,612
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00% $1,520,403 $1,448,054
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-45T1 Cl 2A5
02-25-37 6.00 992,852 987,888
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-22 Cl 2A16
09-25-37 6.50 5,380,583 5,438,508
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
11-25-37 6.50 988,219 967,992
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 5.14 1,307,825(h) 1,199,120
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 5.28 1,972,928(h) 1,551,564
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-27 Cl 2A1
12-25-35 5.50 875,508 855,970
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-HYB1 Cl 6A1
03-25-35 5.13 1,059,274(c) 1,041,882
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 491,526(d) 531,964
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.36 452,418(c) 443,111
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-HY3 Cl 4A1
06-25-47 6.00 1,486,751(c) 1,487,274
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Downey Savings & Loan Assn Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR5 Cl X1
08-19-45 13.12% $3,313,957(e) $25,890
Federal Home Loan Mtge Corp
12-01-37 6.00 4,400,000(b) 4,466,000
12-01-37 6.50 20,500,000(b) 21,076,564
Federal Home Loan Mtge Corp #1B7116
08-01-36 5.89 4,181,152(c) 4,227,924
Federal Home Loan Mtge Corp #1J0149
11-01-36 6.12 2,392,176(c) 2,447,769
Federal Home Loan Mtge Corp #1J0283
02-01-37 5.83 3,780,222(c) 3,825,476
Federal Home Loan Mtge Corp #1J1445
01-01-37 5.90 2,343,976(c) 2,379,323
Federal Home Loan Mtge Corp #1J1484
02-01-37 5.60 2,999,247(c) 3,031,871
Federal Home Loan Mtge Corp #1J1621
05-01-37 5.89 3,099,131(c) 3,147,710
Federal Home Loan Mtge Corp #555140
03-01-10 8.00 35,540 36,278
Federal Home Loan Mtge Corp #555300
10-01-17 8.00 237,996 248,124
Federal Home Loan Mtge Corp #A10892
07-01-33 6.00 525,978 536,622
Federal Home Loan Mtge Corp #A15111
10-01-33 6.00 893,523 909,318
Federal Home Loan Mtge Corp #A21059
04-01-34 6.50 521,677 537,600
Federal Home Loan Mtge Corp #A25174
08-01-34 6.50 528,881 545,024
Federal Home Loan Mtge Corp #C53098
06-01-31 8.00 279,180 299,057
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 956,986 962,870
Federal Home Loan Mtge Corp #C68876
07-01-32 7.00 132,053 138,221
Federal Home Loan Mtge Corp #C69665
08-01-32 6.50 2,378,996 2,459,034
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 1,419,415 1,423,152
Federal Home Loan Mtge Corp #D95232
03-01-22 6.50 325,833 337,253
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #D95371
04-01-22 6.50% $279,616 $289,845
Federal Home Loan Mtge Corp #E00285
01-01-09 7.00 34,554 34,984
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 768,998 802,720
Federal Home Loan Mtge Corp #E88036
02-01-17 6.50 1,121,897 1,158,453
Federal Home Loan Mtge Corp #E88468
12-01-16 6.50 293,866 304,979
Federal Home Loan Mtge Corp #E89232
04-01-17 7.00 493,244 513,534
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 1,573,963 1,578,073
Federal Home Loan Mtge Corp #E93685
01-01-18 5.50 1,200,484 1,217,977
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 377,821 378,732
Federal Home Loan Mtge Corp #G01169
01-01-30 5.50 1,580,495 1,591,156
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 2,056,422 2,102,217
Federal Home Loan Mtge Corp #G02757
06-01-36 5.00 11,374,388 11,174,015
Federal Home Loan Mtge Corp #G03419
07-01-37 6.00 4,770,594 4,843,181
Federal Home Loan Mtge Corp #G12101
11-01-18 5.00 786,735 788,330
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2795 Cl IY
07-15-17 9.58 468,653(e) 41,297
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 237 Cl IO
05-15-36 8.64 1,785,953(e) 412,564
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2590 Cl BI
02-15-14 21.35 284,395(e) 5,477
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 15
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2639 Cl UI
03-15-22 8.38% $1,187,216(e) $172,205
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2718 Cl IA
10-15-22 31.80 314,251(e) 5,115
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2817 Cl SA
06-15-32 14.50 962,944(e,i) 52,623
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2824 Cl EI
09-15-20 8.18 2,801,244(e) 256,506
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2471 Cl SI
03-15-32 11.07 280,828(e,i) 28,883
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2882 Cl XS
11-15-19 2.30 1,053,531(e,i) 101,494
Federal Natl Mtge Assn
12-01-22 6.00 3,000,000(b) 3,065,640
12-01-37 5.00 5,000,000(b) 4,900,000
12-01-37 5.50 9,000,000(b) 9,014,058
12-01-37 6.00 58,500,000(b) 59,450,626
12-01-37 6.50 4,500,000(b) 4,627,971
12-01-37 7.00 20,000,000(b) 20,762,501
Federal Natl Mtge Assn #13481
05-01-08 7.75 2,542 2,561
Federal Natl Mtge Assn #190353
08-01-34 5.00 1,630,259 1,600,660
Federal Natl Mtge Assn #252409
03-01-29 6.50 1,434,767 1,492,355
Federal Natl Mtge Assn #254759
06-01-18 4.50 2,083,783 2,056,148
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #254793
07-01-33 5.00% $2,283,810 $2,243,484
Federal Natl Mtge Assn #254916
09-01-23 5.50 1,861,191 1,885,602
