UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-4260
RIVERSOURCE GOVERNMENT INCOME SERIES, INC.
(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-1947
Date of fiscal year end: 5/31
Date of reporting period: 5/31
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
SHORT DURATION U.S. GOVERNMENT FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
MAY 31, 2008
(Prospectus also enclosed)
RIVERSOURCE SHORT DURATION U.S.
GOVERNMENT FUND SEEKS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF
CURRENT INCOME AND SAFETY OF
PRINCIPAL CONSISTENT WITH
INVESTMENT IN U.S. GOVERNMENT AND
GOVERNMENT AGENCY SECURITIES.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective, investment
strategy, risks, sales charges, fees and other
matters of interest. Please read the prospectus
carefully before you invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance............... 2
Manager Commentary.................. 5
The Fund's Long-term Performance ... 10
Fund Expenses Example............... 12
Portfolio of Investments............ 14
Financial Statements................ 22
Notes to Financial Statements....... 26
Report of Independent Registered
Public Accounting Firm........... 45
Federal Income Tax Information...... 47
Board Members and Officers.......... 51
Approval of Investment Management
Services Agreement............... 55
Proxy Voting........................ 57
</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.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares rose
4.27% (excluding sales charge) for the 12 months ended May 31, 2008.
> The Fund underperformed its benchmark, the Lehman Brothers 1-3 Year Government
Index, which gained 7.27% during the same period.
> The Fund underperformed the Lipper Short U.S. Government Funds Index,
representing the Fund's peer group, which advanced 5.23% during the same time
frame.
ANNUALIZED TOTAL RETURNS (for period ended May 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------
RiverSource Short Duration U.S.
Government Fund Class A
(excluding sales charge) +4.27% +3.45% +2.39% +3.66%
- ----------------------------------------------------------------------------------
Lehman Brothers 1-3 Year
Government Index (unmanaged) +7.27% +4.68% +3.30% +4.77%
- ----------------------------------------------------------------------------------
Lipper Short U.S. Government
Funds Index +5.23% +3.88% +2.74% +4.16%
- ----------------------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 3.00% sales charge applicable to Class A shares of the Fund, which changed
from 4.75% effective March 3, 2008, is not reflected in the table above. If
reflected, returns would be lower than those shown. The performance of other
classes may vary from that shown because of differences in expenses. See the
Average Annual Total Returns table for performance of other share classes of the
Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
2 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
STYLE MATRIX
- ----------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- ----------------------------------------
<Table>
Weighted average life(1) 3.4 years
- --------------------------------------------
Effective duration(2) 1.9 years
- --------------------------------------------
Weighted average bond rating(3) AAA
- --------------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- ----------------------------------------
<Table>
<Caption>
Total Net expenses(a)
- -------------------------------------------------------
Class A 1.04% 0.89%
- -------------------------------------------------------
Class B 1.80% 1.65%
- -------------------------------------------------------
Class C 1.80% 1.65%
- -------------------------------------------------------
Class I 0.60% 0.51%
- -------------------------------------------------------
Class R4 0.90% 0.76%
- -------------------------------------------------------
Class W 1.06% 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, 2009, 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.
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
Shares of 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 -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT MAY 31, 2008
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception 8/19/95) +4.27% +3.45% +2.39% +3.66% N/A
- --------------------------------------------------------------------------------------------
Class B (inception 3/20/95) +3.48% +2.68% +1.63% +2.88% N/A
- --------------------------------------------------------------------------------------------
Class C (inception 6/26/00) +3.49% +2.68% +1.63% N/A +3.17%
- --------------------------------------------------------------------------------------------
Class I (inception 3/4/04) +4.45% +3.82% N/A N/A +2.97%
- --------------------------------------------------------------------------------------------
Class R4 (inception 3/20/95) +4.41% +3.62% +2.57% +3.82% N/A
- --------------------------------------------------------------------------------------------
Class W (inception 12/1/06) +4.21% N/A N/A N/A +3.77%
- --------------------------------------------------------------------------------------------
WITH SALES CHARGE
Class A (inception 8/19/95) -0.77% +1.78% +1.39% +3.13% N/A
- --------------------------------------------------------------------------------------------
Class B (inception 3/20/95) -1.52% +1.41% +1.27% +2.88% N/A
- --------------------------------------------------------------------------------------------
Class C (inception 6/26/00) +2.49% +2.68% +1.63% N/A +3.17%
- --------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
AT JUNE 30, 2008
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception 8/19/95) +4.02% +3.35% +2.38% +3.59% N/A
- --------------------------------------------------------------------------------------------
Class B (inception 3/20/95) +3.23% +2.58% +1.61% +2.81% N/A
- --------------------------------------------------------------------------------------------
Class C (inception 6/26/00) +3.24% +2.58% +1.61% N/A +3.11%
- --------------------------------------------------------------------------------------------
Class I (inception 3/4/04) +4.20% +3.72% N/A N/A +2.89%
- --------------------------------------------------------------------------------------------
Class R4 (inception 3/20/95) +4.16% +3.52% +2.55% +3.75% N/A
- --------------------------------------------------------------------------------------------
Class W (inception 12/1/06) +3.96% N/A N/A N/A +3.49%
- --------------------------------------------------------------------------------------------
WITH SALES CHARGE
Class A (inception 8/19/95) -1.01% +1.68% +1.37% +3.06% N/A
- --------------------------------------------------------------------------------------------
Class B (inception 3/20/95) -1.77% +1.32% +1.25% +2.81% N/A
- --------------------------------------------------------------------------------------------
Class C (inception 6/26/00) +2.24% +2.58% +1.61% N/A +3.11%
- --------------------------------------------------------------------------------------------
</Table>
On March 3, 2008, the maximum sales charge for Class A shares changed from 4.75%
to 3.00%. Class A share performance reflects the maximum sales charge of 4.75%,
which was in effect at the beginning of all periods. Class B share performance
reflects a contingent deferred sales charge (CDSC) applied as follows: first
year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year
1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if
shares are sold within one year after purchase. Sales charges do not apply to
Class I, Class R4 and Class W shares. Class I and Class R4 are available to
institutional investors only. Class W shares are offered through qualifying
discretionary accounts.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
4 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
Dear Shareholders,
RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares rose
4.27% (excluding sales charge) for the 12 months ended May 31, 2008. The Fund
underperformed its benchmark, the Lehman Brothers 1-3 Year Government Index
(Lehman Index), which gained 7.27% for the same period. The Fund also
underperformed the Lipper Short U.S. Government Funds Index, representing the
Fund's peer group, which advanced 5.23% during the same time frame.
SIGNIFICANT PERFORMANCE FACTORS
The annual period ended May 31, 2008 was marked by chaos in the financial
markets and volatile interest rates as a result of the 2007 subprime mortgage
crisis and its aftermath. A classic flight to quality seized the U.S. fixed
income market as investor aversion to risk remained elevated. During the last
few months of the annual period, inflation became an additional concern for the
fixed income market, with oil, gasoline and food prices reaching record highs.
The Federal Reserve Board (the Fed) responded to the fallout from the chaos and
concern by taking a variety of strong and decisive actions. The Fed embarked on
an aggressive interest rate cutting campaign beginning in September 2007 to
address the tighter credit markets and the ongoing downturn in the housing
market. In all, the Fed cut the targeted federal funds rate a total of 325 basis
points (3.25%). The Fed also introduced several new tools to provide liquidity
to the financial system at large and the mortgage market in particular.
For the annual period overall, interest rates fell significantly, 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,
SECTOR DIVERSIFICATION (at May 31, 2008; % of portfolio assets)
- -----------------------------------------------------------------
<Table>
Asset-Backed 1.6%
- --------------------------------------------------------------
Commercial Mortgage-Backed 1.6%
- --------------------------------------------------------------
Mortgage-Backed(1) 54.7%
- --------------------------------------------------------------
U.S. Government Obligations & Agencies 19.2%
- --------------------------------------------------------------
Other(2) 22.9%
- --------------------------------------------------------------
</Table>
(1) Of the 54.7%, 5.6% is due to forward commitment mortgage-backed securities
activity. Short-term securities are held as collateral for these
commitments.
(2) Cash & Cash Equivalents(3).
(3) Of the 22.9%, 1.7% is due to security lending activity and 21.2% is the
Fund's cash equivalent position.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 5
MANAGER COMMENTARY (continued) -------------------------------------------------
causing the U.S. Treasury yield curve to steepen over the annual period. Away
from Treasuries, other fixed income sectors posted positive but comparatively
weaker results.
The primary contributor to the Fund's performance was its exposure to Treasury
Inflation Protected Securities, or TIPS. TIPS outperformed nominal Treasury
securities, or non-inflation protected Treasury securities, as inflationary
pressures grew and actual inflation came in higher than expected during the
period.
Also, 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.
Still, these positives were more than outweighed by the impact of yield curve
positioning, which detracted from performance over the period. As mentioned,
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 annual period. The Fund, however,
had a more modest exposure to the 1-3 year portion of the yield curve, which
outperformed, and a more sizable allocation to the 10-year segment of the yield
curve, which lagged.
The Fund's sizable exposure to mortgage-backed securities and agency securities
also detracted from results, as these spread, or non-Treasury sectors of the
fixed income market, posted positive returns but underperformed Treasuries
during the annual period. An exposure to non-
QUALITY BREAKDOWN
(at May 31, 2008; % of portfolio assets excluding cash equivalents and equities)
- -----------------------------------------------------------------
<Table>
AAA bonds 99.3%
- --------------------------------------------------------------
AA bonds 0.7%
- --------------------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating.
- --------------------------------------------------------------------------------
6 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
As always, our strategy is to provide added portfolio value with a moderate
amount of risk.
agency mortgage-backed securities also detracted, as
this sector of the fixed income market was
especially hurt due to concerns regarding credit
broadly, and residential credit in particular, grew.
CHANGES TO THE FUND'S PORTFOLIO
During the first half of the annual period, we
shifted to a somewhat more aggressive strategy
within the Fund's allocation to both mortgage-
backed securities and agency securities, as spreads,
or the difference in yields between these securities
and U.S. Treasuries, widened and valuations reached
compelling levels. In the last months of the fiscal
year, we increased the Fund's position in TIPS, as
actual and anticipated inflation pressures rose. We
strategically adjusted the Fund's duration relative
to the Lehman Index throughout the annual period, as
market conditions shifted. The Fund ended the period
with a duration slightly longer than the Lehman
Index. The Fund's portfolio turnover rate for the
12-month period was 209%.*
OUR FUTURE STRATEGY
At the end of May, the market for high quality
spread, or non-Treasury, securities finally appeared
to be improving, and even lower quality bonds had
rebounded from their lows. While economic growth
over the coming months may not be as strong as
earlier in the cycle, we expect the U.S. economy to
narrowly avoid recession this year, as the economic
stimulus package passed by Congress should help keep
economic growth positive. However, we do believe
that low interest rates and a weakened currency have
combined to
* A significant portion of the turnover was the
result of rolling-maturity mortgage securities,
processing of prepayments and opportunistic
changes we made at the margin in response to
valuations or market developments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
form an inflation problem that may weigh heavily on consumers and financial
markets in the second half of this year and into 2009. To accommodate for this
pressure, we believe that the Fed will eventually have to increase interest
rates, and Treasury yields should continue to drift higher.
In this environment, we intend to maintain the Fund's exposure to TIPS. We also
believe the most compelling opportunities at the end of the annual period were
in high-quality spread products, as they were priced at historically wide
levels. We therefore view the Fund as well-positioned for a recovery in high
quality spread, or non-Treasury, sectors of the fixed income market. Having
begun in the last months of the annual period, we expect this recovery to
continue over the months ahead, as fears ultimately subside and liquidity
returns to the markets. Among its mortgage-backed holdings, we intend to
maintain the Fund's premium coupon bias, as prepayments are expected to remain
slow. We also view select pockets of non-agency mortgage-backed securities as
attractively priced, though our focus is on those securities within this sector
with superior credit enhancements. We intend to maintain the Fund's current
duration positioning for the near term. As always, our strategy is to provide
added portfolio value with a moderate amount of risk. Quality issues and
security selection remain a priority as we continue to seek attractive buying
opportunities.
<Table>
(PHOTO - JAMIE (PHOTO - SCOTT
JACKSON) KIRBY)
Jamie Jackson, Scott Kirby
CFA(R) Portfolio Manager
Portfolio Manager
</Table>
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
8 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
THIS PAGE LEFT BLANK INTENTIONALLY
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Short Duration U.S. Government Fund Class A shares
(from 6/1/98 to 5/31/08) as compared to the performance of two widely cited
performance indices, the Lehman Brothers 1-3 Year Government Index and the
Lipper Short U.S. Government Funds Index. In comparing the Fund's Class A shares
to these indices, you should take into account the fact that the Fund's
performance reflects a maximum sales charge of 4.75%, which changed to 3.00%
effective March 3, 2008. Such charges are not reflected in the performance of
the indices. Returns for the Fund include the reinvestment of any distribution
paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at May 31, 2008 1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND (INCLUDES SALES CHARGE(1))
CLASS A CUMULATIVE VALUE OF $10,000 $9,923 $10,544 $10,715 $13,642
- -----------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN -0.77% +1.78% +1.39% +3.13%
- -----------------------------------------------------------------------------------------------
LEHMAN BROTHERS 1-3 YEAR GOVERNMENT INDEX(2)
Cumulative value of $10,000 $10,727 $11,471 $11,763 $15,941
- -----------------------------------------------------------------------------------------------
Average annual total return +7.27% +4.68% +3.30% +4.77%
- -----------------------------------------------------------------------------------------------
LIPPER SHORT U.S. GOVERNMENT FUNDS INDEX(3)
Cumulative value of $10,000 $10,523 $11,210 $11,447 $15,035
- -----------------------------------------------------------------------------------------------
Average annual total return +5.23% +3.88% +2.74% +4.16%
- -----------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 4.
- --------------------------------------------------------------------------------
10 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE SHORT DURATION U.S.
GOVERNMENT FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE SHORT DURATION
U.S. GOVERNMENT FUND LEHMAN BROTHERS 1-3 YEAR LIPPER SHORT U.S.
CLASS A (INCLUDES SALES GOVERNMENT INDEX(2) GOVERNMENT FUNDS INDEX(3)
CHARGE(1)) ($13,642) ($15,941) ($15,035)
-------------------------- ------------------------ -------------------------
1998 $ 9,525 $10,000 $10,000
1999 9,915 10,528 10,481
2000 9,914 10,952 10,868
2001 10,924 12,054 11,932
2002 11,554 12,826 12,557
2003 12,120 13,550 13,135
2004 12,091 13,640 13,144
2005 12,323 13,896 13,411
2006 12,447 14,156 13,647
2007 13,084 14,861 14,288
2008 13,642 15,941 15,035
</Table>
(1) On March 3, 2008, the maximum sales charge for Class A changed from 4.75%
to 3.00%. Class A share performance reflects the maximum sales charge of
4.75%, which was in effect at the beginning of all periods.
(2) 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.
(3) The Lipper Short U.S. Government Funds Index includes the 30 largest short
U.S. government funds tracked by Lipper Inc. The index's returns include
net reinvested dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 11
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 May 31, 2008.
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.
- --------------------------------------------------------------------------------
12 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
DEC. 1, 2007 MAY 31, 2008 THE PERIOD(A) EXPENSE RATIO
- -------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,007.30 $4.44 .89%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,020.44 $4.47 .89%
- -------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,003.50 $8.22 1.65%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,016.66 $8.27 1.65%
- -------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,003.50 $8.22 1.65%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,016.66 $8.27 1.65%
- -------------------------------------------------------------------------------------------
Class I
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,009.20 $2.55 .51%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,022.33 $2.56 .51%
- -------------------------------------------------------------------------------------------
Class R4
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,008.00 $3.79 .76%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,021.08 $3.82 .76%
- -------------------------------------------------------------------------------------------
Class W
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,007.00 $4.74 .95%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,020.14 $4.77 .95%
- -------------------------------------------------------------------------------------------
</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 182/366 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended May 31, 2008: +0.73%
for Class A, +0.35% for Class B, +0.35% for Class C, +0.92% for Class I,
+0.80% for Class R4 and +0.70% for Class W.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 13
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
MAY 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (84.3%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (21.0%)
Federal Farm Credit Bank
10-10-08 4.25% $6,015,000 $6,054,994
Federal Home Loan Bank
11-21-08 4.63 6,500,000 6,564,370
12-29-08 5.13 24,390,000 24,752,776
Federal Home Loan Mtge Corp
06-15-08 3.88 4,010,000 4,012,798
08-23-17 5.50 5,500,000 5,863,666
Federal Natl Mtge Assn
10-15-08 4.50 10,615,000 10,701,204
04-09-13 3.25 18,880,000 18,223,070
11-15-30 6.63 1,945,000 2,289,487
U.S. Treasury
04-30-10 2.13 12,430,000(b) 12,318,329
05-31-10 2.63 21,705,000(e) 21,698,228
12-15-10 4.38 10,550,000 10,962,938
05-15-18 3.88 4,300,000 4,239,869
U.S. Treasury Inflation-Indexed Bond
01-15-14 2.00 17,330,475(g) 18,161,406
01-15-15 1.63 22,353,000(g) 22,869,258
---------------
Total 168,712,393
- ------------------------------------------------------------------------------------
ASSET-BACKED (1.8%)
Capital Auto Receivables Asset Trust
Series 2006-SN1A Cl A4B
03-20-10 2.59 3,250,000(d,i) 3,227,747
Countrywide Asset-backed Ctfs
Series 2007-7 Cl 2A2
10-25-37 2.55 2,600,000(i) 2,217,314
Fannie Mae Grantor Trust
Series 2005-T4 Cl A1C
09-25-35 2.54 1,054,819(i) 1,044,469
MASTR Asset Backed Securities Trust
Series 2006-HE1 Cl A2
01-25-36 2.53 747,697(i) 736,131
Residential Asset Securities
Series 2007-KS3 Cl AI2
04-25-37 2.57 4,050,000(i) 3,576,636
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
ASSET-BACKED (CONT.)
