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.
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(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
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(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
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(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-1947
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Date of fiscal year end: 5/31
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Date of reporting period: 11/30
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Semiannual Report
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
SHORT DURATION U.S. GOVERNMENT FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
NOVEMBER 30, 2008
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND SEEKS
TO PROVIDE SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT
INCOME AND SAFETY OF PRINCIPAL CONSISTENT WITH
INVESTMENT IN U.S. GOVERNMENT AND GOVERNMENT AGENCY
SECURITIES.
(SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 4
Manager Commentary................. 9
Fund Expenses Example.............. 14
Portfolio of Investments........... 16
Statement of Assets and
Liabilities...................... 26
Statement of Operations............ 27
Statements of Changes in Net
Assets........................... 28
Financial Highlights............... 29
Notes to Financial Statements...... 35
Proxy Voting....................... 49
</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.
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RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 3
YOUR FUND AT A GLANCE ----------------------------------------------------------
(UNAUDITED)
FUND SUMMARY
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> RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares
declined 2.30% (excluding sales charge) for the six months ended Nov. 30,
2008.
> The Fund underperformed its benchmark, the Barclays Capital 1-3 Year
Government Index (formerly known as Lehman Brothers 1-3 Year Government
Index), which gained 3.62%.
> The Fund underperformed the Lipper Short U.S. Government Funds Index,
representing the Fund's peer group, which advanced 0.93% during the same time
frame.
ANNUALIZED TOTAL RETURNS (for period ended Nov. 30, 2008)
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<Table>
<Caption>
6 months* 1 year 3 years 5 years 10 years
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RiverSource Short Duration
U.S. Government Fund Class A
(excluding sales charge) -2.30% -1.59% +2.57% +2.00% +3.07%
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Barclays Capital 1-3 Year
Government Index
(unmanaged)(1) +3.62% +5.87% +5.72% +4.01% +4.74%
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Lipper Short U.S. Government
Funds Index(2) +0.93% +2.57% +4.03% +2.97% +3.88%
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</Table>
* Not annualized.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial 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.
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4 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
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(1) The Barclays Capital 1-3 Year Government Index (formerly known as Lehman
Brothers 1-3 Year Government Index), an unmanaged index, is made up of all
publicly issued, non-convertible domestic debt of the U.S. government, or
agency thereof, or any quasi-federal corporation. The index also includes
corporate debt guaranteed by the U.S. government. Only notes and bonds with
a minimum maturity of one year up to a maximum maturity of 2.9 years are
included. The index reflects reinvestment of all distributions and changes
in market prices.
(2) The Lipper Short U.S. Government Funds Index includes the 30 largest short
U.S. government funds tracked by Lipper Inc. The index's returns include net
reinvested dividends.
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RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 5
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
STYLE MATRIX
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<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
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<Table>
Weighted average life(1) 3.4 years
- --------------------------------------
Effective duration(2) 1.8 years
- --------------------------------------
Weighted average bond
rating(3) AAA
- --------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
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<Table>
<Caption>
Total Net
fund fund
expenses expenses(a)
- ----------------------------------------
Class A 1.04% 0.89%
- ----------------------------------------
Class B 1.80% 1.65%
- ----------------------------------------
Class C 1.80% 1.65%
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Class I 0.60% 0.51%
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Class R4 0.90% 0.76%
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Class W 1.06% 0.96%
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</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.
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6 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
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AVERAGE ANNUAL TOTAL RETURNS
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<Table>
<Caption>
AT NOV. 30, 2008
SINCE
Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION**
Class A (inception
8/19/85) -2.30% -1.59% +2.57% +2.00% +3.07% N/A
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Class B (inception
3/20/95) -2.67% -2.33% +1.81% +1.24% +2.30% N/A
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Class C (inception
6/26/00) -2.67% -2.32% +1.81% +1.24% N/A +2.65%
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Class I (inception
3/4/04) -2.12% -1.22% +2.88% N/A N/A +2.19%
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Class R4 (inception
3/20/95) -2.24% -1.46% +2.73% +2.17% +3.23% N/A
- ------------------------------------------------------------------------------------
Class W (inception
12/1/06) -2.55% -1.86% N/A N/A N/A +1.49%
- ------------------------------------------------------------------------------------
With sales charge
Class A (inception
8/19/85) -5.30% -6.28% +0.90% +1.02% +2.54% N/A
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Class B (inception
3/20/95) -7.47% -7.08% +0.55% +0.88% +2.30% N/A
- ------------------------------------------------------------------------------------
Class C (inception
6/26/00) -3.63% -3.27% +1.81% +1.24% N/A +2.65%
- ------------------------------------------------------------------------------------
</Table>
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
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RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 7
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
<Table>
<Caption>
AT DEC. 31, 2008
SINCE
Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION**
Class A (inception
8/19/85) -1.95% -1.53% +2.52% +1.94% +3.03% N/A
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Class B (inception
3/20/95) -2.33% -2.28% +1.75% +1.18% +2.25% N/A
- ------------------------------------------------------------------------------------
Class C (inception
6/26/00) -2.32% -2.27% +1.76% +1.18% N/A +2.64%
- ------------------------------------------------------------------------------------
Class I (inception
3/4/04) -1.77% -1.36% +2.83% N/A N/A +2.21%
- ------------------------------------------------------------------------------------
Class R4 (inception
3/20/95) -1.89% -1.40% +2.68% +2.11% +3.19% N/A
- ------------------------------------------------------------------------------------
Class W (inception
12/1/06) -1.99% -1.59% N/A N/A N/A +1.65%
- ------------------------------------------------------------------------------------
With sales charge
Class A (inception
8/19/85) -4.97% -6.24% +0.85% +0.97% +2.50% N/A
- ------------------------------------------------------------------------------------
Class B (inception
3/20/95) -7.15% -7.04% +0.50% +0.82% +2.25% N/A
- ------------------------------------------------------------------------------------
Class C (inception
6/26/00) -3.29% -3.22% +1.76% +1.18% N/A +2.64%
- ------------------------------------------------------------------------------------
</Table>
On March 3, 2008, the maximum sales charge for Class A shares changed from 4.75%
to 3.00%. Class A share performance for each period of one year, three years,
five years, ten years and since inception reflects the maximum sales charge of
4.75%, which was in effect at the beginning of each of those periods. Class A
share performance for each six-month period reflects the maximum sales charge of
3.00%, which was in effect at the beginning of each of those 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.
*Not annualized.
**For classes with less than 10 years performance.
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8 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
(UNAUDITED)
Dear Shareholders,
RiverSource Short Duration U.S. Government Fund (the Fund) Class A shares
declined 2.30% (excluding sales charge) for the six months ended Nov. 30, 2008.
The Fund underperformed its benchmark, the Barclays Capital 1-3 Year Government
Index (Barclays Index) (formerly known as Lehman Brothers 1-3 Year Government
Index), which gained 3.62%. The Fund also underperformed the Lipper Short U.S.
Government Funds Index, representing the Fund's peer group, which advanced 0.93%
during the same time frame.
SIGNIFICANT PERFORMANCE FACTORS
U.S. economic and financial market conditions deteriorated dramatically during
the semiannual period. The Federal Reserve (the Fed) left interest rates
unchanged through the summer, as prior rate cuts were given a chance to work
their way into the system. During these months, oil prices increased
dramatically, resulting in elevated readings for headline inflation. In
September 2008, conditions changed for the worse. Asset write-downs led to a
loss of confidence in banks and brokers as well as in government agencies. This
led to the abrupt collapse of Lehman Brothers and intervention from the Treasury
Department to maintain the viability of mortgage lenders Fannie Mae and Freddie
Mac. Oil, gas and other commodity prices dropped substantially, but fears of
inflation gave way to fears of deflation. These events, among others, affected
the broad credit markets and led to a loss of confidence and a material
worsening in the real economy.
SECTOR DIVERSIFICATION (at Nov. 30, 2008; % of portfolio assets)
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<Table>
Asset-Backed 1.4%
- ------------------------------------------------
Commercial Mortgage-Backed 1.2%
- ------------------------------------------------
Mortgage-Backed(1) 51.5%
- ------------------------------------------------
U.S. Government Obligations & Agencies 43.2%
- ------------------------------------------------
Other(2) 2.7%
- ------------------------------------------------
</Table>
(1) Of the 51.5%, 4.8% is due to forward commitment mortgage-backed securities
activity. Short-term are held as collateral for these commitments.
(2) Cash & Cash Equivalents.
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RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
As a result of these conditions, the flight to quality that began in the prior
fiscal year intensified during this semiannual period, with investor risk
aversion remaining high. The Fed and the Treasury waged an aggressive campaign
to stabilize credit markets and stimulate lending. As part of this campaign, the
Fed cut the targeted federal funds rate by a total of 100 basis points (1.00%)
during the six-month period, bringing it to 1.00%.
For the semiannual period overall, interest rates declined across the Treasury
yield curve, reflecting the flight to quality. Non-Treasury sectors of the fixed
income market underperformed their Treasury counterparts, as investors shed
credit risk. Overall, high-quality issues dramatically outperformed low-quality
issues.
The primary contributor to the Fund's performance was its exposure to U.S.
agency subordinated debt. U.S. agency subordinated debt prices had become
distressed based on the view that the federal government would not include the
securities in programs to support the agencies. However, subordinated debt
payments were explicitly supported along with senior debt obligations when the
U.S. government intervened. Subordinated debt is debt that ranks below other
securities with regard to claims on assets or earnings, but, which typically
offers a higher rate of return than senior debt due to the increased inherent
risk. Subordinated debt of U.S. agencies is widely considered to be
comparatively less risky and of greater quality than that of banks or other
issuers.
QUALITY BREAKDOWN (at Nov. 30, 2008; % of portfolio assets excluding
cash equivalents and equities)
- ---------------------------------------------------------------------
<Table>
AAA bonds 96.9%
- -------------------------------------------------
AA bonds 0.5%
- -------------------------------------------------
A bonds 2.6%
- -------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating.
- --------------------------------------------------------------------------------
10 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
Detracting from the Fund's results was its exposure to mortgage-backed
securities, as non-Treasury sector of the fixed income market posted positive
returns but significantly underperformed Treasuries during the semiannual
period. Mortgage-backed securities with longer-dated maturities also suffered
from the fact that the yield curve steepened during the period, meaning that
yields moved lower more dramatically in the shorter segments than at the longer-
term end of the yield curve and thus shorter maturities outperformed longer
maturities. A portion of the mortgage-backed securities held by the Fund were
not issued by government agencies. These non-agency mortgage-backed securities
were hurt by a lack of liquidity and experienced more dramatic price
depreciation than those mortgage securities backed by the federal government.
Exposure to commercial mortgage-backed securities also detracted from the Fund's
results during the six-month period, as spreads, or the difference in yields
between these securities and Treasuries, widened. Finally, the Fund's position
in Treasury Inflation Protected Securities, or TIPS, hurt its performance. TIPS
underperformed nominal Treasury securities, or non-inflation protected Treasury
securities, as deflationary fears emerged in October and November.
CHANGES TO THE FUND'S PORTFOLIO
During the semiannual period, we reduced the Fund's exposure to non-agency
mortgage-backed securities. We then used the proceeds to increase the Fund's
position in U.S. agency subordinated debt, given what we consider to be
subordinated debt's characteristics as an attractive high quality investment. We
also believe that the effects of
Given this view, we intend to maintain our bias toward securities that we
believe to have been left with particularly attractive yield profiles due to
the recent drying up of market liquidity.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 11
MANAGER COMMENTARY (continued) -------------------------------------------------
government intervention on select U.S. agencies have yet to be fully realized.
This shift in allocation helped the Fund's performance for the semiannual period
overall. The Fund's portfolio turnover rate for the six-month period was 118%.*
OUR FUTURE STRATEGY
In evaluating prices in the fixed income market at the end of November, we found
that investors are generally pricing securities with the expectation of a
depression-like economy. We believe this scenario is unlikely for two major
reasons. First, American financial institutions have already taken over $600
billion in losses and write-downs. This compares to previous periods of credit
stress, most recently in Japan, in which banks delayed the realization of losses
only to prolong the ensuing drag on economic growth. Second, U.S. and foreign
governments have taken bold action to stabilize their banking systems and inject
capital into markets. These moves stand in stark contrast to the Great
Depression, when government action was oft-criticized as too little, too late.
In light of these factors, Treasury bonds appear overpriced, while we find
valuations in non-Treasury sectors as quite attractive.
Given this view, we intend to maintain our bias toward securities that we
believe to have been left with particularly attractive yield profiles due to the
recent drying up of market liquidity. These securities include both agency and
non-agency mortgage-backed securities, high quality commercial mortgage-backed
securities, TIPS and U.S. agency subordinated debt. We believe these securities
may offer significant yield benefits over the near term. We further believe that
when conditions eventually improve, many of the securities in the Fund could
experience significant price appreciation.
- --------------------------------------------------------------------------------
12 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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>
Jamie Jackson, CFA(R) Todd White
Portfolio Manager Portfolio Manager
</Table>
*A significant portion of the turnover was the result of rolling-maturity
mortgage securities, processing of prepayments and opportunistic changes we
made at the margin in response to valuations or market developments.
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 13
FUND EXPENSES EXAMPLE ----------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Nov. 30, 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.