Federal Natl Mtge Assn #256135
02-01-36 5.50 7,534,237 7,471,479
Federal Natl Mtge Assn #313470
08-01-10 7.50 167,948 171,373
Federal Natl Mtge Assn #323362
11-01-28 6.00 2,797,417 2,863,778
Federal Natl Mtge Assn #323715
05-01-29 6.00 515,566(g) 527,796
Federal Natl Mtge Assn #344909
04-01-25 8.00 671,478 718,657
Federal Natl Mtge Assn #357514
03-01-34 5.50 2,370,200 2,380,157
Federal Natl Mtge Assn #426860
10-01-09 8.50 1,426 1,441
Federal Natl Mtge Assn #483691
12-01-28 7.00 1,130,957 1,200,648
Federal Natl Mtge Assn #487757
09-01-28 7.50 831,295 889,154
Federal Natl Mtge Assn #514704
01-01-29 6.00 747,452 765,183
Federal Natl Mtge Assn #545008
06-01-31 7.00 1,485,585 1,571,935
Federal Natl Mtge Assn #545339
11-01-31 6.50 240,085 249,805
Federal Natl Mtge Assn #545818
07-01-17 6.00 2,666,399 2,735,093
Federal Natl Mtge Assn #545864
08-01-17 5.50 1,484,278(g) 1,508,900
Federal Natl Mtge Assn #555063
11-01-17 5.50 1,063,042 1,080,279
Federal Natl Mtge Assn #555458
05-01-33 5.50 1,701,927 1,706,709
Federal Natl Mtge Assn #555528
04-01-33 6.00 2,199,580 2,244,094
Federal Natl Mtge Assn #555734
07-01-23 5.00 730,206 725,657
Federal Natl Mtge Assn #555740
08-01-18 4.50 3,578,584 3,547,831
Federal Natl Mtge Assn #581418
06-01-31 7.00 919,720 968,808
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #583088
06-01-29 6.00% $2,883,210 $2,962,334
Federal Natl Mtge Assn #592270
01-01-32 6.50 793,658 826,976
Federal Natl Mtge Assn #596505
08-01-16 6.50 177,053 183,657
Federal Natl Mtge Assn #601416
11-01-31 6.50 338,685 352,636
Federal Natl Mtge Assn #624979
01-01-32 6.00 785,766 804,855
Federal Natl Mtge Assn #626670
03-01-32 7.00 491,235 520,964
Federal Natl Mtge Assn #627426
03-01-17 6.50 470,047 487,118
Federal Natl Mtge Assn #630992
09-01-31 7.00 1,907,187 2,025,084
Federal Natl Mtge Assn #630993
09-01-31 7.50 1,933,433 2,068,222
Federal Natl Mtge Assn #631388
05-01-32 6.50 1,672,014 1,737,018
Federal Natl Mtge Assn #632412
12-01-17 5.50 1,209,090 1,228,595
Federal Natl Mtge Assn #632856
03-01-17 6.00 550,688 564,898
Federal Natl Mtge Assn #633674
06-01-32 6.50 830,131 866,340
Federal Natl Mtge Assn #635231
04-01-32 7.00 74,773 78,734
Federal Natl Mtge Assn #635908
04-01-32 6.50 1,151,635 1,198,922
Federal Natl Mtge Assn #636812
04-01-32 7.00 115,270 121,898
Federal Natl Mtge Assn #640200
10-01-31 9.50 102,876(g) 114,332
Federal Natl Mtge Assn #640207
03-01-17 7.00 39,973 41,053
Federal Natl Mtge Assn #640208
04-01-17 7.50 49,991 51,374
Federal Natl Mtge Assn #644805
05-01-32 7.00 1,161,735 1,228,615
Federal Natl Mtge Assn #645053
05-01-32 7.00 650,751 683,317
Federal Natl Mtge Assn #646189
05-01-32 6.50 424,124 438,497
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #654071
09-01-22 6.50% $604,552 $625,963
Federal Natl Mtge Assn #654685
11-01-22 6.00 576,123 590,324
Federal Natl Mtge Assn #655635
08-01-32 6.50 845,760(g) 880,003
Federal Natl Mtge Assn #656514
09-01-17 6.50 1,060,605 1,098,570
Federal Natl Mtge Assn #660186
11-01-32 6.00 2,323,962 2,379,365
Federal Natl Mtge Assn #663651
10-01-17 5.50 455,551 462,825
Federal Natl Mtge Assn #663667
11-01-17 5.50 342,109 347,571
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,298,230 1,342,223
Federal Natl Mtge Assn #667302
01-01-33 7.00 608,842(g) 643,556
Federal Natl Mtge Assn #667604
10-01-32 5.50 539,507(g) 542,110
Federal Natl Mtge Assn #670382
09-01-32 6.00 1,173,668 1,197,420
Federal Natl Mtge Assn #676683
12-01-32 6.00 1,226,329 1,251,147
Federal Natl Mtge Assn #677089
01-01-33 5.50 660,282(g) 663,467
Federal Natl Mtge Assn #677294
01-01-33 6.00 1,585,720 1,617,811
Federal Natl Mtge Assn #681080
02-01-18 5.00 892,557(g) 894,890
Federal Natl Mtge Assn #682229
03-01-33 5.50 2,217,877 2,228,577
Federal Natl Mtge Assn #684585
02-01-33 5.50 1,551,232 1,559,215
Federal Natl Mtge Assn #684843
02-01-18 5.50 1,737,282 1,765,205
Federal Natl Mtge Assn #684853
03-01-33 6.50 216,508 224,133
Federal Natl Mtge Assn #688002
03-01-33 5.50 1,475,715 1,484,226
Federal Natl Mtge Assn #689026
05-01-33 5.50 378,192 380,135
Federal Natl Mtge Assn #689093
07-01-28 5.50 1,019,817(g) 1,028,251
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 17
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #694628
04-01-33 5.50% $2,092,702 $2,104,779
Federal Natl Mtge Assn #694795
04-01-33 5.50 2,636,791 2,651,997
Federal Natl Mtge Assn #695460
04-01-18 5.50 2,085,661 2,118,843
Federal Natl Mtge Assn #697145
03-01-23 5.50 1,191,878 1,206,713
Federal Natl Mtge Assn #699424
04-01-33 5.50 1,640,363 1,649,826
Federal Natl Mtge Assn #701101
04-01-33 6.00 2,177,699 2,219,116
Federal Natl Mtge Assn #704610
06-01-33 5.50 2,128,599 2,137,541
Federal Natl Mtge Assn #705655
05-01-33 5.00 741,502(g) 728,409
Federal Natl Mtge Assn #708503
05-01-33 6.00 277,249 283,197
Federal Natl Mtge Assn #708504
05-01-33 6.00 590,119 603,800
Federal Natl Mtge Assn #710780
05-01-33 6.00 235,603 240,084
Federal Natl Mtge Assn #711206
05-01-33 5.50 1,364,515 1,370,247
Federal Natl Mtge Assn #711239
07-01-33 5.50 539,060 541,324
Federal Natl Mtge Assn #711501
05-01-33 5.50 835,325 840,380