Soundview Home Equity Loan Trust
Series 2006-EQ1 Cl A2
10-25-36 2.50% $3,900,000(i) $3,447,233
---------------
Total 14,249,530
- ------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (1.7%)(f)
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 6,364,210 6,460,078
Federal Natl Mtge Assn #360800
01-01-09 5.74 3,006,335(n) 3,029,793
Federal Natl Mtge Assn #381990
10-01-09 7.11 4,091,489 4,167,643
---------------
Total 13,657,514
- ------------------------------------------------------------------------------------
MORTGAGE-BACKED (59.8%)(f,m)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-1 Cl 3A21
03-25-37 6.15 1,948,005(h) 1,834,751
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 2.56 3,293,527(h) 2,074,064
American Home Mtge Investment Trust
Collateralized Mtge Obligation
Series 2007-1 Cl GA1C
05-25-47 2.58 4,242,441(h) 3,289,222
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00 3,390,849 3,036,400
Barclays Capital LLC Trust
Collateralized Mtge Obligation
Series 2007-AA4 Cl 11A1
06-25-47 6.21 1,328,261(h) 1,009,969
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50% $1,496,265 $1,434,734
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00 5,722,243 4,940,802
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-OA11 Cl A3B1
09-25-46 2.57 4,167,120(i) 3,830,878
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-22 Cl 2A16
09-25-37 6.50 4,601,386 4,054,972
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
11-25-37 6.50 4,648,885 4,236,115
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 2.74 5,598,315(i) 4,066,381
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 2.89 3,863,997(i) 2,231,724
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-HYB8 Cl 4A1
12-20-35 5.62 3,215,796(h) 2,326,896
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 4,332,761(d) 4,083,474
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-17 Cl 2A1
10-25-37 6.50 4,490,811 4,445,727
Federal Home Loan Mtge Corp
06-01-38 6.00 8,000,000(e) 8,122,496
06-01-38 6.50 12,000,000(e) 12,386,257
Federal Home Loan Mtge Corp #1G2264
10-01-37 6.03 6,456,394(h) 6,627,793
Federal Home Loan Mtge Corp #1G2598
01-01-37 6.12 2,508,402(h) 2,567,548
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #1J0614
09-01-37 5.70% $3,263,270(h) $3,332,876
Federal Home Loan Mtge Corp #783049
03-01-35 4.85 6,215,555(h) 6,177,578
Federal Home Loan Mtge Corp #A18107
01-01-34 5.50 3,002,375 2,990,459
Federal Home Loan Mtge Corp #C00351
07-01-24 8.00 246,644 267,094
Federal Home Loan Mtge Corp #C00385
01-01-25 9.00 414,461 460,109
Federal Home Loan Mtge Corp #C80329
08-01-25 8.00 69,430 75,153
Federal Home Loan Mtge Corp #E00398
10-01-10 7.00 276,032 286,386
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 3,329,809 3,485,603
Federal Home Loan Mtge Corp #E90650
07-01-12 5.50 162,692 165,774
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 2,746,660 2,749,975
Federal Home Loan Mtge Corp #G00363
06-01-25 8.00 327,088 354,045
Federal Home Loan Mtge Corp #G00501
05-01-26 9.00 612,499 680,133
Federal Home Loan Mtge Corp #G10669
03-01-12 7.50 1,388,547 1,456,539
Federal Home Loan Mtge Corp #G11243
04-01-17 6.50 12,428,837 13,032,715
Federal Home Loan Mtge Corp #G12100
11-01-13 5.00 3,122,821 3,123,802
Federal Home Loan Mtge Corp #M30074
09-01-09 6.50 62,913 64,346
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 11 Cl B
01-01-20 17.54 7,061(k) 1,670
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 237 Cl IO
05-15-36 6.60 1,112,967(k) 294,109
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2590 Cl BI
02-15-14 50.12 711,585(k) 3,908
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL 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 2783 Cl MI
03-15-25 41.88% $3,177,468(k) $97,441
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2471 Cl SI
03-15-32 25.32 1,352,658(j,k) 149,490
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2617 Cl HD
06-15-16 7.00 6,335,511 6,585,943
Federal Natl Mtge Assn
06-01-38 5.00 2,500,000(e) 2,414,845
06-01-38 5.50 9,000,000(e) 8,935,308
06-01-38 6.00 4,500,000(e) 4,564,688
06-01-38 6.50 8,000,000(e) 8,247,504
Federal Natl Mtge Assn #125032
11-01-21 8.00 137,003 148,366
Federal Natl Mtge Assn #190129
11-01-23 6.00 980,843 1,003,801
Federal Natl Mtge Assn #190353
08-01-34 5.00 6,640,863 6,436,034
Federal Natl Mtge Assn #190785
05-01-09 7.50 74,483 74,702
Federal Natl Mtge Assn #190988
06-01-24 9.00 218,093 236,626
Federal Natl Mtge Assn #254384
06-01-17 7.00 326,456 342,025
Federal Natl Mtge Assn #254454
08-01-17 7.00 560,055 586,764
Federal Natl Mtge Assn #254723
05-01-23 5.50 8,790,214(n) 8,816,672
Federal Natl Mtge Assn #254748
04-01-13 5.50 5,324,419 5,423,420
Federal Natl Mtge Assn #254757
05-01-13 5.00 7,297,931 7,332,929
Federal Natl Mtge Assn #254774
05-01-13 5.50 1,704,312 1,733,507
Federal Natl Mtge Assn #255501
09-01-14 6.00 708,141(n) 725,858
Federal Natl Mtge Assn #303885
05-01-26 7.50 445,053 480,690
Federal Natl Mtge Assn #313007
07-01-11 7.50 186,834 193,687
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #313428
12-01-08 7.50% $1,387 $1,391
Federal Natl Mtge Assn #336512
02-01-26 6.00 63,192 64,718
Federal Natl Mtge Assn #357485
02-01-34 5.50 13,184,383 13,140,299
Federal Natl Mtge Assn #407327
01-01-14 5.50 402,885 409,918
Federal Natl Mtge Assn #456374
12-01-13 5.50 772,465 785,950
Federal Natl Mtge Assn #508402
08-01-14 6.50 261,541 271,883
Federal Natl Mtge Assn #545818
07-01-17 6.00 13,082,141 13,494,774
Federal Natl Mtge Assn #545864
08-01-17 5.50 10,832,051 11,037,976
Federal Natl Mtge Assn #545910
08-01-17 6.00 2,036,532 2,101,857
Federal Natl Mtge Assn #555063
11-01-17 5.50 7,799,946 7,946,725
Federal Natl Mtge Assn #555367
03-01-33 6.00 9,501,053(n) 9,700,872
Federal Natl Mtge Assn #579485
04-01-31 6.50 2,276,125(n) 2,395,615
Federal Natl Mtge Assn #593829
12-01-28 7.00 1,553,038 1,653,441
Federal Natl Mtge Assn #601416
11-01-31 6.50 765,524 800,977
Federal Natl Mtge Assn #630993
09-01-31 7.50 2,456,543 2,652,000
Federal Natl Mtge Assn #648040
06-01-32 6.50 2,153,933 2,238,946
Federal Natl Mtge Assn #648349
06-01-17 6.00 6,867,562(n) 7,087,844
Federal Natl Mtge Assn #651284
07-01-17 6.00 1,344,458 1,387,631
Federal Natl Mtge Assn #662866
11-01-17 6.00 1,165,637(n) 1,206,366
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,184,465 1,231,214
Federal Natl Mtge Assn #670782
11-01-12 5.00 266,811 268,132
Federal Natl Mtge Assn #670830
12-01-12 5.00 409,589 411,956
Federal Natl Mtge Assn #671415
01-01-10 5.00 355,123 359,014
Federal Natl Mtge Assn #678940
02-01-18 5.50 2,071,723 2,110,422
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #686227
02-01-18 5.50% $2,737,518 $2,785,960
Federal Natl Mtge Assn #696837
04-01-18 5.50 2,940,296 2,993,858
Federal Natl Mtge Assn #704610
06-01-33 5.50 10,467,533(n) 10,432,533
Federal Natl Mtge Assn #712602
06-01-13 5.00 990,669 995,418
Federal Natl Mtge Assn #722325
07-01-33 4.96 5,004,441(h) 5,060,691
Federal Natl Mtge Assn #725232
03-01-34 5.00 9,851,975(n) 9,557,339
Federal Natl Mtge Assn #725425
04-01-34 5.50 9,184,956 9,157,055
Federal Natl Mtge Assn #725431
08-01-15 5.50 7,624,692 7,757,795
Federal Natl Mtge Assn #725773
09-01-34 5.50 7,779,139 7,745,835
Federal Natl Mtge Assn #730632
08-01-33 4.06 1,759,496(h) 1,760,736
Federal Natl Mtge Assn #735212
12-01-34 5.00 5,893,524 5,711,745
Federal Natl Mtge Assn #739243
09-01-33 6.00 2,909,087 2,988,651
Federal Natl Mtge Assn #739331
09-01-33 6.00 1,491,753 1,520,796
Federal Natl Mtge Assn #743524
11-01-33 5.00 2,942,024 2,854,039
Federal Natl Mtge Assn #753508
11-01-33 5.00 3,242,414(n) 3,145,446
Federal Natl Mtge Assn #791447
10-01-34 6.00 4,619,345 4,702,061
Federal Natl Mtge Assn #797046
07-01-34 5.50 2,778,576(n) 2,766,680
Federal Natl Mtge Assn #799769
11-01-34 5.05 3,888,967(h) 3,935,868
Federal Natl Mtge Assn #801344
10-01-34 5.05 4,301,717(h) 4,369,598
Federal Natl Mtge Assn #815463
02-01-35 5.50 1,833,638 1,825,787
Federal Natl Mtge Assn #832641
09-01-35 6.00 6,316,139 6,418,382
Federal Natl Mtge Assn #849082
01-01-36 5.82 2,686,500(h) 2,739,899
Federal Natl Mtge Assn #849170
01-01-36 5.94 3,433,100(h) 3,507,282
Federal Natl Mtge Assn #878661
02-01-36 5.50 7,642,170(n) 7,538,542
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #883267
07-01-36 6.50% $4,370,983(n) $4,563,126
Federal Natl Mtge Assn #887403
07-01-36 7.00 2,643,531 2,800,308
Federal Natl Mtge Assn #888989
06-01-37 6.06 6,157,959(h) 6,333,275
Federal Natl Mtge Assn #902818
11-01-36 5.91 2,136,461(h) 2,186,582
Federal Natl Mtge Assn #919341
05-01-37 6.50 3,437,068 3,547,290
Federal Natl Mtge Assn #928771
10-01-37 8.00 6,496,596(n) 6,919,920
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 163 Cl 2
07-25-22 28.60 546,443(k) 87,636
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-26 Cl MI
03-25-23 13.70 1,647,959(k) 313,880
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 7.52 3,767,136(k) 953,630
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 9.86 1,965,795(k) 337,582
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-81 Cl LI
11-25-13 20.00 2,883,100(k) 52,001
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 36 Cl 2
08-01-18 14.00 4,306(k) 1,121
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 367 Cl 2
01-01-36 6.57 2,776,543(k) 736,903
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 17
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 379 Cl 2
05-25-37 6.52% $5,352,772(k) $1,379,848
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 70 Cl 2
01-15-20 27.28 198,839(k) 39,377
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2002-18 Cl SE
02-25-32 27.33 2,842,791(j,k) 322,419
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series G-15 Cl A
06-25-21 2.49 25,970(l) 23,257
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 1,925,489 2,036,199
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-94 Cl QB
07-25-23 5.50 3,209,787 3,215,573
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-W11 Cl A1
06-25-33 7.28 120,425(h) 120,847
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2004-60 Cl PA
04-25-34 5.50 3,269,449 3,313,956
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-60 Cl JF
10-25-35 2.82 5,590,018(i) 5,506,244
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-90 Cl FE
09-25-36 2.84 7,117,965(i) 7,080,705
Govt Natl Mtge Assn
06-01-38 5.50 5,000,000(e) 5,000,000
Govt Natl Mtge Assn #615740
08-15-13 6.00 746,339 770,200
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Govt Natl Mtge Assn #781507
09-15-14 6.00% $3,541,731 $3,657,031
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-62 Cl IC
03-20-29 20.00 1,522,591(k) 38,160
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-32 Cl A
01-16-30 5.08 8,783,674 8,864,848
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 3A
06-19-34 3.83 393,650(h) 371,823
Lehman XS Trust
Series 2006-16N Cl A1B
11-25-46 2.51 2,491,877(i) 2,300,434
Merrill Lynch Alternative Note Asset
Collateralized Mtge Obligation
Series 2007-OAR1 Cl A1
02-25-37 2.56 5,365,533(i) 4,177,054
Morgan Stanley Mtge Loan Trust
Series 2006-13AX Cl A1
10-25-36 2.48 3,857,608(i) 3,369,665
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR3 Cl A1A
02-25-46 4.79 1,889,490(h) 1,456,722
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 5,648,113 5,057,321
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-14 Cl 2A1
12-25-35 5.50 2,909,683 2,775,110
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 4,159,567 4,046,481
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 1A1
09-25-36 6.02 1,648,683(h) 1,628,277
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL 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 2006-AR6 Cl 5A1
03-25-36 5.11% $3,575,958(h) $3,455,489
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-11 Cl A68
08-25-37 6.00 4,729,138 4,465,820
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-15 Cl A1
11-25-37 6.00 3,320,161(e) 3,234,563
---------------
Total 481,705,371
- ------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $688,552,899) $678,324,808
- ------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (1.6%)(c)
SHARES VALUE(A)
RiverSource Short-Term Cash Fund, 2.60% 12,901,974(o) $12,901,974
- -----------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $12,901,974) $12,901,974
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHORT-TERM SECURITIES (23.4%)(c)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUER YIELD MATURITY VALUE(A)
U.S. GOVERNMENT AGENCIES
Federal Home Loan Bank Disc Nts
06-02-08 1.98% $63,800,000 $63,789,628
06-06-08 2.10 50,000,000 49,979,827
06-10-08 2.07 25,000,000 24,984,417
06-18-08 2.20 35,000,000 34,959,916
06-25-08 2.22 15,000,000 14,976,275
- ------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost: $188,700,839) $188,690,063
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $890,155,712)(p) $879,916,845
====================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT MAY 31, 2008
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- ------------------------------------------------------------------------------------
U.S. Long Bond, 20-year 30 $3,405,000 Sept. 2008 $(42,240)
U.S. Treasury Note,
2-year 563 118,581,875 Sept. 2008 (326,467)
U.S. Treasury Note,
5-year (412) (45,641,875) June 2008 1,306,402
U.S. Treasury Note,
5-year (69) (7,585,688) Sept. 2008 41,575
U.S. Treasury Note,
10-year (440) (50,139,377) June 2008 1,569,861
U.S. Treasury Note,
10-year (266) (29,900,062) Sept. 2008 (66,965)
- ------------------------------------------------------------------------------------
Total $2,482,166
- ------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 19
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) At May 31, 2008, 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 1.9% of
net assets. See Note 5 to the financial statements. The Fund's cash
equivalent position is 23.1% of net assets.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At May 31,
2008, the value of these securities amounted to $7,311,221 or 0.9% of net
assets.
(e) At May 31, 2008, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$74,993,839. See Note 1 to the financial statements.
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) Inflation-indexed bonds are securities in which the principal amount is
adjusted for inflation and the semiannual interest payments equal a fixed
percentage of the inflation-adjusted principal amount.
(h) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on May 31, 2008.
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on May 31,
2008.
(j) 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 May 31, 2008. At May 31,
2008, the value of inverse floaters represented 0.1% of net assets.
(k) 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 May 31, 2008.
(l) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments may
have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents yield based upon the estimated timing of future cash
flows at May 31, 2008.
- --------------------------------------------------------------------------------
20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(m) Comparable securities are held to satisfy future delivery requirements of
the following open forward sale commitments at May 31, 2008:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
- ---------------------------------------------------------------------------------------
Federal Natl Mtge Assn
06-01-23 5.50% $9,275,000 06-17-08 $9,390,938 $9,373,547
</Table>
(n) At May 31, 2008, investments in securities included securities valued at
$4,297,515 that were partially pledged as collateral to cover initial
margin deposits on open interest rate futures contracts.
(o) Affiliated Money Market Fund - See Note 6 to the financial statements. The
rate shown is the seven-day current annualized yield at May 31, 2008.