- --------------------------------------------------------------------------------
14 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JUNE 1, 2008 NOV. 30, 2008 THE PERIOD(A) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 977.00 $4.39 .89%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.49 $4.48 .89%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 973.30 $8.12 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30 1.65%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 973.30 $8.12 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30 1.65%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 978.80 $2.52 .51%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.39 $2.57 .51%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 977.60 $3.75 .76%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.14 $3.83 .76%
- ------------------------------------------------------------------------------------------
Class W
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 974.50 $4.73 .96%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.14 $4.84 .96%
- ------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Nov. 30, 2008: -2.30%
for Class A, -2.67% for Class B, -2.67% for Class C, -2.12% for Class I,
-2.24% for Class R4 and -2.55% for Class W.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
NOV. 30, 2008 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (82.2%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (25.7%)
Federal Home Loan Bank
12-29-08 5.13% $24,390,000 $24,441,614
04-09-09 2.32 225,000 226,138
Federal Home Loan Mtge Corp
06-13-18 4.88 5,405,000 5,736,449
Federal Natl Mtge Assn
04-09-13 3.25 18,880,000 19,000,908
01-02-14 5.13 16,915,000 17,386,759
11-15-30 6.63 1,945,000 2,438,911
U.S. Treasury
06-30-10 2.88 5,730,000 5,910,850
10-31-10 1.50 57,750,000 58,336,509
12-15-10 4.38 10,550,000(i) 11,295,094
11-15-18 3.75 25,300,000 27,003,803
U.S. Treasury Inflation-Indexed Bond
01-15-14 2.00 17,769,221(j) 15,998,571
01-15-15 1.63 22,919,000(j) 20,085,473
------------
Total 207,861,079
- ----------------------------------------------------------------------
ASSET-BACKED (1.5%)
Capital Auto Receivables Asset Trust
Series 2006-SN1A Cl A4B
03-20-10 1.56 3,250,000(d,h) 3,204,317
Countrywide Asset-backed Ctfs
Series 2007-7 Cl 2A2
10-25-37 1.56 2,600,000(h) 2,036,939
Residential Asset Securities
Series 2007-KS3 Cl AI2
04-25-37 1.58 4,050,000(h) 3,555,310
Soundview Home Equity Loan Trust
Series 2006-EQ1 Cl A2
10-25-36 1.51 3,900,000(h) 3,177,283
------------
Total 11,973,849
- ----------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (1.2%)(f)
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 5,879,459 5,718,829
Federal Natl Mtge Assn #381990
10-01-09 7.11 4,059,446 4,077,332
------------
Total 9,796,161
- ----------------------------------------------------------------------
MORTGAGE-BACKED (53.8%)(f,k)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-1 Cl 3A21
03-25-37 6.18 1,782,292(g) 910,858
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 1.56 3,232,332(g) 707,095
American Home Mtge Investment Trust
Collateralized Mtge Obligation
Series 2007-1 Cl GA1C
05-25-47 1.59 4,168,407(g) 1,397,706
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00 3,236,559 1,565,559
Barclays Capital LLC Trust
Collateralized Mtge Obligation
Series 2007-AA4 Cl 11A1
06-25-47 6.20 1,288,492(g) 953,577
Bear Stearns Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-5 Cl 3A1
08-25-47 5.98 2,050,079(g) 1,175,883
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 1,407,266 1,167,355
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00% $5,506,983 $2,765,541
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-OA11 Cl A3B1
09-25-46 1.58 3,491,021(h) 2,083,813
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-22 Cl 2A16
09-25-37 6.50 4,480,708 2,006,519
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
11-25-37 6.50 4,486,403 2,143,659
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 1.75 5,484,812(h) 1,381,370
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 1.90 3,706,134(h) 865,782
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-HYB8 Cl 4A1
12-20-35 5.56 3,069,596(g) 1,404,402
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 4,093,993(d) 3,357,259
Federal Home Loan Mtge Corp
12-01-38 6.00 2,000,000(e) 2,043,124
12-01-38 6.50 12,000,000(e) 12,344,999
Federal Home Loan Mtge Corp #1G0847
07-01-35 4.71 7,007,898(g) 7,022,871
Federal Home Loan Mtge Corp #1G2264
10-01-37 6.01 5,943,966(g) 6,066,472
Federal Home Loan Mtge Corp #1G2598
01-01-37 6.10 2,234,343(g) 2,288,004
Federal Home Loan Mtge Corp #1J0614
09-01-37 5.70 3,110,668(g) 3,145,227
Federal Home Loan Mtge Corp #783049
03-01-35 4.85 5,637,612(g) 5,596,536
Federal Home Loan Mtge Corp #A18107
01-01-34 5.50 2,972,429 3,020,698
Federal Home Loan Mtge Corp #C00351
07-01-24 8.00 225,992 239,170
Federal Home Loan Mtge Corp #C00385
01-01-25 9.00 372,290 409,359
Federal Home Loan Mtge Corp #C80329
08-01-25 8.00 65,120 69,022
Federal Home Loan Mtge Corp #E00398
10-01-10 7.00 199,635 204,515
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 2,902,216 3,046,587
Federal Home Loan Mtge Corp #E90650
07-01-12 5.50 102,663 105,330
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 2,474,442 2,521,832
Federal Home Loan Mtge Corp #G00363
06-01-25 8.00 291,984 309,477
Federal Home Loan Mtge Corp #G00501
05-01-26 9.00 494,258 543,982
Federal Home Loan Mtge Corp #G10669
03-01-12 7.50 1,058,163 1,107,991
Federal Home Loan Mtge Corp #G11243
04-01-17 6.50 11,195,847 11,585,737
Federal Home Loan Mtge Corp #G12100
11-01-13 5.00 2,613,148 2,645,386
Federal Home Loan Mtge Corp #M30074
09-01-09 6.50 27,440 27,780
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 11 Cl B
01-01-20 15.05 6,687(b) 1,622
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 237 Cl IO
05-15-36 14.70 1,060,392(b) 171,982
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2471 Cl SI
03-15-32 44.63% $1,268,415(b) $148,654
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2783 Cl MI
03-15-25 78.62 2,222,458(b) 39,513
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 2617 Cl HD
06-15-16 7.00 5,515,532 5,781,864
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Series 3346 Cl FA
02-15-19 1.65 8,677,977(h) 8,305,051
Federal Natl Mtge Assn
12-01-38 5.00 2,500,000(e) 2,516,405
12-01-38 5.50 8,000,000(e) 8,132,496
12-01-38 6.00 10,000,000(e) 10,221,880
Federal Natl Mtge Assn #125032
11-01-21 8.00 122,323 129,456
Federal Natl Mtge Assn #190129
11-01-23 6.00 890,053 916,033
Federal Natl Mtge Assn #190353
08-01-34 5.00 6,382,017 6,435,011
Federal Natl Mtge Assn #190785
05-01-09 7.50 32,237 32,668
Federal Natl Mtge Assn #190988
06-01-24 9.00 195,601 211,378
Federal Natl Mtge Assn #254384
06-01-17 7.00 279,842(i) 294,129
Federal Natl Mtge Assn #254454
08-01-17 7.00 496,026 521,351
Federal Natl Mtge Assn #254723
05-01-23 5.50 8,198,373 8,367,873
Federal Natl Mtge Assn #254748
04-01-13 5.50 4,473,645 4,588,283
Federal Natl Mtge Assn #254757
05-01-13 5.00 6,057,250 6,110,765
Federal Natl Mtge Assn #254774
05-01-13 5.50 1,389,294 1,416,125
Federal Natl Mtge Assn #255501
09-01-14 6.00 560,227 586,506
Federal Natl Mtge Assn #303885
05-01-26 7.50 427,007 451,048
Federal Natl Mtge Assn #313007
07-01-11 7.50 129,461 133,613
Federal Natl Mtge Assn #336512
02-01-26 6.00 62,122 64,005
Federal Natl Mtge Assn #357485
02-01-34 5.50 12,314,086 12,544,836
Federal Natl Mtge Assn #407327
01-01-14 5.50 355,442 364,978
Federal Natl Mtge Assn #456374
12-01-13 5.50 604,883 621,112
Federal Natl Mtge Assn #508402
08-01-14 6.50 242,175(i) 249,358
Federal Natl Mtge Assn #545818
07-01-17 6.00 11,673,144 11,978,221
Federal Natl Mtge Assn #545864
08-01-17 5.50 9,747,354 9,989,792
Federal Natl Mtge Assn #545910
08-01-17 6.00 1,804,974 1,852,049
Federal Natl Mtge Assn #555063
11-01-17 5.50 6,915,094 7,091,373
Federal Natl Mtge Assn #555367
03-01-33 6.00 8,978,406 9,205,572
Federal Natl Mtge Assn #579485
04-01-31 6.50 2,151,518(i) 2,235,226
Federal Natl Mtge Assn #593829
12-01-28 7.00 1,463,747 1,536,028
Federal Natl Mtge Assn #601416
11-01-31 6.50 757,578 787,062
Federal Natl Mtge Assn #630993
09-01-31 7.50 2,104,990 2,220,562
Federal Natl Mtge Assn #648040
06-01-32 6.50 2,067,362 2,138,773
Federal Natl Mtge Assn #648349
06-01-17 6.00 6,186,610 6,347,947
Federal Natl Mtge Assn #651284
07-01-17 6.00 1,212,490 1,244,295
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
18 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #662866
11-01-17 6.00% $1,062,928 $1,094,739
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,174,133 1,214,691
Federal Natl Mtge Assn #670782
11-01-12 5.00 237,174 238,999
Federal Natl Mtge Assn #670830
12-01-12 5.00 330,824 338,122
Federal Natl Mtge Assn #671415
01-01-10 5.00 351,675 351,902
Federal Natl Mtge Assn #678940
02-01-18 5.50 1,856,424 1,904,564
Federal Natl Mtge Assn #686227
02-01-18 5.50 2,528,653 2,594,469
Federal Natl Mtge Assn #696837
04-01-18 5.50 2,739,943 2,810,300
Federal Natl Mtge Assn #704610
06-01-33 5.50 9,936,371(i) 10,122,567
Federal Natl Mtge Assn #712602
06-01-13 5.00 714,348 721,090
Federal Natl Mtge Assn #722325
07-01-33 4.96 4,476,063(g) 4,500,854
Federal Natl Mtge Assn #725232
03-01-34 5.00 9,441,311(i) 9,525,608
Federal Natl Mtge Assn #725425
04-01-34 5.50 8,731,157 8,904,273
Federal Natl Mtge Assn #725431
08-01-15 5.50 6,492,835 6,667,040
Federal Natl Mtge Assn #725773
09-01-34 5.50 7,400,391 7,534,440
Federal Natl Mtge Assn #730632
08-01-33 4.02 1,532,183(g) 1,510,787
Federal Natl Mtge Assn #735212
12-01-34 5.00 5,669,459 5,716,536
Federal Natl Mtge Assn #735578
06-01-35 5.00 4,331,665 4,364,926
Federal Natl Mtge Assn #739243
09-01-33 6.00 2,706,417 2,782,363
Federal Natl Mtge Assn #739331
09-01-33 6.00 1,409,724 1,444,511
Federal Natl Mtge Assn #743524
11-01-33 5.00 2,841,728 2,867,101
Federal Natl Mtge Assn #745275
02-01-36 5.00 995,350 1,002,993
Federal Natl Mtge Assn #753508
11-01-33 5.00 2,866,414 2,892,007
Federal Natl Mtge Assn #791447
10-01-34 6.00 4,334,878(i) 4,439,138
Federal Natl Mtge Assn #797046
07-01-34 5.50 2,692,051 2,740,815
Federal Natl Mtge Assn #799769
11-01-34 5.05 3,566,443(g) 3,569,581
Federal Natl Mtge Assn #801344
10-01-34 5.03 3,843,481(g) 3,851,667
Federal Natl Mtge Assn #815463
02-01-35 5.50 1,750,823 1,782,537
Federal Natl Mtge Assn #832641
09-01-35 6.00 6,022,126 6,161,321
Federal Natl Mtge Assn #849082
01-01-36 5.82 2,559,620(g) 2,583,889
Federal Natl Mtge Assn #849170
01-01-36 5.95 3,017,448(g) 3,052,241
Federal Natl Mtge Assn #878661
02-01-36 5.50 7,268,229 7,348,861
Federal Natl Mtge Assn #883267
07-01-36 6.50 4,209,791 4,349,120
Federal Natl Mtge Assn #887403
07-01-36 7.00 2,515,995 2,635,569
Federal Natl Mtge Assn #888989
06-01-37 6.05 5,696,176(g) 5,851,509
Federal Natl Mtge Assn #902818
11-01-36 5.91 2,014,549(g) 2,044,223
Federal Natl Mtge Assn #919341
05-01-37 6.50 3,310,688 3,406,756
Federal Natl Mtge Assn #928771
10-01-37 8.00 5,776,833(i) 6,083,937
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 163 Cl 2
07-25-22 34.02 493,783(b) 72,472
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2002-18 Cl SE
02-25-32 46.58% $2,642,309(b) $287,233
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-26 Cl MI
03-25-23 13.70 1,529,182(b) 209,004
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 25.88 3,553,978(b) 408,092
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 9.86 1,835,688(b) 225,112
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-81 Cl LI
11-25-13 59.80 1,251,315(b) 11,045
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 36 Cl 2
08-01-18 15.66 3,987(b) 876
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 367 Cl 2
01-01-36 12.99 2,652,947(b) 434,371
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 379 Cl 2
05-01-37 13.46 5,139,714(b) 814,725
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 70 Cl 2
01-15-20 27.28 177,082(b) 32,598
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Principal Only
Series G-15 Cl A
06-25-21 2.49 23,502(c) 21,765
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2002-52 Cl FG
09-25-32 1.90 7,459,317(h) 7,323,500
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 1,741,536 1,859,467
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-94 Cl QB
07-25-23 5.50 1,451,559 1,450,382
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-W11 Cl A1
06-25-33 6.29 107,620(g) 105,377
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2004-60 Cl PA
04-25-34 5.50 3,031,541 3,097,939
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-60 Cl JF
10-25-35 1.83 5,258,851(h) 5,092,865
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-90 Cl FE
09-25-36 1.85 6,697,825(h) 6,554,519
Govt Natl Mtge Assn
12-01-38 5.50 5,000,000(e) 5,068,750
Govt Natl Mtge Assn #615740
08-15-13 6.00 618,862 642,152
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Govt Natl Mtge Assn #781507
09-15-14 6.00% $2,980,624 $3,070,300
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-62 Cl IC
03-20-29 76.25 970,053(b) 13,505
Govt Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-32 Cl A
01-16-30 5.08 8,548,708 8,626,292
Harborview Mtge Loan Trust
Collateralized Mtge Obligation
Series 2004-4 Cl 3A
06-19-34 3.97 390,964(g) 176,121
Lehman XS Trust
Series 2006-16N Cl A1B
11-25-46 1.52 1,998,462(h) 1,800,303
Merrill Lynch Alternative Note Asset
Collateralized Mtge Obligation
Series 2007-OAR1 Cl A1
02-25-37 1.57 5,139,861(h) 1,948,002
Morgan Stanley Mtge Loan Trust
Series 2006-13AX Cl A1
10-25-36 1.49 2,770,542(h) 2,529,017
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR3 Cl A1A
02-25-46 3.48 1,800,546(g) 758,151
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 5,316,554 4,719,754
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-14 Cl 2A1
12-25-35 5.50 2,849,488 2,019,909
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 3,819,619 3,500,922
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR6 Cl 5A1
03-25-36 5.11 3,408,850(g) 2,288,186
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-11 Cl A68
08-25-37 6.00 4,573,963 2,275,918
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-15 Cl A1
11-25-37 6.00 3,136,295 1,956,141
------------
Total 434,616,183
- ----------------------------------------------------------------------
TOTAL BONDS
(Cost: $699,538,131) $664,247,272
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (2.9%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.69% 23,204,156(l) $23,204,156
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $23,204,156) $23,204,156
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHORT-TERM SECURITIES (19.5%)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUER YIELD MATURITY VALUE(a)
U.S. GOVERNMENT AGENCIES
Federal Home Loan Bank Disc Nts
12-01-08 0.10% $23,100,000 $23,099,808
12-04-08 0.22 45,000,000 44,998,374
12-05-08 0.35 16,000,000 15,998,911
12-09-08 0.35 21,300,000 21,297,722
12-12-08 0.18 12,000,000 11,999,160
12-15-08 0.20 24,900,000 24,897,649
12-23-08 0.20 15,000,000 14,997,917
- -------------------------------------------------------------------------------------
TOTAL SHORT-TERM SECURITIES
(Cost: $157,290,520) $157,289,541
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $880,032,807)(m) $844,740,969
=====================================================================================
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 21
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT NOV. 30, 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 $3,824,531 March 2009 $70,963
U.S. Treasury Note, 2-
year 696 150,901,500 April 2009 1,150,951
U.S. Treasury Note, 5-
year (806) (94,069,017) April 2009 (1,151,720)
U.S. Treasury Note, 10-
year (585) (70,766,719) March 2009 (1,960,133)
- ------------------------------------------------------------------------------------
Total $(1,889,939)
- ------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. The principal
amount shown is the notional amount of the underlying mortgages. The
interest rate disclosed represents yield based upon the estimated timing
and amount of future cash flows at Nov. 30, 2008.
