N-CSR 1 n18890nvcsr.txt FORM N-CSR 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 811-4646 RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 (Address of principal executive offices) (Zip code) Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474 (Name and address of agent for service) Registrant's telephone number, including area code: (612) 671-1947 Date of fiscal year end: 8/31 Date of reporting period: 8/31 Annual Report and Prospectus (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE(R) CALIFORNIA TAX-EXEMPT FUND RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND RIVERSOURCE MICHIGAN TAX-EXEMPT FUND RIVERSOURCE MINNESOTA TAX-EXEMPT FUND RIVERSOURCE NEW YORK TAX-EXEMPT FUND RIVERSOURCE OHIO TAX-EXEMPT FUND ANNUAL REPORT FOR THE PERIOD ENDED AUGUST 31, 2007 (Prospectus also enclosed) EACH FUND SEEKS TO PROVIDE SHAREHOLDERS WITH A HIGH LEVEL OF INCOME GENERALLY EXEMPT FROM FEDERAL INCOME TAX AS WELL AS FROM THE RESPECTIVE STATE AND LOCAL INCOME TAX. This annual report includes a prospectus that describes in detail the Fund's objective, investment strategy, risks, sales charges, fees and other matters of interest. Please read the prospectus carefully before you invest or send money. TABLE OF CONTENTS Fund Snapshot RiverSource California Tax-Exempt Fund.......................... 2 RiverSource Massachusetts Tax-Exempt Fund............... 3 RiverSource Michigan Tax-Exempt Fund.......................... 4 RiverSource Minnesota Tax-Exempt Fund.......................... 5 RiverSource New York Tax-Exempt Fund.......................... 6 RiverSource Ohio Tax-Exempt Fund.......................... 7 Performance Summary RiverSource California Tax-Exempt Fund.......................... 8 RiverSource Massachusetts Tax-Exempt Fund............... 10 RiverSource Michigan Tax-Exempt Fund.......................... 12 RiverSource Minnesota Tax-Exempt Fund.......................... 14 RiverSource New York Tax-Exempt Fund.......................... 16 RiverSource Ohio Tax-Exempt Fund.......................... 18 Questions & Answers with Portfolio Management....................... 20 The Fund's Long-term Performance RiverSource California Tax-Exempt Fund.......................... 24 RiverSource Massachusetts Tax-Exempt Fund............... 26 RiverSource Michigan Tax-Exempt Fund.......................... 28 RiverSource Minnesota Tax-Exempt Fund.......................... 30 RiverSource New York Tax-Exempt Fund.......................... 32 RiverSource Ohio Tax-Exempt Fund.......................... 34 Investments in Securities RiverSource California Tax-Exempt Fund.......................... 36 RiverSource Massachusetts Tax-Exempt Fund............... 41 RiverSource Michigan Tax-Exempt Fund.......................... 45 RiverSource Minnesota Tax-Exempt Fund.......................... 49 RiverSource New York Tax-Exempt Fund.......................... 54 RiverSource Ohio Tax-Exempt Fund.......................... 58 Financial Statements................ 61 Notes to Financial Statements....... 71 Report of Independent Registered Public Accounting Firm........... 103 Federal Income Tax Information...... 104 Fund Expenses Examples.............. 113 Board Members and Officers.......... 117 Approval of Investment Management Services Agreement............... 119 Proxy Voting........................ 120 Change in Independent Registered Public Accounting Firm........... 120
(DALBAR LOGO) The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 1 FUND SNAPSHOT AT AUG. 31, 2007 RiverSource California Tax-Exempt Fund FUND OBJECTIVE For California investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets AAA bonds 51.6% AA bonds 9.6% A bonds 25.2% BBB bonds 5.3% Non-investment grade bonds 5.0% Non-rated bonds 3.3%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 5.0% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 19
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A ICALX 08/18/86 Class B ACABX 03/20/95 Class C RCTCX 06/26/00 Total net assets $172.2 million Number of holdings 114 Effective maturity(1) 14.8 years Effective duration(2) 7.2 years Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY 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. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. -------------------------------------------------------------------------------- 2 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT FUND SNAPSHOT AT AUG. 31, 2007 RiverSource Massachusetts Tax-Exempt Fund FUND OBJECTIVE For Massachusetts investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA bonds 61.1% AA bonds 23.3% A bonds 6.6% BBB bonds 7.9% Non-investment grade bonds 1.1%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 19
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A IDMAX 07/02/87 Class B AXMBX 03/20/95 Class C -- 06/26/00 Total net assets $47.1 million Number of holdings 62 Effective maturity(1) 12.3 years Effective duration(2) 6.6 years Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY 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. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 3 FUND SNAPSHOT AT AUG. 31, 2007 RiverSource Michigan Tax-Exempt Fund FUND OBJECTIVE For Michigan investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA bonds 76.1% AA bonds 10.5% A bonds 5.1% BBB bonds 7.7% Non-investment grade bonds 0.6%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.7% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 19
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A INMIX 07/02/87 Class B -- 03/20/95 Class C -- 06/26/00 Total net assets $39.9 million Number of holdings 57 Effective maturity(1) 11.9 years Effective duration(2) 6.1 years Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY 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. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. -------------------------------------------------------------------------------- 4 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT FUND SNAPSHOT AT AUG. 31, 2007 RiverSource Minnesota Tax-Exempt Fund FUND OBJECTIVE For Minnesota investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA bonds 53.8% AA bonds 22.1% A bonds 13.3% BBB bonds 7.5% Non-investment grade bonds 3.3%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 4.5% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 19
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A IMNTX 08/18/86 Class B IDSMX 03/20/95 Class C RMTCX 06/26/00 Total net assets $314.5 million Number of holdings 135 Effective maturity(1) 11.8 years Effective duration(2) 6.5 years Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY 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. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 5 FUND SNAPSHOT AT AUG. 31, 2007 RiverSource New York Tax-Exempt Fund FUND OBJECTIVE For New York investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets AAA bonds 53.6% AA bonds 29.7% A bonds 6.0% BBB bonds 8.8% Non-investment grade bonds 1.9%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 19
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A INYKX 08/18/86 Class B -- 03/20/95 Class C RNTCX 06/26/00 Total net assets $63.7 million Number of holdings 78 Effective maturity(1) 14.5 years Effective duration(2) 7.0 years Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY 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. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. -------------------------------------------------------------------------------- 6 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT FUND SNAPSHOT AT AUG. 31, 2007 RiverSource Ohio Tax-Exempt Fund FUND OBJECTIVE For Ohio investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets AAA bonds 61.7% AA bonds 32.0% A bonds 3.8% BBB bonds 2.5%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.2% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 19
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A IOHIX 07/02/87 Class B -- 03/20/95 Class C -- 06/26/00 Total net assets $42.1 million Number of holdings 60 Effective maturity(1) 12.5 years Effective duration(2) 6.5 years Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY 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. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 7 PERFORMANCE SUMMARY RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended Aug. 31, 2007 (BAR CHART) RiverSource California Tax-Exempt Fund Class A (excluding sales charges) +1.35% Lehman Brothers California 2 Plus Year Municipal Bond Index (unmanaged) +2.03% Lehman Brothers Municipal Bond Index (unmanaged) +2.30% Lipper California Municipal Debt Funds Index +1.07%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 0.88% 0.80% Class B 1.63% 1.55% Class C 1.63% 1.55%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.01 of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. -------------------------------------------------------------------------------- 8 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY RiverSource California Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT AUG. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +1.35% +3.26% +3.52% +4.42% +5.69% Class B (inception 3/20/95) +0.59% +2.48% +2.74% +3.64% +4.07% Class C (inception 6/26/00) +0.60% +2.55% +2.74% N/A +4.04% WITH SALES CHARGE Class A (inception 8/18/86) -3.45% +1.60% +2.52% +3.92% +5.45% Class B (inception 3/20/95) -4.29% +1.25% +2.40% +3.64% +4.07% Class C (inception 6/26/00) -0.38% +2.55% +2.74% N/A +4.04%
AT SEPT. 30, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +4.03% +4.40% +4.50% +5.05% +5.93% Class B (inception 3/20/95) +3.45% +3.68% +3.75% +4.26% +4.40% Class C (inception 6/26/00) +3.45% +3.68% +3.75% N/A +4.65% WITH SALES CHARGE Class A (inception 8/18/86) -0.91% +2.72% +3.49% +4.53% +5.67% Class B (inception 3/20/95) -1.51% +2.45% +3.41% +4.26% +4.40% Class C (inception 6/26/00) +2.46% +3.68% +3.75% N/A +4.65%
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. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 9 PERFORMANCE SUMMARY RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended Aug. 31, 2007 (BAR CHART) RiverSource Massachusetts Tax-Exempt Fund Class A (excluding sales charges) +1.33% Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +2.32% Lehman Brothers Municipal Bond Index (unmanaged) +2.30% Lipper Massachusetts Municipal Debt Funds Index +1.48%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.06% 0.83% Class B 1.81% 1.58% Class C 1.82% 1.58%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.04% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. -------------------------------------------------------------------------------- 10 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY RiverSource Massachusetts Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT AUG. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +1.33% +2.60% +2.92% +4.00% +5.56% Class B (inception 3/20/95) +0.57% +1.83% +2.14% +3.22% +3.75% Class C (inception 6/26/00) +0.56% +1.76% +2.11% N/A +3.67% WITH SALES CHARGE Class A (inception 7/2/87) -3.48% +0.95% +1.93% +3.50% +5.31% Class B (inception 3/20/95) -4.32% +0.57% +1.79% +3.22% +3.75% Class C (inception 6/26/00) -0.41% +1.76% +2.11% N/A +3.67%
AT SEPT. 30, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +3.84% +3.47% +4.01% +4.64% +5.80% Class B (inception 3/20/95) +3.06% +2.69% +3.23% +3.86% +4.06% Class C (inception 6/26/00) +3.06% +2.69% +3.23% N/A +4.26% WITH SALES CHARGE Class A (inception 7/2/87) -1.09% +1.80% +3.00% +4.14% +5.53% Class B (inception 3/20/95) -1.93% +1.43% +2.87% +3.86% +4.06% Class C (inception 6/26/00) +2.06% +2.69% +3.23% N/A +4.26%
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. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 11 PERFORMANCE SUMMARY RIVERSOURCE MICHIGAN TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended Aug. 31, 2007 (BAR CHART) RiverSource Michigan Tax-Exempt Fund Class A (excluding sales charges) +2.07% Lehman Brothers Michigan Municipal Bond Index (unmanaged) +2.57% Lehman Brothers Municipal Bond Index (unmanaged) +2.30% Lipper Michigan Municipal Debt Funds Index +1.83%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.08% 0.81% Class B 1.81% 1.57% Class C 1.83% 1.56%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.02% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.55% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. -------------------------------------------------------------------------------- 12 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY RiverSource Michigan Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT AUG. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +2.07% +2.93% +3.45% +4.21% +5.76% Class B (inception 3/20/95) +1.10% +2.15% +2.66% +3.42% +3.88% Class C (inception 6/26/00) +1.11% +2.15% +2.66% N/A +4.03% WITH SALES CHARGE Class A (inception 7/2/87) -2.78% +1.27% +2.44% +3.70% +5.50% Class B (inception 3/20/95) -3.81% +0.89% +2.31% +3.42% +3.88% Class C (inception 6/26/00) +0.13% +2.15% +2.66% N/A +4.03%
AT SEPT. 30, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +3.92% +3.64% +4.33% +4.71% +5.96% Class B (inception 3/20/95) +3.33% +2.92% +3.54% +3.94% +4.15% Class C (inception 6/26/00) +3.33% +2.92% +3.54% N/A +4.55% WITH SALES CHARGE Class A (inception 7/2/87) -1.02% +1.97% +3.32% +4.20% +5.70% Class B (inception 3/20/95) -1.66% +1.67% +3.20% +3.94% +4.15% Class C (inception 6/26/00) +2.33% +2.92% +3.54% N/A +4.55%
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. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 13 PERFORMANCE SUMMARY RIVERSOURCE MINNESOTA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended Aug. 31, 2007 (BAR CHART) RiverSource Minnesota Tax-Exempt Fund Class A (excluding sales charges) +1.26% Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +2.17% Lehman Brothers Municipal Bond Index (unmanaged) +2.30% Lipper Minnesota Municipal Debt Funds Index +1.42%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.06% 1.00% Class B 1.81% 1.75% Class C 1.82% 1.75%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.20% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. -------------------------------------------------------------------------------- 14 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY RiverSource Minnesota Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT AUG. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +1.26% +2.55% +3.26% +4.28% +5.74% Class B (inception 3/20/95) +0.70% +1.84% +2.53% +3.52% +4.01% Class C (inception 6/26/00) +0.70% +1.84% +2.53% N/A +3.92% WITH SALES CHARGE Class A (inception 8/18/86) -3.55% +0.90% +2.26% +3.77% +5.50% Class B (inception 3/20/95) -4.19% +0.58% +2.17% +3.52% +4.01% Class C (inception 6/26/00) -0.28% +1.84% +2.53% N/A +3.92%
AT SEPT. 30, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +4.02% +3.50% +4.41% +4.93% +5.98% Class B (inception 3/20/95) +3.24% +2.73% +3.63% +4.14% +4.33% Class C (inception 6/26/00) +3.23% +2.72% +3.62% N/A +4.50% WITH SALES CHARGE Class A (inception 8/18/86) -0.92% +1.84% +3.40% +4.42% +5.72% Class B (inception 3/20/95) -1.76% +1.46% +3.28% +4.14% +4.33% Class C (inception 6/26/00) +2.23% +2.72% +3.62% N/A +4.50%
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. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 15 PERFORMANCE SUMMARY RIVERSOURCE NEW YORK TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended Aug. 31, 2007 (BAR CHART) RiverSource New York Tax-Exempt Fund Class A (excluding sales charges) +1.53% Lehman Brothers New York 4 Plus Year Municipal Bond Index (unmanaged) +2.21% Lehman Brothers Municipal Bond Index (unmanaged) +2.30% Lipper New York Municipal Debt Funds Index +1.42%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.18% 1.00% Class B 1.93% 1.75% Class C 1.93% 1.75%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.21% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. -------------------------------------------------------------------------------- 16 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY RiverSource New York Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT AUG. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +1.53% +2.79% +3.25% +4.29% +5.55% Class B (inception 3/20/95) +0.76% +2.02% +2.47% +3.51% +3.90% Class C (inception 6/26/00) +0.56% +1.95% +2.43% N/A +3.96% WITH SALES CHARGE Class A (inception 8/18/86) -3.29% +1.14% +2.25% +3.79% +5.31% Class B (inception 3/20/95) -4.12% +0.78% +2.13% +3.51% +3.90% Class C (inception 6/26/00) -0.42% +1.95% +2.43% N/A +3.96%
AT SEPT. 30, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +4.05% +3.52% +4.43% +4.95% +5.77% Class B (inception 3/20/95) +3.27% +2.74% +3.64% +4.16% +4.20% Class C (inception 6/26/00) +3.27% +2.74% +3.64% N/A +4.57% WITH SALES CHARGE Class A (inception 8/18/86) -0.90% +1.85% +3.42% +4.44% +5.51% Class B (inception 3/20/95) -1.70% +1.52% +3.30% +4.16% +4.20% Class C (inception 6/26/00) +2.27% +2.74% +3.64% N/A +4.57%
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. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 17 PERFORMANCE SUMMARY RIVERSOURCE OHIO TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended Aug. 31, 2007 (BAR CHART) RiverSource Ohio Tax-Exempt Fund Class A (excluding sales charges) +1.55% Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index (unmanaged) +2.37% Lehman Brothers Municipal Bond Index (unmanaged) +2.30% Lipper Ohio Municipal Debt Funds Index +1.84%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.07% 0.81% Class B 1.81% 1.56% Class C 1.82% 1.56%
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.02% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. -------------------------------------------------------------------------------- 18 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT PERFORMANCE SUMMARY RiverSource Ohio Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT AUG. 31, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +1.55% +2.52% +2.90% +4.00% +5.55% Class B (inception 3/20/95) +0.78% +1.74% +2.12% +3.22% +3.68% Class C (inception 6/26/00) +0.77% +1.74% +2.11% N/A +3.51% WITH SALES CHARGE Class A (inception 7/2/87) -3.27% +0.87% +1.90% +3.50% +5.29% Class B (inception 3/20/95) -4.13% +0.47% +1.76% +3.22% +3.68% Class C (inception 6/26/00) -0.21% +1.74% +2.11% N/A +3.51%
AT SEPT. 30, 2007 SINCE WITHOUT SALES CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +3.64% +3.14% +3.92% +4.58% +5.77% Class B (inception 3/20/95) +2.86% +2.35% +3.13% +3.80% +3.97% Class C (inception 6/26/00) +2.86% +2.35% +3.09% N/A +4.01% WITH SALES CHARGE Class A (inception 7/2/87) -1.28% +1.48% +2.91% +4.08% +5.50% Class B (inception 3/20/95) -2.14% +1.09% +2.78% +3.80% +3.97% Class C (inception 6/26/00) +1.86% +2.35% +3.09% N/A +4.01%