(p) At May 31, 2008, the cost of securities for federal income tax purposes was
$898,115,672 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $6,583,564
Unrealized depreciation (24,782,391)
- ------------------------------------------------------------------------------
Net unrealized depreciation $(18,198,827)
- ------------------------------------------------------------------------------
</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 -- 2008 ANNUAL REPORT 21
FINANCIAL STATEMENTS -----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2008
<Table>
ASSETS
Investments in securities, at value
Unaffiliated issuers* (identified cost $877,253,738) $ 867,014,871
Affiliated money market fund (identified cost
$12,901,974) 12,901,974
- ------------------------------------------------------------------------------
Total investments in securities (identified cost
$890,155,712) 879,916,845
Capital shares receivable 222,847
Dividends and accrued interest receivable 3,602,881
Receivable for investment securities sold 26,814,528
- ------------------------------------------------------------------------------
Total assets 910,557,101
- ------------------------------------------------------------------------------
LIABILITIES
Forward sale commitments, at value (proceeds receivable
$9,390,938) 9,373,547
Dividends payable to shareholders 153,257
Capital shares payable 1,437,850
Payable for investment securities purchased 3,655,269
Payable for securities purchased on a forward-commitment
basis 74,993,839
Payable upon return of securities loaned 15,243,750
Variation margin payable 132,462
Accrued investment management services fees 10,554
Accrued distribution fees 154,657
Accrued transfer agency fees 1,534
Accrued administrative services fees 1,498
Accrued plan administration services fees 1,005
Other accrued expenses 557,617
- ------------------------------------------------------------------------------
Total liabilities 105,716,839
- ------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $ 804,840,262
==============================================================================
</Table>
- --------------------------------------------------------------------------------
22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
MAY 31, 2008
<Table>
REPRESENTED BY
Capital stock -- $.01 par value $ 1,698,674
Additional paid-in capital 1,003,944,353
Excess of distributions over net investment income (195,666)
Accumulated net realized gain (loss) (192,867,789)
Unrealized appreciation (depreciation) on investments (7,739,310)
- ------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $ 804,840,262
==============================================================================
</Table>
<Table>
Net assets applicable to outstanding
shares: Class A $ 539,251,179
Class B $ 158,544,398
Class C $ 9,625,747
Class I $ 92,658,581
Class R4 $ 4,755,371
Class W $ 4,986
Net asset value per share of outstanding Class A
capital stock: shares(1) 113,827,935 $ 4.74
Class B shares 33,462,620 $ 4.74
Class C shares 2,031,863 $ 4.74
Class I shares 19,540,682 $ 4.74
Class R4 shares 1,003,265 $ 4.74
Class W shares 1,053 $ 4.74
- -------------------------------------------------------------------------------------------
*Including securities on loan, at value $ 14,865,150
- -------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $4.89. The offering
price is calculated by dividing the net asset value by 1.0 minus the
maximum sales charge of 3.00%.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 23
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 2008
<Table>
INVESTMENT INCOME
Income:
Interest $37,133,856
Income distributions from affiliated money market fund 847,869
Fee income from securities lending 174,341
- ---------------------------------------------------------------------------
Total income 38,156,066
- ---------------------------------------------------------------------------
Expenses:
Investment management services fees 3,816,196
Distribution fees
Class A 1,342,344
Class B 1,762,259
Class C 97,004
Class W 12
Transfer agency fees
Class A 991,548
Class B 344,487
Class C 18,568
Class R4 2,240
Class W 10
Administrative services fees 541,748
Plan administration services fee -- Class R4 11,201
Compensation of board members 14,998
Custodian fees 78,474
Printing and postage 152,710
Registration fees 92,859
Professional fees 43,826
Other 31,484
- ---------------------------------------------------------------------------
Total expenses 9,341,968
Expenses waived/reimbursed by the Investment Manager and
its affiliates (1,129,574)
Earnings and bank fee credits on cash balances (56,289)
- ---------------------------------------------------------------------------
Total net expenses 8,156,105
- ---------------------------------------------------------------------------
Investment income (loss) -- net 29,999,961
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions 2,483,642
Futures contracts (1,383,657)
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments 1,099,985
Net change in unrealized appreciation (depreciation) on
investments (800,569)
- ---------------------------------------------------------------------------
Net gain (loss) on investments 299,416
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $30,299,377
===========================================================================
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED MAY 31, 2008 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 29,999,961 $ 34,864,001
Net realized gain (loss) on investments 1,099,985 (3,231,933)
Net change in unrealized appreciation (depreciation)
on investments (800,569) 13,960,710
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 30,299,377 45,592,778
- ---------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (21,333,414) (23,143,295)
Class B (5,699,109) (8,304,295)
Class C (312,941) (382,419)
Class I (2,868,438) (2,092,223)
Class R4 (183,760) (521,296)
Class W (196) (92)
- ---------------------------------------------------------------------------------------
Total distributions (30,397,858) (34,443,620)
- ---------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 206,496,511 123,697,762
Class B shares 42,734,598 39,042,955
Class C shares 2,621,382 1,714,861
Class I shares 69,048,377 28,598,207
Class R4 shares 2,801,130 1,928,332
Class W shares -- 5,000
Reinvestment of distributions at net asset value
Class A shares 19,605,781 20,974,512
Class B shares 5,406,615 7,756,733
Class C shares 299,079 362,001
Class I shares 2,844,139 2,093,754
Class R4 shares 185,296 523,566
Payments for redemptions
Class A shares (200,741,788) (279,123,681)
Class B shares (105,920,795) (172,096,057)
Class C shares (3,568,542) (6,479,313)
Class I shares (33,540,963) (38,743,791)
Class R4 shares (2,086,457) (17,374,573)
- ---------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions 6,184,363 (287,119,732)
- ---------------------------------------------------------------------------------------
Total increase (decrease) in net assets 6,085,882 (275,970,574)
Net assets at beginning of year 798,754,380 1,074,724,954
- ---------------------------------------------------------------------------------------
Net assets at end of year $ 804,840,262 $ 798,754,380
=======================================================================================
Excess of distributions over net investment income $ (195,666) $ (68,629)
- ---------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 25
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Short Duration U.S. Government Fund (the Fund) is a series of
RiverSource Government Income Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. RiverSource Government Income Series, Inc. has 10
billion authorized shares of capital stock that can be allocated among the
separate series as designated by the Board of Directors (the Board). The Fund
invests in direct obligations of the U.S. government, such as Treasury bonds,
bills and notes, and of its agencies and instrumentalities.
The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership. Effective March 3, 2008, Class B shares were closed to new
investors and new purchases.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
- - Class W shares are sold without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At May 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of
Class I shares, and the Investment Manager owned 100% of Class W shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
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
- --------------------------------------------------------------------------------
26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL 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 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.
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 May 31, 2008, the Fund has outstanding when-issued
securities of $71,704,061 and other forward-commitments of $3,289,778.
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 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
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 27
to secure certain over-the-counter options trades. Cash collateral held by the
Fund for such option trades must be returned to the counter party 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. At May 31, 2008, and for the year then ended, 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.
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.
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
- --------------------------------------------------------------------------------
28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the Notes to Portfolio of
Investments.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to the shareholders. No provision for income or excise
taxes is thus required.
The Fund has adopted Financial Accounting Standards Board (FASB) Interpretation
48 (FIN 48), "Accounting for Uncertainty in Income Taxes," which is effective
for fiscal periods beginning after Dec. 15, 2006. 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. Management of the Fund has concluded that there are no significant
uncertain tax positions that would require recognition in the financial
statements. Generally, the tax authorities can examine all the tax returns filed
for the last three years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures and options
contracts, recognition of unrealized appreciation (depreciation) for certain
derivative investments and losses deferred due to wash sales. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 29
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.
On the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been increased by $270,860
and accumulated net realized loss has been decreased by $30,907,773 resulting in
a net reclassification adjustment to decrease paid-in capital by $31,178,633.
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED MAY 31, 2008 2007*
- ----------------------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income......................... $21,333,414 $23,143,295
Long-term capital gain.................. -- --
CLASS B
Distributions paid from:
Ordinary income......................... 5,699,109 8,304,295
Long-term capital gain.................. -- --
CLASS C
Distributions paid from:
Ordinary income......................... 312,941 382,419
Long-term capital gain.................. -- --
CLASS I
Distributions paid from:
Ordinary income......................... 2,868,438 2,092,223
Long-term capital gain.................. -- --
CLASS R4
Distributions paid from:
Ordinary income......................... 183,760 521,296
Long-term capital gain.................. -- --
CLASS W
Distributions paid from:
Ordinary income......................... 196 92
Long-term capital gain.................. -- --
</Table>
* Class W is for the period from Dec. 1, 2006 (inception date) to May 31, 2007.
At May 31, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income............................ $ 277,566
Undistributed accumulated long-term gain................. $ --
Accumulated realized loss................................ $(183,673,285)
Unrealized appreciation (depreciation)................... $ (17,253,789)
</Table>
- --------------------------------------------------------------------------------
30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No. 133," which requires enhanced
disclosures about a fund's derivative and hedging activities. Funds are required
to provide enhanced disclosures about (a) how and why a fund uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect a fund's financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
Nov. 15, 2008. As of May 31, 2008, management does not believe the adoption of
SFAS 161 will impact the financial statement amounts; however, additional
footnote disclosures may be required about the use of derivative instruments and
hedging items.
On Sept. 20, 2006, the 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 hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. The application of SFAS 157
will be effective for the Fund's fiscal year beginning June 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on the Fund's
financial statements; however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of certain
measurements reported in the Statement of Operations for a fiscal period.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income, if any, is recognized on the ex-dividend date and
interest income, including amortization of premium, market discount and original
issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 31
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 year
ended May 31, 2008 was 0.48% of the Fund's average daily net assets.
ADMINISTRATIVE SERVICES FEES
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 year ended May 31, 2008 was 0.07% of the
Fund's average daily net assets.
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended May 31,
2008, other expenses paid to this company were $3,512.
COMPENSATION OF BOARD MEMBERS
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.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50
for Class B and $21.00 for Class C for this service. The Fund also pays the
Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's
average daily net assets attributable to Class R4 shares and an annual
asset-based fee at a rate of 0.20% of the Fund's average daily net assets
attributable to Class W shares.
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of Operations.
- --------------------------------------------------------------------------------
32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
PLAN ADMINISTRATION FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R4 shares for the provision of various administrative,
recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has an agreement with 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
Sales charges received by the Distributor for distributing Fund shares were
$522,869 for Class A, $135,750 for Class B and $1,735 for Class C for the year
ended May 31, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended May 31, 2008, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*) were as follows:
<Table>
Class A..................................................... 0.89%
Class B..................................................... 1.65
Class C..................................................... 1.65
Class I..................................................... 0.51
Class R4.................................................... 0.76
Class W..................................................... 0.95
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A..................................................... $296,755
Class B..................................................... 101,099
Class C..................................................... 5,347
Class R4.................................................... 2,240
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R4.................................................... $179
</Table>
The management fees waived/reimbursed at the Fund level were $723,954.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 33
The Investment Manager and its affiliates have contractually agreed to waive
certain fees and expenses until May 31, 2009, unless sooner terminate at the
discretion of the Board, such that net expenses (excluding fees and expenses of
acquired funds*), will not exceed the following percentage of the Fund's average
daily net assets:
<Table>
Class A..................................................... 0.89%
Class B..................................................... 1.65
Class C..................................................... 1.65
Class I..................................................... 0.51
Class R4.................................................... 0.76
Class W..................................................... 0.96
</Table>
* 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.
EARNINGS AND BANK FEE CREDITS
During the year ended May 31, 2008, the Fund's custodian and transfer agency
fees were reduced by $56,289 as a result of earnings and 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 $1,431,723,484 and $1,498,300,206, respectively, for the
year ended May 31, 2008. Realized gains and losses are determined on an
identified cost basis.
- --------------------------------------------------------------------------------
34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<Table>
<Caption>
YEAR ENDED MAY 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ---------------------------------------------------------------------------------------
Class A 43,400,136 4,118,107 (42,186,985) 5,331,258
Class B 8,957,341 1,135,754 (22,307,379) (12,214,284)
Class C 549,369 62,833 (750,024) (137,822)
Class I 14,458,872 596,542 (7,078,714) 7,976,700
Class R4 587,072 38,907 (437,399) 188,580
- ---------------------------------------------------------------------------------------
</Table>
<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>
* For the period from Dec. 1, 2006 (inception date) to May 31, 2007.
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, 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 May 31, 2008, securities valued at $14,865,150 were
on loan to brokers. For collateral, the Fund received $15,243,750 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 $174,341 for the year ended May 31, 2008.
Expenses paid to the Investment Manager as securities
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 35
lending agent were $4,455 for the year ended May 31, 2008, 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 $359,789,119 and $360,173,991, respectively, for the year
ended May 31, 2008. The income distributions received with respect to the Fund's
investment in RiverSource Short-Term Cash Fund can be found on the Statement of
Operations and the Fund's invested balance in RiverSource Short-Term Cash Fund
at May 31, 2008, can be found in the Portfolio of Investments.
7. BANK BORROWINGS
The Fund has entered into a revolving credit facility with a syndicate of banks
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 year ended May 31, 2008.
8. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, the Fund had a capital loss carry-over of
$183,673,285 at May 31, 2008, that if not offset by capital gains will expire as
follows:
<Table>
<Caption>
2009 2013 2014 2015
$117,356,906 $36,267,962 $20,469,230 $9,579,187
</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.
- --------------------------------------------------------------------------------
36 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
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)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any violations of certain
provisions of the Investment Advisers Act of 1940, the Investment Company Act of
1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million
and civil money penalties of $7 million. AEFC also agreed to retain an
independent distribution consultant to assist in developing a plan for
distribution of all disgorgement and civil penalties ordered by the SEC in
accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
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
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 37
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 SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
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, 2008 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) .19(b) .19 .15 .12 .11
Net gains (losses) (both realized and
unrealized) .01 .05 (.10) (.03) (.12)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .20 .24 .05 .09 (.01)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.19) (.19) (.16) (.12) (.11)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $539 $514 $641 $894 $1,188
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.04% 1.03% 1.06% 1.01% .97%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .89% .89% .89% .93% .97%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.93% 3.99% 3.27% 2.49% 2.19%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 209% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 4.27% 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 for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. The ratio of net expenses after expense waiver/reimbursement and
after reduction for earnings and bank fee credits was 0.88% for the year
ended May 31, 2008.
(g) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 39
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 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) .15(b) .15 .12 .08 .07
Net gains (losses) (both realized and
unrealized) .01 .05 (.11) (.03) (.12)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .16 .20 .01 .05 (.05)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.15) (.15) (.12) (.08) (.07)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $159 $216 $338 $588 $963
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.80% 1.79% 1.82% 1.76% 1.72%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.68% 1.72%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.18% 3.23% 2.50% 1.73% 1.44%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 209% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 3.48% 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 for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. The ratio of net expenses after expense waiver/reimbursement and
after reduction for earnings and bank fee credits was 1.64% for the year
ended May 31, 2008.
(g) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 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) .15(b) .15 .12 .08 .07
Net gains (losses) (both realized and
unrealized) .02 .05 (.11) (.03) (.12)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .17 .20 .01 .05 (.05)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.15) (.12) (.08) (.07)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.74 $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% 1.80% 1.83% 1.77% 1.73%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.68% 1.73%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.18% 3.24% 2.51% 1.73% 1.44%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 209% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 3.49% 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 for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. The ratio of net expenses after expense waiver/reimbursement and
after reduction for earnings and bank fee credits was 1.64% for the year
ended May 31, 2008.
(g) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 41
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 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) .20(c) .20 .17 .14 .03
Net gains (losses) (both realized and
unrealized) .01 .05 (.10) (.04) (.07)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .21 .25 .07 .10 (.04)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.20) (.17) (.14) (.03)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.74 $4.74 $4.69 $4.79 $4.83
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $93 $55 $62 $31 $4
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .60% .59% .62% .57% .63%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .51% .54% .58% .57% .63%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.23% 4.37% 3.66% 2.98% 2.74%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 209% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------
Total return 4.45% 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 for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. The ratio of net expenses after expense waiver/reimbursement and
after reduction for earnings and bank fee credits was 0.50% for the year
ended May 31, 2008.
(i) Not annualized.