(c) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the
underlying mortgage assets. A slow (rapid) rate of principal repayments may
have an adverse (positive) effect on yield to maturity. Interest rate
disclosed represents yield based upon the estimated timing of future cash
flows at Nov. 30, 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 Nov. 30,
2008, the value of these securities amounted to $6,561,576 or 0.8% of net
assets.
(e) At Nov. 30, 2008, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$39,811,910. See Note 1 to the financial statements.
- --------------------------------------------------------------------------------
22 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(f) Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real
property, and include single- and multi-class pass-through securities and
collateralized mortgage obligations. These securities may be issued or
guaranteed by U.S. government agencies or instrumentalities, or by private
issuers, generally originators and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. The maturity dates shown represent
the original maturity of the underlying obligation. Actual maturity may
vary based upon prepayment activity on these obligations. Unless otherwise
noted, the coupon rates presented are fixed rates.
(g) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Nov. 30, 2008.
(h) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Nov. 30,
2008.
(i) At Nov. 30, 2008, investments in securities included securities valued at
$3,974,282 that were partially pledged as collateral to cover initial
margin deposits on open interest rate futures contracts.
(j) 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.
(k) Represents comparable securities held to satisfy future delivery
requirements of the following open forward sale commitments at Nov. 30,
2008:
<Table>
<Caption>
PRINCIPAL SETTLEMENT PROCEEDS
SECURITY AMOUNT DATE RECEIVABLE VALUE
--------------------------------------------------------------------------
Federal Natl Mtge Assn
12-01-23 5.50% $9,275,000 12-16-08 $9,347,823 $9,434,419
</Table>
(l) Affiliated Money Market Fund -- See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at Nov. 30, 2008.
(m) At Nov. 30, 2008, the cost of securities for federal income tax purposes
was approximately $880,033,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $10,781,000
Unrealized depreciation (46,073,000)
-----------------------------------------------------------
Net unrealized depreciation $(35,292,000)
-----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 23
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to
implement more uniform reporting relating to the fair valuation of securities
for financial statement purposes. Mutual funds are required to implement the
requirements of this standard for fiscal years beginning after Nov. 15, 2007.
While uniformity of presentation is the objective of the standard, industry
implementation has just begun and it is likely that there will be a range of
practices utilized and it will be some period of time before industry practices
become more uniform. For this reason care should be exercised in interpreting
this information and/or using it for comparison with other mutual funds.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
- Level 1 -- quoted prices in active markets for identical securities
- Level 2 -- other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit risks,
etc.)
- Level 3 -- significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
Observable inputs are those based on market data obtained from sources
independent of the fund, and unobservable inputs reflect the fund's own
assumptions based on the best information available. The input levels are not
necessarily an indication of the risk or liquidity associated with investments
at that level.
The following table is a summary of the inputs used to value the Fund's
investments as of Nov. 30, 2008:
<Table>
<Caption>
FAIR VALUE AT NOV. 30, 2008
----------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- ----------------------------------------------------------------------------------
Investments in
securities $283,039,953 $535,498,045 $26,202,971 $844,740,969
Other financial
instruments* (1,889,939) -- -- (1,889,939)
- ----------------------------------------------------------------------------------
Total $281,150,014 $535,498,045 $26,202,971 $842,851,030
- ----------------------------------------------------------------------------------
</Table>
* Other financial instruments are derivative instruments, such as futures,
which are valued at the unrealized appreciation/depreciation on the
instrument.
The following table is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value.
<Table>
<Caption>
INVESTMENTS IN
SECURITIES
- ---------------------------------------------------------------
Balance as of May 31, 2008 $16,535,423
Accrued discounts/premiums 67,191
Realized gain (loss) 57,803
Change in unrealized appreciation
(depreciation) (18,039,725)
Net purchases (sales) (4,057,608)
Transfers in and/or out of Level 3 31,639,887
- ---------------------------------------------------------------
Balance as of Nov. 30, 2008 $26,202,971
- ---------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
24 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 25
STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------
NOV. 30, 2008 (UNAUDITED)
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $856,828,651) $ 821,536,813
Affiliated money market fund (identified cost $23,204,156) 23,204,156
- ---------------------------------------------------------------------------------
Total investments in securities (identified cost $880,032,807) 844,740,969
Capital shares receivable 1,158,621
Dividends and accrued interest receivable 3,717,190
Receivable for investment securities sold 9,632,333
- ---------------------------------------------------------------------------------
Total assets 859,249,113
- ---------------------------------------------------------------------------------
LIABILITIES
Forward sale commitments, at value (proceeds receivable
$9,347,823) 9,434,419
Dividends payable to shareholders 211,503
Capital shares payable 829,806
Payable for securities purchased on a forward-commitment basis 39,811,910
Variation margin payable on futures contracts 271,205
Accrued investment management services fees 21,210
Accrued distribution fees 151,076
Accrued transfer agency fees 6,779
Accrued administrative services fees 3,009
Accrued plan administration services fees 901
Other accrued expenses 536,061
- ---------------------------------------------------------------------------------
Total liabilities 51,277,879
- ---------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $ 807,971,234
- ---------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 1,776,823
Additional paid-in capital 1,040,002,565
Excess of distributions over net investment income (405,936)
Accumulated net realized gain (loss) (196,133,845)
Unrealized appreciation (depreciation) on investments (37,268,373)
- ---------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
capital stock $ 807,971,234
- ---------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $586,444,617 128,981,199 $4.55(1)
Class B $129,748,319 28,536,267 $4.55
Class C $ 11,782,382 2,591,394 $4.55
Class I $ 75,499,402 16,585,126 $4.55
Class R4 $ 4,491,730 987,307 $4.55
Class W $ 4,784 1,053 $4.54
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $4.69. 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.
- --------------------------------------------------------------------------------
26 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
STATEMENT OF OPERATIONS -------------------------------------------------------
SIX MONTHS ENDED NOV. 30, 2008 (UNAUDITED)
<Table>
<Caption>
INVESTMENT INCOME
Income:
Interest $ 17,037,461
Income distributions from affiliated money market fund 23,236
Fee income from securities lending 18,062
- -------------------------------------------------------------------------------
Total income 17,078,759
- -------------------------------------------------------------------------------
Expenses:
Investment management services fees 1,878,923
Distribution fees
Class A 693,019
Class B 677,700
Class C 50,390
Class W 6
Transfer agency fees
Class A 485,661
Class B 126,244
Class C 9,135
Class R4 1,113
Class W 5
Administrative services fees 266,869
Plan administration services fees -- Class R4 5,565
Compensation of board members 11,206
Custodian fees 44,285
Printing and postage 75,730
Registration fees 42,884
Professional fees 26,084
Other 14,422
- -------------------------------------------------------------------------------
Total expenses 4,409,241
Expenses waived/reimbursed by the Investment Manager and its
affiliates (524,130)
Earnings and bank fee credits on cash balances (7,837)
- -------------------------------------------------------------------------------
Total net expenses 3,877,274
- -------------------------------------------------------------------------------
Investment income (loss) -- net 13,201,485
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (182,563)
Futures contracts (3,083,493)
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments (3,266,056)
Net change in unrealized appreciation (depreciation) on
investments (29,529,063)
- -------------------------------------------------------------------------------
Net gain (loss) on investments (32,795,119)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(19,593,634)
- -------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 27
STATEMENTS OF CHANGES IN NET ASSETS -------------------------------------------
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2008 MAY 31, 2008
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 13,201,485 $ 29,999,961
Net realized gain (loss) on investments (3,266,056) 1,099,985
Net change in unrealized appreciation (depreciation) on
investments (29,529,063) (800,569)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (19,593,634) 30,299,377
- --------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (9,784,923) (21,333,414)
Class B (1,872,486) (5,699,109)
Class C (139,514) (312,941)
Class I (1,533,283) (2,868,438)
Class R4 (81,464) (183,760)
Class W (85) (196)
- --------------------------------------------------------------------------------------------------
Total distributions (13,411,755) (30,397,858)
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 182,560,078 206,496,511
Class B shares 23,689,161 42,734,598
Class C shares 4,097,991 2,621,382
Class I shares 10,485,286 69,048,377
Class R4 shares 1,153,076 2,801,130
Reinvestment of distributions at net asset value
Class A shares 8,862,362 19,605,781
Class B shares 1,752,952 5,406,615
Class C shares 127,929 299,079
Class I shares 1,530,476 2,844,139
Class R4 shares 81,164 185,296
Payments for redemptions
Class A shares (120,593,889) (200,741,788)
Class B shares (48,699,121) (105,920,795)
Class C shares (1,632,259) (3,568,542)
Class I shares (25,970,322) (33,540,963)
Class R4 shares (1,308,523) (2,086,457)
- --------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions 36,136,361 6,184,363
- --------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,130,972 6,085,882
Net assets at beginning of period 804,840,262 798,754,380
- --------------------------------------------------------------------------------------------------
Net assets at end of period $ 807,971,234 $ 804,840,262
- --------------------------------------------------------------------------------------------------
Excess of distributions over net investment income $ (405,936) $ (195,666)
- --------------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
28 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08(b) .19(b) .19 .15 .12
Net gains (losses) (both realized and
unrealized) (.19) .01 .05 (.10) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.11) .20 .24 .05 .09
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.19) (.19) (.16) (.12)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $586 $539 $514 $641 $894
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.03%(e) 1.04% 1.03% 1.06% 1.01%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .89%(e) .89% .89% .89% .93%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.47%(e) 3.93% 3.99% 3.27% 2.49%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(h) 118% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (2.30%)(j) 4.27% 5.12% 1.00% 1.92%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the six months ended Nov. 30,
2008 were less than 0.01% of average net assets. The ratio of net expenses
after expense waiver/reimbursement and after reduction for earnings and bank
fee credits was 0.88% for the year ended May 31, 2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 42% for the six months
ended Nov. 30, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 29
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06(b) .15(b) .15 .12 .08
Net gains (losses) (both realized and
unrealized) (.19) .01 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.13) .16 .20 .01 .05
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) (.15) (.15) (.12) (.08)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $130 $159 $216 $338 $588
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.79%(e) 1.80% 1.79% 1.82% 1.76%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.65%(e) 1.65% 1.64% 1.64% 1.68%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.72%(e) 3.18% 3.23% 2.50% 1.73%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(h) 118% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (2.67%)(j) 3.48% 4.34% .26% 1.16%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the six months ended Nov. 30,
2008 were less than 0.01% of average net assets. The ratio of net expenses
after expense waiver/reimbursement and after reduction for earnings and bank
fee credits was 1.64% for the year ended May 31, 2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 42% for the six months
ended Nov. 30, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
30 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06(b) .15(b) .15 .12 .08
Net gains (losses) (both realized and
unrealized) (.19) .02 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.13) .17 .20 .01 .05
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) (.16) (.15) (.12) (.08)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $12 $10 $10 $15 $24
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.79%(e) 1.80% 1.80% 1.83% 1.77%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.65%(e) 1.65% 1.64% 1.64% 1.68%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.70%(e) 3.18% 3.24% 2.51% 1.73%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(h) 118% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (2.67%)(j) 3.49% 4.34% .26% 1.16%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the six months ended Nov. 30,
2008 were less than 0.01% of average net assets. The ratio of net expenses
after expense waiver/reimbursement and after reduction for earnings and bank
fee credits was 1.64% for the year ended May 31, 2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 42% for the six months
ended Nov. 30, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 31
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.74 $4.69 $4.79 $4.83
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09(b) .20(b) .20 .17 .14
Net gains (losses) (both realized and
unrealized) (.19) .01 .05 (.10) (.04)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.10) .21 .25 .07 .10
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.21) (.20) (.17) (.14)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.55 $4.74 $4.74 $4.69 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $75 $93 $55 $62 $31
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .60%(e) .60% .59% .62% .57%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .51%(e) .51% .54% .58% .57%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.87%(e) 4.23% 4.37% 3.66% 2.98%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(h) 118% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return (2.12%)(i) 4.45% 5.50% 1.56% 2.06%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the six months ended Nov. 30,
2008 were less than 0.01% of average net assets. The ratio of net expenses
after expense waiver/reimbursement and after reduction for earnings and bank
fee credits was 0.50% for the year ended May 31, 2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 42% for the six months
ended Nov. 30, 2008.
(i) Not annualized.
(j) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
32 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $4.74 $4.73 $4.68 $4.79 $4.82
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08(b) .19(b) .19 .16 .13
Net gains (losses) (both realized and
unrealized) (.19) .02 .05 (.11) (.03)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.11) .21 .24 .05 .10
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.20) (.19) (.16) (.13)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.55 $4.74 $4.73 $4.68 $4.79
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $4 $5 $4 $19 $100
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .90%(e) .90% .86% .88% .84%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .76%(e) .76% .72% .72% .76%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.61%(e) 4.06% 4.09% 3.27% 2.66%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(h) 118% 209% 168% 194% 169%
- --------------------------------------------------------------------------------------------------------------
Total return (2.24%)(i) 4.41% 5.31% 1.19% 2.10%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits for the six months ended Nov. 30,
2008 were less than 0.01% of average net assets. The ratio of net expenses
after expense waiver/reimbursement and after reduction for earnings and bank
fee credits was 0.75% for the year ended May 31, 2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 42% for the six months
ended Nov. 30, 2008.
(i) Not annualized.
(j) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 33
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS W
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(k) 2008 2007(b)
Net asset value, beginning of period $4.74 $4.73 $4.75
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08(c) .18(c) .08
Net gains (losses) (both realized and
unrealized) (.20) .02 (.02)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.12) .20 .06
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.19) (.08)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.54 $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) 1.05%(f) 1.06% 1.00%(f)
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(e),(g),(h) .96%(f) .95% .95%(f)
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.42%(f) 3.87% 4.02%(f)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(i) 118% 209% 168%
- --------------------------------------------------------------------------------------------------------------
Total return (2.55%)(j) 4.21% 1.42%(j)
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from Dec. 1, 2006 (inception date) to May 31, 2007.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the six months ended Nov. 30, 2008 and for the year ended May 31,
2008.
(i) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 42% for the six months
ended Nov. 30, 2008.
(j) Not annualized.
(k) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
34 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
(UNAUDITED AS TO NOV. 30, 2008)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource Short Duration U.S. Government Fund (the Fund) is a series of
RiverSource Government Income Series, Inc. and is registered under the
Investment Company Act of 1940 (as amended) as a diversified, open-end
management investment company. RiverSource Government Income Series, Inc. has 10
billion authorized shares of capital stock that can be allocated among the
separate series as designated by the Board of Directors (the Board). The Fund
invests in direct obligations of the U.S. government, such as Treasury bonds,
bills and notes, and of its agencies and instrumentalities.
The Fund offers Class A, Class B, Class C, Class I, Class R4 and Class W shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership. However, Class B shares are closed to new investors and new
purchases.
- - Class C shares may be subject to a CDSC.
- - Class I and Class R4 shares are sold without a front-end sales charge or CDSC
and are offered to qualifying institutional investors.
- - Class W shares are sold without a front-end sales charge or CDSC and are
offered through qualifying discretionary accounts.