Federal Natl Mtge Assn #720378
06-01-18 4.50 1,632,909 1,611,254
Federal Natl Mtge Assn #723771
08-01-28 5.50 1,059,624 1,068,388
Federal Natl Mtge Assn #725017
12-01-33 5.50 2,966,716 2,979,179
Federal Natl Mtge Assn #725232
03-01-34 5.00 1,733,152 1,702,549
Federal Natl Mtge Assn #725424
04-01-34 5.50 9,778,329 9,819,407
Federal Natl Mtge Assn #725425
04-01-34 5.50 2,800,543 2,813,147
Federal Natl Mtge Assn #725684
05-01-18 6.00 790,452 810,491
Federal Natl Mtge Assn #725719
07-01-33 4.85 548,152(c) 544,145
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #725773
09-01-34 5.50% $6,783,801 $6,806,489
Federal Natl Mtge Assn #726940
08-01-23 5.50 1,283,903 1,300,889
Federal Natl Mtge Assn #730153
08-01-33 5.50 768,005 771,231
Federal Natl Mtge Assn #733367
08-01-23 5.50 1,059,055 1,072,980
Federal Natl Mtge Assn #735212
12-01-34 5.00 9,102,661 8,937,390
Federal Natl Mtge Assn #735224
02-01-35 5.50 12,117,929 12,168,835
Federal Natl Mtge Assn #735841
11-01-19 4.50 6,409,651 6,315,728
Federal Natl Mtge Assn #743524
11-01-33 5.00 1,946,634 1,912,261
Federal Natl Mtge Assn #743579
11-01-33 5.50 1,631,306 1,638,159
Federal Natl Mtge Assn #747339
10-01-23 5.50 1,304,156 1,320,810
Federal Natl Mtge Assn #747536
11-01-33 5.00 2,708,080(g) 2,660,262
Federal Natl Mtge Assn #753507
12-01-18 5.00 1,040,547(g) 1,043,489
Federal Natl Mtge Assn #753940
12-01-18 5.00 962,503 965,018
Federal Natl Mtge Assn #759342
01-01-34 6.50 428,150 444,810
Federal Natl Mtge Assn #761141
12-01-18 5.00 1,515,269 1,519,229
Federal Natl Mtge Assn #765760
02-01-19 5.00 1,013,214 1,015,862
Federal Natl Mtge Assn #766641
03-01-34 5.00 3,069,778 3,014,042
Federal Natl Mtge Assn #770403
04-01-34 5.00 1,531,262 1,503,459
Federal Natl Mtge Assn #776962
04-01-29 5.00 1,373,855 1,354,849
Federal Natl Mtge Assn #779676
06-01-34 5.00 2,719,817 2,670,435
Federal Natl Mtge Assn #785506
06-01-34 5.00 5,810,505 5,705,007
Federal Natl Mtge Assn #793622
09-01-34 5.50 6,367,979 6,389,277
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
18 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #797232
09-01-34 5.50% $7,456,743 $7,481,681
Federal Natl Mtge Assn #874486
12-01-16 5.27 7,420,000 7,632,346
Federal Natl Mtge Assn #878661
02-01-36 5.50 2,039,950 2,032,769
Federal Natl Mtge Assn #881629
02-01-36 5.50 1,359,099 1,354,315
Federal Natl Mtge Assn #886020
07-01-36 6.50 1,138,565 1,176,239
Federal Natl Mtge Assn #886291
07-01-36 7.00 802,618 835,650
Federal Natl Mtge Assn #888414
11-01-35 5.00 4,123,485(g) 4,045,355
Federal Natl Mtge Assn #893101
10-01-36 6.50 3,185,617 3,276,881
Federal Natl Mtge Assn #894800
12-01-36 6.50 4,417,612 4,544,171
Federal Natl Mtge Assn #902818
11-01-36 5.93 3,327,420(c) 3,379,561
Federal Natl Mtge Assn #919341
05-01-37 6.50 3,992,221 4,106,180
Federal Natl Mtge Assn #923744
04-01-37 6.50 1,811,031 1,851,499
Federal Natl Mtge Assn #928046
01-01-37 6.00 4,009,084 4,075,344
Federal Natl Mtge Assn #928146
03-01-37 6.00 5,208,862 5,294,951
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-119 Cl GI
12-25-33 7.32 508,834(e) 130,258
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-24 Cl PI
12-25-12 105.86 34,746(e) 44
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 16.45 2,115,296(e) 416,877
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 10.85% $472,631(e) $79,442
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 6.11 214,583(e) 30,247
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2005-70 Cl YJ
08-25-35 18.90 2,623,469(e) 333,094
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 367 Cl 2
01-01-36 8.59 1,547,208(e) 359,860
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2005-92 CL SC
10-25-35 9.47 10,848,376(i,e) 636,800
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 301,124 320,717
Govt Natl Mtge Assn #3931
12-20-36 6.00 4,709,819 4,816,128
Govt Natl Mtge Assn #518371
02-15-30 7.00 120,446 127,701
Govt Natl Mtge Assn #528344
03-15-30 7.00 369,780 392,055
Govt Natl Mtge Assn #556293
12-15-31 6.50 395,247 411,223
Govt Natl Mtge Assn #583182
02-15-32 6.50 566,510 589,323
Govt Natl Mtge Assn #595256
12-15-32 6.00 339,960 349,350
Govt Natl Mtge Assn #619613
09-15-33 5.00 1,380,235 1,372,790
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 19
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Harborview Nim
Collateralized Mtge Obligation
Series 2006-10 Cl N1
11-19-36 6.41% $36,077(d) $36,032
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 4.50 7,120,562(e) 36,715
IndyMac Index Nim
Collateralized Mtge Obligation
Series 2006-AR6 Cl N1
06-25-46 6.65 2,095(d) 2,084
Lehman XS Net Interest Margin Nts
Collateralized Mtge Obligation
Series 2006-AR8 Cl A1
10-28-46 6.25 11,874(d) 11,855
Lehman XS Net Interest Margin Nts
Collateralized Mtge Obligation
Series 2006-GPM6 Cl A1
10-28-46 6.25 136,834(d) 134,784
Lehman XS Trust
Collateralized Mtge Obligation
Series 2007-5H Cl 1A1
05-25-37 6.50 5,469,193 5,600,388
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-2 Cl 4A1
02-25-19 5.00 421,907 418,744
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00 370,347 371,036