- --------------------------------------------------------------------------------
42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 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) .19(b) .19 .16 .13 .12
Net gains (losses) (both realized and
unrealized) .02 .05 (.11) (.03) (.12)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .21 .24 .05 .10 --
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.19) (.16) (.13) (.12)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.74 $4.73 $4.68 $4.79 $4.82
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $5 $4 $19 $100 $115
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .90% .86% .88% .84% .81%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .76% .72% .72% .76% .81%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.06% 4.09% 3.27% 2.66% 2.35%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 209% 168% 194% 169% 125%
- -----------------------------------------------------------------------------------------------------------
Total return 4.41% 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 for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. The ratio of net expenses after expense waiver/reimbursement and
after reduction for earnings and bank fee credits was 0.75% for the year
ended May 31, 2008.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 43
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 2007(B)
Net asset value, beginning of period $4.73 $4.75
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18(c) .08
Net gains (losses) (both realized and
unrealized) .02 (.02)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .20 .06
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.19) (.08)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.74 $4.73
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) 1.06% 1.00%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .95% .95%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.87% 4.02%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 209% 168%
- -----------------------------------------------------------------------------------------------------------
Total return 4.21% 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 for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
- --------------------------------------------------------------------------------
44 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource Short Duration U.S. Government Fund
(the Fund) (one of the portfolios constituting the RiverSource Government Income
Series, Inc.) as of May 31, 2008, and the related statements of operations,
changes in net assets, and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
statements and financial highlights of the Fund for the periods presented
through May 31, 2007, were audited by other auditors whose report dated July 20,
2007, expressed an unqualified opinion on those financial statements and
financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of May 31, 2008, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audit provides a reasonable basis for our
opinion.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 45
In our opinion, the 2008 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
RiverSource Short Duration U.S. Government Fund of the RiverSource Government
Income Series, Inc. at May 31, 2008, the results of its operations, changes in
its net assets and the financial highlights for the year then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 22, 2008
- --------------------------------------------------------------------------------
46 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
FEDERAL INCOME TAX INFORMATION -------------------------------------------------
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
Fiscal year ended May 31, 2008
CLASS A
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 38.48%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01634
July 25, 2007............................................... 0.01800
Aug. 24, 2007............................................... 0.01800
Sept. 24, 2007.............................................. 0.01700
Oct. 26, 2007............................................... 0.01750
Nov. 26, 2007............................................... 0.01750
Dec. 17, 2007............................................... 0.01630
Jan. 28, 2008............................................... 0.01630
Feb. 27, 2008............................................... 0.01557
March 27, 2008.............................................. 0.01340
April 28, 2008.............................................. 0.01220
May 28, 2008................................................ 0.01330
Total distributions......................................... $0.19141
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 47
CLASS B
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 38.48%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01330
July 25, 2007............................................... 0.01497
Aug. 24, 2007............................................... 0.01504
Sept. 24, 2007.............................................. 0.01393
Oct. 26, 2007............................................... 0.01433
Nov. 26, 2007............................................... 0.01441
Dec. 17, 2007............................................... 0.01421
Jan. 28, 2008............................................... 0.01219
Feb. 27, 2008............................................... 0.01257
March 27, 2008.............................................. 0.01053
April 28, 2008.............................................. 0.00905
May 28, 2008................................................ 0.01034
Total distributions......................................... $0.15487
</Table>
CLASS C
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 38.48%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01331
July 25, 2007............................................... 0.01505
Aug. 24, 2007............................................... 0.01505
Sept. 24, 2007.............................................. 0.01395
Oct. 26, 2007............................................... 0.01434
Nov. 26, 2007............................................... 0.01442
Dec. 17, 2007............................................... 0.01422
Jan. 28, 2008............................................... 0.01213
Feb. 27, 2008............................................... 0.01258
March 27, 2008.............................................. 0.01054
April 28, 2008.............................................. 0.00907
May 28, 2008................................................ 0.01036
Total distributions......................................... $0.15502
</Table>
- --------------------------------------------------------------------------------
48 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
CLASS I
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 38.48%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01787
July 25, 2007............................................... 0.01949
Aug. 24, 2007............................................... 0.01949
Sept. 24, 2007.............................................. 0.01855
Oct. 26, 2007............................................... 0.01911
Nov. 26, 2007............................................... 0.01906
Dec. 17, 2007............................................... 0.01736
Jan. 28, 2008............................................... 0.01838
Feb. 27, 2008............................................... 0.01708
March 27, 2008.............................................. 0.01485
April 28, 2008.............................................. 0.01379
May 28, 2008................................................ 0.01480
Total distributions......................................... $0.20983
</Table>
CLASS R4
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 38.48%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01690
July 25, 2007............................................... 0.01850
Aug. 24, 2007............................................... 0.01851
Sept. 24, 2007.............................................. 0.01754
Oct. 26, 2007............................................... 0.01805
Nov. 26, 2007............................................... 0.01804
Dec. 17, 2007............................................... 0.01666
Jan. 28, 2008............................................... 0.01702
Feb. 27, 2008............................................... 0.01609
March 27, 2008.............................................. 0.01390
April 28, 2008.............................................. 0.01276
May 28, 2008................................................ 0.01383
Total distributions......................................... $0.19780
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 49
CLASS W
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following
tax attributes for distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 38.48%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01615
July 25, 2007............................................... 0.01771
Aug. 24, 2007............................................... 0.01771
Sept. 24, 2007.............................................. 0.01678
Oct. 26, 2007............................................... 0.01729
Nov. 26, 2007............................................... 0.01731
Dec. 17, 2007............................................... 0.01616
Jan. 28, 2008............................................... 0.01592
Feb. 27, 2008............................................... 0.01529
March 27, 2008.............................................. 0.01319
April 28, 2008.............................................. 0.01190
May 28, 2008................................................ 0.01310
Total distributions......................................... $0.18851
</Table>
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
- --------------------------------------------------------------------------------
50 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board members. Each member oversees 101
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Kathleen Blatz Board member Chief Justice, Minnesota Supreme None
901 S. Marquette Ave. since 2006 Court, 1998-2006; Attorney
Minneapolis, MN 55402
Age 53
- -----------------------------------------------------------------------------------------------------
Arne H. Carlson Board member Chair, RiverSource Funds, None
901 S. Marquette Ave. since 1999 1999-2006; former Governor of
Minneapolis, MN 55402 Minnesota
Age 73
- -----------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member President, Springboard -- Partners None
901 S. Marquette Ave. since 2007 in Cross Cultural Leadership
Minneapolis, MN 55402 (consulting company)
Age 53
- -----------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and None
901 S. Marquette Ave. since 2004 Management, Bentley College; former
Minneapolis, MN 55402 Dean, McCallum Graduate School of
Age 57 Business, Bentley College
- -----------------------------------------------------------------------------------------------------
Anne P. Jones Board member Attorney and Consultant None
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 73
- -----------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive
901 S. Marquette Ave. since 2005 Asset Management Insurance
Minneapolis, MN 55402
Age 72
- -----------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries,
901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures
Minneapolis, MN 55402 Chair of the irrigation systems)
Age 69 Board since 2007
- -----------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 51
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Catherine James Paglia Board member Director, Enterprise Asset None
901 S. Marquette Ave. since 2004 Management, Inc. (private real
Minneapolis, MN 55402 estate and asset management
Age 55 company)
- -----------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member Chief Executive Officer and Idera
901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Pharmaceutical, Inc.
Minneapolis, MN 55402 2003 (biotechnology); former (biotechnology);
Age 64 President, Forester Biotech Healthways, Inc.
(health management
programs)
- -----------------------------------------------------------------------------------------------------
</Table>
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
William F. Truscott Board member President -- U.S. Asset Management None
53600 Ameriprise since 2001, and Chief Investment Officer,
Financial Center Vice President Ameriprise Financial, Inc. and
Minneapolis, MN 55474 since 2002 President, Chairman of the Board
Age 47 and Chief Investment Officer,
RiverSource Investments, LLC since
2005; Director, President, and
Chief Executive Officer, Ameriprise
Certificate Company since 2006;
Chairman of the Board, Chief
Executive Officer and President,
RiverSource Distributors, Inc.
since 2006; Senior Vice
President -- Chief Investment
Officer, Ameriprise Financial, Inc.
and Chairman of the Board and Chief
Investment Officer, RiverSource
Investments, LLC, 2001-2005
- -----------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling RiverSource Funds at (888)
791-3380; contacting your financial institution; or visiting
riversource.com/funds.
- --------------------------------------------------------------------------------
52 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Patrick T. Bannigan President since Director and Senior Vice President, Asset
172 Ameriprise 2006 Management, Products and Marketing,
Financial Center RiverSource Investments, LLC since 2006;
Minneapolis, MN 55474 Director and Vice President -- Asset
Age 42 Management, Products and Marketing,
RiverSource Distributors, Inc. since 2006;
Managing Director and Global Head of Product,
Morgan Stanley Investment Management,
2004-2006; President, Touchstone Investments,
2002-2004
- ------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed
172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and
Financial Center RiverSource Investments, LLC since 2006; Vice
Minneapolis, MN 55474 President -- Investments, Ameriprise
Age 44 Certificate Company since 2003; Senior Vice
President -- Fixed Income, Ameriprise
Financial, Inc., 2002-2006 and RiverSource
Investments, LLC, 2004-2006
- ------------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President -- Asset Management and Trust
5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC
Financial Center since 2006; Vice President -- Operations and
Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC,
Age 42 2004-2006; Director of Product
Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- ------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting,
105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Chief
Financial Center Financial Officer, RiverSource Distributors,
Minneapolis, MN 55474 Inc. since 2006
Age 52
- ------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset
5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since
Financial Center and Secretary 2005; Chief Counsel, RiverSource Distributors,
Minneapolis, MN 55474 since 2006 Inc. since 2006; Vice President, General
Age 48 Counsel and Secretary, Ameriprise Certificate
Company since 2005; Vice President -- Asset
Management Compliance, Ameriprise Financial,
Inc., 2004-2005; Senior Vice President and
Chief Compliance Officer, USBancorp Asset
Management, 2002-2004
- ------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance
172 Ameriprise Officer since Officer, RiverSource Investments, LLC since
Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset
Minneapolis, MN 55474 Management, 2003-2006; Director of Finance,
Age 47 Voyageur Asset Management, 2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 53
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since
Financial Center Officer since 2004; Manager Anti-Money Laundering,
Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004;
Age 44 Compliance Director and Bank Secrecy Act
Officer, American Express Centurion Bank,
2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
54 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the Fund. Under an investment
management services agreement (the "IMS Agreement") RiverSource Investments
provides investment advice and other services to the Fund and all RiverSource
funds (collectively, the "Funds").
On an annual basis, the Fund's Board of Directors (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2008, including reports
based on data provided by independent organizations to assist the Board in
making this determination. In addition, throughout the year, the Board (or its
committees) reviews information prepared by RiverSource Investments addressing
the services RiverSource Investments provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts, Investment Review and Compliance Committees in determining whether to
continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the Fund's operations, particularly in the areas of
trading systems, new product initiatives, legal and compliance. Further, in
connection with the Board's evaluation of the overall package of services
provided by RiverSource Investments, the Board considered the quality of the
administrative and transfer agency services provided by RiverSource Investments'
affiliates to the Fund. The Board also reviewed the financial condition of
RiverSource Investments (and its affiliates) and each entity's ability to carry
out its responsibilities under the IMS Agreement. The Board also discussed the
acceptability of the terms of the IMS Agreement (including the relatively broad
scope of services required to be performed by RiverSource Investments). The
Board concluded that the services being performed under the IMS Agreement were
of a reasonably high quality, particularly in light of recent market conditions.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 55
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods (including since inception), recent Fund
inflows (and outflows) and a comparison of the Fund's net assets from December
2006 to December 2007. The Board observed that the Fund's investment performance
reflected the interrelationship of particularly volatile market conditions with
the investment strategies employed by the portfolio management team.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with the
Fund: The Board reviewed comparative fees and the costs of services to be
provided under the IMS Agreement. The Board members considered detailed
comparative information set forth in an annual report on fees and expenses,
including, among other things, data (prepared by an independent organization)
showing a comparison of the Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing the Fund's contribution to
RiverSource Investments' profitability.
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio of each fund, with few exceptions, is at or below the median
expense ratio of funds in the same comparison group). The Board took into
account that the Fund's total expense ratio (after considering proposed expense
caps/waivers) was slightly below the peer group's median expense ratio shown in
the reports. Based on its review, the Board concluded that the Fund's management
fee was fair and reasonable in light of the extent and quality of services that
the Fund receives.
- --------------------------------------------------------------------------------
56 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating the Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the Funds on portfolio transactions. The
Board noted that the fees paid by the Fund should permit the investment manager
to offer competitive compensation to its personnel, make necessary investments
in its business and earn an appropriate profit. The Board concluded that
profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 10, 2008, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement.
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.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 ANNUAL REPORT 57
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by
the Fund's current prospectus. RiverSource(R)
mutual funds are distributed by RiverSource
Distributors, Inc., 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-6042 AE (7/08)
</Table>
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
U.S. GOVERNMENT MORTGAGE FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
MAY 31, 2008
(Prospectus also enclosed)
RIVERSOURCE U.S. GOVERNMENT
MORTGAGE FUND SEEKS TO PROVIDE
SHAREHOLDERS WITH CURRENT INCOME
AS ITS PRIMARY OBJECTIVE AND, AS
ITS SECONDARY OBJECTIVE,
PRESERVATION OF CAPITAL.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective, investment
strategy, risks, sales charges, fees and other
matters of interest. Please read the prospectus
carefully before you invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance............... 2
Manager Commentary.................. 5
The Fund's Long-term Performance ... 10
Fund Expenses Example............... 12
Portfolio of Investments............ 14
Financial Statements................ 25
Notes to Financial Statements....... 28
Report of Independent Registered
Public Accounting Firm........... 46
Federal Income Tax Information...... 48
Board Members and Officers.......... 51
Approval of Investment Management
Services Agreement............... 54
Proxy Voting........................ 56
</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.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource U.S. Government Mortgage Fund (the Fund) Class A shares rose 4.31%
(excluding sales charge) for the 12 months ended May 31, 2008.
> The Fund underperformed its benchmark, the Lehman Brothers Mortgage-Backed
Securities Index, which gained 7.44% during the same period.
> The Fund performed in line with the Lipper U.S. Mortgage Funds Index,
representing the Fund's peer group, which advanced 4.37% during the same time
frame.
ANNUALIZED TOTAL RETURNS (for period ended May 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Since
1 year 3 years 5 years inception(a)
- -----------------------------------------------------------------------------------
RiverSource U.S. Government
Mortgage Fund Class A
(excluding sales charge) +4.31% +3.55% +3.53% +4.18%
- -----------------------------------------------------------------------------------
Lehman Brothers
Mortgage-Backed Securities
Index (unmanaged) +7.44% +4.97% +4.61% +4.96%
- -----------------------------------------------------------------------------------
Lipper U.S. Mortgage Funds
Index +4.37% +3.60% +3.48% +3.96%
- -----------------------------------------------------------------------------------
</Table>
(a) Fund data is from Feb. 14, 2002. Lehman Brothers Mortgage-Backed Securities
Index and Lipper peer group data is from March 1, 2002.
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
2 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
STYLE MATRIX
- ----------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- ----------------------------------------
<Table>
Weighted average life(1) 6.9 years
- --------------------------------------------
Effective duration(2) 3.7 years
- --------------------------------------------
Weighted average bond rating(3) AAA
- --------------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- ----------------------------------------
<Table>
<Caption>
Net
Total Expenses(a)
- ------------------------------------------------------
Class A 1.09% 0.89%
- ------------------------------------------------------
Class B 1.86% 1.65%
- ------------------------------------------------------
Class C 1.85% 1.65%
- ------------------------------------------------------
Class I 0.63% 0.48%
- ------------------------------------------------------
Class R4 0.93% 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, 2009, 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.
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
Shares of 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 -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT MAY 31, 2008
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS INCEPTION
Class A (inception 2/14/02) +4.31% +3.55% +3.53% +4.18%
- -------------------------------------------------------------------------------
Class B (inception 2/14/02) +3.53% +2.77% +2.72% +3.41%
- -------------------------------------------------------------------------------
Class C (inception 2/14/02) +3.53% +2.77% +2.72% +3.40%
- -------------------------------------------------------------------------------
Class I (inception 3/4/04) +4.74% +3.97% N/A +3.86%
- -------------------------------------------------------------------------------
Class R4 (inception 2/14/02) +4.46% +3.79% +3.71% +4.36%
- -------------------------------------------------------------------------------
WITH SALES CHARGE
Class A (inception 2/14/02) -0.65% +1.85% +2.52% +3.38%
- -------------------------------------------------------------------------------
Class B (inception 2/14/02) -1.46% +1.53% +2.37% +3.41%
- -------------------------------------------------------------------------------
Class C (inception 2/14/02) +2.53% +2.77% +2.72% +3.40%
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
AT JUNE 30, 2008
SINCE
WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS INCEPTION
Class A (inception 2/14/02) +4.34% +3.36% +3.39% +4.06%
- -------------------------------------------------------------------------------
Class B (inception 2/14/02) +3.55% +2.59% +2.61% +3.29%
- -------------------------------------------------------------------------------
Class C (inception 2/14/02) +3.55% +2.52% +2.62% +3.28%
- -------------------------------------------------------------------------------
Class I (inception 3/4/04) +4.77% +3.65% N/A +3.64%
- -------------------------------------------------------------------------------
Class R4 (inception 2/14/02) +4.28% +3.47% +3.52% +4.20%
- -------------------------------------------------------------------------------
WITH SALES CHARGE
Class A (inception 2/14/02) -0.67% +1.73% +2.38% +3.27%
- -------------------------------------------------------------------------------
Class B (inception 2/14/02) -1.44% +1.35% +2.27% +3.29%
- -------------------------------------------------------------------------------
Class C (inception 2/14/02) +2.55% +2.52% +2.62% +3.28%
- -------------------------------------------------------------------------------
</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 are available to
institutional investors only.
- --------------------------------------------------------------------------------
4 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
At May 31, 2008, approximately 55% 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 37, 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 12 and 34.
Dear Shareholders,
RiverSource U.S. Government Mortgage Fund (the Fund) Class A shares rose 4.31%
(excluding sales charge) for the 12 months ended May 31, 2008. The Fund
underperformed the Lehman Brothers Mortgage-Backed Securities Index (Lehman
Index), which gained 7.44% during the same period. The Fund performed in line
with the Lipper U.S. Mortgage Funds Index, representing the Fund's peer group,
which advanced 4.37% during the same time frame.