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. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 19 QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Catherine Stienstra replaced Rick LaCoff as portfolio manager of the RiverSource State Tax-Exempt Funds in August 2007. Below, Ms. Stienstra discusses the Funds' positioning and results for the 12 months ended Aug. 31, 2007. Q: How did the RiverSource State Tax-Exempt Funds perform for the fiscal year? A: All Fund returns are for Class A shares, excluding sales charge. All returns are for the 12 months ended Aug. 31, 2007. All Lipper categories represent the respective Fund's peer group. - RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND gained 1.35%. The Fund underperformed the Lehman Brothers California 2 Plus Year Municipal Bond Index, which returned 2.03%. The Fund outperformed the Lipper California Municipal Debt Funds Index, which rose 1.07% for the same period. - RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND advanced 1.33%. The Fund underperformed the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, which rose 2.32%, as well as the Lipper Massachusetts Municipal Debt Funds Index, which rose 1.48%, for the same period. - RIVERSOURCE MICHIGAN TAX-EXEMPT FUND gained 2.07%. The Fund underperformed the Lehman Brothers Michigan Municipal Bond Index, which advanced 2.57%. The Fund outperformed the Lipper Michigan Municipal Debt Funds Index, which produced a total return of 1.83% for the same period. - RIVERSOURCE MINNESOTA TAX-EXEMPT FUND increased 1.26%. The Fund underperformed the Lehman Brothers Minnesota 3 Plus Year Municipal Bond Index, which rose 2.17%, as well as the Lipper Minnesota Municipal Debt Funds Index, which rose 1.42%, for the same period. - RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 1.53%. The Fund underperformed the Lehman Brother New York 4 Plus Year Municipal Bond Index, which rose 2.21%. The Fund outperformed the Lipper New York Municipal Debt Funds Index, which increased 1.42% for the same period. - RIVERSOURCE OHIO TAX-EXEMPT FUND increased 1.55%. The Fund underperformed the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, which gained 2.37%, as well as the Lipper Ohio Municipal Debt Funds Index, which gained 1.84%, for the same period. A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, gained 2.30% for the same 12-month period. ALL SIX OF THE RIVERSOURCE STATE TAX-EXEMPT FUNDS BENEFITED FROM YIELD CURVE POSITIONING, THAT IS, THE WAY THE FUNDS WERE POSITIONED TO RESPOND TO CHANGES IN SHORT-TERM VS. LONG-TERM INTEREST RATES. Q: What factors most significantly affected performance during the annual period? A: The tax-exempt fixed income market produced positive performance during the period. Tax-exempt yields hit a low in December 2006 and then gradually moved higher across the tax-exempt yield curve, rising most significantly in the last two months of the fiscal year. Interest rates increased most at the longer-term portion of the yield curve (i.e., 15-year maturities and longer). As fallout from the subprime mortgage market turmoil took hold in July, sparking a flight to U.S. Treasuries, the municipal bond market lagged. Supply/demand imbalances also put pressure on the municipal bond market. All six of the RiverSource State Tax-Exempt Funds benefited from yield curve positioning, that is, the way the Funds were positioned to respond to changes in short-term vs. long-term interest rates. The Funds' modest position in long-term bonds, which performed worst during the annual period, proved prudent. As yields at the long-term end of the yield curve rose, the prices of these bonds decreased. Holding significant allocations to state general obligation bonds helped the results of RiverSource New York Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund and RiverSource California Tax-Exempt Fund. Further supporting RiverSource California Tax-Exempt Fund was its strategic positioning in non-enhanced municipal tobacco bonds. For most of the period, the sector was a strong performer, due primarily to widespread anticipation of the refunding of Golden State Tobacco Securitization Corporation. During these months, the Fund had a significant allocation to this sector. -------------------------------------------------------------------------------- 20 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT QUESTIONS & ANSWERS Bonds that were advance refunded during the period also boosted the return of RiverSource California Tax-Exempt Fund, but had a rather neutral effect on the other RiverSource State Tax-Exempt Funds. Advance refunding is a procedure in which a bond issuer floats a second bond at a lower interest rate, and the proceeds from the sale of the second bond are conservatively invested, usually in Treasury securities, which in turn, are held in escrow collateralizing the first bond. Given that the advance refunded bonds become, essentially, fully tax-exempt U.S. Treasury securities and no longer represent the credit risk profile of the original borrower, they often increase in value -- sometimes significantly. Duration positioning produced mixed results among the Funds. Results of the RiverSource State Tax-Exempt Funds of Michigan, New York and Ohio were helped by their modestly short duration positioning compared to their respective Lehman benchmark index during a period when rates generally rose. Conversely, results of the RiverSource State Tax-Exempt Funds of California, Massachusetts and Minnesota were hurt by their slightly longer duration positions compared to their respective Lehman benchmark index. Duration is a measure of a Fund's sensitivity to changes in interest rates. Having a somewhat sizable exposure to BBB-rated bonds detracted from each of the RiverSource State Tax-Exempt Funds, with the exceptions of those of California and Ohio. (RiverSource California Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund still had a moderate exposure to BBB-rated bonds compared to their respective Lehman benchmark index.) We had added to each of the Fund's allocation to BBB-rated bonds during the first half of the fiscal year on a highly selective basis, as we expected these bonds to perform well and provide attractive income given anticipated technical conditions within the municipal bond market. However, BBB-rated bonds generally underperformed higher quality bonds during the annual period overall. Positions in health care municipal bonds also detracted from the results of the RiverSource State Tax-Exempt Funds of Massachusetts, Minnesota and Ohio. This sector performed well during the first half of the fiscal year, but this was more than offset by its disappointing performance during the second half. RiverSource Massachusetts Tax-Exempt Fund and RiverSource Minnesota Tax-Exempt Fund were also hurt by their holdings in single-family housing bonds. Further detracting from the results of RiverSource Massachusetts Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund were their positions in education municipal bonds. Q: What changes did you make to the Funds and how are they currently positioned? A: We added to each of the Fund's exposure to Commonwealth of Puerto Rico municipal bonds during the first half of the fiscal year. Also, when tax-exempt bond yields rallied in response to the equity market decline in February, we shortened the duration of each of the Funds further, given our view that we believed rates had declined to levels that appeared too low and would ultimately move higher. This removed some interest rate risk from the portfolios. During the second half of the fiscal year, the duration of the RiverSource State Tax-Exempt Funds of California, Massachusetts and Minnesota drifted somewhat longer based on new purchases of BBB-rated bonds, which tend to be longer-dated than higher rated bonds. In the last two months of the period, we increased exposure to non-enhanced municipal tobacco bonds in RiverSource Michigan Tax-Exempt Fund, bringing it to a neutral position compared to its Lehman benchmark index. We also reduced RiverSource California Tax-Exempt Fund's significant allocation to this sector during these months, bringing its comparative position closer to neutral. Finally, we added health care bonds rated A and AA to the RiverSource State Tax-Exempt Funds of California, Massachusetts and Minnesota, as these bonds' relative yields had become more attractive than they had been in approximately five years. WE ALSO INTEND TO CONTINUE TO SELECTIVELY ADD TO THE FUNDS' EXPOSURE TO BBB-RATED BONDS AND OTHER HIGHER YIELDING MUNICIPAL BONDS ON AN OPPORTUNISTIC BASIS. Q: How do you intend to manage the Funds in the coming months? A: We believe the primary factors hanging over the tax-exempt bond market are the ongoing effect of supply/demand pressures within the municipal market and the interest rate cut by the Federal Reserve Board. Together, we expect these factors to cause the tax-exempt fixed income yield curve to steepen further during the coming months. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 21 QUESTIONS & ANSWERS Given our view, we intend to favor a neutral to slightly longer duration positioning for the Funds compared to their respective Lehman benchmark index over the near term. We further intend to watch closely for opportunities to add to the Funds' position in non-enhanced municipal tobacco bonds and in prepaid natural gas municipal bonds, as each of these sectors has significant amounts of pending supply expected to come to market in the months ahead. We also intend to continue to selectively add to the Funds' exposure to BBB-rated bonds and other higher yielding municipal bonds on an opportunistic basis. At the same time, of course, we intend to maintain our focus on seeking higher-quality securities with good structure and on further diversifying the portfolios. Each Fund's emphasis continues to be on generating a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. 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. -------------------------------------------------------------------------------- 22 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT THIS PAGE LEFT BLANK INTENTIONALLY THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource California Tax-Exempt Fund Class A shares (from 9/1/97 to 8/31/07) as compared to the performance of three widely cited performance indices, the Lehman Brothers California 2 Plus Year Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper California Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS
SINCE Results at Aug. 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,655 $10,488 $11,325 $14,683 $30,535 Average annual total return -3.45% +1.60% +2.52% +3.92% +5.45% LEHMAN BROTHERS CALIFORNIA 2 PLUS YEAR MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,203 $11,229 $12,408 $17,031 N/A Average annual total return +2.03% +3.94% +4.41% +5.47% N/A LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,230 $11,100 $12,260 $16,736 $38,653 Average annual total return +2.30% +3.54% +4.16% +5.28% +6.65% LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,107 $11,074 $12,079 $15,924 $34,470 Average annual total return +1.07% +3.46% +3.85% +4.76% +6.07%
Results for other share classes can be found on page 9. -------------------------------------------------------------------------------- 24 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE CALIFORNIA TAX-EXAMPLE FUND LINE GRAPH)
RIVERSOURCE CALIFORNIA LEHMAN BROTHERS TAX-EXEMPT FUND CALIFORNIA 2 PLUS YEAR LEHMAN BROTHERS LIPPER CALIFORNIA CLASS A (INCLUDES SALES MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL DEBTS CHARGE) INDEX(1) INDEX(2) FUNDS INDEX(3) ----------------------- ---------------------- ------------------ ----------------- '97 $ 9,525 $10,000 $10,000 $10,000 '98 10,277 10,905 10,865 10,879 '99 10,167 10,936 10,919 10,782 '00 10,879 11,813 11,659 11,535 '01 11,733 12,988 12,847 12,621 '02 12,353 13,723 13,648 13,182 '03 12,476 13,999 14,077 13,390 '04 13,337 15,165 15,078 14,377 '05 14,115 16,149 15,878 15,267 '06 14,487 16,692 16,359 15,755 '07 14,683 17,031 16,736 15,924
(1) The Lehman Brothers California 2 Plus Year Municipal Bond Index, an unmanaged index, is a market value-weighted index of California investment-grade fixed-rate municipal bonds with maturities of two years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper California Municipal Debt Funds Index includes the 30 largest municipal debt funds in California tracked by Lipper Inc. The Lipper index's returns include net reinvested dividends. (4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index and Lipper peer group data is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers California 2 Plus Year Municipal Bond Index. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 25 THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Massachusetts Tax-Exempt Fund Class A shares (from 9/1/97 to 8/31/07) as compared to the performance of three widely cited performance indices, the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper Massachusetts Municipal Debt Funds index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS
SINCE Results at Aug. 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,652 $10,288 $11,003 $14,102 $28,385 Average annual total return -3.48% +0.95% +1.93% +3.50% +5.31% LEHMAN BROTHERS MASSACHUSETTS 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,232 $11,065 $12,302 $16,971 N/A Average annual total return +2.32% +3.43% +4.23% +5.43% N/A LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,230 $11,100 $12,260 $16,736 $37,411 Average annual total return +2.30% +3.54% +4.16% +5.28% +6.76% LIPPER MASSACHUSETTS MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,148 $10,950 $11,986 $15,740 N/A Average annual total return +1.48% +3.07% +3.69% +4.64% N/A
Results for other share classes can be found on page 11. -------------------------------------------------------------------------------- 26 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND LINE GRAPH)
LEHMAN BROTHERS RIVERSOURCE MASSACHUSETTS 3 PLUS MASSACHUSETTS TAX- YEAR ENHANCED LEHMAN BROTHERS LIPPER MASSACHUSETTS EXEMPT FUND CLASS A MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL DEBT FUNDS (INCLUDES SALES CHARGE) INDEX(1) INDEX(2) INDEX(3) ----------------------- -------------------- ------------------ -------------------- '97 $ 9,525 $10,000 $10,000 $10,000 '98 10,296 10,897 10,865 10,833 '99 10,176 10,890 10,919 10,704 '00 10,596 11,645 11,659 11,300 '01 11,533 12,923 12,847 12,473 '02 12,211 13,798 13,648 13,133 '03 12,309 14,276 14,077 13,493 '04 13,057 15,338 15,078 14,377 '05 13,628 16,135 15,878 15,116 '06 13,917 16,586 16,359 15,510 '07 14,102 16,971 16,736 15,740
(1) The Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Massachusetts investment-grade fixed-rate municipal bonds with maturities of three years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper Massachusetts Municipal Debt Funds Index includes the 10 largest municipal debt funds in Massachusetts tracked by Lipper Inc. The Lipper index's returns include net reinvested dividends. (4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Massachusetts 3 Plus Enhanced Municipal Bond Index and the Lipper peer group. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 27 THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE MICHIGAN TAX-EXEMPT FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Michigan Tax-Exempt Fund Class A shares (from 9/1/97 to 8/31/07) as compared to the performance of three widely cited performance indices, the Lehman Brothers Michigan Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper Michigan Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS
SINCE Results at Aug. 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE MICHIGAN TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,722 $10,386 $11,281 $14,380 $29,436 Average annual total return -2.78% +1.27% +2.44% +3.70% +5.50% LEHMAN BROTHERS MICHIGAN MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,257 $11,078 $12,249 $16,799 N/A Average annual total return +2.57% +3.47% +4.14% +5.33% N/A LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,230 $11,100 $12,260 $16,736 $37,411 Average annual total return +2.30% +3.54% +4.16% +5.28% +6.76% LIPPER MICHIGAN MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,183 $10,918 $11,854 $15,342 N/A Average annual total return +1.83% +2.97% +3.46% +4.37% N/A
Results for other share classes can be found on page 13. -------------------------------------------------------------------------------- 28 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MICHIGAN TAX-EXEMPT FUND LINE GRAPH)
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND LEHMAN BROTHERS LEHMAN BROTHERS LIPPER MICHIGAN CLASS A (INCLUDES SALES MICHIGAN MUNICIPAL MUNICIPAL BOND MUNICIPAL DEBT FUNDS CHARGE) BOND INDEX(1) INDEX(2) INDEX(3) ----------------------- ------------------ ------------------ -------------------- '97 $ 9,525 $10,000 $10,000 $10,000 '98 10,255 10,896 10,865 10,786 '99 10,164 10,900 10,919 10,681 '00 10,527 11,624 11,659 11,220 '01 11,517 12,864 12,847 12,299 '02 12,140 13,717 13,648 12,945 '03 12,371 14,232 14,077 13,307 '04 13,188 15,163 15,078 14,051 '05 13,737 15,912 15,878 14,689 '06 14,089 16,378 16,359 15,067 '07 14,380 16,799 16,736 15,342
(1) The Lehman Brothers Michigan Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Michigan. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper Michigan Municipal Debt Funds Index includes the 10 largest municipal debt funds in Michigan tracked by Lipper Inc. The Lipper index's returns include net reinvested dividends. (4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Michigan Municipal Bond Index and Lipper peer group. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 29 THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE MINNESOTA TAX-EXEMPT FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Minnesota Tax-Exempt Fund Class A shares (from 9/1/97 to 8/31/07) as compared to the performance of three widely cited performance indices, the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper Minnesota Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS
SINCE RESULTS AT AUG. 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE MINNESOTA TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,645 $10,272 $11,182 $14,483 $30,841 Average annual total return -3.55% +0.90% +2.26% +3.77% +5.50% LEHMAN BROTHERS MINNESOTA 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,217 $11,071 $12,296 $16,645 N/A Average annual total return +2.17% +3.45% +4.22% +5.23% N/A LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,230 $11,100 $12,260 $16,736 $38,653 Average annual total return +2.30% +3.54% +4.16% +5.28% +6.65% LIPPER MINNESOTA MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,142 $10,943 $11,998 $15,503 N/A Average annual total return +1.42% +3.05% +3.71% +4.48% N/A
Results for other share classes can be found on page 15. -------------------------------------------------------------------------------- 30 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MINNESOTA TAX-EXEMPT FUND LINE GRAPH)
RIVERSOURCE LEHMAN BROTHERS MINNESOTA TAX- MINNESOTA 3 PLUS YEAR LEHMAN BROTHERS LIPPER MINNESOTA EXEMPT FUND CLASS A ENHANCED MUNICIPAL MUNICIPAL BOND MUNICIPAL DEBT FUNDS (INCLUDES SALES CHARGE) BOND INDEX(1) INDEX(2) INDEX(3) ----------------------- --------------------- ------------------ -------------------- '97 $ 9,525 $10,000 $10,000 $10,000 '98 10,296 10,856 10,865 10,791 '99 10,288 10,880 10,919 10,753 '00 10,748 11,593 11,659 11,244 '01 11,627 12,759 12,847 12,268 '02 12,333 13,541 13,648 12,921 '03 12,628 14,065 14,077 13,326 '04 13,430 15,034 15,078 14,166 '05 13,959 15,813 15,878 14,881 '06 14,302 16,292 16,359 15,286 '07 14,483 16,645 16,736 15,503
(1) The Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Minnesota investment-grade fixed-rate municipal bonds with maturities of three years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper Minnesota Municipal Debt Funds Index includes the 10 largest municipal debt funds in Minnesota tracked by Lipper Inc. The Lipper index's returns include net reinvested dividends. (4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index and the Lipper peer group. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 31 THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE NEW YORK TAX-EXEMPT FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource New York Tax-Exempt Fund Class A shares (from 9/1/97 to 8/31/07) as compared to the performance of three widely cited performance indices, the Lehman Brothers New York 4 Plus Year Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper New York Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS