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00 522,717 512,331
Master Alternative Loans Trust
Collateralized Mtge Obligation
Series 2005-3 Cl 1A2
04-25-35 5.50 1,537,000 1,437,771
Mastr Asset Securitization Trust
Collateralized Mtge Obligation
Series 2004-10 Cl 1A1
10-25-19 4.50 1,144,860 1,120,174
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Morgan Stanley Mtge Loan Trust
Collateralized Mtge Obligation
Series 2007-12 Cl 3A22
08-25-37 6.00% $986,369 $980,204
Structured Adjustable Rate Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-15 Cl 4A1
07-25-35 5.51 1,080,255(c) 1,058,706
Structured Asset Securities
Collateralized Mtge Obligation
Series 2003-33H Cl 1A1
10-25-33 5.50 1,285,959 1,257,266
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2004-CB2 Cl 6A
07-25-19 4.50 643,111 620,692
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2005-AR14 Cl 2A1
12-25-35 5.29 414,004(c) 407,031
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR10 Cl 1A1
09-25-36 5.94 1,995,738(c) 2,005,292
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 2,429,379 2,339,201
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 1,001,936 997,866
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 1A1
09-25-36 6.03 1,900,743(c) 1,914,471
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 2A1
09-25-36 6.10 2,309,245(c) 2,309,330
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR6 Cl 5A1
03-25-36 5.11 901,825(c) 888,239
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-11 Cl A68
08-25-37 6.00% $980,807 $987,516
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-14 Cl 1A2
10-25-37 6.00 991,701 968,303
---------------
Total 501,960,350
- ----------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $522,538,800) $525,665,205
- ----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (0.5%)
SHARES VALUE(A)
RiverSource Short-Term Cash Fund 2,276,048(j) $2,276,048
- -----------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $2,276,048) $2,276,048
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHORT-TERM SECURITIES (3.6%)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUER YIELD MATURITY VALUE(A)
U.S. GOVERNMENT AGENCIES
Federal Natl Mtge Assn Disc Nts
12-03-07 4.11% $15,000,000 $14,995,000
- ----------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost: $14,996,666) $14,995,000
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $539,811,514)(k) $542,936,253
==================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
CMBS TOTAL RETURN SWAP CONTRACTS OUTSTANDING AT NOV. 30, 2007
<Table>
<Caption>
NOTIONAL
EXPIRATION PRINCIPAL UNREALIZED
COUNTERPARTY FUND RECEIVES FUND PAYS DATE AMOUNT DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------
Citigroup Spread on Lehman Brothers Baa Absolute value of the Jan. 1, 2008 2,000,000 $(318,366)
8.5+ Commercial Mortgage-Backed spread return amount, if
Securities Index plus 1.00% such amount is negative.
times notional amount plus
spread return amount, if such
amount is positive.
</Table>
FUTURES CONTRACTS OUTSTANDING AT NOV. 30, 2007
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION/
CONTRACT DESCRIPTION LONG/(SHORT) MARKET VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------
U.S. Long Bond, 20-year (39) $(4,570,313) March 2008 $66,034
U.S. Treasury Note, 2-year (134) (28,154,657) March 2008 (31,692)
U.S. Treasury Note, 5-year (130) (14,348,750) Dec. 2007 (442,156)
U.S. Treasury Note,
10-year (305) (34,746,173) Dec. 2007 (1,400,213)
U.S. Treasury Note,
10-year (34) (3,848,906) March 2008 1,600
- --------------------------------------------------------------------------------------------------
Total $(1,806,428)
- --------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to portfolio of investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 21
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) At Nov. 30, 2007, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$126,673,964.
(c) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Nov. 30, 2007.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At Nov. 30,
2007, the value of these securities amounted to $3,684,734 or 0.9% of net
assets.
(e) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. The principal
amount shown is the notional amount of the underlying mortgages. Interest
rate disclosed represents yield based upon the estimated timing and amount
of future cash flows at Nov. 30, 2007.
(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) At Nov. 30, 2007, investments in securities included securities valued at
$2,200,518 that were partially pledged as collateral to cover initial
margin deposits on open interest rate futures contracts.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Nov. 30,
2007.
(i) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in the LIBOR (London InterBank Offering Rate) Index.
Interest rate disclosed is the rate in effect on Nov. 30, 2007. At Nov. 30,
2007, the value of inverse floaters represented 0.2% of net assets.
(j) Affiliated Money Market Fund - See Note 5 to the financial statements.