At Nov. 30, 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,
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 35
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
Effective June 1, 2008, the Fund adopted Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. There was no impact to the
Fund's net assets or results of operations upon adoption. The fair valuation
measurements disclosure can be found following the Notes to Portfolio of
Investments.
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
When market quotes are not readily available, the pricing service, in
determining fair values of debt securities, takes into consideration such
factors as current quotations by broker/dealers, coupon, maturity, quality, type
of issue, trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. The procedures adopted by the Board
generally contemplate the use of fair valuation in the event that price
quotations or valuations are not readily available, price quotations or
valuations from other sources are not reflective of market value and thus deemed
unreliable, or a significant event has occurred in relation to a security or
class of securities that is not reflected in price quotations or valuations from
other sources. A fair value price is a good faith estimate of the value of a
security at a given point in time.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost, which
approximates fair value.
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-
- --------------------------------------------------------------------------------
36 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
commitments. At Nov. 30, 2008, the Fund has outstanding when-issued securities
of $39,811,910.
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 (OTC options) where
completing the obligation depends upon the credit standing of the other party.
Cash collateral may be collected by the Fund to secure certain OTC 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. Option
contracts, including OTC option contracts, with no readily available market
value are valued using quotations obtained from independent brokers as of the
close of the New York Stock Exchange. 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
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 37
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
the amount of premium received or paid. At Nov. 30, 2008, and for the six months
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 and options on futures are valued daily based upon the last sale price
at the close of the market on the principal exchange on which they are traded.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
FORWARD SALE COMMITMENTS
The Fund may enter into forward sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of forward sale commitments are not received until the
contractual settlement date. During the time a forward sale commitment is
outstanding, equivalent deliverable securities, or an offsetting forward
purchase commitment deliverable on or before the sale commitment date, are used
to satisfy the commitment.
Unsettled forward sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. Forward sale
commitments outstanding at period end are listed in the Notes to Portfolio of
Investments.
GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
- --------------------------------------------------------------------------------
38 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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.
Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes," clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB Statement 109,
"Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. 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
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Fund.
RECENT ACCOUNTING PRONOUNCEMENT
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 periods beginning after Nov. 15, 2008. As of
Nov. 30, 2008,
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 39
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
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.
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 0.25% annually as the Fund's assets increase. The management fee for the six
months ended Nov. 30, 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), parent company of the Investment Manager, a fee for
administration and accounting services at a percentage of the Fund's average
daily net assets that declines from 0.07% to 0.04% annually as the Fund's assets
increase. The fee for the six months ended Nov. 30, 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 six months ended Nov.
30, 2008, other expenses paid to this company were $773.
COMPENSATION OF BOARD MEMBERS
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
- --------------------------------------------------------------------------------
40 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
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.
PLAN ADMINISTRATION SERVICES FEES
Under a Plan Administration Services Agreement with the Transfer Agent, the Fund
pays an annual fee at a rate of 0.25% of the Fund's average daily net assets
attributable to Class R4 shares for the provision of various administrative,
recordkeeping, communication and educational services.
DISTRIBUTION FEES
The Fund has agreements with RiverSource Distributors, Inc. and RiverSource Fund
Distributors, Inc. (collectively, the Distributor) for distribution and
shareholder services. Under a Plan and Agreement of Distribution pursuant to
Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's
average daily net assets attributable to Class A and Class W shares and a fee at
an annual rate of up to 1.00% of the Fund's average daily net assets
attributable to Class B and Class C shares. For Class B and Class C shares, up
to 0.75% of the fee is reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed expense") was approximately $4,413,000 and $93,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of Oct. 31, 2008, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 41
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$227,688 for Class A, $57,443 for Class B and $2,956 for Class C for the six
months ended Nov. 30, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the six months ended Nov. 30, 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............................................. 0.96
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A.......................................... $125,291
Class B.......................................... 31,366
Class C.......................................... 2,271
Class R4......................................... 1,113
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees at the class level were as follows:
<Table>
Class R4............................................ $41
</Table>
The management fees waived/reimbursed at the Fund level were $364,048.
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.
- --------------------------------------------------------------------------------
42 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
EARNINGS AND BANK FEE CREDITS
During the six months ended Nov. 30, 2008, the Fund's transfer agency fees were
reduced by $7,837 as a result of bank fee credits from overnight cash balances.
CUSTODIAN FEES
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, but including mortgage dollar rolls) aggregated $815,780,340 and
$779,795,527, respectively, for the six months ended Nov. 30, 2008. Realized
gains and losses are determined on an identified cost basis.
Income from securities lending amounted to $18,062 for the six months ended Nov.
30, 2008. Expenses paid to the Investment Manager as securities lending agent
were $2,082 for the six months ended Nov. 30, 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. At Nov. 30, 2008, the Fund had no
securities out on loan.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 43
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED NOV. 30, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ---------------------------------------------------------------------------------
Class A 39,190,190 1,910,155 (25,947,081) 15,153,264
Class B 5,093,131 377,456 (10,396,940) (4,926,353)
Class C 883,133 27,573 (351,175) 559,531
Class I 2,239,651 328,995 (5,524,202) (2,955,556)
Class R4 247,071 17,462 (280,491) (15,958)
- ---------------------------------------------------------------------------------
</Table>
<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>
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 $230,939,099 and $220,636,917, respectively, for the six
months ended Nov. 30, 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 Nov. 30, 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
led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund
may borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility became effective on
- --------------------------------------------------------------------------------
44 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
Oct. 16, 2008, 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 $475
million. The borrowers shall have the right, upon written notice to the
Administrative Agent to request an increase of up to $175 million in the
aggregate amount of the credit facility from new or existing lenders, provided
that the aggregate amount of the credit facility shall at no time exceed $650
million. Participation in such increase by any existing lender shall be at such
lender's sole discretion. Interest is charged to each Fund based on its
borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing
under the credit facility matures no later than 60 days after the date of
borrowing. The Fund also pays a commitment fee equal to its pro rata share of
the amount of the credit facility at a rate of 0.06% per annum, in addition to
an upfront fee equal to its pro rata share of 0.02% of the amount of the credit
facility. The Fund had no borrowings during the six months ended Nov. 30, 2008
Under the prior credit facility which was effective until Oct. 15, 2008, the
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. whereby the Fund was permitted to borrow for
the temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The credit facility agreement, which was a collective
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permitted collective borrowings up to $500 million. Interest was
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matured no later
than 60 days after the date of borrowing. The Fund also paid a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum.
7. 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.
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 45
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendants' motion to dismiss the
complaint, the Court dismissed one of plaintiffs' four claims and granted
plaintiffs limited discovery. Defendants moved for summary judgment in April
2007. Summary judgment was 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.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003,
Seligman conducted an extensive internal review concerning mutual fund trading
practices. Seligman's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies managed by Seligman (the Seligman Funds);
- --------------------------------------------------------------------------------
46 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
this arrangement was in the process of being closed down by Seligman before
September 2003. Seligman identified three other arrangements that permitted
frequent trading, all of which had been terminated by September 2002. In January
2004, Seligman, on a voluntary basis, publicly disclosed these four arrangements
to its clients and to shareholders of the Seligman Funds. Seligman also provided
information concerning mutual fund trading practices to the SEC and the Office
of the Attorney General of the State of New York (NYAG). In September 2005, the
New York staff of the SEC indicated that it was considering recommending to the
Commissioners of the SEC the instituting of a formal action against Seligman and
the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to
frequent trading in the Seligman Funds. Seligman responded to the staff in
October 2005 that it believed that any action would be both inappropriate and
unnecessary, especially in light of the fact that Seligman had previously
resolved the underlying issue with the Independent Directors of the Seligman
Funds and made recompense to the affected Seligman Funds.
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer
agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman
Parties), alleging, in substance, that, in addition to the four arrangements
noted above, the Seligman Parties permitted other persons to engage in frequent
trading and, as a result, the prospectus disclosure used by the registered
investment companies managed by Seligman is and has been misleading. The NYAG
included other related claims and also claimed that the fees charged by Seligman
to the Seligman Funds were excessive. The NYAG is seeking damages of at least
$80 million and restitution, disgorgement, penalties and costs and injunctive
relief. The Seligman Parties answered the complaint in December 2006 and believe
that the claims are without merit. Any resolution of these matters may include
the relief noted above or other sanctions or changes in procedures. Any damages
would be paid by Seligman and not by the Seligman Funds. If the NYAG obtains
injunctive relief, each of Seligman, RiverSource Investments and their
affiliates could, in the absence of the SEC in its discretion granting exemptive
relief, be enjoined from providing advisory and underwriting services to the
Seligman Funds and other registered investment companies including those funds
in the RiverSource complex of funds. Neither Seligman nor RiverSource
Investments believes that the foregoing legal action or other possible actions
will have a material adverse impact on Seligman, RiverSource Investments or
their current or former clients, including the Seligman Funds and other
investment companies managed by RiverSource Investments; however, there can be
no assurance of this or that these matters and any related publicity will
- --------------------------------------------------------------------------------
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT 47
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
not affect demand for shares of the Seligman Funds and such other investment
companies or have other adverse consequences.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the consolidated financial
condition or results of operations of Ameriprise Financial.
9. SUBSEQUENT EVENT
Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase
Bank, N.A. and, in addition, JPMorgan Chase Bank, N.A. will serve as the
securities lending agent for the Fund.
- --------------------------------------------------------------------------------
48 RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND -- 2008 SEMIANNUAL REPORT
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling 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 SEMIANNUAL REPORT 49
RIVERSOURCE SHORT DURATION U.S. GOVERNMENT FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus. RiverSource(R) mutual funds are
distributed by RiverSource Distributors, Inc., and
RiverSource Fund Distributors, Inc., Members FINRA, and
managed by RiverSource Investments, LLC. RiverSource is part
of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2009 RiverSource Investments, LLC. S-6442 Z (1/09)
</Table>
Semiannual Report
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE
U.S. GOVERNMENT MORTGAGE FUND
SEMIANNUAL REPORT FOR
THE PERIOD ENDED
NOVEMBER 30, 2008
RIVERSOURCE U. S. GOVERNMENT MORTGAGE FUND SEEKS TO
PROVIDE SHAREHOLDERS WITH CURRENT INCOME AS ITS
PRIMARY OBJECTIVE AND, AS ITS SECONDARY OBJECTIVE,
PRESERVATION OF CAPITAL.
(SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 3
Manager Commentary................. 7
Fund Expenses Example.............. 12
Portfolio of Investments........... 14
Statement of Assets and
Liabilities...................... 27
Statement of Operations............ 28
Statements of Changes in Net
Assets........................... 29
Financial Highlights............... 30
Notes to Financial Statements...... 35
Proxy Voting....................... 49
</Table>
(DALBAR LOGO)
The RiverSource mutual fund shareholder reports have
been awarded the Communications Seal from Dalbar Inc.,
an independent financial services research firm. The
Seal recognizes communications demonstrating a level
of excellence in the industry.
- --------------------------------------------------------------------------------
2 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
YOUR FUND AT A GLANCE ----------------------------------------------------------
(UNAUDITED)
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource U.S. Government Mortgage Fund (the Fund) Class A shares declined
4.03% (excluding sales charge) for the six months ended Nov. 30, 2008.
> The Fund underperformed the Barclays Capital Mortgage-Backed Securities Index
(Barclays Index) (formerly known as Lehman Brothers Mortgage-Backed Securities
Index), which gained 4.48%.
> The Fund underperformed the Lipper U.S. Mortgage Funds Index, representing the
Fund's peer group, which fell 0.21% during the same time frame.
ANNUALIZED TOTAL RETURNS (for period ended Nov. 30, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Since
inception
6 months* 1 year 3 years 5 years (2/14/02)
- ------------------------------------------------------------------------
RiverSource U.S.
Government Mortgage
Fund Class A
(excluding sales
charge) -4.03% -3.18% +2.23% +2.60% +3.24%
- ------------------------------------------------------------------------
Barclays Capital
Mortgage-Backed
Securities Index
(unmanaged)(1) +4.48% +6.86% +6.57% +5.41% +5.32%
- ------------------------------------------------------------------------
Lipper U.S. Mortgage
Funds Index(2) -0.21% +0.46% +3.58% +3.32% +3.69%
- ------------------------------------------------------------------------
</Table>
* Not annualized.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial 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.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
It is not possible to invest directly in an index.
(1) The Barclays Capital Mortgage-Backed Securities Index (formerly known as 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.
- --------------------------------------------------------------------------------
4 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL 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) 6.4 years
- --------------------------------------
Effective duration(2) 3.2 years
- --------------------------------------
Weighted average bond
rating(3) AAA
- --------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Total Net
fund fund
expenses expenses(a)
- ----------------------------------------
Class A 1.09% 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 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 SEMIANNUAL REPORT 5
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT NOV. 30, 2008
SINCE
Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS INCEPTION
Class A (inception
2/14/02) -4.03% -3.18% +2.23% +2.60% +3.24%
- --------------------------------------------------------------------------
Class B (inception
2/14/02) -4.39% -3.91% +1.46% +1.83% +2.47%
- --------------------------------------------------------------------------
Class C (inception
2/14/02) -4.39% -4.10% +1.39% +1.83% +2.47%
- --------------------------------------------------------------------------
Class I (inception
3/4/04) -4.03% -2.99% +2.53% N/A +2.55%
- --------------------------------------------------------------------------
Class R4 (inception
2/14/02) -2.38% -1.45% +2.95% +3.11% +3.66%
- --------------------------------------------------------------------------
With sales charge
Class A (inception
2/14/02) -8.60% -7.75% +0.58% +1.59% +2.50%
- --------------------------------------------------------------------------
Class B (inception
2/14/02) -9.08% -8.54% +0.23% +1.49% +2.47%
- --------------------------------------------------------------------------
Class C (inception
2/14/02) -5.32% -5.02% +1.39% +1.83% +2.47%
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
AT DEC. 31, 2008
SINCE
Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS INCEPTION
Class A (inception
2/14/02) -3.35% -3.14% +2.01% +2.46% +3.24%
- --------------------------------------------------------------------------
Class B (inception
2/14/02) -3.72% -3.88% +1.24% +1.69% +2.47%
- --------------------------------------------------------------------------
Class C (inception
2/14/02) -3.72% -4.07% +1.24% +1.69% +2.47%
- --------------------------------------------------------------------------
Class I (inception
3/4/04) -2.95% -2.74% +2.47% N/A +2.62%
- --------------------------------------------------------------------------
Class R4 (inception
2/14/02) -1.13% -1.05% +2.93% +3.04% +3.72%
- --------------------------------------------------------------------------
With sales charge
Class A (inception
2/14/02) -8.00% -7.72% +0.37% +1.48% +2.51%
- --------------------------------------------------------------------------
Class B (inception
2/14/02) -8.40% -8.47% +0.03% +1.35% +2.47%
- --------------------------------------------------------------------------
Class C (inception
2/14/02) -4.65% -4.98% +1.24% +1.69% +2.47%
- --------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase. Sales charges do
not apply to Class I and Class R4 shares. Class I and Class R4 shares are
available to institutional investors only.
* Not annualized.
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.
- --------------------------------------------------------------------------------
6 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
(UNAUDITED)
At Nov. 30, 2008, approximately 68% 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 43, 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 40.
Todd A. White replaced Scott Kirby as Portfolio Manager of RiverSource U.S.