SINCE Results at Aug. 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE NEW YORK TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,671 $10,346 $11,177 $14,500 $29,694 Average annual total return -3.29% +1.14% +2.25% +3.79% +5.31% LEHMAN BROTHERS NEW YORK 4 PLUS YEAR MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,221 $11,155 $12,426 $17,226 N/A Average annual total return +2.21% +3.71% +4.44% +5.59% N/A LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,230 $11,100 $12,260 $16,736 $39,078 Average annual total return +2.30% +3.54% +4.16% +5.28% +6.65% LIPPER NEW YORK MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,142 $10,975 $11,952 $15,614 $33,722 Average annual total return +1.42% +3.15% +3.63% +4.56% +5.91%
Results for other share classes can be found on page 17. -------------------------------------------------------------------------------- 32 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE NEW YORK TAX-EXEMPT FUND LINE GRAPH)
RIVERSOURCE NEW YORK LEHMAN BROTHERS NEW TAX-EXEMPT FUND YORK 4 PLUS YEAR LEHMAN BROTHERS LIPPER NEW YORK CLASS A (INCLUDES SALES MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL DEBT FUNDS CHARGE) INDEX(1) INDEX(2) INDEX(3) ----------------------- ------------------- ------------------ -------------------- '97 $ 9,525 $10,000 $10,000 $10,000 '98 10,273 10,962 10,865 10,856 '99 10,185 10,967 10,919 10,682 '00 10,682 11,754 11,659 11,257 '01 11,650 13,066 12,847 12,445 '02 12,356 13,864 13,648 13,062 '03 12,581 14,334 14,077 13,371 '04 13,350 15,443 15,078 14,229 '05 13,941 16,342 15,878 14,963 '06 14,281 16,854 16,359 15,395 '07 14,500 17,226 16,736 15,614
(1) The Lehman Brothers New York 4 Plus Year Municipal Bond Index, an unmanaged index, is a market value-weighted index of New York investment-grade fixed-rate municipal bonds with maturities of four years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper New York Municipal Debt Funds Index includes the 30 largest municipal debt funds in New York tracked by Lipper Inc. The Lipper index's returns include net reinvested dividends. (4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index and Lipper peer group is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers New York 4 Plus Year Municipal Bond Index. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 33 THE FUND'S LONG-TERM PERFORMANCE RIVERSOURCE OHIO TAX-EXEMPT FUND The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Ohio Tax-Exempt Fund Class A shares (from 9/1/97 to 8/31/07) as compared to the performance of three widely cited performance indices, the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper Ohio Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The table below and the chart on the facing page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS
SINCE Results at Aug. 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE OHIO TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,673 $10,263 $10,987 $14,105 $28,276 Average annual total return -3.27% +0.87% +1.90% +3.50% +5.29% LEHMAN BROTHERS OHIO 4 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,237 $11,126 $12,379 $16,850 N/A Average annual total return +2.37% +3.62% +4.36% +5.36% N/A LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,230 $11,100 $12,260 $16,736 $37,411 Average annual total return +2.30% +3.54% +4.16% +5.28% +6.76% LIPPER OHIO MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,184 $10,943 $11,969 $15,638 N/A Average annual total return +1.84% +3.05% +3.66% +4.57% N/A
Results for other share classes can be found on page 19. -------------------------------------------------------------------------------- 34 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE OHIO TAX-EXEMPT FUND LINE GRAPH)
LEHMAN BROTHERS OHIO RIVERSOURCE OHIO TAX- 4 PLUS YEAR ENHANCED LEHMAN BROTHERS LIPPER OHIO EXEMPT FUND CLASS A MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL DEBT FUNDS (INCLUDES SALES CHARGE) INDEX(1) INDEX(2) INDEX(3) ----------------------- -------------------- ------------------ -------------------- '97 $ 9,525 $10,000 $10,000 $10,000 '98 10,254 10,841 10,865 10,805 '99 10,224 10,868 10,919 10,749 '00 10,704 11,589 11,659 11,324 '01 11,563 12,760 12,847 12,425 '02 12,229 13,616 13,648 13,066 '03 12,401 14,145 14,077 13,430 '04 13,091 15,145 15,078 14,290 '05 13,600 15,981 15,878 14,990 '06 13,890 16,460 16,359 15,356 '07 14,105 16,850 16,736 15,638
(1) The Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Ohio investment-grade fixed-rate municipal bonds with maturities of four years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper Ohio Municipal Debt Funds Index includes the 10 largest municipal debt funds in Ohio tracked by Lipper Inc. The Lipper index's returns include net reinvested dividends. (4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index and the Lipper peer group. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 35 INVESTMENTS IN SECURITIES RiverSource California Tax-Exempt Fund AUG. 31, 2007 (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (97.6%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) ADVANCED REFUNDED (0.6%) Los Angeles Harbor Department Revenue Bonds Series 1988 Escrowed to Maturity 10-01-18 7.60% $880,000 $1,043,513 ------------------------------------------------------------------------------------------------------- AIRPORT (2.5%) Los Angeles Harbor Department Refunding Revenue Bonds Series 2006A (MBIA) A.M.T. 08-01-13 5.00 2,000,000 2,105,280 San Francisco City & County Airports Commission Refunding Revenue Bonds 2nd Series 2001-27B (FGIC) 05-01-16 5.25 2,170,000 2,274,073 --------------- Total 4,379,353 ------------------------------------------------------------------------------------------------------- AIRPORT-SPECIAL FACILITY (1.5%) City of Long Beach Refunding Revenue Bonds Series 2005A (MBIA) A.M.T. 05-15-20 5.00 1,500,000 1,531,590 05-15-21 5.00 1,000,000 1,017,180 --------------- Total 2,548,770 ------------------------------------------------------------------------------------------------------- CERTIFICATE OF PARTICIPATION (2.8%) County of Riverside Certificate of Participation Series 1998 (MBIA) 12-01-21 5.00 1,530,000 1,559,804 County of San Diego Certificate of Participation Series 1993 Inverse Floater (AMBAC) 09-01-07 7.32 3,200,000(f) 3,200,286 --------------- Total 4,760,090 ------------------------------------------------------------------------------------------------------- COLLEGE (8.1%) California Educational Facilities Authority Revenue Bonds Claremont McKenna College Series 2007 01-01-32 5.00 1,250,000 1,275,188 California Educational Facilities Authority Revenue Bonds Stanford University Series 1997N 12-01-27 5.20 1,000,000 1,011,760 California Educational Facilities Authority Revenue Bonds University of Southern California Series 2003A 10-01-33 5.00 2,000,000 2,126,680
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) COLLEGE (CONT.) California Educational Facilities Authority Revenue Bonds University of Southern California Series 2007A 10-01-37 4.75% $2,000,000 $1,956,060 Chabot-Las Positas Community College District Unlimited General Obligation Bonds Capital Appreciation Election 2004B Zero Coupon Series 2006 (AMBAC) 08-01-19 4.75 1,000,000(i) 570,510 Foothill-De Anza Community College District Unlimited General Obligation Bonds Series 2007A (AMBAC) 08-01-27 5.00 2,500,000(h) 2,556,750 Merced Community College District Refunding Revenue Bonds School Facilities Financing Authority Series 2006 (MBIA) 08-01-21 5.00 700,000 750,862 San Diego Community College District Unlimited General Obligation Bonds Election of 2006 Series 2007 (FSA) 08-01-30 5.00 2,500,000 2,572,725 San Mateo County Community College District Unlimited General Obligation Bonds Election of 2001 Series 2002A (FGIC) 09-01-18 5.38 1,000,000 1,066,280 --------------- Total 13,886,815 ------------------------------------------------------------------------------------------------------- COMBINED UTILITY (3.3%) California Pollution Control Financing Authority Refunding Revenue Bonds Pacific Gas Series 2004D A.M.T. 12-01-23 4.75 1,000,000 978,880 California Pollution Control Financing Authority Revenue Bonds Waste Management Incorporated Project Series 2005C A.M.T. 11-01-23 5.13 1,500,000 1,424,865 East Bay Municipal Utility District Refunding Revenue Bonds Series 2007A (FGIC) 06-01-37 5.00 1,000,000 1,027,090
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) COMBINED UTILITY (CONT.) Roseville Natural Gas Finance Authority Revenue Bonds Series 2007 02-15-23 5.00% $225,000 $223,083 02-15-26 5.00 1,500,000 1,469,864 02-15-27 5.00 185,000 180,501 02-15-28 5.00 425,000 412,803 --------------- Total 5,717,086 ------------------------------------------------------------------------------------------------------- ELECTRIC (2.6%) Puerto Rico Electric Power Authority Revenue Bonds Series 2007TT 07-01-32 5.00 1,000,000(b) 998,520 Walnut Energy Center Authority Revenue Bonds Series 2004A (AMBAC) 01-01-29 5.00 2,500,000 2,539,075 01-01-34 5.00 1,000,000 1,012,360 --------------- Total 4,549,955 ------------------------------------------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (9.2%) Abag Finance Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 2,500,000 2,601,675 California Health Facilities Financing Authority Refunding Revenue Bonds Cedars-Sinai Medical Center Series 2005 11-15-18 5.00 1,500,000 1,545,645 11-15-34 5.00 1,525,000 1,498,175 California Health Facilities Financing Authority Revenue Bonds Catholic Healthcare West Series 2004G 07-01-23 5.25 3,500,000 3,529,680 California Health Facilities Financing Authority Revenue Bonds Kaiser Permanente Series 2006A 04-01-32 5.25 3,000,000 3,018,390 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2004E 04-01-10 3.88 750,000 745,905 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2006B 03-01-45 5.25 1,000,000 1,002,030
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 36 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource California Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) HEALTH CARE -- HOSPITAL (CONT.) Sierra View Local Healthcare District Revenue Bonds Series 2007 07-01-37 5.25% $2,000,000(g) $1,984,940 --------------- Total 15,926,440 ------------------------------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (4.9%) California Housing Finance Agency Revenue Bonds Home Mortgage Series 2006H (FGIC) A.M.T. 08-01-30 5.75 1,980,000 2,091,296 California Housing Finance Agency Revenue Bonds Home Mortgage Series 2006K A.M.T. 08-01-41 4.80 1,500,000 1,378,035 02-01-42 5.50 995,000(h) 1,041,924 California Housing Finance Agency Revenue Bonds Home Mortgage Series 2007D (FGIC) A.M.T. 02-01-17 4.35 1,555,000 1,495,599 08-01-17 4.35 2,470,000 2,372,336 Stockton Revenue Bonds Mortgage-backed Securities Program Series 1990A (GNMA/FNMA/FHLMC) A.M.T. 02-01-23 7.50 30,000 29,846 --------------- Total 8,409,036 ------------------------------------------------------------------------------------------------------- LEASE (3.3%) Golden State Tobacco Securitization Corporation Enhanced Asset-backed Revenue Bonds Series 2005A 06-01-45 5.00 2,000,000 1,944,400 Golden State Tobacco Securitization Corporation Revenue Bonds Series 2003A-1 06-01-33 6.25 2,490,000 2,712,033 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriated Series 2004A (MBIA) 08-01-29 5.25 1,000,000(b) 1,058,270 --------------- Total 5,714,703 ------------------------------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (6.0%) Alameda Corridor Transportation Authority Refunding Revenue Bonds Capital Appreciation Sub Lien Zero Coupon Series 2004A (AMBAC) 10-01-29 4.95 4,000,000(i) 1,313,320
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) MISCELLANEOUS REVENUE (CONT.) California County Tobacco Securitization Agency Asset-backed Revenue Bonds Alameda County Series 2002 06-01-29 5.75% $785,000 $793,666 06-01-42 6.00 240,000 241,639 California County Tobacco Securitization Agency Revenue Bonds Golden Gate Series 2007A 06-01-21 4.50 3,720,000 3,515,587 Golden State Tobacco Securitization Corporation Asset-backed Revenue Bonds Series 2007A-1 06-01-47 5.13 2,000,000 1,771,740 Golden State Tobacco Securitization Corporation Prerefunded Enhanced Asset-backed Revenue Bonds Series 2003B (FSA) 06-01-43 5.00 110,000 116,568 Golden State Tobacco Securitization Corporation Prerefunded Revenue Bonds Series 2003A-1 06-01-39 6.75 1,510,000 1,735,111 06-01-40 6.63 750,000 857,025 --------------- Total 10,344,656 ------------------------------------------------------------------------------------------------------- PORT DISTRICT (0.6%) Port of Oakland Revenue Bonds Series 2000K (FGIC) A.M.T. 11-01-18 5.63 1,000,000 1,037,180 ------------------------------------------------------------------------------------------------------- SALES OR USE TAX (0.3%) Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 500,000(b) 543,095 ------------------------------------------------------------------------------------------------------- SCHOOL (11.7%) Alhambra City Elementary School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999A (FSA) 09-01-22 5.95 1,055,000(i) 514,407 Anaheim Union High School District Prerefunded Unlimited General Obligation Bonds Series 2002A (FSA) 08-01-16 5.38 1,550,000 1,673,380 Encinitas Union School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1996 (MBIA) 08-01-15 5.85 2,500,000(i) 1,798,450
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) SCHOOL (CONT.) Fontana Unified School District Unlimited General Obligation Bonds Convertible Capital Appreciation Series 1997D (FGIC) 05-01-22 5.75% $2,000,000 $2,101,800 Lammersville School District Community Facilities District Special Tax Bonds #2002 Mountain House Series 2006 09-01-35 5.13 1,000,000 919,670 Los Angeles Unified School District Unlimited General Obligation Bonds Election of 2002 Series 2007B (AMBAC) 07-01-22 5.00 1,395,000 1,462,225 Oxnard School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA) 08-01-30 5.75 2,575,000 2,915,570 San Juan Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999 (FSA) 08-01-21 5.68 820,000(i) 427,466 08-01-24 5.70 1,810,000(i) 797,160 Santa Maria Joint Union High School District Prerefunded Unlimited General Obligation Bonds Election of 2000 Series 2003B (FSA) 08-01-27 5.00 3,000,000 3,239,491 Simi Valley School Financing Authority Refunding Revenue Bonds University School District Series 2007 (FSA) 08-01-23 5.00 1,500,000 1,576,965 Whittier Union High School District Prerefunded Unlimited General Obligation Bonds Election of 1999 Series 2003D (FSA) 08-01-28 5.00 2,615,000 2,795,670 --------------- Total 20,222,254 ------------------------------------------------------------------------------------------------------- SPECIAL DISTRICT -- ASSESSMENT (0.6%) City of Azusa Special Tax Bonds Escrow Community Facilities Series 2007 09-01-27 5.00 1,110,000 1,049,627 ------------------------------------------------------------------------------------------------------- SPECIAL DISTRICT -- OTHER (1.6%) Puerto Rico Highway & Transportation Authority Prerefunded Revenue Bonds Series 2004J 07-01-43 5.13 2,500,000(b) 2,700,400 -------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 37 RiverSource California Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) SPECIAL DISTRICT -- SPECIAL TAX (8.1%) Anaheim Community Facilities District Special Tax Bonds Stadium Lofts Series 2007 09-01-37 5.00% $1,000,000 $901,270 Beaumont Financing Authority Prerefunded Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,193,940 Elk Grove Special Tax Bonds Community Facilities District #2005-1 Series 2007 09-01-18 5.00 500,000 490,475 Lake Elsinore Public Financing Authority Revenue Bonds Series 1997F 09-01-20 7.10 755,000 776,034 Lincoln Public Financing Authority Special Tax Bonds Sub Series 2007B 09-01-16 4.50 1,145,000 1,107,169 09-01-26 5.00 1,980,000 1,873,377 Moreno Valley Unified School District Community Facilities District Special Tax Bonds Series 2007-3 09-01-37 5.00 750,000 673,973 Orange Unified School District Community Facilities Special Tax Bonds Del Rio School Facilities Series 2007-2 09-01-37 5.00 1,000,000 909,260 Pittsburg Redevelopment Agency Tax Allocation Bonds Los Medanos Community Development Project Zero Coupon Series 1999 (AMBAC) 08-01-24 6.05 2,100,000(i) 924,882 Roseville Public Financing Authority Special Tax Bonds Junior Lien Series 2007B 09-01-22 4.75 1,210,000 1,142,954 09-01-33 5.00 1,470,000 1,344,359 San Francisco Bay Area Transit Financing Authority Prerefunded Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 1,475,000 1,556,199 --------------- Total 13,893,892 ------------------------------------------------------------------------------------------------------- SPECIAL DISTRICT -- TAX ALLOCATION (0.7%) Inglewood Redevelopment Agency Refunding Tax Allocation Bonds Merged Redevelopment Project Series 1998A (AMBAC) 05-01-23 5.25 1,100,000 1,187,758 -------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) STATE (24.2%) Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00% $1,000,000(b) $1,011,450 State of California Prerefunded Unlimited General Obligation Bonds Series 2000 05-01-19 5.63 250,000 264,908 State of California Prerefunded Unlimited General Obligation Bonds Series 2001 03-01-31 5.13 2,335,000 2,449,205 State of California Prerefunded Unlimited General Obligation Bonds Series 2004 04-01-29 5.30 1,998,000 2,173,225 State of California Prerefunded Unlimited General Obligation Bonds Series 2004 (FGIC) 02-01-33 5.00 2,500,000 2,679,349 State of California Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000 1,122,290 State of California Unlimited General Obligation Bonds Series 2003 02-01-21 5.25 2,500,000 2,610,675 02-01-29 5.25 2,500,000 2,560,050 02-01-32 5.00 2,500,000 2,507,475 State of California Unlimited General Obligation Bonds Series 2004 03-01-14 5.25 2,000,000 2,149,900 State of California Unlimited General Obligation Bonds Series 2006 09-01-32 5.00 1,000,000 1,004,310 State of California Unlimited General Obligation Bonds Various Purpose Series 2003 11-01-22 5.00 2,000,000 2,042,340 11-01-23 5.13 2,500,000 2,568,175 11-01-24 5.13 2,000,000 2,049,140 11-01-29 5.25 500,000 513,445 State of California Unlimited General Obligation Bonds Various Purpose Series 2005 06-01-28 5.00 2,000,000 2,017,740 State of California Unlimited General Obligation Bonds Various Purpose Series 2007 06-01-32 5.00 2,000,000 2,009,040 06-01-37 5.00 3,250,000 3,254,712
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) STATE (CONT.) State of California Unlimited General Obligation Bonds Veterans Series 2000BJ A.M.T. 12-01-12 4.95% $2,250,000 $2,288,070 12-01-13 5.05 1,435,000 1,460,342 12-01-14 5.15 2,535,000 2,578,653 State of California Unrefunded Unlimited General Obligation Bonds Series 2001 03-01-31 5.13 165,000 167,072 State of California Unrefunded Unlimited General Obligation Bonds Series 2004 04-01-29 5.30 2,000 2,068 --------------- Total 41,483,634 ------------------------------------------------------------------------------------------------------- TOLL ROAD (1.0%) Bay Area Toll Authority Revenue Bonds Series 2007F 04-01-31 5.00 1,765,000 1,802,647 ------------------------------------------------------------------------------------------------------- WATER & SEWER (4.0%) California Municipal Finance Authority Revenue Bonds Waste Management Incorporated Project Series 2004 A.M.T. 09-01-14 4.10 2,740,000 2,718,847 Eastern Municipal Water Special Tax Bonds District #2004-27 Cottonwood Series 2006 09-01-27 5.00 200,000 190,760 09-01-36 5.00 500,000 449,905 Metropolitan Water District of Southern California Revenue Bonds Series 2007A 07-01-37 5.00 1,500,000 1,533,795 Semitropic Improvement District Revenue Bonds Series 2004A (XLCA) 12-01-28 5.00 2,000,000 2,025,300 --------------- Total 6,918,607 ------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $166,587,830) $168,119,511 -------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 38 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource California Tax-Exempt Fund