(k) At Nov. 30, 2007, the cost of securities for federal income tax purposes
was approximately $539,812,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $5,900,000
Unrealized depreciation (2,776,000)
- ------------------------------------------------------------------------------
Net unrealized appreciation $3,124,000
- ------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
22 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 23
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOV. 30, 2007 (UNAUDITED)
<Table>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $537,535,466) $540,660,205
Affiliated money market fund (identified cost $2,276,048) 2,276,048
- ----------------------------------------------------------------------------
Total investments in securities (identified cost
$539,811,514) 542,936,253
Cash 7,576
Capital shares receivable 440,627
Accrued interest receivable 2,223,907
Receivable for investment securities sold 131,188
Variation margin receivable 38,405
- ----------------------------------------------------------------------------
Total assets 545,777,956
- ----------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 314,515
Capital shares payable 412,861
Payable for securities purchased on a forward-commitment
basis 126,673,964
Unrealized depreciation on swap contracts 318,366
Accrued investment management services fee 5,491
Accrued distribution fee 31,846
Accrued transfer agency fee 740
Accrued administrative services fee 801
Accrued plan administration services fee 9,169
Other accrued expenses 60,992
- ----------------------------------------------------------------------------
Total liabilities 127,828,745
- ----------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $417,949,211
============================================================================
</Table>
- --------------------------------------------------------------------------------
24 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
NOV. 30, 2007 (UNAUDITED)
<Table>
REPRESENTED BY
Capital stock -- $.01 par value $ 827,539
Additional paid-in capital 419,261,388
Undistributed net investment income 21,074
Accumulated net realized gain (loss) (3,160,735)
Unrealized appreciation (depreciation) on investments 999,945
- ----------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $417,949,211
============================================================================
</Table>
<Table>
Net assets applicable to outstanding
shares: Class A $ 105,734,840
Class B $ 36,493,656
Class C $ 4,540,477
Class I $ 227,754,243
Class R4 $ 43,425,995
Net asset value per share of outstanding
capital stock: Class A shares(1) 20,923,433 $ 5.05
Class B shares 7,219,372 $ 5.05
Class C shares 898,040 $ 5.06
Class I shares 45,113,492 $ 5.05
Class R4 shares 8,599,568 $ 5.05
- --------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $5.30. The offering
price is calculated by dividing the net asset value by 1.0 minus the
maximum sales charge of 4.75%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 25
STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOV. 30, 2007 (UNAUDITED)
<Table>
INVESTMENT INCOME
Income:
Interest $11,286,778
Income distributions from affiliated money market fund 97,484
- ---------------------------------------------------------------------------
Total income 11,384,262
- ---------------------------------------------------------------------------
Expenses:
Investment management services fee 993,672
Distribution fee
Class A 134,108
Class B 196,333
Class C 23,550
Transfer agency fee
Class A 116,269
Class B 44,853
Class C 5,257
Class R4 10,436
Administrative services fee 144,910
Plan administration services fee -- Class R4 52,180
Compensation of board members 3,826
Custodian fees 44,724
Printing and postage 54,671
Registration fees 36,049
Professional fees 24,165
Other 6,067
- ---------------------------------------------------------------------------
Total expenses 1,891,070
Expenses waived/reimbursed by the Investment Manager and
its affiliates (363,961)
- ---------------------------------------------------------------------------
1,527,109
Earnings and bank fee credits on cash balances (6,353)
- ---------------------------------------------------------------------------
Total net expenses 1,520,756
- ---------------------------------------------------------------------------
Investment income (loss) -- net 9,863,506
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions 818,946
Futures contracts (2,153,461)
Swap transactions (358,573)
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments (1,693,088)
Net change in unrealized appreciation (depreciation) on
investments 6,422,201
- ---------------------------------------------------------------------------
Net gain (loss) on investments 4,729,113
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $14,592,619
===========================================================================
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
26 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2007 MAY 31, 2007
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 9,863,506 $ 12,425,612
Net realized gain (loss) on investments (1,693,088) 697,290
Net change in unrealized appreciation
(depreciation) on investments 6,422,201 1,881,245
- ----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 14,592,619 15,004,147
- ----------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (2,528,863) (5,407,728)
Class B (773,192) (1,999,233)
Class C (93,120) (214,172)
Class I (5,672,835) (3,051,378)
Class R4 (1,014,338) (1,761,395)
- ----------------------------------------------------------------------------------------
Total distributions (10,082,348) (12,433,906)
- ----------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 13,436,387 29,049,243
Class B shares 2,842,481 9,006,830
Class C shares 276,257 470,592
Class I shares 46,797,457 201,892,945
Class R4 shares 3,365,197 5,512,362
Reinvestment of distributions at net asset value
Class A shares 2,291,700 4,873,804
Class B shares 703,724 1,827,201
Class C shares 84,731 194,782
Class I shares 5,650,626 2,900,308
Class R4 shares 1,010,404 1,758,106
Payments for redemptions
Class A shares (21,717,157) (51,596,469)
Class B shares (11,773,485) (31,868,944)
Class C shares (746,448) (2,626,838)
Class I shares (34,644,819) (2,611,222)
Class R4 shares (1,254,363) (2,593,585)
- ----------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital
share transactions 6,322,692 166,189,115
- ----------------------------------------------------------------------------------------
Total increase (decrease) in net assets 10,832,963 168,759,356
Net assets at beginning of period 407,116,248 238,356,892
- ----------------------------------------------------------------------------------------
Net assets at end of period $417,949,211 $407,116,248
========================================================================================
Undistributed net investment income $ 21,074 $ 239,916
- ----------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 27
NOTES TO FINANCIAL STATEMENTS
(Unaudited as to Nov. 30, 2007)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource U.S. Government Mortgage Fund (the Fund) is a series of RiverSource
Government Income Series, Inc. and is registered under the Investment Company
Act of 1940 (as amended) as a diversified, open-end management investment
company. RiverSource Government Income Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the Board. The Fund invests primarily in mortgage-backed
securities that either are issued or guaranteed as to principal and interest by
the U.S. government, its agencies, authorities or instrumentalities.
The Fund offers Class A, Class B, Class C, Class I and Class R4 shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
At Nov. 30, 2007, RiverSource Investments, LLC (the Investment Manager) and the
affiliated funds-of-funds owned 100% of Class I shares.
At Nov. 30, 2007, the Investment Manager, RiverSource Life Insurance Company and
the affiliated funds of funds owned approximately 54% of the total outstanding
fund shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at
- --------------------------------------------------------------------------------
28 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
the last quoted sales price. Debt securities are generally traded in the
over-the-counter market and are valued at a price that reflects fair value as
quoted by dealers in these securities or by an independent pricing service. The
procedures adopted by the Board of Directors of the funds generally contemplate
the use of fair valuation in the event that price quotations or valuations are
not readily available, price quotations or valuations from other sources are not
reflective of market value and thus deemed unreliable, or a significant event
has occurred in relation to a security or class of securities that is not
reflected in price quotations or valuations from other sources. A fair value
price is a good faith estimate of the value of a security at a given point in
time.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
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, 2007, the Fund has entered into outstanding
when-issued securities of $126,673,964.