Government Mortgage Fund effective Nov. 17, 2008.
Dear Shareholders,
RiverSource U.S. Government Mortgage Fund (the Fund) Class A shares declined
4.03% (excluding sales charge) for the six months ended Nov. 30, 2008. The Fund
underperformed the Barclays Capital Mortgage-Backed Securities Index (Barclays
Index), which gained 4.48%. The Fund also underperformed the Lipper U.S.
Mortgage Funds Index, representing the Fund's peer group, which fell 0.21%
during the same time frame.
SIGNIFICANT PERFORMANCE FACTORS
Overall, the mortgage market struggled, posting positive results but with
returns only about half of what Treasuries posted. Mortgage securities,
SECTOR DIVERSIFICATION (at Nov. 30, 2008; % of portfolio assets)
- ---------------------------------------------------------------------
<Table>
Asset-Backed 0.5%
- ------------------------------------------------
Commercial Mortgage-Backed 2.8%
- ------------------------------------------------
Mortgage-Backed(1) 94.2%
- ------------------------------------------------
U.S. Government Obligations & Agencies 1.8%
- ------------------------------------------------
Other(2) 0.7%
- ------------------------------------------------
</Table>
(1) Of the 94.2%, 29.2% 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 SEMIANNUAL REPORT 7
MANAGER COMMENTARY (continued) -------------------------------------------------
including high quality, premium coupon securities, were swept up in the bond
market turmoil, as a wave of record-breaking bad economic news dominated and the
flight to quality that began in the prior fiscal year intensified. Heightened
fears, in turn, virtually froze liquidity. In response, the Federal Reserve (the
Fed) lowered interest rates by an additional 100 basis points (1.00%) during the
period. The Fed, along with the U.S. Treasury, also waged an aggressive campaign
to stabilize credit markets and stimulate lending. Early in the period,
mortgage-backed security spreads, or the difference in yields between these
securities and Treasuries, widened to levels near the highest they had ever
been, given ongoing deterioration in the housing market and continued interest
rate volatility. Then, in September, after the collapse of several global
financial institutions, mortgage-backed securities actually performed reasonably
well, generally keeping up with Treasury securities for the month. Mortgage-
backed securities subsequently lagged Treasuries, but continued to perform well
compared to other fixed income sectors through November. Commercial mortgage-
backed securities (CMBS), on the other hand, lost nearly a third of their value
during the semiannual period as a whole. The market for CMBS was particularly
weak in November on fear that real estate investors would struggle to refinance
their debt amidst tight credit conditions.
QUALITY BREAKDOWN (at Nov. 30, 2008; % of portfolio assets excluding
cash equivalents and equities)
- ---------------------------------------------------------------------
<Table>
AAA bonds 97.8%
- ------------------------------------------------
AA bonds 0.4%
- ------------------------------------------------
A bonds 1.5%
- ------------------------------------------------
BBB bonds 0.1%
- ------------------------------------------------
Non-investment grade bonds 0.2%
- ------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating.
- --------------------------------------------------------------------------------
8 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
For the semiannual period overall, interest rates fell significantly, as
investors fled riskier assets for the relative safety of U.S. Treasuries,
pushing yields sharply lower. Treasuries of several different maturities closed
the semiannual period with yields at or near all-time lows.
The Fund lagged the Barclays Index due primarily to its exposure to non-agency
mortgage-backed securities. These non-agency mortgage-backed securities,
including both fixed-rate and adjustable-rate prime mortgages, were hurt both by
a lack of liquidity due to massive deleveraging and by worsening housing
fundamentals. The agency market was essentially guaranteed by the government,
while the non-agency sector was left to falter. While the Fund's positions were
primarily enhanced AAA-rated securities, lack of enough buyers in the market for
these securities pushed yields well above 10%, contributing to the market loss.
All told, non-agency mortgage-backed securities experienced more dramatic price
depreciation during the period than those mortgage securities backed by the
federal government.
Similarly, the Fund's allocation to CMBS detracted from its results, as spreads
widened. The lack of buyers for these securities pushed yields to as high as
15%, even though fundamentals did not justify the valuations. Neither CMBS nor
non-agency mortgage-backed securities are components of the Barclays Index, and
thus the Fund's allocations to these poorly performing out-of-Index sectors hurt
its results relative to the 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
We increased our emphasis on higher quality issues, namely those securities
rated AAA.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 9
MANAGER COMMENTARY (continued) -------------------------------------------------
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.
Lastly, the Fund's duration positioning also detracted from its results. We
maintained the Fund's duration shorter than that of the Barclays Index
throughout the semiannual period. This stance hurt as interest rates declined
with the intensified flight to quality. Duration is a measure of the Fund's
sensitivity to changes in interest rates.
CHANGES TO THE FUND'S PORTFOLIO
During the semiannual period, we reduced the Fund's position in non-agency pass-
through mortgages. We also repositioned some of the assets within this sector to
focus on those securities that we consider cheap due to lack of buyers rather
than because of any true exposure to housing fundamentals. We believe buyers,
including the U.S. government, may well emerge and that many of these assets
will recover.
We increased our emphasis on higher quality issues, namely those securities
rated AAA. 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 six-month period was 217%.*
OUR FUTURE STRATEGY
In evaluating prices in the fixed income market at the end of November, we found
that investors are generally pricing securities with the expectation of a
depression-like economy. We believe this scenario is unlikely for two major
reasons. First, American financial institutions have already taken over $600
billion in losses and write-downs. This compares to previous periods of credit
stress, most recently in Japan, in which banks delayed the realization of losses
only to prolong the ensuing drag on economic growth. Second, U.S. and foreign
governments have taken bold action to stabilize their banking systems and inject
capital into markets. These moves stand in stark contrast to the Great
Depression, when government action was often criticized as too little, too late.
In light of these factors, Treasury bonds appeared overpriced, while we found
valuations in non-Treasury sectors as quite attractive. Among those
- --------------------------------------------------------------------------------
10 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
sectors we found particularly compelling at the end of November were investment-
grade sectors like CMBS.
That said, at the end of the period, we had shifted our focus toward the
purchase of mortgage-backed securities issued by U.S. government agencies that
we believe will be targeted for purchase by the U.S. Treasury and the Fed. These
are primarily lower-coupon agency 30-year mortgage-backed securities, which
should benefit from the government's announced massive buying programs. As we
expect rates may well move higher over the coming months, we intend to maintain
the Fund's shorter-than-Barclays 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.
Todd White
Portfolio Manager
* A significant portion of the turnover was the result of rolling-maturity
mortgage securities, processing of prepayments and opportunistic changes we
made at the margin in response to valuations or market developments.
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL 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 expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Nov. 30, 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 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JUNE 1, 2008 NOV. 30, 2008 THE PERIOD(A) EXPENSE RATIO
- ------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 959.70 $4.35 .89%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.49 $4.48 .89%
- ------------------------------------------------------------------------------------------
Class B
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 956.10 $8.05 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30 1.65%
- ------------------------------------------------------------------------------------------
Class C
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 956.10 $8.05 1.65%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.70 $8.30 1.65%
- ------------------------------------------------------------------------------------------
Class I
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 959.70 $2.35 .48%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,022.54 $2.42 .48%
- ------------------------------------------------------------------------------------------
Class R4
- ------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 976.20 $3.50 .71%
- ------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.39 $3.58 .71%
- ------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Nov. 30, 2008: -4.03%
for Class A, -4.39% for Class B, -4.39% for Class C, -4.03% for Class I and
-2.38% for Class R4.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 13
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
NOV. 30, 2008 (UNAUDITED)
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
BONDS (136.1%)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
U.S. GOVERNMENT OBLIGATIONS & AGENCIES (2.5%)
Federal Home Loan Mtge Corp
12-14-18 5.00% $2,500,000 $2,458,748
Federal Natl Mtge Assn
01-02-14 5.13 2,500,000 2,569,725
U.S. Treasury Inflation-Indexed Bond
01-15-16 2.00 4,409,840(e,l) 3,926,991
-----------
Total 8,955,464
- -------------------------------------------------------------------------------------
ASSET-BACKED (0.7%)
Countrywide Asset-backed Ctfs
Series 2007-7 Cl 2A2
10-25-37 1.56 1,200,000(i) 940,126
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M4
06-25-37 6.31 195,000(k) 18,176
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M5
06-25-37 6.66 130,000(k) 9,331
Renaissance Home Equity Loan Trust
Series 2007-2 Cl M6
06-25-37 7.01 190,000(k) 11,441
Residential Asset Securities
Series 2007-KS3 Cl AI2
04-25-37 1.58 1,700,000(i) 1,492,352
-----------
Total 2,471,426
- -------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED (3.9%)(F)
Citigroup/Deutsche Bank Commercial Mtge Trust
Series 2007-CD4 Cl A2B
12-11-49 5.21 3,000,000 2,473,830
Credit Suisse Mtge Capital Ctfs
Series 2007-C3 Cl A4
06-15-39 5.91 3,000,000 1,954,281
Federal Home Loan Mtge Corp
Multifamily Structured Pass-Through Ctfs
Series K001 Cl A2
04-25-16 5.65 1,976,499 1,922,500
GS Mtge Securities II
Series 2007-EOP Cl J
03-06-20 3.03 1,000,000(d,i) 542,481
LB-UBS Commercial Mtge Trust
Series 2004-C6 Cl A6
08-15-29 5.02 2,000,000 1,550,402
Wachovia Bank Commercial Mtge Trust
Series 2003-C7 Cl A2
10-15-35 5.08 2,000,000(d) 1,525,340
Wachovia Bank Commercial Mtge Trust
Series 2006-C29 Cl A4
11-15-48 5.31 6,000,000 3,845,835
-----------
Total 13,814,669
- -------------------------------------------------------------------------------------
MORTGAGE-BACKED (129.0%)(F)
Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2006-1 Cl 2A1
03-25-36 5.90 152,189(c) 100,379
American Home Mtge Assets
Collateralized Mtge Obligation
Series 2007-2 Cl A2A
03-25-47 1.56 1,193,143(c) 261,008
American Home Mtge Investment Trust
Collateralized Mtge Obligation
Series 2007-1 Cl GA1C
05-25-47 1.59 1,748,042(c) 586,135
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-11 Cl 1A1
01-25-34 6.00 501,025 414,742
Banc of America Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-9 Cl 1CB1
01-25-37 6.00 2,427,419 1,174,169
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-2 Cl N1
11-25-46 7.25 64,252(d,h) 8,192
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
14 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Banc of America Funding
Collateralized Mtge Obligation
Series 2006-A Cl 3A2
02-20-36 5.85% $626,343(c) $399,062
Banc of America Funding
Collateralized Mtge Obligation
Series 2007-8 Cl 1A1
10-25-37 6.00 960,154 454,836
Banc of America Mtge Securities
Collateralized Mtge Obligation
Series 2007-3 Cl 1A2
09-25-37 6.00 902,725 579,719
Barclays Capital LLC Trust
Collateralized Mtge Obligation
Series 2007-AA4 Cl 11A1
06-25-47 6.20 858,994(c) 635,718
Bear Stearns Adjustable Rate Mtge Trust
Collateralized Mtge Obligation
Series 2007-5 Cl 3A1
08-25-47 5.98 953,628(c) 546,982
ChaseFlex Trust
Collateralized Mtge Obligation
Series 2005-2 Cl 2A2
06-25-35 6.50 506,835 444,906
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2007-8CB Cl A13
05-25-37 7.73 1,769,772(j) 248,824
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2003-20CB Cl 1A1
10-25-33 5.50 4,575,965 3,220,872
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-50CB Cl 2A1
11-25-35 6.00 893,752 409,974
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-54CB Cl 2A3
11-25-35 5.50 417,009 326,674
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-6CB Cl 1A1
04-25-35 7.50 347,347 288,131
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-2CB Cl A11
03-25-36 6.00 1,376,746 691,385
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2006-45T1 Cl 2A5
02-25-37 6.00 909,528 456,754