SIGNIFICANT PERFORMANCE FACTORS
Overall, the mortgage market struggled, posting positive results but
underperforming U.S. Treasuries during the 12-month period. Mortgage securities,
including high quality, premium coupon securities, were swept up in the bond
market turmoil, as concerns regarding subprime mortgages surfaced and
significant losses on these lower quality mortgage securities
SECTOR DIVERSIFICATION (at May 31, 2008; % of portfolio assets)
- -----------------------------------------------------------------
<Table>
Asset-Backed 0.6%
- --------------------------------------------------------------
Commercial Mortgage-Backed 2.8%
- --------------------------------------------------------------
Mortgage-Backed(1) 91.0%
- --------------------------------------------------------------
U.S. Government Obligations & Agencies 0.9%
- --------------------------------------------------------------
Other(2) 4.7%
- --------------------------------------------------------------
</Table>
(1) Of the 91.0%, 25.4% is due to forward commitment mortgage-backed securities
activity. Short-term securities are held as collateral for these
commitments.
(2) Cash & Cash Equivalents.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 5
MANAGER COMMENTARY (continued) -------------------------------------------------
became evident. What had started in the mortgage sector then spread to all
corners of the bond market, resulting in an en masse flight to quality.
Heightened fears, in turn, dramatically reduced liquidity. In response, the
Federal Reserve Board (the Fed) lowered interest rates an aggressive 325 basis
points (3.25%) 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. The
mortgage securities sector faced a period of deleveraging and forced selling of
assets. At the same time, there were not enough buyers, as residential credit
concerns not seen before came to the surface, and investors tried to figure out
where fair value was. Following 10 months of extreme dislocation and high levels
of volatility, the mortgage market finally rebounded beginning in mid-March,
triggered by the Fed's non-traditional measures and willingness to provide
liquidity to the markets. Mortgage securities continued to perform well through
May.
For the annual period overall, interest rates fell significantly, 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 annual period.
QUALITY BREAKDOWN
(at May 31, 2008; % of portfolio assets excluding cash equivalents and equities)
- -----------------------------------------------------------------
<Table>
AAA bonds 99.6%
- --------------------------------------------------------------
AA bonds 0.2%
- --------------------------------------------------------------
BBB bonds 0.2%
- --------------------------------------------------------------
Non-investment grade bonds --%
- --------------------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating.
- --------------------------------------------------------------------------------
6 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
On the positive side, issue selection helped the Fund's results, particularly an
emphasis on premium coupon securities.
The Fund produced solid positive absolute returns
for the annual period, but underperformed the Lehman
Index. 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 period. Also,
many of the Fund's long-held specified pools of
mortgages helped its results during the period, as
interest rates declined. These specified pools added
some stability to the Fund's portfolio, given their
attractive prepayment profile. The Fund's yield
curve steepening bias, maintained throughout the
annual period, further contributed to the Fund's
performance, as short-term rates declined more than
longer-term rates.
Conversely, the Fund's duration positioning
detracted from its relative results. We maintained
the Fund's duration shorter than that of the Lehman
Index throughout the annual period. This stance
helped the Fund during the last two months of the
fiscal year when interest rates rose. However, it
hurt when interest rates declined with the
unexpectedly strong flight-to-quality during the
first 10 months of the period. Duration is a measure
of the Fund's sensitivity to changes in interest
rates.
Another reason the Fund lagged the Lehman Index was
its significant allocation to AAA-rated super-senior
commercial mortgage-backed securities (CMBS). While
these securities performed well in April and May,
they lagged the Lehman Index for the period as a
whole. An exposure to non-agency mortgage-backed
securities also detracted; this sector of the fixed
income market was especially hurt as concerns
regarding credit broadened, and residential credit
in particular, grew.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
CHANGES TO THE FUND'S PORTFOLIO
During the first half of the annual period, we sought to take advantage of
weakness in the mortgage market by shifting to a somewhat more aggressive
strategy within the mortgage sector, as spreads, or the difference in yields
between these securities and U.S. Treasuries, widened and valuations reached
compelling levels. We reduced the Fund's position in agency pass-through
mortgages and increased its exposure to non-agency pass-through mortgages and
CMBS. In the last months of the fiscal year, we rotated out of some CMBS and
into more non-agency pass-through mortgages, as spreads on these latter
securities were comparatively more compelling. We also lengthened the Fund's
duration a bit in May, though still maintaining a duration shorter than the
Lehman Index.
Even with these changes, 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 throughout the annual period. We
maintained our focus on higher coupon mortgage securities and emphasized
investment in more seasoned pools of mortgages. The Fund's portfolio turnover
rate for the 12-month period was 354%.*
* A significant portion of the turnover was the result of rolling-maturity
mortgage securities, processing of prepayments and opportunistic changes we
made at the margin in response to valuations or market developments.
OUR FUTURE STRATEGY
At the end of May, the market for high quality spread or non-Treasury,
securities, finally appeared to be improving, and even lower quality bonds had
rebounded from their lows. While economic growth over the coming months may not
be as strong as earlier in the cycle, we expect the U.S. economy to narrowly
avoid recession this year, as the economic stimulus package passed by Congress
should help keep economic growth positive. However, we do believe that low
interest rates and a weakened currency have combined to form an inflation
problem that may weigh heavily on consumers and financial markets in the second
half of this year and into 2009. To accommodate for this pressure, we believe
that the Fed will eventually have to increase interest rates, and Treasury
yields should continue to drift higher.
- --------------------------------------------------------------------------------
8 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
In this environment, we intend to position the Fund to take advantage of the
compelling valuations we saw in the last months of the period and to participate
in the recovery of high quality spread sectors, or non-Treasury sectors. We
expect this recovery to continue over the months ahead, as fears ultimately
subside and liquidity returns to the markets. We intend to maintain the Fund's
premium coupon bias among its mortgage-backed holdings, as prepayments are
expected to remain slow. We also view select pockets of non-agency
mortgage-backed securities as attractively priced, though our focus is on those
securities within this sector with superior credit enhancements. As we expect
rates may well move higher over the coming months, we intend to maintain the
Fund's shorter-than-Lehman Index duration. As always, our strategy is to provide
added portfolio value with a moderate amount of risk. Quality issues and
security selection remain a priority as we continue to seek attractive buying
opportunities.
<Table>
(PHOTO - STEVE SCHROLL)
Scott Kirby
Portfolio Manager
</Table>
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 9
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource U.S. Government Mortgage Fund Class A shares (from
3/1/02 to 5/31/08)* as compared to the performance of two widely cited
performance indices, the Lehman Brothers Mortgage-Backed Securities Index and
the Lipper U.S. Mortgage Funds Index. In comparing the Fund's Class A shares to
these indices, you should take into account the fact that the Fund's performance
reflects the maximum sales charge of 4.75%, while such charges are not reflected
in the performance of the indices. Returns for the Fund include the reinvestment
of any distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
* Fund data is from Feb. 14, 2002. Lehman Brothers Mortgage-Backed Securities
Index and Lipper peer group data is from March 1, 2002.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
SINCE
Results at May 31, 2008 1 YEAR 3 YEARS 5 YEARS INCEPTION(3)
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,935 $10,565 $11,325 $12,324
- ---------------------------------------------------------------------------------------------------
Average annual total return -0.65% +1.85% +2.52% +3.38%
- ---------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX(1)
Cumulative value of $10,000 $10,744 $11,566 $12,528 $13,554
- ---------------------------------------------------------------------------------------------------
Average annual total return +7.44% +4.97% +4.61% +4.96%
- ---------------------------------------------------------------------------------------------------
LIPPER U.S. MORTGAGE FUNDS INDEX(2)
Cumulative value of $10,000 $10,437 $11,119 $11,865 $12,746
- ---------------------------------------------------------------------------------------------------
Average annual total return +4.37% +3.60% +3.48% +3.96%
- ---------------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 4.
- --------------------------------------------------------------------------------
10 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
- -------------------------------------------------------------------------------
(RiverSource U.S. Government Mortgage Fund Class A LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE U.S.
GOVERNMENT MORTGAGE LEHMAN BROTHERS
FUND CLASS A (INCLUDES SALES MORTGAGE-BACKED SECURITIES LIPPER U.S. MORTGAGE
CHARGE) INDEX(1) FUNDS INDEX(2)
---------------------------- -------------------------- --------------------
3/1/02 $ 9,525 $10,000 $10,000
5/02 9,692 10,169 10,128
5/03 10,363 10,822 10,744
5/04 10,495 10,984 10,887
5/05 11,102 11,719 11,463
5/06 11,115 11,785 11,489
5/07 11,815 12,615 12,213
5/08 12,324 13,554 12,746
</Table>
(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.
(3) Fund data is from Feb. 14, 2002. Lehman Brothers Mortgage-Backed Securities
Index and Lipper peer group data is from March 1, 2002.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 11
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 May 31, 2008.
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.
- --------------------------------------------------------------------------------
12 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
DEC. 1, 2007 MAY 31, 2008 THE PERIOD(A) EXPENSE RATIO
- -------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,008.80 $4.45 .89%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,020.44 $4.47 .89%
- -------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,005.00 $8.23 1.65%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,016.66 $8.27 1.65%
- -------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,003.00 $8.22 1.65%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,016.66 $8.27 1.65%
- -------------------------------------------------------------------------------------------
Class I
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,010.80 $2.40 .48%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,022.48 $2.41 .48%
- -------------------------------------------------------------------------------------------
Class R4
- -------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,009.50 $3.75 .75%
- -------------------------------------------------------------------------------------------
Hypothetical
(5% return before
expenses) $1,000 $1,021.13 $3.77 .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 182/366 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended May 31, 2008: +0.88%
for Class A, +0.50% for Class B, +0.30% for Class C, +1.08% for Class I and
+0.95% for Class R4.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 13
PORTFOLIO OF
INVESTMENTS --------------------------------------------------------------
MAY 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (126.8%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (1.1%)
U.S. Treasury Inflation-Indexed Bond
01-15-16 2.00% $4,300,920(i) $4,492,691
- -----------------------------------------------------------------------------------
ASSET-BACKED (0.8%)
Countrywide Asset-backed Ctfs
Series 2007-7 Cl 2A2
10-25-37 2.55 1,200,000(h) 1,023,376
Fannie Mae Grantor Trust
Series 2005-T4 Cl A1C
09-25-35 2.54 471,472(h) 466,846
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M4
06-25-37 6.31 195,000 29,889
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M5
06-25-37 6.66 130,000 18,734
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M6
06-25-37 7.01 190,000 25,101
Residential Asset Securities
Series 2006-KS1 Cl A2
02-25-36 2.53 213,201(h) 207,371
Residential Asset Securities
Series 2007-KS3 Cl AI2
04-25-37 2.57 1,700,000(h) 1,501,304
---------------
Total 3,272,621
- -----------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (3.7%)(f)
Citigroup/Deutsche Bank Commercial Mtge Trust Series 2007-CD4 Cl A2B
12-11-49 5.21 3,000,000 2,982,060
Credit Suisse Mtge Capital Ctfs
Series 2007-C3 Cl A4
06-15-39 5.72 3,000,000 2,944,373
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 2,139,458 2,171,686
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
COMMERCIAL MORTGAGE-BACKED (CONT.)
GS Mtge Securities II
Series 2007-EOP Cl J
03-06-20 3.57% $1,000,000(d,h) $883,204
Wachovia Bank Commercial Mtge Trust
Series 2006-C29 Cl A4
11-15-48 5.31 6,000,000 5,804,170
---------------
Total 14,785,493
- -----------------------------------------------------------------------------------
MORTGAGE-BACKED (121.2%)(f)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2005-12 Cl 2A1
03-25-36 5.69 612,970(c) 492,449
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2006-1 Cl 2A1
03-25-36 5.92 164,558(c) 142,959
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 2.56 1,215,732(c) 765,594
American Home Mtge Investment Trust
Collateralized Mtge Obligation
Series 2007-1 Cl GA1C
05-25-47 2.58 1,779,088(c) 1,379,351
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 1A1
01-25-34 6.00 528,591 447,252
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 4A1
01-25-19 4.75 272,901 267,102
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00 2,543,137 2,277,300
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-2 Cl N1
11-25-46 7.25% $72,081(d,l) $45,051
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-A Cl 3A2
02-20-36 5.87 666,149(c) 524,866
Banc of America Funding
Collateralized Mtge Obligation
Series 2007-8 Cl 1A1
10-25-37 6.00 993,220 889,398
Banc of America Mtge Securities
Collateralized Mtge Obligation
Series 2005-9 Cl 3A3
10-25-20 5.00 1,592,199 1,541,261
Banc of America Mtge Securities
Collateralized Mtge Obligation
Series 2007-3 Cl 1A2
09-25-37 6.00 945,284 863,459
Barclays Capital LLC Trust
Collateralized Mtge Obligation
Series 2007-AA4 Cl 11A1
06-25-47 6.21 885,507(c) 673,313
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50 525,395 505,036
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-8CB Cl A13
05-25-37 7.73 1,913,840(e) 295,210
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-20CB Cl 1A1
10-25-33 5.50 4,788,620 4,525,246
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-50CB Cl 2A1
11-25-35 6.00 924,601 790,967
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-54CB Cl 2A3
11-25-35 5.50 449,068 424,899
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50% $369,314 $354,127
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00 1,430,561 1,235,201
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-45T1 Cl 2A5
02-25-37 6.00 946,746 864,794
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-22 Cl 2A16
09-25-37 6.50 5,061,525 4,460,469
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
11-25-37 6.50 929,777 847,223
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 2.74 1,234,609(h) 896,768
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 2.89 1,874,154(h) 1,082,453
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-27 Cl 2A1
12-25-35 5.50 860,782 814,515
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-HYB1 Cl 6A1
03-25-35 5.11 968,704(c) 916,164
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 453,653(d) 427,552
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.35 419,902(c) 329,552
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 15
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-HY3 Cl 4A1
06-25-47 6.00% $1,445,293(c) $1,380,794
Downey Savings & Loan Assn Mtge Loan Trust Collateralized Mtge Obligation
Interest Only
Series 2005-AR5 Cl X1
08-19-45 5.30 2,603,432(e) 13,424
Federal Home Loan Mtge Corp
06-01-38 6.00 12,400,000(b) 12,589,868