MUNICIPAL NOTES (3.0%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(C,D,E) YIELD MATURITY VALUE(A) California Economic Recovery Revenue Bonds V.R.D.N. Series 2004C-9 (Bank of Nova Scotia) 07-01-23 3.85% $500,000 $500,000 California Housing Finance Agency Revenue Bonds Home Mortgage V.R.D.N. Series 2001J FSA A.M.T. 02-01-32 3.98 2,700,000 2,700,000 California State Department of Water Resources Revenue Bonds V.R.D.N. Series 2002B-3 (Bank of New York) 05-01-22 3.85 300,000 300,000 California State Department of Water Resources Revenue Bonds V.R.D.N. Series 2002B-4 (Bayerische Landesbank) 05-01-22 3.91 1,400,000 1,400,000
MUNICIPAL NOTES (CONTINUED) AMOUNT EFFECTIVE PAYABLE AT ISSUE(C,D,E) YIELD MATURITY VALUE(A) State of California Unlimited General Obligation Bonds V.R.D.N. Series 2003A-2 (WestLB) (JP Morgan Chase Bank) 05-01-33 3.90% $200,000 $200,000 ---------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $5,100,000) $5,100,000 ---------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $171,687,830)(j) $ 173,219,511 ==================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 3.7% of net assets at Aug. 31, 2007. (c) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(d) The following abbreviations may be used in the portfolio descriptions: -- Alternative Minimum Tax -- At Aug. 31, 2007, the value of securities subject to alternative minimum tax represented A.M.T. 16.4% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(e) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2007. (f) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate disclosed is the rate in effect on Aug. 31, 2007. At Aug. 31, 2007, the value of inverse floaters represented 1.9% of net assets. (g) At Aug. 31, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $1,949,840. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 39 RiverSource California Tax-Exempt Fund NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (h) Partially pledged as initial margin deposit on the following open interest rate futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------------------ SALE CONTRACTS U.S. Treasury Note, Dec. 2007, 5-year $11,700,000
(i) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (j) At Aug. 31, 2007, the cost of securities for federal income tax purposes was $171,890,553 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,824,072 Unrealized depreciation (2,495,114) ------------------------------------------------------------------------------- Net unrealized appreciation $1,328,958 -------------------------------------------------------------------------------
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. -------------------------------------------------------------------------------- 40 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT INVESTMENTS IN SECURITIES RiverSource Massachusetts Tax-Exempt Fund AUG. 31, 2007 (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (96.9%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) ADVANCED REFUNDED (6.8%) Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002A (FGIC) 01-01-14 5.00% $1,000,000 $1,016,700 Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002C 11-01-30 5.25 2,000,000 2,135,480 University of Massachusetts Building Authority Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 45,000 48,231 --------------- Total 3,200,411 ----------------------------------------------------------------------------------- CITY (5.4%) City of Boston Prerefunded Unlimited General Obligation Bonds Series 2003A (MBIA) 02-01-23 5.00 1,000,000 1,059,110 City of Springfield Prerefunded Limited General Obligation Bonds State Qualified Series 2003 (MBIA) 01-15-20 5.25 1,405,000 1,504,319 --------------- Total 2,563,429 ----------------------------------------------------------------------------------- COLLEGE (12.7%) Massachusetts Development Finance Agency Refunding Revenue Bonds Simons Rock College of Bard Series 2007 08-01-36 4.70 500,000 452,130 Massachusetts Development Finance Agency Revenue Bonds Boston University Series 1999P 05-15-59 6.00 325,000 354,809 Massachusetts Health & Educational Facilities Authority Revenue Bonds Boston College Series 2003N 06-01-21 5.25 1,000,000 1,052,470 Massachusetts Health & Educational Facilities Authority Revenue Bonds Fisher College Series 2007A 04-01-37 5.13 500,000 449,920
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) COLLEGE (CONT.) Massachusetts Health & Educational Facilities Authority Revenue Bonds Harvard University Series 2002FF 07-15-37 5.13% $1,000,000 $1,026,080 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2004M 07-01-25 5.25 500,000 546,240 Massachusetts Health & Educational Facilities Authority Revenue Bonds Williams College Series 2003H 07-01-33 5.00 1,000,000 1,014,040 University of Massachusetts Building Authority Prerefunded Revenue Bonds Series 2003-1 (AMBAC) 11-01-21 5.25 1,000,000 1,080,010 --------------- Total 5,975,699 ----------------------------------------------------------------------------------- ELECTRIC (4.4%) Massachusetts Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,045,490 Massachusetts Municipal Wholesale Electric Company Revenue Bonds Nuclear Project #5 Series 2001A (MBIA) 07-01-10 5.00 1,000,000 1,032,860 --------------- Total 2,078,350 ----------------------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (5.1%) Massachusetts Health & Educational Facilities Authority Revenue Bonds Catholic Health East Series 2007C 11-15-32 4.54 500,000 478,325 Massachusetts Health & Educational Facilities Authority Revenue Bonds Lahey Clinic Medical Center Series 2007D 08-15-28 5.25 750,000 758,662 Massachusetts Health & Educational Facilities Authority Revenue Bonds Milford Regional Medical Series 2007E 07-15-27 5.00 250,000 234,705 07-15-32 5.00 250,000 229,388 07-15-37 5.00 500,000 449,365
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) HEALTH CARE -- HOSPITAL (CONT.) Massachusetts Health & Educational Facilities Authority Revenue Bonds Partners Healthcare Systems Series 2007G 07-01-18 5.00% $250,000 $258,615 --------------- Total 2,409,060 ----------------------------------------------------------------------------------- HEALTH CARE -- LIFE CARE CENTER (1.8%) Massachusetts Development Finance Agency Prerefunded Revenue Bonds Briarwood Series 2001B 12-01-30 8.25 750,000 857,130 ----------------------------------------------------------------------------------- HEALTH CARE -- OTHER (1.2%) Massachusetts Health & Educational Facilities Authority Revenue Bonds Emmanuel College Series 2007 (MBIA) 07-01-25 5.00 550,000 561,523 ----------------------------------------------------------------------------------- HOUSING -- MULTI-FAMILY (1.5%) Massachusetts Housing Finance Agency Revenue Bonds Series 2007D A.M.T. 06-01-40 4.85 750,000 691,208 ----------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (3.5%) Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2003-98 A.M.T. 06-01-23 4.88 985,000 958,020 Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2006-122 A.M.T. 12-01-31 4.85 750,000 709,073 --------------- Total 1,667,093 ----------------------------------------------------------------------------------- LEASE (2.2%) Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriated Series 2004A 08-01-27 5.75 1,000,000(b,f) 1,058,000 ----------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (5.1%) Commonwealth of Massachusetts Refunding Revenue Bonds Series 2005 (FGIC) 01-01-27 5.50 500,000 555,120 01-01-28 5.50 500,000 554,750
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 41 RiverSource Massachusetts Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) MISCELLANEOUS REVENUE (CONT.) Massachusetts Development Finance Agency Revenue Bonds Linden Ponds Incorporated Facility Series 2007A 11-15-09 5.00% $500,000 $501,610 Massachusetts Port Authority Revenue Bonds Bosfuel Project Series 2007 (FGIC) A.M.T. 07-01-17 5.00 750,000 784,313 --------------- Total 2,395,793 ----------------------------------------------------------------------------------- PORT DISTRICT (1.7%) Massachusetts Port Authority Refunding Revenue Bonds Series 2007C (FSA) A.M.T. 07-01-14 5.00 750,000 790,230 ----------------------------------------------------------------------------------- RESOURCE RECOVERY (1.1%) Massachusetts Development Finance Agency Revenue Bonds Waste Management Incorporated Project Series 2003 A.M.T. 06-01-14 5.45 500,000 513,270 ----------------------------------------------------------------------------------- SALES OR USE TAX (1.7%) Massachusetts Bay Transportation Authority Prerefunded Special Assessment Bonds Series 2005A 07-01-25 5.00 250,000 268,372 07-01-26 5.00 250,000 268,373 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (AMBAC) 07-01-30 5.25 250,000(b) 271,683 --------------- Total 808,428 ----------------------------------------------------------------------------------- SCHOOL (3.3%) Massachusetts Development Finance Agency Revenue Bonds May Institute Series 1999 (Radian Group Financial Guaranty) 09-01-29 5.75 1,000,000 1,038,530 Massachusetts School Building Authority Revenue Bonds Series 2007A (AMBAC) 08-15-32 4.75 500,000 492,795 --------------- Total 1,531,325 ----------------------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (3.3%) Massachusetts Bay Transportation Authority Revenue Bonds Series 2005A 07-01-30 5.00 450,000 470,034 07-01-31 5.00 500,000 520,595
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) SPECIAL DISTRICT -- SPECIAL TAX (CONT.) Puerto Rico Infrastructure Financing Authority Refunding Special Tax Bonds Series 2005C (AMBAC) 07-01-23 5.50% $500,000(b) $560,965 --------------- Total 1,551,594 ----------------------------------------------------------------------------------- SPECIAL PURPOSE CERTIFICATES -- GENERAL OBLIGATIONS (4.6%) Boston Metropolitan District Unlimited General Obligation Refunding Bonds Series 2002A 12-01-11 5.13 2,050,000 2,157,769 ----------------------------------------------------------------------------------- STATE (13.3%) Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 1997A (AMBAC) 08-01-10 5.75 1,185,000 1,251,963 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 2004B 08-01-22 5.25 500,000 540,950 08-01-28 5.25 500,000 538,420 Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002C Escrowed to Maturity (FSA) 11-01-15 5.50 1,025,000 1,138,570 Commonwealth of Massachusetts Unlimited General Obligation Bonds Consolidated Loan Series 2005B 08-01-14 5.00 750,000 799,028 Commonwealth of Massachusetts Unlimited General Obligation Refunding Bonds Series 2004A (FSA) 08-01-20 5.25 500,000 545,095 Commonwealth of Massachusetts Unrefunded Limited General Obligation Bonds Consolidated Loan Series 2002C (FSA) 11-01-15 5.50 475,000 526,229 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001 (FSA) 07-01-16 5.50 500,000(b) 556,440 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 375,000(b) 384,281 --------------- Total 6,280,976 -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) TOLL ROAD (4.3%) Massachusetts Bay Transportation Authority Refunding Revenue Bonds Series 1992B 03-01-16 6.20% $1,500,000 $1,683,930 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 300,000(b) 333,087 --------------- Total 2,017,017 ----------------------------------------------------------------------------------- WATER & SEWER (13.8%) City of Boston Revenue Bonds Series 2004A 11-01-22 5.00 1,000,000 1,032,710 Massachusetts State Water Pollution Abatement Prerefunded Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 855,000 915,166 Massachusetts State Water Pollution Abatement Unrefunded Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 145,000 147,192 Massachusetts Water Resources Authority Refunding Revenue Bonds Series 2005A (MBIA) 08-01-17 5.25 500,000 545,980 08-01-22 5.00 500,000 521,815 Massachusetts Water Resources Authority Revenue Bonds Series 1992A (FGIC) 07-15-19 6.50 2,000,000 2,338,100 Massachusetts Water Resources Authority Revenue Bonds Series 2004D (MBIA) 08-01-27 4.75 1,000,000 988,540 --------------- Total 6,489,503 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $45,340,238) $45,597,808 -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (2.4%)(e) NAME OF ISSUE AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) ELECTRIC Puerto Rico Electric Power Authority Revenue Bonds Series 2002 (MBIA) 07-01-17 5.50% $1,000,000(b) $1,116,480 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $1,000,000) $1,116,480 -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 42 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund
MUNICIPAL NOTES (1.9%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(C,D,G) YIELD MATURITY VALUE(A) Massachusetts Health & Educational Facilities Authority Revenue Bonds Capital Assets Program V.R.D.N. Series 1985E (Fleet National Bank) 01-01-35 3.93% $900,000 $900,000 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $900,000) $900,000 ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $47,240,238)(h) $47,614,288 ===================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 9.1% of net assets at Aug. 31, 2007. (c) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(d) The following abbreviations may be used in the portfolio descriptions: -- Alternative Minimum Tax -- At Aug. 31, 2007, the value of securities subject to alternative minimum tax represented A.M.T. 9.4% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(e) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (f) Partially pledged as initial margin deposit on the following open interest rate futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------------------ SALE CONTRACTS U.S. Treasury Note, Dec. 2007, 5-year $3,600,000
(g) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2007. (h) At Aug. 31, 2007, the cost of securities for federal income tax purposes was $47,266,456 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $963,565 Unrealized depreciation (615,733) ----------------------------------------------------------------------------- Net unrealized appreciation $347,832 -----------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 43 RiverSource Massachusetts Tax-Exempt Fund 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. -------------------------------------------------------------------------------- 44 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT INVESTMENTS IN SECURITIES RiverSource Michigan Tax-Exempt Fund AUG. 31, 2007 (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (97.9%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) AIRPORT (1.3%) Wayne County Airport Authority Revenue Bonds Detroit Metropolitan Series 2005 (MBIA) A.M.T. 12-01-19 4.75% $500,000 $502,675 ----------------------------------------------------------------------------------- CERTIFICATE OF PARTICIPATION (1.9%) State of Michigan Certificate of Participation Series 2004A (MBIA) 09-01-31 4.25 750,000 761,550 ----------------------------------------------------------------------------------- CITY (5.2%) Canton Charter Township Limited General Obligation Bonds Capital Improvement Series 2007 (FSA) 04-01-14 5.00 250,000 266,698 Detroit Unlimited General Obligation Bonds Series 2001A-1 (MBIA) 04-01-15 5.38 1,000,000 1,053,860 Jackson Limited General Obligation Bonds Capital Appreciation Downtown Development Zero Coupon Series 2001 (FSA) 06-01-21 5.58 1,450,000(b) 763,860 --------------- Total 2,084,418 ----------------------------------------------------------------------------------- COLLEGE (3.9%) Lansing Community College Limited General Obligation Bonds Series 2002 (FGIC) 05-01-12 5.00 1,000,000 1,054,210 Michigan State University Revenue Bonds Series 2007B (AMBAC) 02-15-37 4.35 500,000(g) 494,250 --------------- Total 1,548,460 ----------------------------------------------------------------------------------- ELECTRIC (3.9%) Michigan Public Power Agency Refunding Revenue Bonds Belle River Project Series 2002A (MBIA) 01-01-09 5.25 1,000,000 1,019,770 01-01-14 5.25 500,000 537,760 --------------- Total 1,557,530 -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) HEALTH CARE -- HOSPITAL (5.6%) Garden City Hospital Finance Authority Refunding Revenue Bonds Series 2007A 08-15-27 4.88% $250,000 $222,598 Michigan State Hospital Finance Authority Refunding Revenue Bonds Henry Ford Health System Series 2006A 11-15-26 5.00 500,000 501,425 Michigan State Hospital Finance Authority Revenue Bonds MidMichigan Obligation Group Series 2006A 04-15-36 5.00 500,000 478,005 Michigan State Hospital Finance Authority Revenue Bonds Oakwood Obligated Group Series 2003 11-01-18 5.50 1,000,000 1,045,530 --------------- Total 2,247,558 ----------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (1.3%) Michigan State Housing Development Authority Revenue Bonds Series 2007A A.M.T. 12-01-28 5.50 500,000 508,210 ----------------------------------------------------------------------------------- INDUSTRIAL-POLLUTION -- IDR (1.5%) Michigan Strategic Fund Revenue Bonds Republic Services Series 2001 A.M.T. 08-01-31 4.25 635,000 613,061 ----------------------------------------------------------------------------------- INDUSTRIAL-POLLUTION -- PCR (2.6%) Michigan Strategic Fund Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA) 07-15-08 7.00 1,000,000 1,027,570 ----------------------------------------------------------------------------------- LEASE (6.6%) Michigan State Building Authority Refunding Revenue Bonds Facilities Program Series 2003 II (MBIA) 10-15-29 5.00 1,000,000 1,017,320 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA) 07-01-13 5.50 1,000,000(c) 1,090,720
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) LEASE (CONT.) Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriated Series 2004A 08-01-27 5.75% $500,000(c) $529,000 --------------- Total 2,637,040 ----------------------------------------------------------------------------------- MISCELLANEOUS (11.3%) Grand Rapids Building Authority Prerefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 505,000 546,915 Grand Rapids Building Authority Unrefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 765,000 819,720 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2002 10-01-20 5.38 1,000,000 1,056,420 10-01-21 5.38 1,000,000 1,054,080 Michigan Tobacco Settlement Finance Authority Revenue Bonds Series 2007A 06-01-34 6.00 1,000,000 1,013,370 --------------- Total 4,490,505 ----------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (2.0%) Michigan Municipal Bond Authority Revenue Bonds Local Government Loan Program Series 2003C 05-01-13 5.00 250,000 264,605 Michigan Municipal Bond Authority Revenue Bonds School District City of Detroit Series 2005 (FSA) 06-01-19 5.00 500,000 520,130 --------------- Total 784,735 ----------------------------------------------------------------------------------- SALES OR USE TAX (1.4%) Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (AMBAC) 07-01-30 5.25 500,000(c) 543,365 ----------------------------------------------------------------------------------- SCHOOL (30.8%) Allen Park Public School District Prerefunded Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-18 5.00 500,000 529,470
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 45 RiverSource Michigan Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) SCHOOL (CONT.) ]x Anchor Bay School District Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-29 5.00% $1,000,000 $1,012,610 Goodrich Area School District Prerefunded Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 505,000 538,527 Goodrich Area School District Unrefunded Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 495,000 506,811 Grand Traverse Academy Refunding Revenue Bonds Series 2007 11-01-17 5.00 390,000 381,174 Howell Public Schools Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-29 5.00 1,000,000 1,017,420 Lawton Community Schools Unrefunded Unlimited General Obligation Bonds Series 2001 (Qualified School Bond Loan Fund) 05-01-31 5.00 200,000 202,606 Manchester Community Schools Prerefunded Unlimited General Obligation Bonds Building & Site Series 2001 (Qualified School Bond Loan Fund) 05-01-26 5.00 1,400,000(i) 1,463,083 Marysville Public School District Unlimited General Obligation Bonds School Building & Site Series 2007 (FSA) (Qualified School Bond Loan Fund) 05-01-37 4.70 475,000 458,038 Oakland Schools Intermediate School District Limited General Obligation Bonds School Building & Site Series 2007 (FSA) 05-01-36 5.00 500,000 508,395 Plymouth-Canton Community School District Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-15 5.25 600,000 642,294