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-22 Cl 2A16
09-25-37 6.50 4,928,779 2,207,171
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-25 Cl 1A1
11-25-37 6.50 897,281 428,732
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OA9 Cl A2
06-25-47 1.75 1,209,578(i) 304,637
Countrywide Alternative Loan Trust
Collateralized Mtge Obligation
Series 2007-OH3 Cl A3
09-25-47 1.90 1,797,586(i) 419,930
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-27 Cl 2A1
12-25-35 5.50 848,137 575,772
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-HYB1 Cl 6A1
03-25-35 5.11 947,426(c) 573,479
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2005-R2 Cl 2A1
06-25-35 7.00 428,654(d) 351,515
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 15
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2006-HYB1 Cl 1A1
03-20-36 5.33% $397,718(c) $223,234
Countrywide Home Loans
Collateralized Mtge Obligation
Series 2007-HY3 Cl 4A1
06-25-47 6.00 1,399,149(c) 785,835
Downey Savings & Loan Assn Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR5 Cl X1
08-19-45 5.24 2,091,319(j) 1,840
Federal Home Loan Mtge Corp
12-01-38 5.00 3,000,000(b) 3,015,936
12-01-38 6.00 12,400,000(b) 12,667,368
12-01-38 6.50 10,500,000(b) 10,801,875
Federal Home Loan Mtge Corp #1B7116
08-01-36 5.89 3,809,127(c) 3,850,938
Federal Home Loan Mtge Corp #1J0149
11-01-36 6.10 1,940,043(c) 1,993,284
Federal Home Loan Mtge Corp #1J1445
01-01-37 5.88 2,104,554(c) 2,118,505
Federal Home Loan Mtge Corp #1J1621
05-01-37 5.88 2,744,483(c) 2,794,751
Federal Home Loan Mtge Corp #555140
03-01-10 8.00 2,431 2,457
Federal Home Loan Mtge Corp #555300
10-01-17 8.00 170,295 178,961
Federal Home Loan Mtge Corp #783049
03-01-35 4.85 2,677,866(c) 2,658,355
Federal Home Loan Mtge Corp #A10892
07-01-33 6.00 517,300 531,120
Federal Home Loan Mtge Corp #A15111
10-01-33 6.00 786,833 805,758
Federal Home Loan Mtge Corp #A21059
04-01-34 6.50 441,192 455,520
Federal Home Loan Mtge Corp #A25174
08-01-34 6.50 352,948 364,411
Federal Home Loan Mtge Corp #C53098
06-01-31 8.00 235,239 250,312
Federal Home Loan Mtge Corp #C53878
12-01-30 5.50 824,772 840,807
Federal Home Loan Mtge Corp #C68876
07-01-32 7.00 130,075 135,429
Federal Home Loan Mtge Corp #C69665
08-01-32 6.50 2,244,752 2,324,671
Federal Home Loan Mtge Corp #C79930
06-01-33 5.50 1,260,485 1,281,742
Federal Home Loan Mtge Corp #D95232
03-01-22 6.50 226,495 234,993
Federal Home Loan Mtge Corp #D95371
04-01-22 6.50 265,993 276,585
Federal Home Loan Mtge Corp #E00285
01-01-09 7.00 2,259 2,270
Federal Home Loan Mtge Corp #E81240
06-01-15 7.50 574,654 603,241
Federal Home Loan Mtge Corp #E88036
02-01-17 6.50 941,554 974,338
Federal Home Loan Mtge Corp #E88468
12-01-16 6.50 217,953 225,749
Federal Home Loan Mtge Corp #E89232
04-01-17 7.00 412,106 433,616
Federal Home Loan Mtge Corp #E92454
11-01-17 5.00 1,254,416 1,278,441
Federal Home Loan Mtge Corp #E93685
01-01-18 5.50 1,012,053 1,033,830
Federal Home Loan Mtge Corp #E99684
10-01-18 5.00 324,355 329,690
Federal Home Loan Mtge Corp #G01169
01-01-30 5.50 1,384,924 1,412,337
Federal Home Loan Mtge Corp #G01535
04-01-33 6.00 1,813,415 1,866,788
Federal Home Loan Mtge Corp #G02757
06-01-36 5.00 7,910,128 7,960,979
Federal Home Loan Mtge Corp #G03419
07-01-37 6.00 4,250,646 4,344,910
Federal Home Loan Mtge Corp #G12101
11-01-18 5.00 666,203 677,713
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 237 Cl IO
05-15-36 14.70 1,590,588(j) 257,974
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
16 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL 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 2471 Cl SI
03-15-32 44.63% $243,914(j) $28,586
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2639 Cl UI
03-15-22 15.49 985,935(j) 109,522
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2795 Cl IY
07-15-17 27.74 351,200(j) 21,281
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2817 Cl SA
06-15-32 77.27 830,518(j) 44,983
Federal Home Loan Mtge Corp
Collateralized Mtge Obligation
Interest Only
Series 2824 Cl EI
09-15-20 24.89 2,177,369(j) 151,703
Federal Natl Mtge Assn
12-01-23 4.50 4,650,000(b) 4,648,549
12-01-23 5.00 6,000,000(b) 6,067,500
12-01-23 5.50 4,325,000(b) 4,399,338
12-01-23 6.00 7,000,000(b) 7,148,750
12-01-38 5.00 28,800,000(b) 28,988,985
12-01-38 5.50 36,000,000(b) 36,596,231
12-01-38 6.00 15,000,000(b) 15,332,819
12-01-38 6.50 3,000,000(b) 3,083,436
12-01-38 7.00 9,000,000(b) 9,348,750
Federal Natl Mtge Assn #190353
08-01-34 5.00 1,499,774 1,512,228
Federal Natl Mtge Assn #252409
03-01-29 6.50 1,212,158 1,245,248
Federal Natl Mtge Assn #254759
06-01-18 4.50 1,748,212 1,765,304
Federal Natl Mtge Assn #254793
07-01-33 5.00 2,063,071 2,081,492
Federal Natl Mtge Assn #254916
09-01-23 5.50 1,627,536 1,661,185
Federal Natl Mtge Assn #256135
02-01-36 5.50 6,827,421 6,825,211
Federal Natl Mtge Assn #313470
08-01-10 7.50 82,252 83,578
Federal Natl Mtge Assn #323362
11-01-28 6.00 2,379,266 2,451,361
Federal Natl Mtge Assn #323715
05-01-29 6.00 443,777(l) 457,224
Federal Natl Mtge Assn #344909
04-01-25 8.00 578,260 615,909
Federal Natl Mtge Assn #357514
03-01-34 5.50 2,144,921(l) 2,185,115
Federal Natl Mtge Assn #483691
12-01-28 7.00 1,096,523 1,158,896
Federal Natl Mtge Assn #487757
09-01-28 7.50 717,117 757,750
Federal Natl Mtge Assn #514704
01-01-29 6.00 726,196 748,200
Federal Natl Mtge Assn #545008
06-01-31 7.00 1,286,795(l) 1,354,898
Federal Natl Mtge Assn #545339
11-01-31 6.50 209,123 217,258
Federal Natl Mtge Assn #545818
07-01-17 6.00 2,097,634 2,152,456
Federal Natl Mtge Assn #545864
08-01-17 5.50 1,202,879(l) 1,232,797
Federal Natl Mtge Assn #555458
05-01-33 5.50 1,525,214 1,553,812
Federal Natl Mtge Assn #555528
04-01-33 6.00 1,888,029 1,935,799
Federal Natl Mtge Assn #555734
07-01-23 5.00 660,371 667,620
Federal Natl Mtge Assn #581418
06-01-31 7.00 806,464 846,320
Federal Natl Mtge Assn #583088
06-01-29 6.00 2,503,141 2,584,777
Federal Natl Mtge Assn #592270
01-01-32 6.50 635,971 659,419
Federal Natl Mtge Assn #596505
08-01-16 6.50 133,460 139,138
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 17
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #601416
11-01-31 6.50% $281,687 $292,651
Federal Natl Mtge Assn #624979
01-01-32 6.00 632,009(l) 651,002
Federal Natl Mtge Assn #626670
03-01-32 7.00 483,742(l) 510,533
Federal Natl Mtge Assn #627426
03-01-17 6.50 411,313(l) 429,420
Federal Natl Mtge Assn #630992
09-01-31 7.00 1,628,780(l) 1,719,189
Federal Natl Mtge Assn #630993
09-01-31 7.50 1,634,207 1,723,932
Federal Natl Mtge Assn #631388
05-01-32 6.50 1,405,429 1,460,366
Federal Natl Mtge Assn #632856
03-01-17 6.00 443,845 455,396
Federal Natl Mtge Assn #633674
06-01-32 6.50 812,291 844,149
Federal Natl Mtge Assn #635231
04-01-32 7.00 73,636 77,506
Federal Natl Mtge Assn #635908
04-01-32 6.50 1,009,969 1,049,343
Federal Natl Mtge Assn #636812
04-01-32 7.00 105,427 111,004
Federal Natl Mtge Assn #640200
10-01-31 9.50 101,531 113,791
Federal Natl Mtge Assn #640207
03-01-17 7.00 36,863 38,052
Federal Natl Mtge Assn #640208
04-01-17 7.50 44,590 45,733
Federal Natl Mtge Assn #644805
05-01-32 7.00 844,832 889,532
Federal Natl Mtge Assn #645053
05-01-32 7.00 528,166 553,451
Federal Natl Mtge Assn #646189
05-01-32 6.50 344,653(l) 356,558
Federal Natl Mtge Assn #654071
09-01-22 6.50 510,745 528,471
Federal Natl Mtge Assn #654685
11-01-22 6.00 490,931 503,860
Federal Natl Mtge Assn #655635
08-01-32 6.50 702,466(l) 729,206
Federal Natl Mtge Assn #656514
09-01-17 6.50 940,637 981,223
Federal Natl Mtge Assn #660186
11-01-32 6.00 2,084,130 2,145,071
Federal Natl Mtge Assn #665752
09-01-32 6.50 1,099,383 1,137,359
Federal Natl Mtge Assn #667302
01-01-33 7.00 495,467(l) 521,052
Federal Natl Mtge Assn #670382
09-01-32 6.00 1,011,845 1,037,446
Federal Natl Mtge Assn #676683
12-01-32 6.00 1,158,236 1,187,541
Federal Natl Mtge Assn #677089
01-01-33 5.50 565,589(l) 576,718
Federal Natl Mtge Assn #677294
01-01-33 6.00 1,221,461(l) 1,252,366
Federal Natl Mtge Assn #681080
02-01-18 5.00 741,043(l) 755,467
Federal Natl Mtge Assn #682229
03-01-33 5.50 4,067,159 4,147,186
Federal Natl Mtge Assn #684585
02-01-33 5.50 1,379,597(l) 1,411,270
Federal Natl Mtge Assn #684843
02-01-18 5.50 1,340,733 1,375,532
Federal Natl Mtge Assn #684853
03-01-33 6.50 212,844 220,781
Federal Natl Mtge Assn #688002
03-01-33 5.50 1,315,902 1,343,953
Federal Natl Mtge Assn #689026
05-01-33 5.50 368,938 376,966
Federal Natl Mtge Assn #689093
07-01-28 5.50 904,444 927,539
Federal Natl Mtge Assn #694628
04-01-33 5.50 1,895,686 1,936,796
Federal Natl Mtge Assn #694795
04-01-33 5.50 2,294,018 2,343,266
Federal Natl Mtge Assn #695460
04-01-18 5.50 1,730,208 1,775,109
Federal Natl Mtge Assn #697145
03-01-23 5.50 1,127,029 1,159,377
Federal Natl Mtge Assn #699424
04-01-33 5.50 1,470,524 1,502,171
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
18 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL 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% $1,911,984 $1,959,165
Federal Natl Mtge Assn #704610
06-01-33 5.50 1,918,808 1,954,764
Federal Natl Mtge Assn #705655
05-01-33 5.00 673,322(l) 679,333
Federal Natl Mtge Assn #708503
05-01-33 6.00 267,755 275,535
Federal Natl Mtge Assn #708504
05-01-33 6.00 565,398(l) 582,149
Federal Natl Mtge Assn #710780
05-01-33 6.00 214,562 219,856
Federal Natl Mtge Assn #711206
05-01-33 5.50 1,053,383 1,073,123
Federal Natl Mtge Assn #711239
07-01-33 5.50 529,526 539,449
Federal Natl Mtge Assn #711501
05-01-33 5.50 684,654 700,311
Federal Natl Mtge Assn #723771
08-01-28 5.50 707,498 725,565
Federal Natl Mtge Assn #725017
12-01-33 5.50 2,662,943(l) 2,712,843
Federal Natl Mtge Assn #725232
03-01-34 5.00 1,584,792 1,598,941
Federal Natl Mtge Assn #725424
04-01-34 5.50 8,760,872(l) 8,925,041
Federal Natl Mtge Assn #725425
04-01-34 5.50 2,508,447 2,558,183
Federal Natl Mtge Assn #725684
05-01-18 6.00 635,884 651,132
Federal Natl Mtge Assn #725773
09-01-34 5.50 1,735,264 1,766,696
Federal Natl Mtge Assn #726940
08-01-23 5.50 1,194,606 1,230,903
Federal Natl Mtge Assn #730153
08-01-33 5.50 697,975 711,054
Federal Natl Mtge Assn #733367
08-01-23 5.50 892,703 919,935
Federal Natl Mtge Assn #735212
12-01-34 5.00 8,423,196(l) 8,493,139
Federal Natl Mtge Assn #735841
11-01-19 4.50 5,487,765 5,517,408
Federal Natl Mtge Assn #743524
11-01-33 5.00 1,728,718 1,744,153
Federal Natl Mtge Assn #743579
11-01-33 5.50 1,452,211 1,479,423
Federal Natl Mtge Assn #745275
02-01-36 5.00 3,424,005 3,450,296
Federal Natl Mtge Assn #745355
03-01-36 5.00 3,571,965 3,599,393
Federal Natl Mtge Assn #747339
10-01-23 5.50 1,090,993 1,124,125
Federal Natl Mtge Assn #753507
12-01-18 5.00 853,518(l) 869,125
Federal Natl Mtge Assn #759342
01-01-34 6.50 366,347 379,778
Federal Natl Mtge Assn #770403
04-01-34 5.00 1,390,207 1,401,751
Federal Natl Mtge Assn #776962
04-01-29 5.00 1,269,561 1,288,673
Federal Natl Mtge Assn #779676
06-01-34 5.00 2,456,172 2,476,567
Federal Natl Mtge Assn #785506
06-01-34 5.00 5,313,840(l) 5,357,963
Federal Natl Mtge Assn #793622
09-01-34 5.50 5,823,167(l) 5,928,647
Federal Natl Mtge Assn #797232
09-01-34 5.50 6,442,615 6,559,315
Federal Natl Mtge Assn #826585
08-01-35 5.00 2,213,951 2,230,951
Federal Natl Mtge Assn #841764
07-01-35 5.50 3,985,922 4,056,877
Federal Natl Mtge Assn #845109
05-01-36 6.00 5,513,846 5,640,431
Federal Natl Mtge Assn #869867
04-01-21 5.50 3,823,355 3,896,067
Federal Natl Mtge Assn #878661
02-01-36 5.50 1,808,106 1,828,165
Federal Natl Mtge Assn #881629
02-01-36 5.50 1,236,991 1,250,327
Federal Natl Mtge Assn #886020
07-01-36 6.50 942,013 973,186
Federal Natl Mtge Assn #886291
07-01-36 7.00 689,651 722,438
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 19
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Federal Natl Mtge Assn #888414
11-01-35 5.00% $3,743,733 $3,772,479
Federal Natl Mtge Assn #893101
10-01-36 6.50 2,485,393 2,558,041
Federal Natl Mtge Assn #894800
12-01-36 6.50 3,173,703 3,266,470
Federal Natl Mtge Assn #897248
11-01-36 6.00 4,019,621 4,111,902
Federal Natl Mtge Assn #902818
11-01-36 5.91 2,663,867(c) 2,703,105
Federal Natl Mtge Assn #928046
01-01-37 6.00 3,512,996 3,593,646
Federal Natl Mtge Assn #928771
10-01-37 8.00 3,031,207 3,192,350
Federal Natl Mtge Assn #928870
11-01-37 8.50 231,296 242,010
Federal Natl Mtge Assn #933966
07-01-23 6.00 2,489,840 2,545,861
Federal Natl Mtge Assn #933985
08-01-23 5.50 1,965,738 2,001,280
Federal Natl Mtge Assn #941285
06-01-37 6.00 4,018,301 4,110,325
Federal Natl Mtge Assn #960606
10-01-36 5.50 3,467,352 3,530,159
Federal Natl Mtge Assn #984458
05-01-38 6.00 4,202,478 4,298,300
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-119 Cl GI
12-25-33 15.73 472,282(j) 76,808
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-63 Cl IP
07-25-33 25.88 1,834,107(j) 210,605
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2003-71 Cl IM
12-25-31 9.86 407,931(j) 50,025
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2004-84 Cl GI
12-25-22 15.72 178,841(j) 14,721
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 2005-70 Cl YJ
08-25-35 62.42 2,094,518(j) 152,786
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 367 Cl 2
01-01-36 12.99 1,406,223(j) 230,243
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Interest Only
Series 379 Cl 2
05-01-37 13.46 2,718,616(j) 430,943
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2002-52 Cl FG
09-25-32 1.90 3,636,055(i) 3,569,851
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2003-133 Cl GB
12-25-26 8.00 248,791 265,638
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-60 Cl JF
10-25-35 1.83 3,944,138(i) 3,819,649
Federal Natl Mtge Assn
Collateralized Mtge Obligation
Series 2006-90 Cl FE
09-25-36 1.85 6,697,825(i) 6,554,519
Govt Natl Mtge Assn #3931
12-20-36 6.00 3,897,332 3,980,198
Govt Natl Mtge Assn #518371
02-15-30 7.00 118,234 122,046
Govt Natl Mtge Assn #528344
03-15-30 7.00 353,799 365,207
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
20 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
BONDS (CONTINUED)
COUPON PRINCIPAL
ISSUER RATE AMOUNT VALUE(a)
MORTGAGE-BACKED (CONT.)