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.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Fund may buy and sell put and call options
and write put and call options. This may include purchasing mortgage-backed
security (MBS) put spread options and writing covered MBS call spread options.
MBS spread options are based upon the changes in the price spread between a
specified mortgage-backed security and a like-duration Treasury security. The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Fund may
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 29
incur a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of being
unable to enter into a closing transaction if a liquid secondary market does not
exist. The Fund also may write over-the-counter options where completing the
obligation depends upon the credit standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Fund will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid. During the six months ended Nov. 30, 2007, the Fund had no
outstanding option contacts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Fund may buy and
sell financial futures contracts. Risks of entering into futures contracts and
related options include the possibility of an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
Futures are valued daily based upon the last sale price at the close of 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.
SHORT SALES
The Fund may engage in short sales. In these transactions, the Fund sells a
security that it does not own. The Fund is obligated to replace the security
that was short by purchasing it at the market price at the time of replacement
or entering into an offsetting transaction with the broker. The price at such
time may be more or less than the price at which the Fund sold the security. At
Nov. 30, 2007, the Fund had no outstanding short sales.
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
- --------------------------------------------------------------------------------
30 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
commitment deliverable on or before the sale commitment date, are used to
satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. At Nov. 30, 2007, the
Fund had no outstanding forward sale commitments.
CMBS TOTAL RETURN SWAP TRANSACTIONS
The Fund may enter into swap agreements to earn the total return on a specified
security or index of fixed income securities. CMBS total return swaps are
bilateral financial contracts designed to replicate synthetically the total
returns of commercial mortgage-backed securities. Under the terms of the swaps,
the Fund either receives or pays the total return on a reference security or
index applied to a notional principal amount. In return, the Fund agrees to pay
or receive from the counterparty a floating rate, which is reset periodically
based on short-term interest rates, applied to the same notional amount.
The notional amounts of swap contracts are not recorded in the financial
statements. Swaps are valued daily, and the change in value is recorded as
unrealized appreciation (depreciation) until the termination of the swap, at
which time realized gain (loss) is recorded. Payments received or made are
recorded as realized gains (losses).
Swap agreements may be subject to liquidity risk, which exists when a particular
swap is difficult to purchase or sell. It may not be possible for the Fund to
initiate a transaction or liquidate a position at an advantageous time or price,
which may result in significant losses. Total return swaps are subject to the
risk that the counterparty will default on its obligation to pay net amounts due
to the Fund.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 31
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts and losses deferred due to "wash sale" transactions.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
RECENT ACCOUNTING PRONOUNCEMENTS
On Sept. 20, 2006, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 157 "Fair Value Measurements"
(SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional disclosures
about fair-value measurements. The application of SFAS 157 is required for
fiscal years beginning after Nov. 15, 2007 and interim periods within those
fiscal years. The impact of SFAS 157 on the Fund's financial statements is being
evaluated.
In June 2006, the FASB) issued FASB Interpretation 48 (FIN 48), "Accounting for
Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in accordance with FASB Statement 109, "Accounting for
Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a
tax position taken or expected to be taken in a tax return. The first step is to
determine whether a tax position has met the more-likely-than-not recognition
threshold and the second step is to measure a tax position that meets the
threshold to determine the amount of benefit to recognize. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 has been adopted by the Fund
and there is no material impact on the Fund.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
- --------------------------------------------------------------------------------
32 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.48%
to 0.29% annually as the Fund's assets increase. The management fee for the six
months ended Nov. 30, 2007, was 0.48% of the Fund's average daily net assets.
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial,
Inc. (Ameriprise Financial), the parent company of the Investment Manager, a fee
for administration and accounting services at a percentage of the Fund's average
daily net assets that declines from 0.07% to 0.04% annually as the Fund's assets
increase. The fee for the six months ended Nov. 30, 2007, was 0.07% of the
Fund's average daily net assets
Other expenses in the amount of $1,571 are for, among other things, certain
expenses of the Fund or the Board including: Fund boardroom and office expense,
employee compensation, employee health and retirement benefits, and certain
other expenses. Payment of these Fund and Board expenses is facilitated by a
company providing limited administrative services to the Fund and the Board.
Compensation of Board members includes, for a former Board Chair, compensation
as well as retirement benefits. Certain other aspects of a former Board Chair's
compensation, including health benefits and payment of certain other expenses,
are included under other expenses.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
RiverSource funds. The Fund's liability for these amounts is adjusted for market
value changes and remains in the Fund until distributed in accordance with the
Plan.
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual fee per shareholder account for this service as follows:
- - Class A $20.50
- - Class B $21.50
- - Class C $21.00
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 33
The Fund pays the Transfer Agent an annual asset-based fee at a rate of 0.05% of
the Fund's average daily net assets attributable to Class R4 shares.
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of operations.
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.
The Fund has an agreement RiverSource Distributors, Inc. (the Distributor) for
distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise
Financial Services, Inc. also served as a principal underwriter and distributor
to the Fund. 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.
Sales charges received by the Distributor for distributing Fund shares were
$58,933 for Class A, $24,589 for Class B and $320 for Class C for the six months
ended Nov. 30, 2007.
In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the funds in which
it invests (also referred to as "acquired funds"), including affiliated and non-
affiliated pooled investment vehicles (including mutual funds and exchange
traded funds). Because the acquired funds have varied expense and fee levels and
the Fund may own different proportions of acquired funds at different times, the
amount of fees and expenses incurred indirectly by the Fund will vary.