06-01-38 6.50 20,500,000(b) 21,159,853
Federal Home Loan Mtge Corp #1B7116
08-01-36 5.89 3,958,945(c) 4,040,749
Federal Home Loan Mtge Corp #1J0149
11-01-36 6.10 2,120,228(c) 2,170,979
Federal Home Loan Mtge Corp #1J1445
01-01-37 5.89 2,298,779(c) 2,343,076
Federal Home Loan Mtge Corp #1J1621
05-01-37 5.89 3,029,389(c) 3,097,581
Federal Home Loan Mtge Corp #555140
03-01-10 8.00 8,533 8,656
Federal Home Loan Mtge Corp #555300
10-01-17 8.00 201,697 213,052
Federal Home Loan Mtge Corp #783049
03-01-35 4.85 2,952,389(c) 2,934,350
Federal Home Loan Mtge Corp #A10892
07-01-33 6.00 521,586 533,752
Federal Home Loan Mtge Corp #A15111
10-01-33 6.00 829,965 846,902
Federal Home Loan Mtge Corp #A21059
04-01-34 6.50 484,631 501,790
Federal Home Loan Mtge Corp #A25174
08-01-34 6.50 432,220 447,523
Federal Home Loan Mtge Corp #C53098
06-01-31 8.00 277,250 299,960
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 892,657 891,346
Federal Home Loan Mtge Corp #C68876
07-01-32 7.00 131,082 139,037
Federal Home Loan Mtge Corp #C69665
08-01-32 6.50 2,316,643 2,410,974
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 1,327,326 1,323,302
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp #D95232
03-01-22 6.50% $232,242 $241,454
Federal Home Loan Mtge Corp #D95371
04-01-22 6.50 272,940 284,650
Federal Home Loan Mtge Corp #E00285
01-01-09 7.00 15,586 15,816
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 659,320 690,168
Federal Home Loan Mtge Corp #E88036
02-01-17 6.50 1,012,863 1,062,212
Federal Home Loan Mtge Corp #E88468
12-01-16 6.50 265,435 281,426
Federal Home Loan Mtge Corp #E89232
04-01-17 7.00 440,549 463,453
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 1,392,418 1,394,098
Federal Home Loan Mtge Corp #E93685
01-01-18 5.50 1,148,587 1,166,933
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 349,016 349,579
Federal Home Loan Mtge Corp #G01169
01-01-30 5.50 1,466,882 1,465,644
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 1,938,097 1,997,022
Federal Home Loan Mtge Corp #G02757
06-01-36 5.00 10,930,003 10,582,633
Federal Home Loan Mtge Corp #G03419
07-01-37 6.00 4,530,646 4,604,693
Federal Home Loan Mtge Corp #G12101
11-01-18 5.00 718,363 718,332
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 237 Cl IO
05-15-36 6.60 1,669,451(e) 441,164
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2590 Cl BI
02-15-14 35.06 88,540(e) 486
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2639 Cl UI
03-15-22 6.01 1,078,623(e) 152,116
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2718 Cl IA
10-15-22 0.00% $90,936(e) $512
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2795 Cl IY
07-15-17 15.27 406,810(e) 33,609
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2824 Cl EI
09-15-20 12.05 2,473,120(e) 216,011
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2471 Cl SI
03-15-32 33.06 260,114(e,g) 29,140
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only/Inverse Floater
Series 2817 Cl SA
06-15-32 39.93 891,221(e,g) 69,953
Federal Natl Mtge Assn
06-01-23 6.00 3,000,000(b) 3,078,750
06-01-38 5.00 2,500,000(b) 2,414,845
06-01-38 5.50 38,500,000(b) 38,223,261
06-01-38 6.00 34,500,000(b) 34,995,937
06-01-38 7.00 10,000,000(b) 10,509,379
Federal Natl Mtge Assn #190353
08-01-34 5.00 1,560,603 1,512,468
Federal Natl Mtge Assn #252409
03-01-29 6.50 1,312,494 1,360,800
Federal Natl Mtge Assn #254759
06-01-18 4.50 1,906,486 1,873,308
Federal Natl Mtge Assn #254793
07-01-33 5.00 2,167,634 2,102,808
Federal Natl Mtge Assn #254916
09-01-23 5.50 1,747,428 1,752,688
Federal Natl Mtge Assn #256135
02-01-36 5.50 7,089,155 6,982,419
Federal Natl Mtge Assn #313470
08-01-10 7.50 123,541 126,959
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #323362
11-01-28 6.00% $2,571,227 $2,632,535
Federal Natl Mtge Assn #323715
05-01-29 6.00 475,473(j) 486,810
Federal Natl Mtge Assn #344909
04-01-25 8.00 632,862 689,044
Federal Natl Mtge Assn #357514
03-01-34 5.50 2,269,077 2,261,490
Federal Natl Mtge Assn #483691
12-01-28 7.00 1,114,067 1,203,903
Federal Natl Mtge Assn #487757
09-01-28 7.50 732,756 791,291
Federal Natl Mtge Assn #514704
01-01-29 6.00 737,157 754,734
Federal Natl Mtge Assn #545008
06-01-31 7.00 1,356,663(j) 1,451,409
Federal Natl Mtge Assn #545339
11-01-31 6.50 225,219 236,360
Federal Natl Mtge Assn #545818
07-01-17 6.00 2,350,827 2,424,976
Federal Natl Mtge Assn #545864
08-01-17 5.50 1,336,736(j) 1,362,149
Federal Natl Mtge Assn #555063
11-01-17 5.50 966,547 984,735
Federal Natl Mtge Assn #555458
05-01-33 5.50 1,599,246 1,592,753
Federal Natl Mtge Assn #555528
04-01-33 6.00 2,026,019 2,068,629
Federal Natl Mtge Assn #555734
07-01-23 5.00 698,891 684,296
Federal Natl Mtge Assn #555740
08-01-18 4.50 3,270,906 3,215,964
Federal Natl Mtge Assn #581418
06-01-31 7.00 856,388 908,832
Federal Natl Mtge Assn #583088
06-01-29 6.00 2,670,157 2,755,182
Federal Natl Mtge Assn #592270
01-01-32 6.50 729,869 768,171
Federal Natl Mtge Assn #596505
08-01-16 6.50 156,686 164,223
Federal Natl Mtge Assn #601416
11-01-31 6.50 284,642 297,825
Federal Natl Mtge Assn #624979
01-01-32 6.00 685,285 703,469
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 17
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #626670
03-01-32 7.00% $487,558 $524,520
Federal Natl Mtge Assn #627426
03-01-17 6.50 448,654(j) 470,822
Federal Natl Mtge Assn #630992
09-01-31 7.00 1,784,261(j) 1,921,590
Federal Natl Mtge Assn #630993
09-01-31 7.50 1,907,135 2,058,878
Federal Natl Mtge Assn #631388
05-01-32 6.50 1,499,570 1,577,151
Federal Natl Mtge Assn #632412
12-01-17 5.50 1,038,474 1,057,905
Federal Natl Mtge Assn #632856
03-01-17 6.00 467,362 481,322
Federal Natl Mtge Assn #633674
06-01-32 6.50 821,365 867,090
Federal Natl Mtge Assn #635231
04-01-32 7.00 74,215 79,001
Federal Natl Mtge Assn #635908
04-01-32 6.50 1,049,474 1,104,095
Federal Natl Mtge Assn #636812
04-01-32 7.00 109,906 117,565
Federal Natl Mtge Assn #640200
10-01-31 9.50 102,210(j) 115,356
Federal Natl Mtge Assn #640207
03-01-17 7.00 38,446 39,636
Federal Natl Mtge Assn #640208
04-01-17 7.50 47,347 48,563
Federal Natl Mtge Assn #644805
05-01-32 7.00 985,430 1,054,090
Federal Natl Mtge Assn #645053
05-01-32 7.00 533,370 565,313
Federal Natl Mtge Assn #646189
05-01-32 6.50 348,126 361,866
Federal Natl Mtge Assn #654071
09-01-22 6.50 537,071 557,375
Federal Natl Mtge Assn #654685
11-01-22 6.00 564,210 577,088
Federal Natl Mtge Assn #655635
08-01-32 6.50 777,047(j) 812,667
Federal Natl Mtge Assn #656514
09-01-17 6.50 1,016,455 1,066,108
Federal Natl Mtge Assn #660186
11-01-32 6.00 2,187,397 2,251,266
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #663651
10-01-17 5.50% $352,699 $358,818
Federal Natl Mtge Assn #663667
11-01-17 5.50 235,448 239,550
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,109,057 1,152,830
Federal Natl Mtge Assn #667302
01-01-33 7.00 550,462(j) 587,484
Federal Natl Mtge Assn #667604
10-01-32 5.50 517,254(j) 515,686
Federal Natl Mtge Assn #670382
09-01-32 6.00 1,079,116 1,101,811
Federal Natl Mtge Assn #676683
12-01-32 6.00 1,212,942 1,238,451
Federal Natl Mtge Assn #677089
01-01-33 5.50 604,313(j) 602,481
Federal Natl Mtge Assn #677294
01-01-33 6.00 1,569,876 1,602,893
Federal Natl Mtge Assn #681080
02-01-18 5.00 826,149(j) 826,888
Federal Natl Mtge Assn #682229
03-01-33 5.50 4,246,170 4,233,299
Federal Natl Mtge Assn #684585
02-01-33 5.50 1,464,728(j) 1,463,765
Federal Natl Mtge Assn #684843
02-01-18 5.50 1,494,441 1,520,475
Federal Natl Mtge Assn #684853
03-01-33 6.50 214,672 223,581
Federal Natl Mtge Assn #688002
03-01-33 5.50 1,392,558 1,393,145
Federal Natl Mtge Assn #689026
05-01-33 5.50 373,518 372,993
Federal Natl Mtge Assn #689093
07-01-28 5.50 929,197(j) 927,832
Federal Natl Mtge Assn #694628
04-01-33 5.50 1,996,943 1,998,359
Federal Natl Mtge Assn #694795
04-01-33 5.50 2,477,920 2,479,152
Federal Natl Mtge Assn #695460
04-01-18 5.50 1,912,678 1,948,255
Federal Natl Mtge Assn #697145
03-01-23 5.50 1,159,619 1,171,711
Federal Natl Mtge Assn #699424
04-01-33 5.50 1,531,190 1,532,025
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
18 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #701101
04-01-33 6.00% $2,001,378 $2,040,343
Federal Natl Mtge Assn #704610
06-01-33 5.50 2,021,380 2,014,621
Federal Natl Mtge Assn #705655
05-01-33 5.00 705,521(j) 684,422
Federal Natl Mtge Assn #708503
05-01-33 6.00 272,500 279,523
Federal Natl Mtge Assn #708504
05-01-33 6.00 582,858 597,858
Federal Natl Mtge Assn #710780
05-01-33 6.00 217,183 221,411
Federal Natl Mtge Assn #711206
05-01-33 5.50 1,309,482 1,305,104
Federal Natl Mtge Assn #711239
07-01-33 5.50 534,394 532,607
Federal Natl Mtge Assn #711501
05-01-33 5.50 753,775 754,730
Federal Natl Mtge Assn #720378
06-01-18 4.50 1,508,816 1,482,558
Federal Natl Mtge Assn #723771
08-01-28 5.50 843,004 841,765
Federal Natl Mtge Assn #725017
12-01-33 5.50 2,792,541(j) 2,783,203
Federal Natl Mtge Assn #725232
03-01-34 5.00 1,653,725 1,604,268
Federal Natl Mtge Assn #725424
04-01-34 5.50 9,203,835 9,173,059
Federal Natl Mtge Assn #725425
04-01-34 5.50 2,638,823 2,630,807
Federal Natl Mtge Assn #725684
05-01-18 6.00 712,172 733,107
Federal Natl Mtge Assn #725773
09-01-34 5.50 1,824,074 1,816,265
Federal Natl Mtge Assn #726940
08-01-23 5.50 1,224,650 1,237,684
Federal Natl Mtge Assn #730153
08-01-33 5.50 733,862 731,408
Federal Natl Mtge Assn #733367
08-01-23 5.50 974,742 984,841
Federal Natl Mtge Assn #735212
12-01-34 5.00 8,756,092 8,486,022
Federal Natl Mtge Assn #735841
11-01-19 4.50 5,937,809 5,821,484
</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% $1,789,731 $1,736,207
Federal Natl Mtge Assn #743579
11-01-33 5.50 1,504,308 1,499,278
Federal Natl Mtge Assn #747339
10-01-23 5.50 1,142,297 1,153,659
Federal Natl Mtge Assn #753507
12-01-18 5.00 945,168(j) 947,190
Federal Natl Mtge Assn #753940
12-01-18 5.00 851,458 852,220
Federal Natl Mtge Assn #759342
01-01-34 6.50 381,121 398,596
Federal Natl Mtge Assn #761141
12-01-18 5.00 1,377,213 1,378,445
Federal Natl Mtge Assn #765760
02-01-19 5.00 849,025 849,785
Federal Natl Mtge Assn #766641
03-01-34 5.00 2,884,354 2,795,390
Federal Natl Mtge Assn #770403
04-01-34 5.00 1,451,871 1,407,090
Federal Natl Mtge Assn #776962
04-01-29 5.00 1,315,164 1,282,244
Federal Natl Mtge Assn #779676
06-01-34 5.00 2,565,088 2,485,971
Federal Natl Mtge Assn #785506
06-01-34 5.00 5,529,993 5,359,427
Federal Natl Mtge Assn #793622
09-01-34 5.50 6,137,512(j) 6,111,236
Federal Natl Mtge Assn #797232
09-01-34 5.50 6,989,979 6,960,053
Federal Natl Mtge Assn #878661
02-01-36 5.50 1,901,131(j) 1,875,352
Federal Natl Mtge Assn #881629
02-01-36 5.50 1,268,917 1,251,710
Federal Natl Mtge Assn #886020
07-01-36 6.50 1,017,385 1,053,042
Federal Natl Mtge Assn #886291
07-01-36 7.00 743,892 789,855
Federal Natl Mtge Assn #888414
11-01-35 5.00 3,923,707(j) 3,799,007
Federal Natl Mtge Assn #893101
10-01-36 6.50 2,500,343 2,581,057
Federal Natl Mtge Assn #894800
12-01-36 6.50 3,740,025(j) 3,860,758
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 19
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #902818
11-01-36 5.91% $2,825,072(c) $2,891,348
Federal Natl Mtge Assn #919341
05-01-37 6.50 3,269,493(j) 3,374,341
Federal Natl Mtge Assn #923744
04-01-37 6.50 1,654,473 1,697,107
Federal Natl Mtge Assn #928046
01-01-37 6.00 3,807,292 3,867,138
Federal Natl Mtge Assn #928146
03-01-37 6.00 5,169,503 5,250,761
Federal Natl Mtge Assn #928771
10-01-37 8.00 3,408,880 3,631,005
Federal Natl Mtge Assn #928870
11-01-37 8.50 239,415 250,050
Federal Natl Mtge Assn #959716
11-01-37 7.00 9,630,157 10,129,347
Federal Natl Mtge Assn #960606
10-01-36 5.50 3,632,841 3,617,288
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-119 Cl GI
12-25-33 7.32 488,869(e) 125,305
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 7.52 1,944,111(e) 492,141
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 9.86 436,843(e) 75,018
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 10.56 194,871(e) 26,725
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2005-70 Cl YJ
08-25-35 18.49 2,373,126(e) 324,056
</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 367 Cl 2
01-01-36 6.57% $1,461,339(e) $392,232
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 379 Cl 2
05-25-37 6.52 2,812,473(e) 733,339
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 275,070 290,886
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-60 Cl JF
10-25-35 2.82 4,192,513(h) 4,129,683
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-90 Cl FE
09-25-36 2.84 7,117,965(h) 7,080,705
Govt Natl Mtge Assn
06-01-38 5.50 5,000,000(b) 5,000,000
06-01-38 6.00 6,000,000(b) 6,106,872
Govt Natl Mtge Assn #3931
12-20-36 6.00 4,210,058 4,289,483
Govt Natl Mtge Assn #518371
02-15-30 7.00 119,360 127,774
Govt Natl Mtge Assn #528344
03-15-30 7.00 364,144 389,812
Govt Natl Mtge Assn #556293
12-15-31 6.50 361,966 375,902
Govt Natl Mtge Assn #583182
02-15-32 6.50 561,556 582,649
Govt Natl Mtge Assn #595256
12-15-32 6.00 320,806 327,904
Govt Natl Mtge Assn #619613
09-15-33 5.00 1,279,731 1,251,497
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-AR25 Cl 3A3
09-25-36 18.17 10,587,645(e) 78,442
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 4.50% $5,645,949(e) $14,997
JP Morgan Mtge Trust
Collateralized Mtge Obligation
Series 2004-S2 4A5
11-25-34 6.00 958,629 820,077
Lehman XS Trust
Collateralized Mtge Obligation
Series 2007-5H Cl 1A1
05-25-37 6.50 5,114,512 4,529,456
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-2 Cl 4A1
02-25-19 5.00 391,482 386,712
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00 348,417 319,670
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00 495,109 462,050
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-3 Cl 1A2
04-25-35 5.50 1,537,000 1,315,026
MASTR Asset Securitization Trust
Collateralized Mtge Obligation
Series 2004-10 Cl 1A1
10-25-19 4.50 1,096,151 1,059,156
Morgan Stanley Mtge Loan Trust
Collateralized Mtge Obligation
Series 2007-12 Cl 3A22
08-25-37 6.00 959,840 883,637
Structured Adjustable Rate Mtge Loan Trust Collateralized Mtge Obligation
Series 2005-15 Cl 4A1
07-25-35 5.50 1,018,147(c) 966,396
Structured Asset Securities
Collateralized Mtge Obligation
Series 2003-33H Cl 1A1
10-25-33 5.50 1,194,641 1,130,429
</Table>
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation
Series 2004-CB2 Cl 6A
07-25-19 4.50% $608,834 $559,488
Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation
Series 2005-AR14 Cl 2A1
12-25-35 5.28 397,597(c) 389,808
Washington Mutual Mtge Pass-Through Ctfs Collateralized Mtge Obligation
Series 2006-AR10 Cl 1A1
09-25-36 5.93 1,850,585(c) 1,819,829
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 2,291,520 2,051,827
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 911,639 886,854
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 1A1
09-25-36 6.02 1,768,830(c) 1,746,937
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 2A1
09-25-36 6.10 2,114,520(c) 2,035,424
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR6 Cl 5A1
03-25-36 5.11 868,152(c) 838,905
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-11 Cl A68
08-25-37 6.00 945,828 893,164
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-14 Cl 1A2
10-25-37 6.00 945,044 846,257
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 21
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(A)
MORTGAGE-BACKED (CONT.)
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-15 Cl A1
11-25-37 6.00% $1,897,235(b) $1,848,322
---------------
Total 481,158,649
- -----------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $509,703,963) $503,709,454
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (6.3%)
SHARES VALUE(A)
RiverSource Short-Term Cash Fund, 2.60% 24,895,772(k) $24,895,772
- ------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $24,895,772) $24,895,772
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $534,599,735)(m) $528,605,226
====================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT MAY 31, 2008
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------
U.S. Long Bond, 20-year (71) $(8,127,281) June 2008 $119,161
U.S. Treasury Note, 2-year (89) (18,745,625) Sept. 2008 40,172
U.S. Treasury Note, 5-year (43) (4,763,594) June 2008 65,769
U.S. Treasury Note, 5-year (14) (1,539,125) Sept. 2008 9,062
U.S. Treasury Note, 10-year (235) (26,778,986) June 2008 656,463
U.S. Treasury Note, 10-year (141) (15,849,281) Sept. 2008 (35,497)
- ---------------------------------------------------------------------------------------------------
Total $(75,803,892) $855,130
- ---------------------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) At May 31, 2008, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$137,117,630. See Note 1 to the financial statements.
(c) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on May 31, 2008.
(d) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
may be determined to be liquid under guidelines established by the Fund's
Board of Directors. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At May 31,
2008, the value of these securities amounted to $1,355,807 or 0.3% 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 May 31, 2008.
- --------------------------------------------------------------------------------
22 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) 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 May 31, 2008. At May 31,
2008, the value of inverse floaters represented 0.02% of net assets.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on May 31,
2008.
(i) 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.