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) SCHOOL (CONT.) Roseville School District Unlimited General Obligation Refunding Bonds School Building & Site Series 2006 (FSA) (Qualified School Bond Loan Fund) 05-01-23 5.00% $500,000 $515,560 South Lyon Community Schools Prerefunded Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-28 5.00 1,000,000 1,060,940 Southfield Public Schools Prerefunded Unlimited General Obligation Bonds School Building & Site Series 2003A (Qualified School Bond Loan Fund) 05-01-22 5.25 1,025,000 1,101,024 Summit Academy North Prerefunded Certificate of Participation Series 2001 07-01-30 7.38 750,000 821,903 Summit Academy Prerefunded Certificate of Participation Full Term Series 1998 09-01-18 7.00 430,000 442,130 Williamston Community School District Unlimited General Obligation Bonds Series 1996 (MBIA) (Qualified School Bond Loan Fund) 05-01-25 5.50 1,000,000 1,107,920 --------------- Total 12,309,905 ----------------------------------------------------------------------------------- SPECIAL PURPOSE CERTIFICATES -- GENERAL OBLIGATIONS (1.3%) Western Township Utilities Authority Limited General Obligation Bonds Series 2002 (FGIC) 01-01-08 5.00 500,000 502,015 ----------------------------------------------------------------------------------- STATE (1.3%) Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00 500,000(c) 505,725 ----------------------------------------------------------------------------------- STUDENT LOAN (2.3%) Michigan Higher Education Student Loan Authority Revenue Bonds Series 2006 XVII-Q (AMBAC) A.M.T. 03-01-26 4.95 200,000 197,140 03-01-31 5.00 725,000 710,275 --------------- Total 907,415 -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) WATER & SEWER (13.7%) Detroit Prerefunded Revenue Bonds 2nd Lien Series 2005A (MBIA) 07-01-30 5.00% $230,000 $246,903 Detroit Prerefunded Revenue Bonds Series 2003B (MBIA) 07-01-32 5.25 1,500,000 1,614,195 Detroit Revenue Bonds Senior Lien Series 2003A (MBIA) 07-01-34 5.00 1,375,000 1,384,570 Detroit Unrefunded Revenue Bonds 2nd Lien Series 2005A (MBIA) 07-01-30 5.00 270,000 275,057 Michigan Municipal Bond Authority Refunding Revenue Bonds Clean Water State Revolving Fund Series 2005 10-01-15 5.00 500,000 536,330 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2001 10-01-20 5.00 1,000,000 1,030,380 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2006 10-01-27 5.00 390,000 402,035 --------------- Total 5,489,470 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $38,542,666) $39,021,207 -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (1.4%)(h) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) ELECTRIC Puerto Rico Electric Power Authority Revenue Bonds Series 2002 (MBIA) 07-01-17 5.50% $500,000(c) $558,240 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $559,013) $558,240 -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 46 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Michigan Tax-Exempt Fund
MUNICIPAL NOTES (2.5%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(D,E,F) YIELD MATURITY VALUE(A) Royal Oak Hospital Finance Authority Refunding Revenue Bonds William Beaumont Hospital V.R.D.N. Series 2006U (Morgan Stanley Bank) AMBAC 01-01-20 3.99% $1,000,000 $1,000,000 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $1,000,000) $1,000,000 ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $40,101,679)(j) $40,579,447 ===================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (c) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 8.1% of net assets at Aug. 31, 2007. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2007, the value of securities subject to alternative minimum tax represented 6.4% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(f) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2007. (g) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2007. (h) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (i) Partially pledged as initial margin deposit on the following open interest rate futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------------------ SALE CONTRACTS U.S. Treasury Note, Dec. 2007, 5-year $3,000,000
(j) At Aug. 31, 2007, the cost of securities for federal income tax purposes was $40,112,050 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $750,417 Unrealized depreciation (283,020) ------------------------------------------------------------------------------ Net unrealized appreciation $467,397 ------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 47 RiverSource Michigan Tax-Exempt Fund 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. See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 48 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT INVESTMENTS IN SECURITIES RiverSource Minnesota Tax-Exempt Fund AUG. 31, 2007 (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (93.3%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) AIRPORT (5.6%) Minneapolis-St. Paul Metropolitan Airports Commission Prerefunded Revenue Bonds Sub Series 2001C (FGIC) 01-01-18 5.50% $2,000,000 $2,113,380 01-01-32 5.25 7,000,000 7,342,580 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 1999B (FGIC) A.M.T. 01-01-16 5.63 2,920,000 3,003,074 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001B (FGIC) A.M.T. 01-01-16 5.75 4,875,000 5,102,078 --------------- Total 17,561,112 ----------------------------------------------------------------------------------- CITY (1.4%) City of Minneapolis Unlimited General Obligation Bonds Various Purpose Series 2001 12-01-11 5.00 3,035,000 3,193,184 City of Willmar Unlimited General Obligation Bonds Rice Memorial Hospital Project Series 2002 (FSA) 02-01-13 5.00 1,200,000 1,266,720 --------------- Total 4,459,904 ----------------------------------------------------------------------------------- COLLEGE (5.1%) Minnesota Higher Education Facilities Authority Revenue Bonds Macalester College 6th Series 2004B 03-01-17 5.00 2,395,000 2,508,379 Minnesota Higher Education Facilities Authority Revenue Bonds St. John's University 6th Series 2005G 10-01-22 5.00 3,000,000 3,069,900 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College 6th Series 2007O 10-01-32 4.50 3,000,000 2,697,000 Minnesota Higher Education Facilities Authority Revenue Bonds University of St. Thomas 5th Series 2004Y 10-01-34 5.25 2,800,000 2,856,196
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) COLLEGE (CONT.) Minnesota Higher Education Facilities Authority Revenue Bonds University of St. Thomas 6th Series 2006I 04-01-13 5.00% $1,115,000 $1,174,151 University of Minnesota Revenue Bonds State Supported Stadium Debt Series 2006 08-01-24 5.00 1,750,000 1,803,183 08-01-25 5.00 1,750,000 1,799,315 --------------- Total 15,908,124 ----------------------------------------------------------------------------------- COUNTY (4.6%) Anoka County Housing & Redevelopment Authority Unlimited General Obligation Bonds Housing Development Series 2004 (AMBAC) 02-01-34 5.00 1,355,000 1,374,959 County of Ramsey Unlimited General Obligation Bonds Capital Improvement Plan Series 2007A 02-01-20 5.00 1,000,000 1,057,600 02-01-21 5.00 1,035,000 1,090,341 02-01-22 5.00 1,080,000 1,132,412 02-01-23 5.00 1,125,000 1,175,006 02-01-24 5.00 1,170,000 1,219,140 02-01-25 5.00 1,215,000 1,263,078 County of Ramsey Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2002B 02-01-14 5.25 3,840,000(h) 4,018,638 Hennepin County Unlimited General Obligation Bonds Series 2003 12-01-23 4.75 2,000,000 2,027,440 --------------- Total 14,358,614 ----------------------------------------------------------------------------------- ELECTRIC (13.6%) City of Chaska Refunding Revenue Bonds Generating Facilities Series 2005A 10-01-20 5.25 1,165,000 1,227,584 10-01-30 5.00 3,800,000 3,807,372 Minnesota State Municipal Power Agency Revenue Bonds Series 2004A 10-01-29 5.13 3,500,000 3,556,910
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) ELECTRIC (CONT.) Minnesota State Municipal Power Agency Revenue Bonds Series 2005 10-01-30 5.00% $2,000,000 $2,003,880 Northern Municipal Power Agency Refunding Revenue Bonds Series 1998B (AMBAC) 01-01-20 4.75 5,000,000 5,051,150 Puerto Rico Electric Power Authority Revenue Bonds Series 2003NN (MBIA) 07-01-32 5.00 2,820,000(c) 3,005,725 Southern Minnesota Municipal Power Agency Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA) 01-01-19 6.67 17,000,000(g) 10,226,009 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2002A (AMBAC) 01-01-17 5.25 6,000,000 6,524,940 Western Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-26 5.00 7,250,000(h) 7,398,770 --------------- Total 42,802,340 ----------------------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (15.0%) Chippewa County Revenue Bonds Montevideo Hospital Project Series 2007 03-01-20 5.38 1,940,000 1,940,698 03-01-21 5.38 1,045,000 1,043,506 City of Breckenridge Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 2,000,000 2,002,120 City of Maple Grove Revenue Bonds Maple Grove Hospital Corporation Series 2007 05-01-20 5.00 1,000,000 1,009,860 05-01-21 5.00 1,500,000 1,506,750
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 49 RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) HEALTH CARE -- HOSPITAL (CONT.) City of Minneapolis Revenue Bonds Fairview Health Services Series 2002B (MBIA) 05-15-14 5.50% $2,050,000 $2,209,183 05-15-15 5.50 2,160,000 2,318,112 05-15-16 5.50 2,200,000 2,355,166 05-15-17 5.50 1,295,000 1,382,322 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthSpan Series 1993A (AMBAC) 11-15-18 4.75 5,000,000 5,003,750 Minnesota Agricultural & Economic Development Board Prerefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 4,845,000 5,273,345 11-15-29 6.38 2,910,000 3,167,273 Minnesota Agricultural & Economic Development Board Revenue Bonds Health Care Benedictine Series 1999A (MBIA) 02-15-16 4.75 1,000,000 1,021,300 Minnesota Agricultural & Economic Development Board Unrefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 155,000 164,889 11-15-29 6.38 90,000 95,109 Northfield Revenue Bonds Series 2006 11-01-31 5.38 1,500,000 1,447,785 Shakopee Revenue Bonds St. Francis Regional Medical Center Series 2004 09-01-25 5.10 3,300,000 3,273,138 St. Paul Housing & Redevelopment Authority Revenue Bonds Healtheast Project Series 2005 11-15-25 6.00 1,250,000 1,289,000 St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2006 05-15-23 5.25 1,000,000 993,580 05-15-26 5.25 1,000,000 978,940 05-15-36 5.25 4,750,000 4,520,053
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) HEALTH CARE -- HOSPITAL (CONT.) Todd Morrison Cass & Wadena Counties United Hospital District Unlimited General Obligation Bonds Health Care Facilities-Lakewood Series 2004 12-01-34 5.00% $2,500,000 $2,284,925 Winona Refunding Revenue Bonds Winona Health Obligation Group Series 2007 07-01-31 5.15 2,000,000 1,884,740 --------------- Total 47,165,544 ----------------------------------------------------------------------------------- HEALTH CARE -- LIFE CARE CENTER (1.5%) City of Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-25 5.00 1,750,000 1,743,753 06-01-35 5.00 3,145,000 2,995,298 --------------- Total 4,739,051 ----------------------------------------------------------------------------------- HEALTH CARE -- NURSING HOME (2.7%) City of North Oaks Revenue Bonds Presbyterian Homes Series 2007 10-01-27 6.00 1,250,000(b) 1,261,213 10-01-33 6.00 1,500,000(b) 1,504,980 City of Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-19 5.00 2,505,000 2,543,351 St. Paul Housing & Redevelopment Authority Revenue Bonds Lyngblomsten Care Center Housing Project Series 1993 11-01-17 7.13 1,410,000 1,412,298 St. Paul Housing & Redevelopment Authority Revenue Bonds Rental -- Lyngblomsten Housing Project Series 1993 11-01-24 7.00 1,640,000 1,642,083 --------------- Total 8,363,925 ----------------------------------------------------------------------------------- HEALTH CARE -- OTHER (1.2%) Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2003 12-01-12 5.25 1,000,000 1,035,060 12-01-15 5.13 1,500,000 1,529,955 12-01-16 5.25 1,250,000 1,277,213 --------------- Total 3,842,228 -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) HOUSING -- MULTI-FAMILY (3.2%) Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Project Series 2000A 01-01-32 7.25% $2,000,000 $2,051,900 Dakota County Community Development Agency Refunding Revenue Bonds Commons on Marice Project Series 2007A 11-01-22 5.00 1,115,000 1,035,333 05-01-42 5.00 2,725,000 2,329,167 Plymouth Housing & Redevelopment Authority Unlimited General Obligation Bonds Governmental Housing Project Series 2005 02-01-35 5.00 2,135,000 2,187,991 Steele County Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,373,065 --------------- Total 9,977,456 ----------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (8.0%) Minneapolis/St. Paul Housing Finance Board Revenue Bonds Mortgage-backed City Living Series 2006A-5 (GNMA/FNMA/FHLMC) 04-01-27 5.45 2,242,294 2,341,964 Minneapolis/St. Paul Housing Finance Board Revenue Bonds Single Family Housing Series 2005A-4 (GNMA/FNMA/FHLMC) A.M.T. 12-01-37 4.70 98,477 89,103 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006B A.M.T. 07-01-26 4.75 1,905,000 1,785,499 07-01-31 4.85 2,570,000 2,434,330 07-01-37 4.90 5,000,000 4,708,699 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006I A.M.T. 07-01-26 5.05 3,520,000 3,476,810 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006M A.M.T. 01-01-37 5.75 3,000,000 3,159,870 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2007D A.M.T. 01-01-38 5.50 4,000,000 4,190,680
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 50 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) HOUSING -- SINGLE FAMILY (CONT.) Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2007I A.M.T. 07-01-22 4.65% $2,330,000 $2,193,276 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1996J A.M.T. 07-01-21 5.60 60,000 60,344 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1997K A.M.T. 01-01-26 5.75 845,000 849,850 --------------- Total 25,290,425 ----------------------------------------------------------------------------------- LEASE (3.4%) St. Paul Port Authority Revenue Bonds Office Building at Cedar Street Series 2003 12-01-23 5.00 5,000,000 5,123,400 12-01-27 5.13 5,350,000 5,488,779 --------------- Total 10,612,179 ----------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (3.6%) City of Minneapolis Limited Tax Revenue Bonds Common Bond Fund Series 2007-2A A.M.T. 06-01-22 5.13 1,035,000 1,036,884 06-01-28 5.00 1,500,000 1,445,490 Minneapolis Community Development Agency Limited Tax Revenue Bonds Common Bond Fund Series 1996-1 06-01-11 6.00 980,000 985,018 Minneapolis Community Development Agency Limited Tax Revenue Bonds Common Bond Fund Series 2001-2A A.M.T. 06-01-19 5.88 1,000,000 1,069,100 St. Cloud Housing & Redevelopment Authority Revenue Bonds State University Foundation Project Series 2002 05-01-18 5.13 3,000,000 3,122,520 State of Minnesota Revenue Bonds Public Safety Radio Communication System Series 2006 (MBIA) 06-01-17 5.00 3,315,000 3,542,342 --------------- Total 11,201,354 -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) SALES OR USE TAX (0.9%) Hennepin County Revenue Bonds Sales Tax Series 2007 12-15-33 4.75% $3,000,000 $2,946,750 ----------------------------------------------------------------------------------- SCHOOL (16.6%) Anoka-Hennepin Independent School District #11 Unlimited General Obligation Bonds Series 2001A (School District Credit Enhancement Program) 02-01-13 5.00 4,175,000 4,337,532 02-01-15 5.00 1,990,000 2,059,750 02-01-16 5.00 2,000,000 2,066,240 Bloomington Independent School District #271 Unlimited General Obligation Bonds Series 2001A (FSA) (School District Credit Enhancement Program) 02-01-24 5.13 4,000,000 4,198,039 Edina Independent School District #273 Unlimited General Obligation Bonds Series 2004 02-01-22 4.25 3,000,000 2,902,470 02-01-23 4.50 3,000,000 3,015,630 02-01-24 4.50 3,400,000 3,412,818 Elk River Independent School District #728 Unlimited General Obligation Bonds Series 2002A (FSA) (School District Credit Enhancement Program) 02-01-16 5.00 3,000,000 3,152,580 Farmington Independent School District #192 Unlimited General Obligation Bonds School Building Series 2005B (FSA) (School District Credit Enhancement Program) 02-01-21 5.00 3,615,000 3,752,985 Lake Superior Independent School District #381 Prerefunded Unlimited General Obligation Bonds Building Series 2002A (FSA) (School District Credit Enhancement Program) 04-01-13 5.00 65,000 68,949 Lake Superior Independent School District #381 Unrefunded Unlimited General Obligation Bonds Building Series 2002A (FSA) (School District Credit Enhancement Program) 04-01-13 5.00 1,730,000 1,833,316 Lakeville Independent School District #194 Unlimited General Obligation Bonds Series 1997A (School District Credit Enhancement Program) 02-01-22 5.13 2,400,000 2,413,008
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) SCHOOL (CONT.) Marshall Independent School District #413 Unlimited General Obligation Bonds Series 2003A (FSA) (School District Credit Enhancement Program) 02-01-19 4.13% $1,560,000 $1,519,066 Osseo Independent School District #279 Unlimited General Obligation Bonds School Building Series 2000A (School District Credit Enhancement Program) 02-01-14 5.75 1,100,000 1,156,584 Osseo Independent School District #279 Unlimited General Obligation Bonds Series 2002A (FSA) (School District Credit Enhancement Program) 02-01-11 5.00 1,570,000 1,636,741 02-01-12 5.00 3,455,000 3,633,071 02-01-15 5.25 3,585,000 3,779,019 St. Paul Housing & Redevelopment Authority Prerefunded Revenue Bonds Community of Peace Academy Project Series 2001A 12-01-30 7.88 2,390,000 2,721,541 St. Paul Housing & Redevelopment Authority Refunding Revenue Bonds St. Paul Academy & Summit School Series 2007 10-01-24 5.00 2,000,000 1,993,100 White Bear Lake Independent School District #624 Unlimited General Obligation Refunding Bonds Series 2002B (FGIC) (School District Credit Enhancement Program) 02-01-13 5.00 1,405,000 1,475,081 02-01-14 5.00 1,480,000 1,550,152 --------------- Total 52,677,672 ----------------------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (0.1%) Lakeville Revenue Bonds Series 2007 02-01-22 5.00 175,000 166,196 02-01-27 5.00 225,000 209,387 --------------- Total 375,583 ----------------------------------------------------------------------------------- SPECIAL PURPOSE CERTIFICATES -- GENERAL OBLIGATIONS (0.1%) Minneapolis Community Development Agency Limited Tax Revenue Bonds Common Bond Fund Series 1997-7A 06-01-12 5.50 250,000 250,955 -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 51 RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) STATE (2.4%) Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001 (FSA) 07-01-16 5.50% $1,500,000(c) $1,669,320 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 2,000,000(c) 2,049,500 State of Minnesota Unlimited General Obligation Bonds Series 2002 11-01-15 5.25 3,575,000 3,806,839 --------------- Total 7,525,659 ----------------------------------------------------------------------------------- TOLL ROAD (0.6%) Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 1,650,000(c) 1,831,979 ----------------------------------------------------------------------------------- WATER & SEWER (3.7%) Minnesota Public Facilities Authority Prerefunded Revenue Bonds Series 2001A 03-01-20 5.00 4,000,000 4,126,400 Minnesota Public Facilities Authority Revenue Bonds Series 2002B 03-01-13 5.25 2,500,000 2,681,900 03-01-14 5.25 2,500,000 2,700,750 Minnesota Public Facilities Authority Revenue Bonds Series 2005C 03-01-25 5.00 2,000,000 2,064,260 --------------- Total 11,573,310 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $290,858,135) $293,464,164 -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (8.9%)(i) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) COLLEGE (1.2%) University of Minnesota Revenue Bonds Series 2002 07-01-21 5.50% $8,500,000 $9,436,108 -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) HOUSING -- SINGLE FAMILY (0.3%) Minnesota Housing Finance Agency Revenue Bonds Series 2002 A.M.T. 07-01-33 5.65% $3,000,000 $3,026,312 ----------------------------------------------------------------------------------- SCHOOL (1.8%) Elk River Independent School District #728 Unlimited General Obligation Bonds Series 2002 (FSA) (School District Credit Enhancement Program) 02-01-18 5.25 3,600,000 3,826,584 02-01-19 5.25 3,450,000 3,667,143 02-01-20 5.25 2,850,000 3,029,379 02-01-21 5.25 3,865,000 4,108,263 --------------- Total 14,631,369 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $26,004,603) $27,093,789 -----------------------------------------------------------------------------------