For the six months ended Nov. 30, 2007, the Investment Manager and its
affiliates waived/reimbursed certain fees and expenses such that net expenses
(excluding fees and expenses of acquired funds) were 0.89% for Class A, 1.65%
for Class B, 1.65% for Class C, 0.48% for Class I and 0.75% for Class R4. Of
these waived/reimbursed fees and expenses, the transfer agency fees for Class A,
Class B, Class C and Class R4 were $30,440, $11,477, $1,336 and $6,262,
respectively, and the plan administration services fee at the class level was
$35 for Class R4. The management fees at the Fund level were $314,411. In
addition, the Investment Manager and its affiliates have contractually agreed to
waive certain fees and expenses such that net expenses (excluding fees and
expenses of acquired funds) will not exceed 0.89% for Class A, 1.65% for Class
B, 1.65% for Class C, 0.48% for Class I and 0.75% for Class R4 of the Fund's
average daily net assets until May 31, 2008, unless sooner terminated at the
discretion of the Board.
- --------------------------------------------------------------------------------
34 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
During the six months ended Nov. 30, 2007, the Fund's transfer agency fees were
reduced by $6,353 as a result of bank fee credits from overnight cash balances.
The Fund pays custodian fees to Ameriprise Trust Company, a subsidiary of
Ameriprise Financial.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $894,040,910 and $796,880,227, respectively, for the six
months ended Nov. 30, 2007. Realized gains and losses are determined on an
identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED NOV. 30, 2007
ISSUED FOR NET
REINVESTED INCREASE
SOLD DISTRIBUTIONS REDEEMED (DECREASE)
- ---------------------------------------------------------------------------------------------
Class A 2,697,685 458,023 (4,354,075) (1,198,367)
Class B 568,628 140,631 (2,363,461) (1,654,202)
Class C 55,356 16,928 (149,383) (77,099)
Class I 9,400,255 1,130,977 (6,926,493) 3,604,739
Class R4 676,681 202,208 (251,800) 627,089
- ---------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED MAY 31, 2007
ISSUED FOR NET
REINVESTED INCREASE
SOLD DISTRIBUTIONS REDEEMED (DECREASE)
- ---------------------------------------------------------------------------------------------
Class A 5,818,196 974,704 (10,325,253) (3,532,353)
Class B 1,802,802 365,504 (6,386,285) (4,217,979)
Class C 94,036 38,962 (525,990) (392,992)
Class I 40,197,102 578,113 (521,207) 40,254,008
Class R4 1,103,924 351,589 (520,939) 934,574
- ---------------------------------------------------------------------------------------------
</Table>
5. AFFILIATED MONEY MARKET FUND
The Fund may invest its daily cash balance in RiverSource Short-Term Cash Fund,
a money market fund established for the exclusive use of the RiverSource funds
and other institutional clients of RiverSource Investments. The cost of the
Fund's purchases and proceeds from sales of shares of the RiverSource Short-Term
Cash Fund aggregated $80,909,829 and $86,177,124, respectively, for the six
months ended Nov. 30, 2007.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 35
6. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the
temporary funding of shareholder redemptions or for other temporary or emergency
purposes. The credit facility became effective on Oct. 18, 2007, replacing a
prior credit facility. The credit facility agreement, which is a collective
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permits collective borrowings up to $500 million. Interest is
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matures no later
than 60 days after the date of borrowing. The Fund also pays a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum. Under the prior credit facility, a Fund paid interest on its
outstanding borrowings at a rate equal to either the higher of the federal funds
effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. The Fund
had no borrowings during the six months ended Nov. 30, 2007.
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$1,209,634 at May 31, 2007, that if not offset by capital gains will expire as
follows:
<Table>
<Caption>
2014 2015
$545,026 $664,608
</Table>
It is unlikely the Board will authorize a distribution of any net realized
capital gains until the available capital loss carry-over has been offset or
expires.
8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendants' motion to dismiss the
complaint, the Court dismissed one of plaintiffs' four claims and granted
plaintiffs limited discovery. Defendants moved for summary judgment in April
2007. Summary judgment was
- --------------------------------------------------------------------------------
36 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice
of appeal with the Eighth Circuit Court of Appeals on August 8, 2007.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), the parent company of RiverSource Investments, LLC
(RiverSource Investments), entered into settlement agreements with the
Securities and Exchange Commission (SEC) and Minnesota Department of Commerce
(MDOC) related to market timing activities. In connection with these matters,
the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain
provisions of the federal and Minnesota securities laws by failing to adequately
disclose market timing activities by allowing certain identified market timers
to continue to market time contrary to disclosures in mutual fund and variable
annuity product prospectuses. The Orders also alleged that AEFC failed to
implement procedures to detect and prevent market timing in 401(k) plans for
employees of AEFC and related companies and failed to adequately disclose that
there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged
that AEFC allowed inappropriate market timing to occur by failing to have
written policies and procedures and failing to properly supervise its employees.
As a result of the Orders, AEFC was censured and ordered to cease and desist
from committing or causing any violations of certain provisions of the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and various
Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to make presentations at least annually to its board of directors and the
relevant mutual funds' board that include an overview of policies and procedures
to prevent market timing, material changes to these policies and procedures and
whether disclosures related to market timing are consistent with the SEC order
and federal securities laws. AEFC also agreed to retain an independent
distribution consultant to assist in developing a plan for distribution of all
disgorgement and civil penalties ordered by the SEC in accordance with various
undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In
addition, AEFC agreed to complete and submit to the MDOC a compliance review of
its procedures regarding market timing within one year of the MDOC Order,
including a summary of actions taken to ensure compliance with applicable laws
and regulations and certification by a senior officer regarding compliance and
supervisory procedures.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Funds' Boards of Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 37
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.
- --------------------------------------------------------------------------------
38 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
9. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating the
Fund's results.