(j) At May 31, 2008, investments in securities included securities valued at
$3,681,169 that were partially pledged as collateral to cover initial
margin deposits on open interest rate futures contracts.
(k) Affiliated Money Market Fund -- See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at May 31, 2008.
(l) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). These securities may be valued at fair
value according to procedures approved, in good faith, by the Fund's Board
of Directors. Information concerning such security holdings at May 31,
2008, is as follows
<Table>
<Caption>
ACQUISITION
SECURITY DATES COST
- ---------------------------------------------------------------------------------
Banc of America Funding*
Series 2006-2 Cl N1
7.25% 2046 11-14-06 $71,453
</Table>
* Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended.
(m) At May 31, 2008, the cost of securities for federal income tax purposes was
$538,772,843 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $3,064,212
Unrealized depreciation (13,231,829)
- ------------------------------------------------------------------------------
Net unrealized depreciation $(10,167,617)
- ------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 23
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.
- --------------------------------------------------------------------------------
24 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
FINANCIAL STATEMENTS -----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2008
<Table>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $509,703,963) $503,709,454
Affiliated money market fund (identified cost
$24,895,772) 24,895,772
- ----------------------------------------------------------------------------
Total investments in securities (identified cost
$534,599,735) 528,605,226
Cash 42,211
Capital shares receivable 4,042,641
Dividends and accrued interest receivable 2,093,020
Receivable for investment securities sold 6,296,673
- ----------------------------------------------------------------------------
Total assets 541,079,771
- ----------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 101,502
Capital shares payable 322,374
Payable for investment securities purchased 6,049,223
Payable for securities purchased on a forward-commitment
basis 137,117,630
Variation margin payable 147,844
Accrued investment management services fees 5,155
Accrued distribution fees 29,414
Accrued transfer agency fees 597
Accrued administrative services fees 752
Accrued plan administration services fees 8,997
Other accrued expenses 102,373
- ----------------------------------------------------------------------------
Total liabilities 143,885,861
- ----------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $397,193,910
============================================================================
REPRESENTED BY
Capital stock -- $.01 par value $ 796,061
Additional paid-in capital 403,222,558
Undistributed net investment income 69,436
Accumulated net realized gain (loss) (1,754,766)
Unrealized appreciation (depreciation) on investments (5,139,379)
- ----------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $397,193,910
============================================================================
</Table>
<Table>
Net assets applicable to outstanding
shares: Class A $ 95,365,293
Class B $ 33,665,806
Class C $ 4,185,697
Class I $221,547,618
Class R4 $ 42,429,496
Net asset value per share of outstanding Class A
capital stock: shares(1) 19,102,220 $ 4.99
Class B shares 6,741,320 $ 4.99
Class C shares 838,003 $ 4.99
Class I shares 44,419,486 $ 4.99
Class R4 shares 8,505,084 $ 4.99
- -------------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $5.24. 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 -- 2008 ANNUAL REPORT 25
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 2008
<Table>
INVESTMENT INCOME
Income:
Interest $21,978,182
Income distributions from affiliated money market fund 199,305
- ---------------------------------------------------------------------------
Total income 22,177,487
- ---------------------------------------------------------------------------
Expenses:
Investment management services fees 1,958,404
Distribution fees
Class A 260,643
Class B 373,486
Class C 45,007
Transfer agency fees
Class A 221,852
Class B 83,847
Class C 9,870
Class R4 21,055
Administrative services fees 285,601
Plan administration services fees -- Class R4 105,276
Compensation of board members 7,704
Custodian fees 94,369
Printing and postage 97,099
Registration fees 67,153
Professional fees 40,613
Other 14,697
- ---------------------------------------------------------------------------
Total expenses 3,686,676
Expenses waived/reimbursed by the Investment Manager and
its affiliates (702,554)
Earnings and bank fee credits on cash balances (8,343)
- ---------------------------------------------------------------------------
Total net expenses 2,975,779
- ---------------------------------------------------------------------------
Investment income (loss) -- net 19,201,708
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions 5,541,748
Futures contracts (5,686,855)
Swap transactions (738,697)
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments (883,804)
Net change in unrealized appreciation (depreciation) on
investments 282,877
- ---------------------------------------------------------------------------
Net gain (loss) on investments (600,927)
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $18,600,781
===========================================================================
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
26 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED MAY 31, 2008 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 19,201,708 $ 12,425,612
Net realized gain (loss) on investments (883,804) 697,290
Net change in unrealized appreciation (depreciation) on
investments 282,877 1,881,245
- --------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 18,600,781 15,004,147
- --------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (4,636,312) (5,407,728)
Class B (1,375,945) (1,999,233)
Class C (166,238) (214,172)
Class I (10,669,521) (3,051,378)
Class R4 (1,927,487) (1,761,395)
- --------------------------------------------------------------------------------------
Total distributions (18,775,503) (12,433,906)
- --------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 21,261,899 29,049,243
Class B shares 7,521,919 9,006,830
Class C shares 493,948 470,592
Class I shares 60,497,906 201,892,945
Class R4 shares 3,560,740 5,512,362
Reinvestment of distributions at net asset value
Class A shares 4,221,397 4,873,804
Class B shares 1,272,184 1,827,201
Class C shares 153,418 194,782
Class I shares 10,765,444 2,900,308
Class R4 shares 1,945,056 1,758,106
Payments for redemptions
Class A shares (40,583,767) (51,596,469)
Class B shares (19,411,598) (31,868,944)
Class C shares (1,336,741) (2,626,838)
Class I shares (57,241,980) (2,611,222)
Class R4 shares (2,867,441) (2,593,585)
- --------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share
transactions (9,747,616) 166,189,115
- --------------------------------------------------------------------------------------
Total increase (decrease) in net assets (9,922,338) 168,759,356
Net assets at beginning of year 407,116,248 238,356,892
- --------------------------------------------------------------------------------------
Net assets at end of year $397,193,910 $407,116,248
======================================================================================
Undistributed net investment income $ 69,436 $ 239,916
- --------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 27
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource U.S. Government Mortgage Fund (the Fund) is a series of RiverSource
Government Income Series, Inc. and is registered under the Investment Company
Act of 1940 (as amended) as a diversified, open-end management investment
company. RiverSource Government Income Series, Inc. has 10 billion authorized
shares of capital stock that can be allocated among the separate series as
designated by the Board of Directors (the Board). The Fund invests primarily in
mortgage-backed securities that either are issued or guaranteed as to principal
and interest by the U.S. government, its agencies, authorities or
instrumentalities.
The Fund offers Class A, Class B, Class C, Class I and Class R4 shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
At May 31, 2008, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of
Class I shares.
At May 31, 2008, the Investment Manager, RiverSource Life Insurance Company and
the RiverSource affiliated funds-of-funds owned approximately 55% 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.
- --------------------------------------------------------------------------------
28 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL 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.
The procedures adopted by the Board generally contemplate the use of fair
valuation in the event that price quotations or valuations are not readily
available, price quotations or valuations from other sources are not reflective
of market value and thus deemed unreliable, or a significant event has occurred
in relation to a security or class of securities that is not reflected in price
quotations or valuations from other sources. A fair value price is a good faith
estimate of the value of a security at a given point in time.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
ILLIQUID SECURITIES
At May 31, 2008, investments in securities included issues that are illiquid
which the Fund currently limits to 15% of net assets, at market value, at the
time of purchase. Prior to July 12, 2007, the Fund limited the percent held in
securities and other instruments that were illiquid to 10% of the Fund's net
assets. The aggregate value of such securities at May 31, 2008 was $45,051
representing 0.01% of net assets. These securities may be valued at fair value
according to procedures approved, in good faith, by the Board. According to
Board guidelines, certain unregistered securities are determined to be liquid
and are not included within the 15% limitation specified above. Assets are
liquid if they can be sold or disposed of in the ordinary course of business
within seven days at approximately the value at which the asset is valued by the
Fund.
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 May 31, 2008, the Fund has outstanding when-issued
securities of $135,237,757 and other forward-commitments of $1,879,873.
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
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 29
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 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. At May 31, 2008, and for the year then ended, 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.
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
- --------------------------------------------------------------------------------
30 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
recorded as unrealized gains and losses. The Fund recognizes a realized gain or
loss when the contract is closed or expires.
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. At May 31, 2008, 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. At May 31, 2008, the Fund had no outstanding CMBS total return swap
contracts.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 31
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, certain of the Fund's contracts with its
service providers contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against the Fund cannot be determined and the Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
The Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required.
The Fund has adopted Financial Accounting Standards Board (FASB) Interpretation
48 (FIN 48), "Accounting for Uncertainty in Income Taxes", which is effective
for fiscal periods beginning after Dec. 15, 2006. 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. Management of the Fund has concluded that there are no significant
uncertain tax positions that would require recognition in the financial
statements. Generally, the tax authorities can examine all the tax returns filed
for the last three years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures and options
contracts, recognition of unrealized appreciation (depreciation) for certain
derivative investments, post-October losses and losses deferred due to wash
sales. The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
On the Statement of Assets and Liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income has been decreased by $596,685
and accumulated net realized loss has been decreased by $596,685.
- --------------------------------------------------------------------------------
32 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED MAY 31, 2008 2007
- ----------------------------------------------------------------------------
CLASS A
Distributions paid from:
Ordinary income.......................... $ 4,636,312 $5,407,728
Long-term capital gain................... -- --
CLASS B
Distributions paid from:
Ordinary income.......................... 1,375,945 1,999,233
Long-term capital gain................... -- --
CLASS C
Distributions paid from:
Ordinary income.......................... 166,238 214,172
Long-term capital gain................... -- --
CLASS I
Distributions paid from:
Ordinary income.......................... 10,669,521 3,051,378
Long-term capital gain................... -- --
CLASS R4
Distributions paid from:
Ordinary income.......................... 1,927,487 1,761,395
Long-term capital gain................... -- --
</Table>
At May 31, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
Undistributed ordinary income.............................. $ 2,976,198
Undistributed accumulated long-term gain................... $ --
Accumulated realized loss.................................. $ (210,465)
Unrealized appreciation (depreciation)..................... $(9,488,940)
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging
Activities - an amendment of FASB Statement No. 133," which requires enhanced
disclosures about a fund's derivative and hedging activities. Funds are required
to provide enhanced disclosures about (a) how and why a fund uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect a fund's financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
Nov. 15, 2008. As of May 31, 2008, management does not believe the adoption of
SFAS 161 will impact the financial statement amounts; however, additional
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 33
footnote disclosures may be required about the use of derivative instruments and
hedging items.
On Sept. 20, 2006, the 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 hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. The application of SFAS 157
will be effective for the Fund's fiscal year beginning June 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on the Fund's
financial statements; however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of certain
measurements reported in the Statement of Operations for a fiscal period.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income, if any, is recognized on the ex-dividend date and
interest income, including amortization of premium, market discount and original
issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, the Investment Manager
determines which securities will be purchased, held or sold. The management fee
is a percentage of the Fund's average daily net assets that declines from 0.48%
to 0.29% annually as the Fund's assets increase. The management fee for the year
ended May 31, 2008 was 0.48% of the Fund's average daily net assets.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, the Fund pays Ameriprise Financial,
Inc. (Ameriprise Financial), the parent company of the Investment Manager, 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 year ended May 31, 2008 was 0.07% of the Fund's
average daily net assets.
- --------------------------------------------------------------------------------
34 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
OTHER FEES
Other expenses are for, among other things, certain expenses of the Fund or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Fund and the Board. For the year ended May 31,
2008, other expenses paid to this company were $1,843.
COMPENSATION OF BOARD MEMBERS
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.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. The Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50
for Class B and $21.00 for Class C for this service. The Fund also pays the
Transfer Agent an annual asset-based fee at a rate of 0.05% of the Fund's
average daily net assets attributable to Class R4 shares.
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statement of Operations.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R4 shares for the provision of various administrative,
recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has 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
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 35
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
Sales charges received by the Distributor for distributing Fund shares were
$100,681 for Class A, $35,769 for Class B and $441 for Class C for the year
ended May 31, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended May 31, 2008, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that net expenses (excluding
fees and expenses of acquired funds*) were as follows:
<Table>
Class A.................................................... 0.89%
Class B.................................................... 1.65
Class C.................................................... 1.65
Class I.................................................... 0.48
Class R4................................................... 0.75
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A................................................. $55,741
Class B................................................. 21,080
Class C................................................. 2,400
Class R4................................................ 12,814
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees were as follows:
<Table>
Class R4.................................................. $103
</Table>
The management fees waived/reimbursed at the Fund level were $610,416.
The Investment Manager and its affiliates have contractually agreed to waive
certain fees and expenses until May 31, 2009, unless sooner terminated at the
discretion of the Board, such that net expenses (excluding fees and expenses of
acquired funds*), will not exceed the following percentage of the Fund's average
daily net assets:
<Table>
Class A................................................... 0.89%
Class B................................................... 1.65
Class C................................................... 1.65
Class I................................................... 0.48
Class R4.................................................. 0.75
</Table>
* 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.
- --------------------------------------------------------------------------------
36 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
EARNINGS AND BANK FEE CREDITS
During the year ended May 31, 2008, the Fund's custodian and transfer agency
fees were reduced by $8,343 as a result of earnings and 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 $1,846,596,271 and $1,781,798,531, respectively, for the
year ended May 31, 2008. Realized gains and losses are determined on an
identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the years indicated are as follows:
<Table>
<Caption>
YEAR ENDED MAY 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------------------
Class A 4,250,751 842,644 (8,112,975) (3,019,580)
Class B 1,496,899 253,951 (3,883,104) (2,132,254)
Class C 98,644 30,621 (266,401) (137,136)
Class I 12,137,691 2,151,644 (11,378,602) 2,910,733
Class R4 715,755 388,748 (571,898) 532,605
- ----------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED MAY 31, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (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 $138,476,149 and $121,123,720, respectively, for the year
ended May 31, 2008. The income distributions received with respect to the Fund's
investment in RiverSource Short-Term Cash Fund can be found on the Statement
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 37
of Operations and the Fund's invested balance in RiverSource Short-Term Cash
Fund at May 31, 2008, can be found in the Portfolio of Investments.
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 year ended May 31, 2008.
7. POST-OCTOBER LOSS
Because the measurement periods for a regulated investment company's income are
different for excise tax purposes versus income tax purposes, special rules are
in place to protect the amount of earnings and profits needed to support excise
tax distributions. As a result, the Fund is permitted to treat net capital
losses realized between Nov. 1, 2007 and its fiscal year end ("post-October
loss") as occurring on the first day of the following tax year. At May 31, 2008,
the Fund had a post-October loss of $210,465 that is treated for income tax
purposes as occurring on June 1, 2008.
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
- --------------------------------------------------------------------------------
38 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
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)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any violations of certain
provisions of the Investment Advisers Act of 1940, the Investment Company Act of
1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million
and civil money penalties of $7 million. AEFC also agreed to retain an
independent distribution consultant to assist in developing a plan for
distribution of all disgorgement and civil penalties ordered by the SEC in
accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of Directors/
Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 39
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.
- --------------------------------------------------------------------------------
40 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL 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, 2008 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) .23(b) .22 .21 .19 .16
Net gains (losses) (both realized and
unrealized) (.02) .09 (.20) .10 (.09)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .21 .31 .01 .29 .07
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.22) (.23) (.20) (.20) (.16)
Tax return of capital -- -- -- -- (.01)
Distributions from realized gains -- -- (.01) -- (.06)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.22) (.23) (.21) (.20) (.23)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.99 $5.00 $4.92 $5.12 $5.03
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $95 $111 $126 $159 $177
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.09% 1.17% 1.19% 1.10% 1.05%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .89% .89% .89% .95% .98%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.56% 4.45% 4.08% 3.67% 3.11%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 354% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 4.31% 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 for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2008
were less than 0.01% of average net assets.
(g) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 41
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 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) .19(b) .19 .17 .15 .12
Net gains (losses) (both realized and
unrealized) (.01) .07 (.19) .09 (.09)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .18 .26 (.02) .24 .03
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.19) (.19) (.16) (.16) (.12)
Tax return of capital -- -- -- -- (.01)
Distributions from realized gains -- -- (.01) -- (.06)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.19) (.19) (.17) (.16) (.19)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.99 $5.00 $4.93 $5.12 $5.04
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $34 $44 $64 $98 $129
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.86% 1.94% 1.95% 1.86% 1.80%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.69% 1.74%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.79% 3.70% 3.31% 2.90% 2.35%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 354% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 3.53% 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 for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2008
were less than 0.01% of average net assets.
(g) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
42 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 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) .19(b) .19 .17 .15 .12
Net gains (losses) (both realized and
unrealized) (.01) .07 (.19) .09 (.09)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .18 .26 (.02) .24 .03
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.19) (.19) (.16) (.16) (.12)
Tax return of capital -- -- -- -- (.01)
Distributions from realized gains -- -- (.01) -- (.06)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.19) (.19) (.17) (.16) (.19)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.99 $5.00 $4.93 $5.12 $5.04
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $4 $5 $7 $11 $15
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.85% 1.94% 1.95% 1.85% 1.80%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) 1.65% 1.64% 1.64% 1.70% 1.74%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.80% 3.70% 3.31% 2.90% 2.36%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 354% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return(g) 3.53% 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 for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2008
were less than 0.01% of average net assets.