Govt Natl Mtge Assn #556293
12-15-31 6.50% $358,428 $369,779
Govt Natl Mtge Assn #583182
02-15-32 6.50 556,429 573,529
Govt Natl Mtge Assn #595256
12-15-32 6.00 305,576 313,248
Govt Natl Mtge Assn #619613
09-15-33 5.00 1,199,957 1,212,836
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2005-AR8 Cl AX1
04-25-35 4.82 4,902,377(g,j,n) --
IndyMac Index Mtge Loan Trust
Collateralized Mtge Obligation
Interest Only
Series 2006-AR25 Cl 3A3
09-25-36 6.72 10,193,512(j) 104,102
JPMorgan Mtge Trust
Collateralized Mtge Obligation
Series 2004-S2 4A5
11-25-34 6.00 909,181 544,336
Lehman XS Trust
Collateralized Mtge Obligation
Series 2007-5H Cl 1A1
05-25-37 6.50 4,768,479 2,040,017
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-7 Cl 8A1
08-25-19 5.00 327,165 306,609
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2004-8 Cl 7A1
09-25-19 5.00 453,757 417,431
MASTR Alternative Loan Trust
Collateralized Mtge Obligation
Series 2005-3 Cl 1A2
04-25-35 5.50 1,537,000 1,268,125
Morgan Stanley Mtge Loan Trust
Collateralized Mtge Obligation
Series 2007-12 Cl 3A22
08-25-37 6.00 910,756 568,049
Structured Adjustable Rate Mtge Loan Trust
Collateralized Mtge Obligation
Series 2005-15 Cl 4A1
07-25-35 5.50 985,661(c) 620,715
Structured Asset Securities
Collateralized Mtge Obligation
Series 2003-33H Cl 1A1
10-25-33 5.50 1,119,043 843,610
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2005-AR14 Cl 2A1
12-25-35 5.29 383,106(c) 267,823
Washington Mutual Mtge Pass-Through Ctfs
Collateralized Mtge Obligation
Series 2006-AR10 Cl 1A1
09-25-36 5.93 2,157,134(c) 1,230,184
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-10 Cl A1
10-25-35 5.00 2,157,002 1,914,872
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2005-5 Cl 2A1
05-25-35 5.50 837,133 767,285
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR12 Cl 2A1
09-25-36 6.10 1,955,283(c) 1,237,920
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2006-AR6 Cl 5A1
03-25-36 5.11 827,582(c) 555,513
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-11 Cl A68
08-25-37 6.00 914,793 455,184
Wells Fargo Mtge Backed Securities Trust
Collateralized Mtge Obligation
Series 2007-14 Cl 1A2
10-25-37 6.00 902,622 409,530
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 21
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
<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% $1,792,169 $1,117,795
-----------
Total 457,126,858
- -------------------------------------------------------------------------------------
TOTAL BONDS
(Cost: $504,268,832) $482,368,417
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (1.0%)
SHARES VALUE(a)
RiverSource Short-Term Cash Fund, 0.69% 3,582,134(m) $3,582,134
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $3,582,134) $3,582,134
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $507,850,966)(o) $485,950,551
=====================================================================================
</Table>
INVESTMENTS IN DERIVATIVES
FUTURES CONTRACTS OUTSTANDING AT NOV. 30, 2008
<Table>
<Caption>
NUMBER OF UNREALIZED
CONTRACTS NOTIONAL EXPIRATION APPRECIATION
CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION)
- ------------------------------------------------------------------------------------
U.S. Long Bond, 20-year (96) $(12,238,500) March 2009 $(315,919)
U.S. Treasury Note, 2-
year (120) (26,017,500) April 2009 (107,084)
U.S. Treasury Note, 5-
year (302) (35,246,704) April 2009 (431,311)
U.S. Treasury Note, 10-
year (306) (37,016,438) March 2009 (1,031,582)
- ------------------------------------------------------------------------------------
Total $(1,885,896)
- ------------------------------------------------------------------------------------
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) At Nov. 30, 2008, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$140,145,669. 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 Nov. 30, 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 Nov. 30,
2008, the value of these securities amounted to $2,427,528 or 0.7% of net
assets.
(e) Inflation-indexed bonds are securities in which the principal amount is
adjusted for inflation and the semiannual interest payments equal a fixed
percentage of the inflation-adjusted principal amount.
- --------------------------------------------------------------------------------
22 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL 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) Negligible market value.
(h) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). Information concerning such security
holdings at Nov. 30, 2008, is as follows:
<Table>
<Caption>
ACQUISITION
SECURITY DATES COST
- ------------------------------------------------------------------------
Banc of America Funding*
Collateralized Mtge Obligation
Series 2006-2 Cl N1
7.25% 2046 11-14-06 thru 07-22-08 $65,247
</Table>
* Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended.
(i) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Nov. 30,
2008.
(j) Interest only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal repayments
may have an adverse (positive) effect on yield to maturity. The principal
amount shown is the notional amount of the underlying mortgages. Interest
rate disclosed represents yield based upon the estimated timing and amount
of future cash flows at Nov. 30, 2008.
(k) On Dec. 17, 2007, Renaissance Home Equity Loan Trust Series 2007-2 filed a
Chapter 11 bankruptcy petition.
(l) At Nov. 30, 2008, investments in securities included securities valued at
$6,284,750 that were partially pledged as collateral to cover initial
margin deposits on open interest rate futures contracts.
(m) Affiliated Money Market Fund -- See Note 5 to the financial statements. The
rate shown is the seven-day current annualized yield at Nov. 30, 2008.
(n) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 23
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(o) At Nov. 30, 2008, the cost of securities for federal income tax purposes
was approximately $507,851,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $7,816,000
Unrealized depreciation (29,716,000)
- -----------------------------------------------------------
Net unrealized depreciation $(21,900,000)
- -----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
24 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) seeks to
implement more uniform reporting relating to the fair valuation of securities
for financial statement purposes. Mutual funds are required to implement the
requirements of this standard for fiscal years beginning after Nov. 15, 2007.
While uniformity of presentation is the objective of the standard, industry
implementation has just begun and it is likely that there will be a range of
practices utilized and it will be some period of time before industry practices
become more uniform. For this reason care should be exercised in interpreting
this information and/or using it for comparison with other mutual funds.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
- Level 1 -- quoted prices in active markets for identical securities
- Level 2 -- other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit risks,
etc.)
- Level 3 -- significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
Observable inputs are those based on market data obtained from sources
independent of the fund, and unobservable inputs reflect the fund's own
assumptions based on the best information available. The input levels are not
necessarily an indication of the risk or liquidity associated with investments
at that level.
The following table is a summary of the inputs used to value the Fund's
investments as of Nov. 30, 2008:
<Table>
<Caption>
FAIR VALUE AT NOV. 30, 2008
----------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- ----------------------------------------------------------------------------------
Investments in
securities $3,581,937 $469,179,249 $13,189,365 $485,950,551
Other financial
instruments* (1,885,896) -- -- (1,885,896)
- ----------------------------------------------------------------------------------
Total $1,696,041 $469,179,249 $13,189,365 $484,064,655
- ----------------------------------------------------------------------------------
</Table>
* Other financial instruments are derivative instruments, such as futures,
which are valued at the unrealized appreciation/depreciation on the
instrument.
The following table is a reconciliation of Level 3 assets for which significant
unobservable inputs were used to determine fair value.
<Table>
<Caption>
INVESTMENTS IN
SECURITIES
- ---------------------------------------------------------------
Balance as of May 31, 2008 $8,131,384
Accrued discounts/premiums 12,254
Realized gain (loss) 4,111
Change in unrealized appreciation
(depreciation) (10,002,328)
Net purchases (sales) (1,199,167)
Transfers in and/or out of Level 3 16,243,111
- ---------------------------------------------------------------
Balance as of Nov. 30, 2008 $13,189,365
- ---------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 25
PORTFOLIO OF INVESTMENTS (continued) ------------------------------------------
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.
- --------------------------------------------------------------------------------
26 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
STATEMENT OF ASSETS AND LIABILITIES --------------------------------------------
NOV. 30, 2008 (UNAUDITED)
<Table>
<Caption>
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $504,268,832) $482,368,417
Affiliated money market fund (identified cost $3,582,134) 3,582,134
- -----------------------------------------------------------------------------------------
Total investments in securities (identified cost $507,850,966) 485,950,551
Cash 4,078
Capital shares receivable 29,862
Dividends and accrued interest receivable 2,025,175
Receivable for investment securities sold 19,969,219
- -----------------------------------------------------------------------------------------
Total assets 507,978,885
- -----------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 213,172
Capital shares payable 403,789
Payable for investment securities purchased 12,267,500
Payable for securities purchased on a forward-commitment basis 140,145,669
Variation margin payable on futures contracts 436,392
Accrued investment management services fees 9,362
Accrued distribution fees 24,286
Accrued transfer agency fees 1,394
Accrued administrative services fees 1,365
Accrued plan administration services fees 12
Other accrued expenses 90,556
- -----------------------------------------------------------------------------------------
Total liabilities 153,593,497
- -----------------------------------------------------------------------------------------
Net assets applicable to outstanding capital stock $354,385,388
- -----------------------------------------------------------------------------------------
REPRESENTED BY
Capital stock -- $.01 par value $ 757,855
Additional paid-in capital 385,215,274
Undistributed net investment income 85,806
Accumulated net realized gain (loss) (7,887,236)
Unrealized appreciation (depreciation) on investments (23,786,311)
- -----------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding capital stock $354,385,388
- -----------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
NET ASSET VALUE PER SHARE
NET ASSETS SHARES OUTSTANDING NET ASSET VALUE PER SHARE
Class A $ 84,928,850 18,152,594 $4.68(1)
Class B $ 25,707,519 5,492,664 $4.68
Class C $ 3,920,939 837,650 $4.68
Class I $239,767,272 51,289,600 $4.67
Class R4 $ 60,808 13,008 $4.67
- -----------------------------------------------------------------------------------------
</Table>
(1) The maximum offering price per share for Class A is $4.91. 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 SEMIANNUAL REPORT 27
STATEMENT OF OPERATIONS --------------------------------------------------------
SIX MONTHS ENDED NOV. 30, 2008 (UNAUDITED)
<Table>
<Caption>
INVESTMENT INCOME
Income:
Interest $ 10,335,877
Income distributions from affiliated money market fund 181,474
- --------------------------------------------------------------------------
Total income 10,517,351
- --------------------------------------------------------------------------
Expenses:
Investment management services fees 917,559
Distribution fees
Class A 112,771
Class B 143,414
Class C 20,294
Transfer agency fees
Class A 97,942
Class B 32,855
Class C 4,536
Class R4 3,376
Administrative services fees 133,811
Plan administration services fees -- Class R4 16,883
Compensation of board members 5,250
Custodian fees 32,345
Printing and postage 32,026
Registration fees 38,000
Professional fees 20,410
Other 5,727
- --------------------------------------------------------------------------
Total expenses 1,617,199
Expenses waived/reimbursed by the Investment Manager and
its affiliates (308,605)
Earnings and bank fee credits on cash balances (1,178)
- --------------------------------------------------------------------------
Total net expenses 1,307,416
- --------------------------------------------------------------------------
Investment income (loss) -- net 9,209,935
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions 308,660
Futures contracts (6,441,130)
- --------------------------------------------------------------------------
Net realized gain (loss) on investments (6,132,470)
Net change in unrealized appreciation (depreciation) on
investments (18,646,932)
- --------------------------------------------------------------------------
Net gain (loss) on investments (24,779,402)
- --------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $(15,569,467)
- --------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
28 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
NOV. 30, 2008 MAY 31, 2008
(UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 9,209,935 $ 19,201,708
Net realized gain (loss) on investments (6,132,470) (883,804)
Net change in unrealized appreciation (depreciation) on
investments (18,646,932) 282,877
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (15,569,467) 18,600,781
- -------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (2,079,287) (4,636,312)
Class B (549,867) (1,375,945)
Class C (78,303) (166,238)
Class I (6,197,343) (10,669,521)
Class R4 (288,765) (1,927,487)
- -------------------------------------------------------------------------------------------------
Total distributions (9,193,565) (18,775,503)
- -------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales
Class A shares 11,480,895 21,261,899
Class B shares 3,500,050 7,521,919
Class C shares 574,402 493,948
Class I shares 69,365,400 60,497,906
Class R4 shares 57,982 3,560,740
Reinvestment of distributions at net asset value
Class A shares 1,848,084 4,221,397
Class B shares 495,381 1,272,184
Class C shares 69,943 153,418
Class I shares 6,107,947 10,765,444
Class R4 shares 159,620 1,945,056
Payments for redemptions
Class A shares (17,887,826) (40,583,767)
Class B shares (10,120,533) (19,411,598)
Class C shares (644,056) (1,336,741)
Class I shares (41,693,240) (57,241,980)
Class R4 shares (41,359,539) (2,867,441)
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital share transactions (18,045,490) (9,747,616)
- -------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (42,808,522) (9,922,338)
Net assets at beginning of period 397,193,910 407,116,248
- -------------------------------------------------------------------------------------------------
Net assets at end of period $354,385,388 $397,193,910
- -------------------------------------------------------------------------------------------------
Undistributed net investment income $ 85,806 $ 69,436
- -------------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 29
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.92 $5.12 $5.03
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11(b) .23(b) .22 .21 .19
Net gains (losses) (both realized and
unrealized) (.31) (.02) .09 (.20) .10
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.20) .21 .31 .01 .29
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.11) (.22) (.23) (.20) (.20)
Distributions from realized gains -- -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.22) (.23) (.21) (.20)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.68 $4.99 $5.00 $4.92 $5.12
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $85 $95 $111 $126 $159
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.09%(e) 1.09% 1.17% 1.19% 1.10%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .89%(e) .89% .89% .89% .95%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.62%(e) 4.56% 4.45% 4.08% 3.67%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 217%(h) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (4.03%)(j) 4.31% 6.30% .12% 5.78%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the six months ended Nov. 30, 2008 and for the year ended May 31,
2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 108% for the six months
ended Nov. 30, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
30 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.93 $5.12 $5.04
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09(b) .19(b) .19 .17 .15
Net gains (losses) (both realized and
unrealized) (.31) (.01) .07 (.19) .09
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.22) .18 .26 (.02) .24
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.19) (.19) (.16) (.16)
Distributions from realized gains -- -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.19) (.19) (.17) (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.68 $4.99 $5.00 $4.93 $5.12
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $26 $34 $44 $64 $98
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.85%(e) 1.86% 1.94% 1.95% 1.86%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.65%(e) 1.65% 1.64% 1.64% 1.69%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.84%(e) 3.79% 3.70% 3.31% 2.90%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 217%(h) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (4.39%)(j) 3.53% 5.30% (.42%) 4.78%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the six months ended Nov. 30, 2008 and for the year ended May 31,
2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 108% for the six months
ended Nov. 30, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 31
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(k) 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.93 $5.12 $5.04
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09(b) .19(b) .19 .17 .15
Net gains (losses) (both realized and
unrealized) (.31) (.01) .07 (.19) .09
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.22) .18 .26 (.02) .24
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.19) (.19) (.16) (.16)
Distributions from realized gains -- -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.19) (.19) (.17) (.16)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.68 $4.99 $5.00 $4.93 $5.12
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $4 $4 $5 $7 $11
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) 1.84%(e) 1.85% 1.94% 1.95% 1.85%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) 1.65%(e) 1.65% 1.64% 1.64% 1.70%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.87%(e) 3.80% 3.70% 3.31% 2.90%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 217%(h) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return(i) (4.39%)(j) 3.53% 5.30% (.43%) 4.79%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the six months ended Nov. 30, 2008 and for the year ended May 31,
2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 108% for the six months
ended Nov. 30, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
(k) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
32 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS I
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.92 $5.11 $5.03
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .12(b) .25(b) .24 .22 .20
Net gains (losses) (both realized and
unrealized) (.32) (.02) .08 (.19) .09
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.20) .23 .32 .03 .29
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.12) (.24) (.24) (.21) (.21)
Distributions from realized gains -- -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.24) (.24) (.22) (.21)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.67 $4.99 $5.00 $4.92 $5.11
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $240 $222 $207 $6 $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .62%(e) .63% .63% .73% .66%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .48%(e) .48% .54% .54% .62%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 5.05%(e) 4.97% 4.90% 4.99% 3.99%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 217%(h) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return (4.03%)(i) 4.74% 6.68% .59% 5.92%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the six months ended Nov. 30, 2008 and for the year ended May 31,
2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 108% for the six months
ended Nov. 30, 2008.