MUNICIPAL NOTES (3.3%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(D,E,F) YIELD MATURITY VALUE(A) Center City Revenue Bonds Hazelden Foundation Project V.R.D.N. Series 2005 (Bank of New York) 11-01-35 3.98% $2,000,000 $2,000,000 City of Minneapolis Refunding Revenue Bonds Fairview Health Services V.R.D.N. Series 2005B (Royal Bank of Canada) AMBAC 11-15-29 3.95 600,000 600,000 Mankato Revenue Bonds Bethany Lutheran College V.R.D.N. Series 2000B (Wells Fargo Bank) 11-01-15 3.98 140,000 140,000
MUNICIPAL NOTES (CONTINUED) AMOUNT EFFECTIVE PAYABLE AT ISSUE(D,E,F) YIELD MATURITY VALUE(A) Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2000H (Harris Trust & Savings Bank) 10-01-30 3.98% $150,000 $150,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M1 (Harris Trust & Savings Bank) 10-01-32 3.98 3,200,000 3,200,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M2 (Harris Trust & Savings Bank) 10-01-20 3.98 3,100,000 3,100,000 St. Paul Housing & Redevelopment Authority Revenue Bonds Minnesota Public Radio Project V.R.D.N. Series 2005 (Allied Irish Bank) 10-01-25 3.98 1,120,000 1,120,000 St. Paul Port Authority Revenue Bonds Amherst H Wilder Foundation V.R.D.N. Series 2006-3 (Bank of New York) 04-01-36 3.98 100,000 100,000 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $10,410,000) $10,410,000 ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $327,272,738)(j) $330,967,953 ===================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) At Aug. 31, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $2,718,450. (c) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 2.7% of net assets at Aug. 31, 2007. -------------------------------------------------------------------------------- 52 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(e) The following abbreviations may be used in the portfolio descriptions: Alternative Minimum Tax -- At Aug. 31, 2007, the value of securities subject to alternative minimum tax represented A.M.T. -- 12.3% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(f) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2007. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (h) Partially pledged as initial margin deposit on the following open interest rate futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT ---------------------------------------------------------------------------------- SALE CONTRACTS U.S. Treasury Note, Dec. 2007, 5-year $22,100,000
(i) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (j) At Aug. 31, 2007, the cost of securities for federal income tax purposes was $328,207,959 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $7,769,884 Unrealized depreciation (4,108,890) ---------------------------------------------------------------------------------- Net unrealized appreciation $3,660,994 ----------------------------------------------------------------------------------
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 STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 53 INVESTMENTS IN SECURITIES RiverSource New York Tax-Exempt Fund AUG. 31, 2007 (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (93.3%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) ADVANCED REFUNDED (2.4%) Metropolitan Transportation Authority Prerefunded Revenue Bonds Series 1998A (FGIC) 04-01-28 4.75% $1,000,000 $1,061,910 New York State Dormitory Authority Prerefunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 446,125 --------------- Total 1,508,035 ----------------------------------------------------------------------------------- CITY (13.3%) City of New York Prerefunded Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 100,000 109,491 City of New York Prerefunded Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 1,465,000 1,579,841 City of New York Unlimited General Obligation Bonds Series 2002C (XLCA) 03-15-12 5.00 1,000,000 1,050,750 City of New York Unlimited General Obligation Bonds Series 2003J 06-01-18 5.50 2,000,000 2,142,820 City of New York Unlimited General Obligation Bonds Series 2004D 11-01-34 5.00 1,000,000 1,008,910 City of New York Unrefunded Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 1,900,000 2,044,077 City of New York Unrefunded Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 535,000 557,277 --------------- Total 8,493,166 ----------------------------------------------------------------------------------- COLLEGE (8.8%) Dutchess County Industrial Development Agency Refunding Revenue Bonds Bard College Civic Facilities Series 2007-A1 08-01-22 5.00 500,000 506,605 New York State Dormitory Authority Revenue Bonds Brooklyn Law School Series 2003B (XLCA) 07-01-30 5.13 1,000,000 1,030,090
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) COLLEGE (CONT.) New York State Dormitory Authority Revenue Bonds Columbia University Series 2007C 07-01-29 5.00% $250,000 $257,418 New York State Dormitory Authority Revenue Bonds Cornell University Series 2006A 07-01-26 5.00 1,000,000 1,030,870 New York State Dormitory Authority Revenue Bonds Education Series 2006D 03-15-31 5.00 500,000 510,925 New York State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00 1,500,000 1,570,815 Seneca County Industrial Development Agency Revenue Bonds New York Chiropractic College Series 2007 10-01-27 5.00 750,000 718,800 --------------- Total 5,625,523 ----------------------------------------------------------------------------------- COUNTY (2.2%) County of Monroe Unlimited General Obligation Refunding & Public Improvement Bonds Series 1996 (MBIA) 03-01-15 6.00 1,250,000(g) 1,408,675 ----------------------------------------------------------------------------------- ELECTRIC (0.8%) Puerto Rico Electric Power Authority Revenue Bonds Series 2007TT 07-01-32 5.00 500,000(f) 499,260 ----------------------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (3.6%) New York State Dormitory Authority Revenue Bonds Mental Health Services Facilities Improvement Series 2005E (FGIC) 02-15-22 5.00 750,000 774,915 New York State Dormitory Authority Revenue Bonds Sloan-Kettering Memorial Center Series 2003-1 (MBIA) 07-01-21 5.00 1,000,000 1,032,540
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) HEALTH CARE -- HOSPITAL (CONT.) New York State Dormitory Authority Revenue Bonds Sloan-Kettering Memorial Center Series 2006-1 07-01-35 5.00% $500,000 $493,305 --------------- Total 2,300,760 ----------------------------------------------------------------------------------- HEALTH CARE -- LIFE CARE CENTER (0.4%) Suffolk County Industrial Development Agency Prerefunded Revenue Bonds 1st Mortgage Jeffersons Ferry Series 1999A 11-01-28 7.25 250,000 273,540 ----------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (1.8%) New York Mortgage Agency Revenue Bonds Series 2007-140 A.M.T. 10-01-21 4.60 500,000 474,840 New York Mortgage Agency Revenue Bonds Series 2007-143 A.M.T. 10-01-27 4.85 675,000 650,639 --------------- Total 1,125,479 ----------------------------------------------------------------------------------- INDUSTRIAL-POLLUTION -- IDR (1.6%) New York Liberty Development Corporation Revenue Bonds Goldman Sachs Headquarters Series 2005 10-01-35 5.25 1,000,000 1,031,320 ----------------------------------------------------------------------------------- LEASE (15.2%) Hudson Yards Infrastructure Corporation Revenue Bonds Series 2006A 02-15-47 5.00 500,000 499,985 New York City Industrial Development Agency Revenue Bonds Terminal One Group Association Project Series 2005 A.M.T. 01-01-24 5.50 500,000 521,655 New York State Dormitory Authority Revenue Bonds Consolidated City University System Series 1993A 07-01-13 5.75 3,000,000 3,209,879 New York State Dormitory Authority Revenue Bonds New York University Hospitals Center Series 2006A 07-01-20 5.00 500,000 492,990
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 54 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource New York Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) LEASE (CONT.) New York State Dormitory Authority Unrefunded Revenue Bonds Series 1990B 05-15-11 7.50% $845,000 $922,385 New York State Urban Development Corporation Refunding Revenue Bonds Service Contract Series 2005 (FSA) 01-01-17 5.00 1,000,000 1,063,090 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 1,000,000(f) 1,055,600 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriated Series 2004A 08-01-27 5.75 750,000(f) 793,500 Tobacco Settlement Financing Authority Asset-backed Revenue Bonds Series 2003A-1 06-01-16 5.50 500,000 518,845 Tobacco Settlement Financing Authority Revenue Bonds Series 2003B-1C 06-01-15 5.50 500,000 519,900 --------------- Total 9,597,829 ----------------------------------------------------------------------------------- MISCELLANEOUS (2.9%) Metropolitan Transportation Authority Revenue Bonds Series 2002A (FSA) 11-15-26 5.50 750,000 788,243 New York City Trust for Cultural Resources Revenue Bonds Museum of American Folk Art Series 2000 (ACA) 07-01-22 6.00 1,000,000 1,041,600 --------------- Total 1,829,843 ----------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (11.0%) Metropolitan Transportation Authority Revenue Bonds Series 2006A 11-15-22 5.00 750,000 774,510 New York City Industrial Development Agency Revenue Bonds Queens Baseball Stadium Pilot Series 2006 (AMBAC) 01-01-23 5.00 500,000 520,380 01-01-24 5.00 500,000 519,220 New York Counties Tobacco Trust II Revenue Bonds Tobacco Settlement Pass Thru Bonds Series 2001 06-01-35 5.63 500,000 501,490
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) MISCELLANEOUS REVENUE (CONT.) New York State Thruway Authority Revenue Bonds Second Generation Resolution Series 2003B (FSA) 04-01-21 4.75% $835,000 $850,932 Port Authority of New York & New Jersey Revenue Bonds Consolidated 138th Series 2004 (FGIC) A.M.T. 12-01-12 5.00 1,000,000 1,052,579 Seneca Nation Indians Capital Improvements Authority Revenue Bonds Series 2007A 12-01-16 5.25 500,000(d) 498,380 12-01-23 5.00 250,000(d) 230,293 TSASC Incorporated Prerefunded Revenue Bonds Tobacco Settlement Asset-backed Series 2002-1 07-15-32 5.75 275,000 299,602 TSASC Incorporated Revenue Bonds Series 2006-1 06-01-42 5.13 1,000,000 919,150 Westchester Tobacco Asset Securitization Revenue Bonds Series 2005 06-01-26 5.00 875,000 863,354 --------------- Total 7,029,890 ----------------------------------------------------------------------------------- PORT DISTRICT (4.7%) Port Authority of New York & New Jersey Revenue Bonds Consolidated 143rd Series 2006 (FSA) A.M.T. 10-01-21 5.00 1,000,000 1,030,900 Port Authority of New York & New Jersey Revenue Bonds Consolidated 146th Series 2006 (FSA) A.M.T. 12-01-23 4.50 1,500,000 1,456,140 Port Authority of New York & New Jersey Revenue Bonds Consolidated 147th Series 2007 (FGIC) A.M.T. 10-15-26 5.00 500,000 511,470 --------------- Total 2,998,510 ----------------------------------------------------------------------------------- SALES OR USE TAX (4.0%) New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2004C 02-01-33 5.00 1,000,000 1,013,620 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (AMBAC) 07-01-30 5.25 500,000(f) 543,365
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) SALES OR USE TAX (CONT.) Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25% $500,000(f) $543,095 TSASC Incorporated Revenue Bonds Series 2006-1 06-01-34 5.00 500,000 471,205 --------------- Total 2,571,285 ----------------------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (4.4%) New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2003D 02-01-23 5.00 500,000 513,545 02-01-31 5.00 1,000,000 1,015,080 New York State Dormitory Authority Revenue Bonds Education Series 2005F 03-15-23 5.00 250,000 258,225 New York State Dormitory Authority Revenue Bonds Education Series 2006C 12-15-31 5.00 750,000 766,710 New York State Dormitory Authority Revenue Bonds Education Series 2007A 03-15-37 5.00 250,000 254,743 --------------- Total 2,808,303 ----------------------------------------------------------------------------------- STATE (0.8%) Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00 500,000(f) 505,725 ----------------------------------------------------------------------------------- TOLL ROAD (6.6%) Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A (AMBAC) 11-15-19 5.50 1,000,000 1,065,320 Metropolitan Transportation Authority Revenue Bonds Series 2005F 11-15-12 5.00 560,000 590,839 11-15-35 5.00 500,000 502,635 New York State Thruway Authority Revenue Bonds Series 2005G (FSA) 01-01-24 5.00 1,000,000 1,033,270
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 55 RiverSource New York Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) TOLL ROAD (CONT.) Triborough Bridge & Tunnel Authority Refunding Revenue Bonds Series 2002B 11-15-29 5.13% $1,000,000 $1,024,410 --------------- Total 4,216,474 ----------------------------------------------------------------------------------- WATER & SEWER (8.8%) Erie County Water Authority 4th Resolution Revenue Bonds Series 2007 (MBIA) 12-01-34 4.75 500,000(i) 493,195 New York City Municipal Water Finance Authority Revenue Bonds Series 2002A 06-15-29 5.00 1,000,000 1,015,200 New York City Municipal Water Finance Authority Revenue Bonds Series 2004A 06-15-39 5.00 1,000,000 1,010,810 New York State Environmental Facilities Corporation Revenue Bonds New York City Municipal Water Financing Project Series 2004 06-15-26 5.00 1,000,000 1,030,040 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds New York City Municipal Water Project Series 2002B 06-15-31 5.00 1,000,000 1,016,910 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds New York City Municipal Water Project Series 2002K 06-15-28 5.00 1,000,000 1,020,350 --------------- Total 5,586,505 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $58,977,397) $59,410,122 -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (9.4%)(h) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) CITY (4.1%) City of New York Unlimited General Obligation Bonds Series 2000 (FGIC) 05-15-16 5.88% $2,500,000 $2,667,635 ----------------------------------------------------------------------------------- ELECTRIC (1.8%) Puerto Rico Electric Power Authority Revenue Bonds Series 2002 (MBIA) 07-01-17 5.50 1,000,000(f) 1,116,480 ----------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (1.9%) New York Mortgage Agency Revenue Bonds Series 2002 A.M.T. 04-01-32 5.40 1,200,000 1,212,600 ----------------------------------------------------------------------------------- INDUSTRIAL-POLLUTION -- PCR (1.6%) New York State Energy Research & Development Authority Revenue Bonds Series 2000-379 (MBIA) 01-01-21 5.50 990,000 995,564 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $5,830,682) $5,992,279 -----------------------------------------------------------------------------------
MUNICIPAL NOTES (2.5%) Amount Effective payable at ISSUE(b,c,e) yield maturity Value(a) New York City Municipal Water Finance Authority 2nd Generation Resolution Revenue Bonds V.R.D.N. Series 2005AA-2 (Dexia Credit Local) 06-15-32 3.90% $1,400,000 $1,400,000 New York City Municipal Water Finance Authority Revenue Bonds V.R.D.N. Series 1994G (Depfa Bank) FGIC 06-15-24 3.99 200,000 200,000 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $1,600,000) $1,600,000 ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $66,408,079)(j) $67,002,401 ===================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
-------------------------------------------------------------------------------- 56 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource New York Tax-Exempt Fund NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (c) The following abbreviations may be used in the portfolio descriptions: Alternative Minimum Tax -- At Aug. 31, 2007, the value of securities subject to alternative minimum tax represented A.M.T. -- 10.9% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Fund's Board of Trustees. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Aug. 31, 2007, the value of these securities amounted to $728,673 or 1.1% of net assets. (e) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2007. (f) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 7.9% of net assets at Aug. 31, 2007. (g) Partially pledged as initial margin deposit on the following open interest rate futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------------------ SALE CONTRACTS U.S. Treasury Note, Dec. 2007, 5-year $4,700,000
(h) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (i) At Aug. 31, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $492,450. (j) At Aug. 31, 2007, the cost of securities for federal income tax purposes was $66,422,335 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,337,293 Unrealized depreciation (757,227) ------------------------------------------------------------------------------- Net unrealized appreciation $580,066 -------------------------------------------------------------------------------
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 STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 57 INVESTMENTS IN SECURITIES RiverSource Ohio Tax-Exempt Fund AUG. 31, 2007 (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (94.9%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) CITY (6.3%) City of Cincinnati Prerefunded Unlimited General Obligation Bonds Series 2000 12-01-16 5.25% $1,000,000 $1,048,090 City of Cleveland Limited General Obligation Refunding Bonds Series 2005 (AMBAC) 10-01-23 5.50 500,000 556,750 City of Columbus Unlimited General Obligation Bonds Various Purpose Series 2006A 12-15-20 5.00 500,000 527,295 Township of Anderson Limited General Obligation Bonds Series 2007 12-01-18 5.00 500,000 531,260 --------------- Total 2,663,395 ----------------------------------------------------------------------------------- COLLEGE (15.7%) Bowling Green State University Refunding Revenue Bonds Series 2005 (MBIA) 06-01-15 5.00 500,000 535,370 Cleveland State University Revenue Bonds Series 2003A (FGIC) 06-01-15 5.00 1,000,000 1,053,910 Cleveland State University Revenue Bonds Series 2004 (FGIC) 06-01-24 5.25 500,000 524,520 Miami University Refunding Revenue Bonds Series 2005 (AMBAC) 09-01-23 4.75 500,000 508,310 Ohio State Higher Educational Facility Commission Unrefunded Revenue Bonds Oberlin Series 1999 10-01-29 5.00 85,000 85,767 State of Ohio Revenue Bonds Case Western Reserve University Project Series 2006 (MBIA) 12-01-21 5.25 250,000 270,910 State of Ohio Revenue Bonds Mount Union College Project Series 2006 10-01-31 5.00 500,000 501,065