(g) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 43
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 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) .25(c) .24 .22 .20 .05
Net gains (losses) (both realized and
unrealized) (.02) .08 (.19) .09 (.11)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .23 .32 .03 .29 (.06)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.24) (.24) (.21) (.21) (.06)
Distributions from realized gains -- -- (.01) -- --
- -----------------------------------------------------------------------------------------------------------
Total distributions (.24) (.24) (.22) (.21) (.06)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.99 $5.00 $4.92 $5.11 $5.03
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $222 $207 $6 $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(d),(e) .63% .63% .73% .66% .64%(f)
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .48% .54% .54% .62% .64%(f)
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.97% 4.90% 4.99% 3.99% 3.39%(f)
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 354% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return 4.74% 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 for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2008
were less than 0.01% of average net assets.
(i) Not annualized.
- --------------------------------------------------------------------------------
44 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
FISCAL PERIOD ENDED MAY 31, 2008 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) .23(b) .23 .21 .20 .17
Net gains (losses) (both realized and
unrealized) (.01) .08 (.19) .08 (.09)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .22 .31 .02 .28 .08
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.23) (.23) (.20) (.20) (.17)
Tax return of capital -- -- -- -- (.01)
Distributions from realized gains -- -- (.01) -- (.06)
- -----------------------------------------------------------------------------------------------------------
Total distributions (.23) (.23) (.21) (.20) (.24)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.99 $5.00 $4.92 $5.11 $5.03
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions) $42 $40 $35 $-- $--
- -----------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .93% .99% 1.04% .94% .87%
- -----------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(e),(f) .75% .71% .71% .77% .81%
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.69% 4.63% 4.40% 3.99% 3.29%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 354% 306% 178% 137% 163%
- -----------------------------------------------------------------------------------------------------------
Total return 4.46% 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 for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the
Fund indirectly bears a pro rata share of the fees and expenses of the
acquired funds in which it invests. Such indirect expenses are not included
in the above reported expense ratios.
(e) The Investment Manager and its affiliates have agreed to waive
certain/reimburse fees and expenses (excluding fees and expenses of
acquired funds).
(f) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the year ended May 31, 2008
were less than 0.01% of average net assets.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 45
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of RiverSource U.S. Government Mortgage Fund (the
Fund) (one of the portfolios constituting the RiverSource Government Income
Series, Inc.) as of May 31, 2008, and the related statements of operations,
changes in net assets, and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
statements and financial highlights of the Fund for the periods presented
through May 31, 2007, were audited by other auditors whose report dated July 20,
2007, expressed an unqualified opinion on those financial statements and
financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of May 31, 2008, by correspondence with the custodian and
brokers, or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audit provides a reasonable basis for our
opinion.
- --------------------------------------------------------------------------------
46 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
In our opinion, the 2008 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
RiverSource U.S. Government Mortgage Fund of the RiverSource Government Income
Series, Inc. at May 31, 2008, the results of its operations, changes in its net
assets, and the financial highlights for the year then ended, in conformity with
U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
July 22, 2008
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 47
FEDERAL INCOME TAX INFORMATION -------------------------------------------------
(UNAUDITED)
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on Form 1099-DIV, Dividends
and Distributions. Shareholders should consult a tax advisor on how to report
distributions for state and local tax purposes.
Fiscal year ended May 31, 2008
CLASS A
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 4.03%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01877
July 25, 2007............................................... 0.01910
Aug. 24, 2007............................................... 0.01910
Sept. 24, 2007.............................................. 0.02025
Oct. 26, 2007............................................... 0.02020
Nov. 26, 2007............................................... 0.02040
Dec. 17, 2007............................................... 0.01950
Jan. 28, 2008............................................... 0.01950
Feb. 27, 2008............................................... 0.01790
March 27, 2008.............................................. 0.01670
April 28, 2008.............................................. 0.01665
May 28, 2008................................................ 0.01628
Total distributions......................................... $0.22435
</Table>
- --------------------------------------------------------------------------------
48 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
CLASS B
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 4.03%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01558
July 25, 2007............................................... 0.01596
Aug. 24, 2007............................................... 0.01600
Sept. 24, 2007.............................................. 0.01702
Oct. 26, 2007............................................... 0.01686
Nov. 26, 2007............................................... 0.01715
Dec. 17, 2007............................................... 0.01730
Jan. 28, 2008............................................... 0.01516
Feb. 27, 2008............................................... 0.01475
March 27, 2008.............................................. 0.01368
April 28, 2008.............................................. 0.01334
May 28, 2008................................................ 0.01316
Total distributions......................................... $0.18596
</Table>
CLASS C
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 4.03%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01559
July 25, 2007............................................... 0.01602
Aug. 24, 2007............................................... 0.01602
Sept. 24, 2007.............................................. 0.01704
Oct. 26, 2007............................................... 0.01688
Nov. 26, 2007............................................... 0.01717
Dec. 17, 2007............................................... 0.01732
Jan. 28, 2008............................................... 0.01510
Feb. 27, 2008............................................... 0.01477
March 27, 2008.............................................. 0.01370
April 28, 2008.............................................. 0.01336
May 28, 2008................................................ 0.01317
Total distributions......................................... $0.18614
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 49
CLASS I
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 4.03%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.02044
July 25, 2007............................................... 0.02074
Aug. 24, 2007............................................... 0.02076
Sept. 24, 2007.............................................. 0.02197
Oct. 26, 2007............................................... 0.02198
Nov. 26, 2007............................................... 0.02213
Dec. 17, 2007............................................... 0.02067
Jan. 28, 2008............................................... 0.02184
Feb. 27, 2008............................................... 0.01958
March 27, 2008.............................................. 0.01831
April 28, 2008.............................................. 0.01842
May 28, 2008................................................ 0.01795
Total distributions......................................... $0.24479
</Table>
CLASS R4
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Qualified Dividend Income for individuals............. 0.00%
Dividends Received Deduction for corporations......... 0.00%
U.S. Government Obligations........................... 4.03%
</Table>
<Table>
<Caption>
PAYABLE DATE PER SHARE
June 25, 2007............................................... $0.01939
July 25, 2007............................................... 0.01965
Aug. 24, 2007............................................... 0.01966
Sept. 24, 2007.............................................. 0.02083
Oct. 26, 2007............................................... 0.02080
Nov. 26, 2007............................................... 0.02098
Dec. 17, 2007............................................... 0.01989
Jan. 28, 2008............................................... 0.02029
Feb. 27, 2008............................................... 0.01847
March 27, 2008.............................................. 0.01724
April 28, 2008.............................................. 0.01725
May 28, 2008................................................ 0.01685
Total distributions......................................... $0.23130
</Table>
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
- --------------------------------------------------------------------------------
50 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board members. Each member oversees 101
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Kathleen Blatz Board member Chief Justice, Minnesota Supreme None
901 S. Marquette Ave. since 2006 Court, 1998-2006; Attorney
Minneapolis, MN 55402
Age 53
- -----------------------------------------------------------------------------------------------------
Arne H. Carlson Board member Chair, RiverSource Funds, None
901 S. Marquette Ave. since 1999 1999-2006; former Governor of
Minneapolis, MN 55402 Minnesota
Age 73
- -----------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member President, Springboard -- Partners None
901 S. Marquette Ave. since 2007 in Cross Cultural Leadership
Minneapolis, MN 55402 (consulting company)
Age 53
- -----------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and None
901 S. Marquette Ave. since 2004 Management, Bentley College; former
Minneapolis, MN 55402 Dean, McCallum Graduate School of
Age 57 Business, Bentley College
- -----------------------------------------------------------------------------------------------------
Anne P. Jones Board member Attorney and Consultant None
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 73
- -----------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member Former Managing Director, Shikiar American Progressive
901 S. Marquette Ave. since 2005 Asset Management Insurance
Minneapolis, MN 55402
Age 72
- -----------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Valmont Industries,
901 S. Marquette Ave. since 2002 and Economics, Carleton College Inc. (manufactures
Minneapolis, MN 55402 Chair of the irrigation systems)
Age 69 Board since 2007
- -----------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 51
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
Catherine James Paglia Board member Director, Enterprise Asset None
901 S. Marquette Ave. since 2004 Management, Inc. (private real
Minneapolis, MN 55402 estate and asset management
Age 55 company)
- -----------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member Chief Executive Officer and Idera
901 S. Marquette Ave. since 2002 Director, RiboNovix, Inc. since Pharmaceutical, Inc.
Minneapolis, MN 55402 2003 (biotechnology); former (biotechnology);
Age 64 President, Forester Biotech Healthways, Inc.
(health management
programs)
- -----------------------------------------------------------------------------------------------------
</Table>
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------
William F. Truscott Board member President -- U.S. Asset Management None
53600 Ameriprise since 2001, and Chief Investment Officer,
Financial Center Vice President Ameriprise Financial, Inc. and
Minneapolis, MN 55474 since 2002 President, Chairman of the Board
Age 47 and Chief Investment Officer,
RiverSource Investments, LLC since
2005; Director, President, and
Chief Executive Officer, Ameriprise
Certificate Company since 2006;
Chairman of the Board, Chief
Executive Officer and President,
RiverSource Distributors, Inc.
since 2006; Senior Vice
President -- Chief Investment
Officer, Ameriprise Financial, Inc.
and Chairman of the Board and Chief
Investment Officer, RiverSource
Investments, LLC, 2001-2005
- -----------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling RiverSource Funds at (888)
791-3380; contacting your financial institution; or visiting
riversource.com/funds.
- --------------------------------------------------------------------------------
52 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------
Patrick T. Bannigan President since Director and Senior Vice President, Asset
172 Ameriprise 2006 Management, Products and Marketing,
Financial Center RiverSource Investments, LLC since 2006;
Minneapolis, MN 55474 Director and Vice President -- Asset
Age 42 Management, Products and Marketing,
RiverSource Distributors, Inc. since 2006;
Managing Director and Global Head of Product,
Morgan Stanley Investment Management,
2004-2006; President, Touchstone Investments,
2002-2004
- ------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President -- Equity and Fixed
172 Ameriprise since 2004 Income, Ameriprise Financial, Inc. and
Financial Center RiverSource Investments, LLC since 2006; Vice
Minneapolis, MN 55474 President -- Investments, Ameriprise
Age 44 Certificate Company since 2003; Senior Vice
President -- Fixed Income, Ameriprise
Financial, Inc., 2002-2006 and RiverSource
Investments, LLC, 2004-2006
- ------------------------------------------------------------------------------------------
Amy K. Johnson Vice President Vice President -- Asset Management and Trust
5228 Ameriprise since 2006 Company Services, RiverSource Investments, LLC
Financial Center since 2006; Vice President -- Operations and
Minneapolis, MN 55474 Compliance, RiverSource Investments, LLC,
Age 42 2004-2006; Director of Product
Development -- Mutual Funds, Ameriprise
Financial, Inc., 2001-2004
- ------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since Vice President -- Investment Accounting,
105 Ameriprise 2002 Ameriprise Financial, Inc. since 2002; Chief
Financial Center Financial Officer, RiverSource Distributors,
Minneapolis, MN 55474 Inc. since 2006
Age 52
- ------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset
5228 Ameriprise General Counsel Management, Ameriprise Financial, Inc. since
Financial Center and Secretary 2005; Chief Counsel, RiverSource Distributors,
Minneapolis, MN 55474 since 2006 Inc. since 2006; Vice President, General
Age 48 Counsel and Secretary, Ameriprise Certificate
Company since 2005; Vice President -- Asset
Management Compliance, Ameriprise Financial,
Inc., 2004-2005; Senior Vice President and
Chief Compliance Officer, USBancorp Asset
Management, 2002-2004
- ------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance
172 Ameriprise Officer since Officer, RiverSource Investments, LLC since
Financial Center 2006 2006; Director -- Mutual Funds, Voyageur Asset
Minneapolis, MN 55474 Management, 2003-2006; Director of Finance,
Age 47 Voyageur Asset Management, 2000-2003
- ------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering
2934 Ameriprise Prevention Officer, Ameriprise Financial, Inc. since
Financial Center Officer since 2004; Manager Anti-Money Laundering,
Minneapolis, MN 55474 2004 Ameriprise Financial, Inc., 2003-2004;
Age 44 Compliance Director and Bank Secrecy Act
Officer, American Express Centurion Bank,
2000-2003
- ------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 53
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the Fund. Under an investment
management services agreement (the "IMS Agreement") RiverSource Investments
provides investment advice and other services to the Fund and all RiverSource
funds (collectively, the "Funds").
On an annual basis, the Fund's Board of Directors (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2008, including reports
based on data provided by independent organizations to assist the Board in
making this determination. In addition, throughout the year, the Board (or its
committees) reviews information prepared by RiverSource Investments addressing
the services RiverSource Investments provides and Fund performance. The Board
accords particular weight to the work, deliberations and conclusions of the
Contracts, Investment Review and Compliance Committees in determining whether to
continue the IMS Agreement. At the April 9-10, 2008 in-person Board meeting,
independent legal counsel to the Independent Directors reviewed with the
Independent Directors various factors relevant to the Board's consideration of
advisory agreements and the Board's legal responsibilities related to such
consideration. Following an analysis and discussion of the factors identified
below, the Board, including all of the Independent Directors, approved renewal
of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the Fund's operations, particularly in the areas of
trading systems, new product initiatives, legal and compliance. Further, in
connection with the Board's evaluation of the overall package of services
provided by RiverSource Investments, the Board considered the quality of the
administrative and transfer agency services provided by RiverSource Investments'
affiliates to the Fund. The Board also reviewed the financial condition of
RiverSource Investments (and its affiliates) and each entity's ability to carry
out its responsibilities under the IMS Agreement. The Board also discussed the
acceptability of the terms of the IMS Agreement (including the relatively broad
scope of services required to be performed by RiverSource Investments). The
Board concluded that the services
- --------------------------------------------------------------------------------
54 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
being performed under the IMS Agreement were of a reasonably high quality,
particularly in light of recent market conditions.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the Fund.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of the Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of the Fund, the
performance of a benchmark index, the percentage ranking of the Fund among its
comparison group and the net assets of the Fund; and (ii) a report detailing the
Fund's performance over various periods (including since inception), recent Fund
inflows (and outflows) and a comparison of the Fund's net assets from December
2006 to December 2007. The Board observed that the Fund's investment performance
was appropriate in light of the particular management style and market
conditions involved.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with the
Fund: The Board reviewed comparative fees and the costs of services to be
provided under the IMS Agreement. The Board members considered detailed
comparative information set forth in an annual report on fees and expenses,
including, among other things, data (prepared by an independent organization)
showing a comparison of the Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing the Fund's contribution to
RiverSource Investments' profitability.
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio of each fund, with few exceptions, is at or below the median
expense ratio of funds in the same comparison group). The Board took into
account that the Fund's total expense ratio (after considering proposed expense
caps/waivers) was below the peer group's median expense ratio shown in the
reports. Based on its review, the Board concluded that the Fund's management fee
was fair and reasonable in light of the extent and quality of services that the
Fund receives.
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RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT 55
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating the Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the Funds on portfolio transactions. The
Board noted that the fees paid by the Fund should permit the investment manager
to offer competitive compensation to its personnel, make necessary investments
in its business and earn an appropriate profit. The Board concluded that
profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 10, 2008, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement.
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.
- --------------------------------------------------------------------------------
56 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 ANNUAL REPORT
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by
the Fund's current prospectus. RiverSource(R)
mutual funds are distributed by RiverSource
Distributors, Inc., 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-6245 K (7/08)
</Table>
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Pamela G. Carlton, Jeffrey Laikind and Anne P. Jones, each
qualify as audit committee financial experts.
Item 4. Principal Accountant Fees and Services
Fund - Related Fees
(a) Audit Fees. The fees for the year ended May 31, to Ernst & Young LLP for
professional services rendered for the audit of the annual financial
statements for RiverSource Government Income Series, Inc. were as follows:
2008 - $49,300
(b) Audit - Related Fees. The fees for the year ended May 31, to Ernst & Young
LLP for additional professional services rendered in connection with the
registrant's security count pursuant to Rule 17f-2 and the semiannual
financial statement review for RiverSource Government Income Series, Inc.
were as follows:
2008 - $1,590
(c) Tax Fees. The fees for the year ended May 31, to Ernst & Young LLP for tax
compliance related services for RiverSource Government Income Series, Inc.
were as follows:
2008 - $6,600
(d) All Other Fees. The fees for the year ended May 31, to Ernst & Young LLP
for additional professional services rendered for RiverSource Government
Income Series, Inc. were as follows:
2008 - $0
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by Ernst & Young
LLP for the registrant and to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant must be
pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above during
2008 were pre-approved by the audit committee.
(f) Not applicable.
(g) Non-Audit Fees. The fees for the year ended May 31, to Ernst & Young LLP by
the registrant for non-audit fees and by the registrant's investment
adviser, and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant were as
follows:
2008 - $619,990
(h) 100% of the services performed in item (g) above during 2008 were
pre-approved by the Ameriprise Financial Audit Committee and/or the
RiverSource Mutual Funds Audit Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing date
of this Form N-CSR, the registrant's Principal Financial Officer and
Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal executive
officer and principal financial officer, as required by Section 302 of
the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Government Income Series, Inc.
By /s/ Patrick T. Bannigan
-----------------------------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date August 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. Bannigan
-----------------------------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date August 1, 2008
By /s/ Jeffrey P. Fox
-----------------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date August 1, 2008