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(I) 2007 2006 2005 2004
Net asset value, beginning of period $5.00 $4.92 $5.12 $5.03 $5.19
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .12(b) .22 .21 .19 .16
Net gains (losses) (both realized and
unrealized) .05 .09 (.20) .10 (.09)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .17 .31 .01 .29 .07
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.23) (.20) (.20) (.16)
Tax return of capital -- -- -- -- (.01)
Distributions from realized gains -- -- (.01) -- (.06)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.12) (.23) (.21) (.20) (.23)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.05 $5.00 $4.92 $5.12 $5.03
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $106 $111 $126 $159 $177
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.10%(e) 1.17% 1.19% 1.10% 1.05%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c),(d),(f) .89%(e) .89% .89% .95% .98%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.61%(e) 4.45% 4.08% 3.67% 3.11%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 163% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 3.41%(h) 6.30% .12% 5.78% 1.27%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 39
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(I) 2007 2006 2005 2004
Net asset value, beginning of period $5.00 $4.93 $5.12 $5.04 $5.20
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10(b) .19 .17 .15 .12
Net gains (losses) (both realized and
unrealized) .05 .07 (.19) .09 (.09)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .15 .26 (.02) .24 .03
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.19) (.16) (.16) (.12)
Tax return of capital -- -- -- -- (.01)
Distributions from realized gains -- -- (.01) -- (.06)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.10) (.19) (.17) (.16) (.19)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.05 $5.00 $4.93 $5.12 $5.04
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $36 $44 $64 $98 $129
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.86%(e) 1.94% 1.95% 1.86% 1.80%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c),(d),(f) 1.65%(e) 1.64% 1.64% 1.69% 1.74%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.84%(e) 3.70% 3.31% 2.90% 2.35%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 163% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 3.01%(h) 5.30% (.42%) 4.78% .52%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
40 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(I) 2007 2006 2005 2004
Net asset value, beginning of period $5.00 $4.93 $5.12 $5.04 $5.20
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .10(b) .19 .17 .15 .12
Net gains (losses) (both realized and
unrealized) .06 .07 (.19) .09 (.09)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .16 .26 (.02) .24 .03
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.10) (.19) (.16) (.16) (.12)
Tax return of capital -- -- -- -- (.01)
Distributions from realized gains -- -- (.01) -- (.06)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.10) (.19) (.17) (.16) (.19)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.06 $5.00 $4.93 $5.12 $5.04
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $5 $5 $7 $11 $15
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.85%(e) 1.94% 1.95% 1.85% 1.80%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c),(d),(f) 1.65%(e) 1.64% 1.64% 1.70% 1.74%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.85%(e) 3.70% 3.31% 2.90% 2.36%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 163% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 3.22%(h) 5.30% (.43%) 4.79% .52%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 41
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(J) 2007 2006 2005 2004(B)
Net asset value, beginning of period $5.00 $4.92 $5.11 $5.03 $5.15
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .13(c) .24 .22 .20 .05
Net gains (losses) (both realized and
unrealized) .05 .08 (.19) .09 (.11)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .18 .32 .03 .29 (.06)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.13) (.24) (.21) (.21) (.06)
Distributions from realized gains -- -- (.01) -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions (.13) (.24) (.22) (.21) (.06)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.05 $5.00 $4.92 $5.11 $5.03
- -----------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $228 $207 $6 $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .63%(f) .63% .73% .66% .64%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e) .48%(f),(g) .54%(g) .54%(g) .62%(g) .64%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 5.03%(f) 4.90% 4.99% 3.99% 3.39%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 163% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(h) 3.62%(i) 6.68% .59% 5.92% (1.38%)(i)
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from March 4, 2004 (inception date) to May 31, 2004.
(c) Per share amount has been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(h) Total return does not reflect payment of a sales charge.
(i) Not annualized.
(j) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
42 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2007(I) 2007 2006 2005 2004
Net asset value, beginning of period $5.00 $4.92 $5.11 $5.03 $5.19
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .12(b) .23 .21 .20 .17
Net gains (losses) (both realized and
unrealized) .05 .08 (.19) .08 (.09)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .17 .31 .02 .28 .08
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.23) (.20) (.20) (.17)
Tax return of capital -- -- -- -- (.01)
Distributions from realized gains -- -- (.01) -- (.06)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.12) (.23) (.21) (.20) (.24)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.05 $5.00 $4.92 $5.11 $5.03
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $43 $40 $35 $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .93%(e) .99% 1.04% .94% .87%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(c),(d),(f) .75%(e) .71% .71% .77% .81%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.75%(e) 4.63% 4.40% 3.99% 3.29%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 163% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 3.48%(h) 6.51% .49% 5.75% 1.45%
- -----------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amount has been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction of earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive certain fees
and expenses (excluding fees and expenses of acquired funds).
(g) Total return does not reflect payment of a sales charge.
(h) Not annualized.
(i) Six months ended Nov. 30, 2007 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 43
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 RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities 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.
- --------------------------------------------------------------------------------
44 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On April 12, 2007, Ernst & Young LLP was selected as the Fund's independent
registered public accounting firm for the 2008 fiscal year. A majority of the
Fund's Board of Directors, including a majority of the Independent Directors,
approved the appointment of Ernst & Young LLP. The predecessor independent
registered public accounting firm's reports on the Fund's financial statements
for the year ended May 31, 2007 and the year ended May 31, 2006 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. During such fiscal periods
and through April 12, 2007 there were no disagreements between the Fund and the
predecessor independent registered public accounting firm on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which such disagreements, if not resolved to the
satisfaction of the predecessor independent registered public accounting firm,
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports on the financial statements for
such fiscal periods.
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RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2007 SEMIANNUAL REPORT 45
RIVERSOURCE(R) U.S. GOVERNMENT MORTGAGE FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by
the Fund's current prospectus. RiverSource(R)
mutual funds are distributed by RiverSource
Distributors, Inc., Member FINRA, and managed
by RiverSource Investments, LLC. These
companies are part of Ameriprise Financial,
Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6256 G (1/08)
</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. The complete schedule of investments is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's Principal Financial Officer and Principal Executive Officer
have concluded that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal controls over financial
reporting that occurred during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of
1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached
as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Government Income Series,
Inc.
By /s/ Patrick T. Bannigan
----------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date February 1, 2008
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. Bannigna
----------------------------------
Patrick T. Bannigan
President and Principal Executive
Officer
Date February 1, 2008
By /s/ Jeffrey P. Fox
----------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial
Officer
Date February 1, 2008