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) COLLEGE (CONT.) State of Ohio Unlimited General Obligation Bonds Higher Education Series 2004B 02-01-12 5.00% $500,000 $525,560 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2005B 05-01-23 5.00 500,000 516,990 University of Akron Revenue Bonds Series 2003A (AMBAC) 01-01-22 5.00 1,000,000 1,026,220 University of Cincinnati Revenue Bonds Series 2001A (FGIC) 06-01-14 5.50 1,000,000 1,068,079 --------------- Total 6,616,701 ----------------------------------------------------------------------------------- COUNTY (5.9%) County of Cuyahoga Limited General Obligation Bonds Series 1993 05-15-13 5.60 395,000 412,483 Summit County Limited General Obligation Bonds Series 2003 12-01-18 5.25 1,490,000 1,592,691 Warren County Limited General Obligation Bonds Series 1992 12-01-12 6.10 445,000 468,171 --------------- Total 2,473,345 ----------------------------------------------------------------------------------- ELECTRIC (2.4%) Ohio Municipal Electric Generation Agency Refunding Revenue Bonds Joint Venture 5 Series 2004 (AMBAC) 02-15-24 4.75 750,000 754,943 Puerto Rico Electric Power Authority Revenue Bonds Series 2007TT 07-01-32 5.00 250,000(d) 249,630 --------------- Total 1,004,573 ----------------------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (11.0%) County of Cuyahoga Refunding Revenue Bonds Series 2003A 01-01-17 6.00 1,000,000(e) 1,084,530
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) HEALTH CARE -- HOSPITAL (CONT.) County of Erie Revenue Bonds Firelands Regional Medical Center Series 2002A 08-15-32 5.63% $245,000 $250,508 County of Montgomery Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 750,000 750,795 05-01-32 5.00 500,000 500,245 Franklin County Refunding Revenue Bonds OhioHealth Corporation Series 2003C 05-15-24 5.25 1,000,000 1,029,640 Franklin County Refunding Revenue Bonds Trinity Health Credit Series 2005A 06-01-20 5.00 500,000 511,230 Miami County Improvement Refunding Revenue Bonds Upper Valley Medical Center Series 2006 05-15-26 5.25 500,000 501,345 --------------- Total 4,628,293 ----------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (4.6%) Ohio Housing Finance Agency Revenue Bonds Mortgage-backed Securities Program Series 2007G (GNMA/FNMA) A.M.T. 03-01-17 4.75 500,000 498,865 Ohio Housing Finance Agency Revenue Bonds Residential Mortgage-backed Securities Series 2006A (GNMA) A.M.T. 09-01-26 4.75 500,000 478,870 09-01-36 4.90 500,000 473,375 Ohio Housing Finance Agency Revenue Bonds Residential Mortgage-backed Securities Series 2006E (GNMA/FNMA) A.M.T. 09-01-36 5.00 500,000 476,485 --------------- Total 1,927,595 ----------------------------------------------------------------------------------- INDUSTRIAL-POLLUTION -- PCR (2.4%) Ohio Air Quality Development Authority Refunding Revenue Bonds Pollution Control -- Dayton Power Series 2005B (FGIC) 01-01-34 4.80 1,000,000 989,610 -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- 58 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Ohio Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) 'x LEASE (2.5%) Ohio State Building Authority Refunding Revenue Bonds State Facilities Adult Correctional Series 2001A (FSA) 10-01-14 5.50% $1,000,000 $1,063,940 ----------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (1.8%) Ohio State Building Authority Revenue Bonds State Facilities Adult Correctional Series 2005A (FSA) 04-01-22 5.00 750,000 775,763 ----------------------------------------------------------------------------------- SALES OR USE TAX (2.6%) Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (AMBAC) 07-01-30 5.25 500,000(d) 543,365 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 500,000(d) 543,095 --------------- Total 1,086,460 ----------------------------------------------------------------------------------- SCHOOL (19.2%) Brookville Local School District Prerefunded Unlimited General Obligation Bonds Series 2003 (FSA) 12-01-18 5.25 1,000,000 1,080,960 Cincinnati City School District Limited General Obligation Bonds School Improvement Series 2002 (FSA) 06-01-21 5.25 1,000,000 1,048,850 Cincinnati City School District Unlimited General Obligation Refunding Bonds Classroom Construction & Improvement Series 2006 (FGIC) 12-01-25 5.25 500,000 542,375 Columbus City School District Prerefunded Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2004 (FSA) 12-01-29 5.25 500,000 544,485 Columbus City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003 (FGIC) 12-01-11 5.00 1,000,000 1,050,910 Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003A (FGIC) 12-01-27 5.00 1,250,000 1,279,312 12-01-31 5.00 1,000,000 1,018,390 Kenston Local School District Unlimited General Obligation Bonds School Improvement Series 2003 (MBIA) 12-01-16 5.00 1,000,000 1,050,240
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) SCHOOL (CONT.) Port of Greater Cincinnati Development Authority Revenue Bonds Sisters of Mercy Series 2006 10-01-25 5.00% $500,000 $485,505 --------------- Total 8,101,027 ----------------------------------------------------------------------------------- SPECIAL DISTRICT -- OTHER (1.3%) Puerto Rico Highway & Transportation Authority Prerefunded Revenue Bonds Series 2004J 07-01-43 5.13 500,000(d) 540,080 ----------------------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (1.1%) Puerto Rico Infrastructure Financing Authority Refunding Special Tax Bonds Series 2005C (AMBAC) 07-01-23 5.50 400,000(d) 448,772 ----------------------------------------------------------------------------------- STATE (14.3%) Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 250,000(d) 256,187 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001A 06-15-13 5.00 1,500,000 1,546,544 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001B 09-15-20 5.00 1,000,000 1,031,970 State of Ohio Unlimited General Obligation Bonds Conservation Projects Series 2005A 03-01-20 5.00 500,000 518,185 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2002A 08-01-18 5.38 500,000 527,290 State of Ohio Unlimited General Obligation Bonds Highway Capital Improvements Series 2002G 05-01-12 5.25 750,000 797,940 State of Ohio Unlimited General Obligation Bonds Infrastructure Improvement Series 2005A 09-01-21 5.00 500,000 520,255 State of Ohio Unlimited General Obligation Bonds Series 2006D 09-15-16 5.00 750,000 804,593 --------------- Total 6,002,964 -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) TOLL ROAD (0.7%) Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25% $250,000(d) $277,573 ----------------------------------------------------------------------------------- WATER & SEWER (3.1%) Northeast Regional Sewer District Improvement Revenue Bonds Series 2007 (MBIA) 11-15-25 4.75 750,000 758,085 Ohio State Water Development Authority Refunding Revenue Bonds Series 2003 06-01-15 5.25 500,000 543,990 --------------- Total 1,302,075 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $40,075,887) $39,902,166 -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (1.3%)(F) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) ELECTRIC Puerto Rico Electric Power Authority Revenue Bonds Series 2002 (MBIA) 07-01-17 5.50% $500,000(d) $558,240 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $559,013) $558,240 -----------------------------------------------------------------------------------
MUNICIPAL NOTES (0.5%) Amount Effective payable at ISSUE(b,c,g) yield maturity Value(a) Ohio Air Quality Development Authority Revenue Bonds Pollution Control Ohio Edison V.R.D.N. Series 2000C (Wachovia Bank) 06-01-23 4.00% $200,000 $200,000 ----------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $200,000) $200,000 ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $40,834,900)(h) $40,660,406 -----------------------------------------------------------------------------------
See accompanying notes to investments in securities. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 59 RiverSource Ohio Tax-Exempt Fund NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(c) The following abbreviations may be used in the portfolio descriptions: Alternative Minimum Tax -- At Aug. 31, 2007, the value of securities subject to alternative minimum tax represented A.M.T. -- 4.6% of net assets B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(d) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 8.1% of net assets at Aug. 31, 2007. (e) Partially pledged as initial margin deposit on the following open interest rate futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------------------ SALE CONTRACTS U.S. Treasury Note, Dec. 2007, 5-year $3,200,000
(f) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (g) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Aug. 31, 2007. (h) At Aug. 31, 2007, the cost of securities for federal income tax purposes was $40,851,176 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $288,316 Unrealized depreciation (479,086) ------------------------------------------------------------------------------ Net unrealized depreciation $(190,770) ------------------------------------------------------------------------------
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. -------------------------------------------------------------------------------- 60 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES AUG. 31, 2007
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MASSACHUSETTS MICHIGAN TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND ASSETS Investments in securities, at value (Note 1) (identified cost $171,687,830, $47,240,238 and $40,101,679) $173,219,511 $47,614,288 $40,579,447 Cash in bank on demand deposit 71,232 60,733 27,511 Capital shares receivable 1,105,824 70,577 1,030 Accrued interest receivable 2,107,007 475,871 558,214 Receivable for investment securities sold 62,775 -- 26,000 Unrealized appreciation on swap transactions, at value (Note 6) 61,758 17,498 14,410 Variation margin receivable 29,616 9,562 7,969 ---------------------------------------------------------------------------------------------------------------------------- Total assets 176,657,723 48,248,529 41,214,581 ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 128,715 33,607 28,184 Capital shares payable 275,433 16,058 14,230 Payable for investment securities purchased 3,969,074 567,382 1,002,333 Short-term floating rate notes outstanding (Note 1) -- 500,000 250,000 Accrued investment management services fee 1,922 528 447 Accrued distribution fee 37,065 10,486 8,893 Accrued transfer agency fee 191 36 67 Accrued administrative services fee 328 90 76 Other accrued expenses 50,403 43,559 53,635 ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 4,463,131 1,171,746 1,357,865 ---------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $172,194,592 $47,076,783 $39,856,716 ============================================================================================================================ REPRESENTED BY Shares of beneficial interest -- $.01 par value (Note 1) $ 342,169 $ 90,416 $ 77,131 Additional paid-in capital 169,358,432 46,821,050 39,300,314 Undistributed (excess of distributions over) net investment income 35,481 2,174 (10) Accumulated net realized gain (loss) (Note 8) 896,188 (218,992) (5,291) Unrealized appreciation (depreciation) on investments (Notes 5 and 6) 1,562,322 382,135 484,572 ---------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $172,194,592 $47,076,783 $39,856,716 ============================================================================================================================ Net assets applicable to outstanding shares: Class A $164,203,362 $40,717,606 $37,592,746 Class B $ 6,098,994 $ 5,814,908 $ 1,227,309 Class C $ 1,892,236 $ 544,269 $ 1,036,661 Outstanding shares of beneficial interest: Class A shares 32,628,583 7,820,119 7,275,112 Class B shares 1,212,728 1,116,878 237,390 Class C shares 375,541 104,584 200,598 Net asset value per share: Class A(1) $ 5.03 $ 5.21 $ 5.17 Class B $ 5.03 $ 5.21 $ 5.17 Class C $ 5.04 $ 5.20 $ 5.17 ----------------------------------------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A for RiverSource California Tax-Exempt Fund, RiverSource Massachusetts Tax-Exempt Fund and RiverSource Michigan Tax-Exempt Fund is $5.28, $5.47 and $5.43, respectively. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. See accompanying notes to financial statements. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 61 STATEMENTS OF ASSETS AND LIABILITIES AUG. 31, 2007
RIVERSOURCE RIVERSOURCE RIVERSOURCE MINNESOTA NEW YORK OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND ASSETS Investments in securities, at value (Note 1) (identified cost $327,272,738, $66,408,079 and $40,834,900) $330,967,953 $67,002,401 $40,660,406 Cash in bank on demand deposit 13,316 45,060 1,127,144 Capital shares receivable 107,430 7,294 19,902 Accrued interest receivable 3,387,853 779,781 556,840 Receivable for investment securities sold 58,702 55,351 6,136 Unrealized appreciation on swap transactions, at value (Note 6) 114,253 23,674 15,440 Variation margin receivable -- 12,484 -- -------------------------------------------------------------------------------------------------------------------------- Total assets 334,649,507 67,926,045 42,385,868 -------------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 221,534 46,725 26,429 Capital shares payable 254,576 7,777 1,628 Payable for investment securities purchased 2,718,450 492,450 -- Short-term floating rate notes outstanding (Note 1) 16,810,000 3,630,000 250,000 Accrued investment management services fee 3,489 715 472 Accrued distribution fee 69,658 14,176 9,330 Accrued transfer agency fee 469 18 77 Accrued administrative services fee 603 122 81 Other accrued expenses 66,997 43,213 41,699 -------------------------------------------------------------------------------------------------------------------------- Total liabilities 20,145,776 4,235,196 329,716 -------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $314,503,731 $63,690,849 $42,056,152 ========================================================================================================================== REPRESENTED BY Shares of beneficial interest -- $.01 par value (Note 1) $ 611,302 $ 129,319 $ 81,529 Additional paid-in capital 312,602,963 62,937,363 42,122,847 Undistributed (excess of distributions over) net investment income 241,569 13,646 (13) Accumulated net realized gain (loss) (Note 8) (2,703,602) 4,729 18,611 Unrealized appreciation (depreciation) on investments (Notes 5 and 6) 3,751,499 605,792 (166,822) -------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $314,503,731 $63,690,849 $42,056,152 ========================================================================================================================== Net assets applicable to outstanding shares: Class A $287,817,910 $58,346,141 $37,930,078 Class B $ 19,653,652 $ 4,552,447 $ 3,179,195 Class C $ 7,032,169 $ 792,261 $ 946,879 Outstanding shares of beneficial interest: Class A shares 55,944,378 11,846,759 7,353,281 Class B shares 3,819,066 924,299 616,144 Class C shares 1,366,714 160,882 183,489 Net asset value per share: Class A(1) $ 5.14 $ 4.93 $ 5.16 Class B $ 5.15 $ 4.93 $ 5.16 Class C $ 5.15 $ 4.92 $ 5.16 --------------------------------------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A for RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund is $5.40, $5.18 and $5.42, respectively. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 62 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT STATEMENTS OF OPERATIONS
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MASSACHUSETTS MICHIGAN TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT YEAR ENDED AUG. 31, 2007 FUND FUND FUND INVESTMENT INCOME Income: Interest (Note 1) $ 8,175,241 $ 2,364,669 $1,993,799 --------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 717,999 220,140 186,717 Distribution fee Class A 412,060 113,078 105,247 Class B 82,230 78,218 21,951 Class C 20,739 6,386 12,458 Transfer agency fee Class A 69,694 32,444 25,635 Class B 3,841 6,013 1,493 Class C 999 503 839 Administrative services fees 122,586 37,586 31,880 Interest and fee expense (Note 1) 9,154 19,612 9,737 Compensation of board members 3,267 1,019 876 Custodian fees 15,608 13,080 12,479 Printing and postage 59,831 17,653 14,990 Registration fees 37,700 32,746 36,010 Professional fees 47,950 50,809 51,472 Other 5,437 3,554 3,076 --------------------------------------------------------------------------------------------------------- Total expenses 1,609,095 632,841 514,860 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (138,768) (125,157) (119,310) --------------------------------------------------------------------------------------------------------- 1,470,327 507,684 395,550 Earnings and bank fee credits on cash balances (Note 2) (19,325) (7,869) (6,131) --------------------------------------------------------------------------------------------------------- Total net expenses 1,451,002 499,815 389,419 --------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 6,724,239 1,864,854 1,604,380 --------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) 1,094,691 (12,091) 81,971 Futures contracts 83,046 16,111 17,123 --------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 1,177,737 4,020 99,094 Net change in unrealized appreciation (depreciation) on investments (5,475,259) (1,139,757) (824,281) --------------------------------------------------------------------------------------------------------- Net gain (loss) on investments (4,297,522) (1,135,737) (725,187) --------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 2,426,717 $ 729,117 $ 879,193 =========================================================================================================
See accompanying notes to financial statements. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 63 STATEMENTS OF OPERATIONS
RIVERSOURCE RIVERSOURCE RIVERSOURCE MINNESOTA NEW YORK OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT YEAR ENDED AUG. 31, 2007 FUND FUND FUND INVESTMENT INCOME Income: Interest (Note 1) $15,657,602 $ 3,272,206 $1,946,752 ------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 1,351,439 279,438 187,674 Distribution fee Class A 751,419 153,046 100,075 Class B 265,289 59,859 44,993 Class C 76,915 9,503 12,438 Transfer agency fee Class A 161,893 37,537 26,597 Class B 15,450 3,965 3,195 Class C 4,480 650 901 Administrative services fees 234,353 47,710 32,042 Interest and fee expense (Note 1) 658,791 142,144 9,737 Compensation of board members 6,223 1,285 886 Custodian fees 30,117 14,098 11,129 Printing and postage 115,058 21,116 14,744 Registration fees 32,880 32,490 33,085 Professional fees 55,378 50,261 51,589 Other 756 3,313 2,733 ------------------------------------------------------------------------------------------------------- Total expenses 3,760,441 856,415 531,818 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (198,666) (123,461) (117,113) ------------------------------------------------------------------------------------------------------- 3,561,775 732,954 414,705 Earnings and bank fee credits on cash balances (Note 2) (23,755) (7,147) (5,404) ------------------------------------------------------------------------------------------------------- Total net expenses 3,538,020 725,807 409,301 ------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 12,119,582 2,546,399 1,537,451 ------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (Note 3) (349,018) 146,809 96,819 Futures contracts 93,110 21,096 13,453 ------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (255,908) 167,905 110,272 Net change in unrealized appreciation (depreciation) on investments (7,598,634) (1,748,799) (976,243) ------------------------------------------------------------------------------------------------------- Net gain (loss) on investments (7,854,542) (1,580,894) (865,971) ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 4,265,040 $ 965,505 $ 671,480 =======================================================================================================