(i) Not annualized.
(j) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 33
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
CLASS R4
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
Fiscal period ended May 31, 2008(j) 2008 2007 2006 2005
Net asset value, beginning of period $4.99 $5.00 $4.92 $5.11 $5.03
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .11(b) .23(b) .23 .21 .20
Net gains (losses) (both realized and
unrealized) (.23) (.01) .08 (.19) .08
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (.12) .22 .31 .02 .28
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.23) (.23) (.20) (.20)
Distributions from realized gains -- -- -- (.01) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.23) (.23) (.21) (.20)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.67 $4.99 $5.00 $4.92 $5.11
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $-- $42 $40 $35 $--
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement(c),(d) .89%(e) .93% .99% 1.04% .94%
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement(d),(f),(g) .70%(e) .75% .71% .71% .77%
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.39%(e) 4.69% 4.63% 4.40% 3.99%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 217%(h) 354% 306% 178% 137%
- --------------------------------------------------------------------------------------------------------------
Total return (2.38%)(i) 4.46% 6.51% .49% 5.75%
- --------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Per share amounts have been calculated using the average shares outstanding
method.
(c) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(d) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(e) Adjusted to an annual basis.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits were less than 0.01% of average net
assets for the six months ended Nov. 30, 2008 and for the year ended May 31,
2008.
(h) Includes mortgage dollar rolls. If mortgage dollar roll transactions were
excluded, the portfolio turnover would have been 108% for the six months
ended Nov. 30, 2008.
(i) Not annualized.
(j) Six months ended Nov. 30, 2008 (Unaudited).
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
34 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
(UNAUDITED AS TO NOV. 30, 2008)
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 Nov. 30, 2008, RiverSource Investments, LLC (RiverSource Investments or the
Investment Manager) and the RiverSource affiliated funds-of-funds owned 100% of
Class I shares. At Nov. 30, 2008, the Investment Manager and the RiverSource
affiliated funds-of-funds owned approximately 68% of the total outstanding Fund
shares.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g., distribution and service fees, transfer agency
fees, plan administration services fees) differ among classes. Income, expenses
(other than class specific expenses) and realized and unrealized gains or losses
on investments are allocated to each class of shares based upon its relative net
assets.
The Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 35
VALUATION OF SECURITIES
Effective June 1, 2008, the Fund adopted Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statement of Operations for a fiscal period. There was no impact to the
Fund's net assets or results of operations upon adoption. The fair valuation
measurements disclosure can be found following the Notes to Portfolio of
Investments.
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
When market quotes are not readily available, the pricing service, in
determining fair values of debt securities, takes into consideration such
factors as current quotations by broker/dealers, coupon, maturity, quality, type
of issue, trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. The procedures adopted by the Board
generally contemplate the use of fair valuation in the event that price
quotations or valuations are not readily available, price quotations or
valuations from other sources are not reflective of market value and thus deemed
unreliable, or a significant event has occurred in relation to a security or
class of securities that is not reflected in price quotations or valuations from
other sources. A fair value price is a good faith estimate of the value of a
security at a given point in time. Swap transactions are valued through an
authorized pricing service, broker, or an internal model.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost, which
approximates fair value.
ILLIQUID SECURITIES
At Nov. 30, 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. The aggregate value of such securities at Nov. 30, 2008 was
$8,192 representing less than 0.01% of net assets. Certain illiquid securities
may be valued by management 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.
- --------------------------------------------------------------------------------
36 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS
Delivery and payment for securities that have been purchased by the Fund on a
forward-commitment basis, including when-issued securities and other forward-
commitments, can take place one month or more after the transaction date. During
this period, such securities are subject to market fluctuations, and they may
affect the Fund's net assets the same as owned securities. The Fund designates
cash or liquid securities at least equal to the amount of its forward-
commitments. At Nov. 30, 2008, the Fund has outstanding when-issued securities
of $140,145,669.
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 to secure certain over-the-counter options (OTC options)
trades. Cash collateral held by the Fund for such option trades must be returned
to the counterparty upon closure, exercise or expiration of the contract. The
risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases. The risk in writing a put
option is that the Fund may incur a loss if the market price of the security
decreases and the option is exercised. The risk in buying an option is that the
Fund pays a premium whether or not the option is exercised. The Fund also has
the additional risk of being unable to enter into a closing transaction if a
liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. Option
contracts, including OTC option contracts, with no readily available market
value are valued using quotations obtained from independent brokers of the New
York
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 37
Stock Exchange. 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 Nov. 30, 2008, and for the six months
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 and options on 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
"Valuation of securities" above. The forward sale commitment is "marked-to-
market" daily and the change in market value is recorded by the Fund as an
unrealized gain or loss. If the forward sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund realizes a gain or
loss. If the Fund delivers securities under the commitment, the Fund realizes a
gain or a loss from the sale of the securities based upon the market price
established at the date the commitment was entered into. At Nov. 30, 2008, the
Fund had no outstanding forward sale commitments.
- --------------------------------------------------------------------------------
38 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
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 Nov. 30, 2008, the Fund had no outstanding CMBS total return
swap contracts.
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.
Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes," clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB Statement 109,
"Accounting for Income Taxes." FIN 48 provides guidance for how uncertain tax
positions should be recognized, measured, presented and disclosed in the
financial statements. Management of the Fund has concluded that there are no
significant uncertain tax positions that would require recognition in the
financial
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 39
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.
RECENT ACCOUNTING PRONOUNCEMENT
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 periods beginning after Nov. 15, 2008. As of
Nov. 30, 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.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and payable monthly, when
available, are reinvested in additional shares of the Fund at net asset value or
payable in cash. Capital gains, when available, are distributed along with the
last income dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
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%
- --------------------------------------------------------------------------------
40 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
to 0.29% annually as the Fund's assets increase. The management fee for the six
months ended Nov. 30, 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 six months ended Nov. 30, 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 six months ended Nov.
30, 2008, other expenses paid to this company were $426.
COMPENSATION OF BOARD MEMBERS
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of the Fund or other
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.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 41
DISTRIBUTION FEES
The Fund has an agreement with RiverSource Distributors, Inc. and RiverSource
Fund Distributors, Inc. (collectively, the Distributor) for distribution and
shareholder services. Under a Plan and Agreement of Distribution pursuant to
Rule 12b-1, the Fund pays a fee at an annual rate of up to 0.25% of the Fund's
average daily net assets attributable to Class A shares and a fee at an annual
rate of up to 1.00% of the Fund's average daily net assets attributable to Class
B and Class C shares. For Class B and Class C shares, up to 0.75% of the fee is
reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed expense") was approximately $990,000 and $33,000 for
Class B and Class C shares, respectively. These amounts are based on the most
recent information available as of Oct. 31, 2008, and may be recovered from
future payments under the distribution plan or CDSC. To the extent the
unreimbursed expense has been fully recovered, the distribution fee is reduced.
SALES CHARGES
Sales charges received by the Distributor for distributing Fund shares were
$25,765 for Class A, $15,773 for Class B and $153 for Class C for the six months
ended Nov. 30, 2008.
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the six months ended Nov. 30, 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............................................ 0.70
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
Class A........................................... $25,768
Class B........................................... 8,474
Class C........................................... 1,156
Class R4.......................................... 2,916
</Table>
The waived/reimbursed fees and expenses for the plan administration services
fees were as follows:
<Table>
Class R4.......................................... $1,161
</Table>
The management fees waived/reimbursed at the Fund level were $269,130.
- --------------------------------------------------------------------------------
42 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
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.
EARNINGS AND BANK FEE CREDITS
During the six months ended Nov. 30, 2008, the Fund's transfer agency fees were
reduced by $1,178 as a result of bank fee credits from overnight cash balances.
CUSTODIAN FEES
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, but including mortgage-dollar rolls) aggregated $1,081,627,856 and
$1,087,277,213, respectively, for the six months ended Nov. 30, 2008. Realized
gains and losses are determined on an identified cost basis.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
<Table>
<Caption>
SIX MONTHS ENDED NOV. 30, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ----------------------------------------------------------------------------------
Class A 2,357,075 382,593 (3,689,294) (949,626)
Class B 721,432 102,422 (2,072,510) (1,248,656)
Class C 117,564 14,467 (132,384) (353)
Class I 14,224,430 1,265,728 (8,620,044) 6,870,114
Class R4 18,263 32,391 (8,542,730) (8,492,076)
- ----------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 43
<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>
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 $120,240,348 and $141,553,986, respectively, for the six
months ended Nov. 30, 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 Nov. 30, 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
led by JPMorgan Chase Bank, N.A. (the Administrative Agent), whereby the Fund
may borrow for the temporary funding of shareholder redemptions or for other
temporary or emergency purposes. The credit facility became effective on Oct.
16, 2008, replacing a prior credit facility. The credit facility agreement,
which is a collective agreement between the Fund and certain other RiverSource
funds, severally and not jointly, permits collective borrowings up to $475
million. The borrowers shall have the right, upon written notice to the
Administrative Agent to request an increase of up to $175 million in the
aggregate amount of the credit facility from new or existing lenders, provided
that the aggregate amount of the credit facility shall at no time exceed $650
million. Participation in such increase by any existing lender shall be at such
lender's sole discretion. Interest is charged to each Fund based on its
borrowings at a rate equal to the federal funds rate plus 0.75%. Each borrowing
under the credit facility matures no later than 60 days after the date of
borrowing. The Fund also pays a commitment fee equal to its pro rata share of
the amount of the credit facility at a rate of 0.06% per annum, in addition to
an upfront fee equal to its pro rata share of 0.02% of the amount of the credit
facility. The Fund had no borrowings during the six months ended Nov. 30, 2008.
- --------------------------------------------------------------------------------
44 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
Under the prior credit facility which was effective until Oct. 15, 2008, the
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A., whereby the Fund was permitted to borrow
for the temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The credit facility agreement, which was a collective
agreement between the Fund and certain other RiverSource funds, severally and
not jointly, permitted collective borrowings up to $500 million. Interest was
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matured no later
than 60 days after the date of borrowing. The Fund also paid a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum.
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 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.
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 45
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any violations of certain
provisions of the Investment Advisers Act of 1940, the Investment Company Act of
1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million
and civil money penalties of $7 million. AEFC also agreed to retain an
independent distribution consultant to assist in developing a plan for
distribution of all disgorgement and civil penalties ordered by the SEC in
accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co., Inc. (Seligman). In late 2003,
Seligman conducted an extensive internal review concerning mutual fund trading
practices. Seligman's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies managed by Seligman (the Seligman Funds); this arrangement
was in the process of being closed down by Seligman before September 2003.
Seligman identified three other arrangements that permitted frequent trading,
all of which had been terminated by September 2002. In January 2004, Seligman,
on a voluntary basis, publicly disclosed these four arrangements to its clients
and to shareholders of the Seligman Funds. Seligman also provided information
concerning mutual fund trading practices to the SEC and the Office of the
Attorney General of the State of New York (NYAG). In September 2005, the New
York staff of the SEC indicated that it was considering recommending to the
Commissioners of the SEC the instituting of a formal action against Seligman and
the distributor of the Seligman Funds, Seligman Advisors, Inc., relating to
frequent trading in the Seligman Funds. Seligman responded to the staff in
October 2005 that it believed that any action would be both inappropriate and
unnecessary, especially in light of the fact that Seligman had previously
resolved the underlying issue with the Independent Directors of the Seligman
Funds and made recompense to the affected Seligman Funds.
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc., Seligman Data Corp. (transfer
agent for the Seligman Funds) and Brian T. Zino (collectively, the Seligman
Parties), alleging, in substance, that, in addition to the four arrangements
noted above, the Seligman Parties permitted other persons to engage in frequent
trading and, as a result, the prospectus disclosure used by the
- --------------------------------------------------------------------------------
46 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
registered investment companies managed by Seligman is and has been misleading.
The NYAG included other related claims and also claimed that the fees charged by
Seligman to the Seligman Funds were excessive. The NYAG is seeking damages of at
least $80 million and restitution, disgorgement, penalties and costs and
injunctive relief. The Seligman Parties answered the complaint in December 2006
and believe that the claims are without merit. Any resolution of these matters
may include the relief noted above or other sanctions or changes in procedures.
Any damages would be paid by Seligman and not by the Seligman Funds. If the NYAG
obtains injunctive relief, each of Seligman, RiverSource Investments and their
affiliates could, in the absence of the SEC in its discretion granting exemptive
relief, be enjoined from providing advisory and underwriting services to the
Seligman Funds and other registered investment companies including those funds
in the RiverSource complex of funds. Neither Seligman nor RiverSource
Investments believes that the foregoing legal action or other possible actions
will have a material adverse impact on Seligman, RiverSource Investments or
their current or former clients, including the Seligman Funds and other
investment companies managed by RiverSource Investments; however, there can be
no assurance of this or that these matters and any related publicity will not
affect demand for shares of the Seligman Funds and such other investment
companies or have other adverse consequences.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material
- --------------------------------------------------------------------------------
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 47
adverse effect on the consolidated financial condition or results of operations
of Ameriprise Financial.
9. SUBSEQUENT EVENT
Effective Dec. 15, 2008, the Fund will pay custodian fees to JPMorgan Chase
Bank, N.A.
- --------------------------------------------------------------------------------
48 RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling 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 U.S. GOVERNMENT MORTGAGE FUND -- 2008 SEMIANNUAL REPORT 49
RIVERSOURCE U.S. GOVERNMENT MORTGAGE FUND
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus.
RiverSource(R) mutual funds are distributed by RiverSource
Distributors, Inc., and RiverSource Fund Distributors, Inc.,
Members FINRA, and managed by RiverSource Investments, LLC.
RiverSource is part of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2009 RiverSource Investments, LLC. S-6256 H (1/09)
</Table>
Item 2. Code of Ethics. Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert. Not applicable for semi-annual
reports.
Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual
reports.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's Principal Financial Officer and Principal Executive Officer
have concluded that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal controls over financial
reporting that occurred during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached
as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource Government Income Series, Inc.
By /s/ Patrick T. Bannigan
-----------------------------------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date February 3, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Patrick T. Bannigan
-----------------------------------------------
Patrick T. Bannigan
President and Principal Executive Officer
Date February 3, 2009
By /s/ Jeffrey P. Fox
-----------------------------------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date February 3, 2009