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 64 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006(A) JUNE 30, 2006 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 6,724,239 $ 1,171,197 $ 7,101,069 Net realized gain (loss) on investments 1,177,737 119,023 197,128 Net change in unrealized appreciation (depreciation) on investments (5,475,259) 3,438,131 (5,679,188) ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 2,426,717 4,728,351 1,619,009 ---------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (6,398,570) (1,111,403) (6,678,350) Class B (256,028) (47,396) (365,234) Class C (64,777) (11,212) (75,848) Net realized gain Class A (20,710) -- (2,060,962) Class B (1,083) -- (141,135) Class C (266) -- (28,036) ---------------------------------------------------------------------------------------------------------------- Total distributions (6,741,434) (1,170,011) (9,349,565) ---------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 22,983,104 3,629,083 20,891,751 Class B shares 623,385 143,769 1,055,877 Class C shares 273,162 56,836 491,178 Reinvestment of distributions at net asset value Class A shares 4,522,917 799,255 6,405,081 Class B shares 216,468 40,099 436,470 Class C shares 61,001 10,802 97,101 Payments for redemptions Class A shares (29,519,324) (8,060,501) (39,268,742) Class B shares (Note 2) (3,319,777) (2,227,223) (6,518,006) Class C shares (Note 2) (569,804) (78,651) (1,394,220) ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (4,728,868) (5,686,531) (17,803,510) ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (9,043,585) (2,128,191) (25,534,066) Net assets at beginning of period 181,238,177 183,366,368 208,900,434 ---------------------------------------------------------------------------------------------------------------- Net assets at end of period $172,194,592 $181,238,177 $183,366,368 ================================================================================================================ Undistributed net investment income $ 35,481 $ 30,617 $ 29,431 ----------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006. See accompanying notes to financial statements. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 65 STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006(A) JUNE 30, 2006 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 1,864,854 $ 340,877 $ 2,173,401 Net realized gain (loss) on investments 4,020 (55,573) 86,144 Net change in unrealized appreciation (depreciation) on investments (1,139,757) 1,311,823 (2,607,074) ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 729,117 1,597,127 (347,529) ---------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (1,625,610) (289,620) (1,851,979) Class B (221,146) (47,646) (387,693) Class C (18,068) (3,799) (31,553) Net realized gain Class A (802) -- (260,911) Class B (142) -- (70,980) Class C (12) -- (6,115) ---------------------------------------------------------------------------------------------------------------- Total distributions (1,865,780) (341,065) (2,609,231) ---------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 4,762,764 1,907,931 6,460,310 Class B shares 259,730 53,468 849,949 Class C shares 38,525 17,855 151,990 Reinvestment of distributions at net asset value Class A shares 1,298,193 236,232 1,715,619 Class B shares 165,683 36,650 357,931 Class C shares 16,834 3,546 34,168 Payments for redemptions Class A shares (13,148,164) (2,110,518) (14,249,579) Class B shares (Note 2) (3,522,293) (2,732,774) (6,616,572) Class C shares (Note 2) (296,656) (57,449) (687,929) ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (10,425,384) (2,645,059) (11,984,113) ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (11,562,047) (1,388,997) (14,940,873) Net assets at beginning of period 58,638,830 60,027,827 74,968,700 ---------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 47,076,783 $58,638,830 $ 60,027,827 ================================================================================================================ Undistributed net investment income $ 2,174 $ 2,144 $ 2,332 ----------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 66 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006(A) JUNE 30, 2006 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 1,604,380 $ 285,193 $ 1,836,205 Net realized gain (loss) on investments 99,094 (47,503) 258,505 Net change in unrealized appreciation (depreciation) on investments (824,281) 1,016,039 (1,886,447) ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 879,193 1,253,729 208,263 ---------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (1,507,576) (265,857) (1,683,666) Class B (61,512) (13,020) (110,672) Class C (35,143) (6,475) (47,318) Net realized gain Class A (993) -- (405,309) Class B (55) -- (33,837) Class C (31) -- (15,842) ---------------------------------------------------------------------------------------------------------------- Total distributions (1,605,310) (285,352) (2,296,644) ---------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 4,036,211 650,935 5,292,299 Class B shares 40,927 10,393 131,671 Class C shares 146,517 26,971 524,009 Reinvestment of distributions at net asset value Class A shares 1,198,092 219,921 1,671,150 Class B shares 46,495 9,697 101,482 Class C shares 30,151 5,742 55,784 Payments for redemptions Class A shares (12,675,720) (1,196,107) (13,226,236) Class B shares (Note 2) (1,475,958) (722,774) (2,254,715) Class C shares (Note 2) (537,047) (132,316) (866,833) ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (9,190,332) (1,127,538) (8,571,389) ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (9,916,449) (159,161) (10,659,770) Net assets at beginning of period 49,773,165 49,932,326 60,592,096 ---------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 39,856,716 $49,773,165 $ 49,932,326 ================================================================================================================
(a) For the period from July 1, 2006 to Aug. 31, 2006. See accompanying notes to financial statements. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 67 STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006(A) JUNE 30, 2006 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 12,119,582 $ 2,059,584 $ 12,828,397 Net realized gain (loss) on investments (255,908) (243,465) (2,113,997) Net change in unrealized appreciation (depreciation) on investments (7,598,634) 6,880,299 (10,149,663) ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 4,265,040 8,696,418 564,737 ---------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (11,270,181) (1,869,249) (11,469,702) Class B (791,703) (146,952) (1,122,358) Class C (230,272) (38,972) (236,496) Net realized gain Class A -- -- (630,199) Class B -- -- (79,986) Class C -- -- (16,239) ---------------------------------------------------------------------------------------------------------------- Total distributions (12,292,156) (2,055,173) (13,554,980) ---------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 32,528,076 6,491,810 28,475,102 Class B shares 1,039,072 117,193 1,638,107 Class C shares 995,410 79,478 1,632,443 Reinvestment of distributions at net asset value Class A shares 9,097,879 1,552,821 9,873,223 Class B shares 680,057 126,055 1,007,721 Class C shares 202,223 35,357 221,889 Payments for redemptions Class A shares (55,109,296) (8,600,320) (65,255,595) Class B shares (Note 2) (10,945,982) (5,711,230) (15,531,202) Class C shares (Note 2) (2,138,810) (324,412) (2,355,251) ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (23,651,371) (6,233,248) (40,293,563) ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (31,678,487) 407,997 (53,283,806) Net assets at beginning of period 346,182,218 345,774,221 399,058,027 ---------------------------------------------------------------------------------------------------------------- Net assets at end of period $314,503,731 $346,182,218 $345,774,221 ================================================================================================================ Undistributed net investment income $ 241,569 $ 414,143 $ 409,732 ----------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 68 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE NEW YORK TAX-EXEMPT FUND YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006(A) JUNE 30, 2006 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 2,546,399 $ 445,066 $ 2,853,705 Net realized gain (loss) on investments 167,905 (72,539) 527,983 Net change in unrealized appreciation (depreciation) on investments (1,748,799) 1,514,873 (3,334,496) ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 965,505 1,887,400 47,192 ---------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (2,330,813) (405,739) (2,553,156) Class B (181,832) (35,821) (268,752) Class C (28,915) (5,866) (38,050) Net realized gain Class A (70,294) -- (665,061) Class B (7,231) -- (87,026) Class C (1,128) -- (12,789) ---------------------------------------------------------------------------------------------------------------- Total distributions (2,620,213) (447,426) (3,624,834) ---------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 6,507,070 1,254,286 7,210,267 Class B shares 371,363 104,005 625,727 Class C shares 107,676 32,356 237,394 Reinvestment of distributions at net asset value Class A shares 1,953,853 333,628 2,653,759 Class B shares 154,068 28,703 287,925 Class C shares 28,046 5,642 48,248 Payments for redemptions Class A shares (11,708,520) (2,281,555) (16,835,510) Class B shares (Note 2) (2,667,241) (1,146,108) (3,708,928) Class C shares (Note 2) (471,813) (60,772) (452,020) ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (5,725,498) (1,729,815) (9,933,138) ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (7,380,206) (289,841) (13,510,780) Net assets at beginning of period 71,071,055 71,360,896 84,871,676 ---------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 63,690,849 $71,071,055 $ 71,360,896 ================================================================================================================ Undistributed net investment income $ 13,646 $ 8,807 $ 11,167 ----------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006. See accompanying notes to financial statements. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 69 STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE OHIO TAX-EXEMPT FUND YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006(A) JUNE 30, 2006 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 1,537,451 $ 278,115 $ 1,772,983 Net realized gain (loss) on investments 110,272 (46,258) 53,211 Net change in unrealized appreciation (depreciation) on investments (976,243) 1,057,934 (2,047,369) ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 671,480 1,289,791 (221,175) ---------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (1,383,231) (248,276) (1,594,779) Class B (120,853) (22,960) (178,210) Class C (33,380) (6,879) (45,451) ---------------------------------------------------------------------------------------------------------------- Total distributions (1,537,464) (278,115) (1,818,440) ---------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 3,545,203 1,007,750 4,686,479 Class B shares 169,312 52,305 184,460 Class C shares 74,398 14,061 111,991 Reinvestment of distributions at net asset value Class A shares 1,046,890 191,425 1,201,933 Class B shares 95,840 18,814 140,854 Class C shares 30,637 6,450 41,682 Payments for redemptions Class A shares (8,138,846) (2,090,937) (12,949,939) Class B shares (Note 2) (1,992,929) (498,609) (2,915,146) Class C shares (Note 2) (633,047) (105,925) (454,252) ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (5,802,542) (1,404,666) (9,951,938) ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (6,668,526) (392,990) (11,991,553) Net assets at beginning of period 48,724,678 49,117,668 61,109,221 ---------------------------------------------------------------------------------------------------------------- Net assets at end of period $42,056,152 $48,724,678 $ 49,117,668 ================================================================================================================
(a) For the period from July 1, 2006 to Aug. 31, 2006. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 70 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource California Tax-Exempt Trust and RiverSource Special Tax-Exempt Series Trust were organized as Massachusetts business trusts. RiverSource California Tax-Exempt Trust includes only RiverSource California Tax-Exempt Fund. RiverSource Special Tax-Exempt Series Trust is a "series fund" that is currently composed of individual state tax-exempt funds, including RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund (together with RiverSource California Tax-Exempt Fund, herein after referred to as the Funds). The Funds are non-diversified, except for RiverSource Minnesota Tax-Exempt Fund, which is a diversified fund (see Note 11), open-end management investment companies as defined in the Investment Company Act of 1940 (as amended). Each Fund has unlimited authorized shares of beneficial interest. Each Fund's goal is to provide a high level of income generally exempt from federal income tax as well as from the respective state and local income tax. A portion of each Fund's assets may be invested in bonds whose interest is subject to the alternative minimum tax computation. The Funds concentrate their investments in a single state and therefore may have more credit risk related to the economic conditions of the respective state than Funds that have a broader geographical diversification. Each Fund offers Class A, Class B and Class C 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. All classes of shares have identical voting, dividend and liquidation rights. Class specific expenses (e.g., distribution fees, transfer agency 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. Each Fund's significant accounting policies are summarized below: USE OF ESTIMATES Preparing financial statements that conform to U.S. generally accepted accounting principles requires management to make estimates (e.g., on assets, liabilities and contingent assets and liabilities) that could differ from actual results. VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sale price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. The procedures adopted by the Board of Trustees of the funds generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. 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. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Funds 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 each Fund's net assets the same as owned securities. The Funds designate cash or liquid securities at least equal to the amount of its forward-commitments. At Aug. 31, 2007, the outstanding forward-commitments for the Funds are as follows:
WHEN-ISSUED FUND SECURITIES --------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund...................... $1,949,840 RiverSource Minnesota Tax-Exempt Fund....................... 2,718,450 RiverSource New York Tax-Exempt Fund........................ 492,450
-------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 71 OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Funds may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Funds 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 Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. The Funds 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 Funds to secure certain over-the-counter options trades. Cash collateral held by the Funds for such option trades must be returned to the counterparty upon closure, exercise or expiration of the contract. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Funds 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 the premium received or paid. At Aug. 31, 2007, the Funds had no outstanding options contracts. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Funds are 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 Funds 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 Funds recognize a realized gain or loss when the contract is closed or expires. INTEREST RATE SWAP TRANSACTIONS The Funds may enter into interest rate swap agreements to produce incremental earnings or to gain exposure to or protect themselves from market changes. Interest rate swaps are agreements between two parties that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future, based on a predetermined, specified notional amount. Certain interest rate swaps are considered forward-starting; whereby the accrual for the exchange of cash flows does not begin until a specified date in the future (the "effective date"). The net cash flow for a standard interest rate swap transaction is generally the difference between a floating market interest rate versus a fixed interest rate. The Funds may employ interest rate swaps to synthetically add or subtract principal exposure to the municipal market. Interest rate swaps are valued daily and unrealized appreciation (depreciation) is recorded. Certain interest rate swaps may accrue periodic interest on a daily basis as a component of unrealized appreciation (depreciation); the Funds will realize a gain or loss upon the payment or receipt of accrued interest. The Funds will realize a gain or a loss when the interest rate swap is terminated. Risks of entering into an interest rate swap include a lack of correlation between swaps and the portfolio of municipal bonds the swaps are designed to hedge or replicate. A lack of correlation may cause the interest rate swap to experience adverse changes in value relative to expectations. In addition, interest rate swaps are subject to the risk of default of a counterparty, and the risk of adverse movements in market interest rates relative to the interest rate swap positions entered. INVERSE FLOATER PROGRAM TRANSACTIONS Each Fund may enter into transactions in which it transfers to trusts fixed rate municipal bonds in exchange for cash and residual interests in the trusts' assets and cash flows, which are in the form of inverse floating rate securities. The trusts fund the purchases of the municipal bonds by issuing short-term floating rate notes to third parties. The residual interests held by each Fund (inverse floating rate securities) include the right of each Fund (1) to cause the holders of the short-term floating rate notes to tender their notes at par, and (2) to transfer the municipal bonds from the trusts to each Fund, thereby collapsing the trusts. The municipal bonds transferred to the trusts remain in each Fund's investments in securities and the related short-term floating rate notes are reflected as Fund liabilities under the caption "Short-term floating rate notes outstanding" in the "Statements of assets and liabilities." The notes issued by the trusts have interest rates that are multi-modal, which means that they can be reset to a new or different mode at the reset date (e.g. mode can be daily, weekly, monthly, or a fixed specific date) at the discretion of the holder of the inverse floating rate security. The floating rate note holders have the option to tender their notes to the trusts for redemption at par at each reset date. The bonds held by the trusts serve as collateral for the short-term floating rate notes outstanding. Contractual maturities and interest rates of the municipal bonds held in trust at Aug. 31, 2007, are presented in the -------------------------------------------------------------------------------- 72 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT "Investments in Securities." The inclusion of interest and fee expense related to the short-term floating rate notes corresponds to an equal increase in interest income from the fixed rate municipal bonds held in trust. At Aug. 31, 2007, the market value of municipal bonds held in trust and short-term floating rate notes outstanding were as follows:
MARKET VALUE SHORT-TERM RANGE OF OF MUNICIPAL FLOATING INTEREST RATES BONDS HELD RATE NOTES FOR SHORT-TERM FUND IN TRUST OUTSTANDING FLOATING RATE NOTES ------------------------------------------------------------------------------------------------------------------ RiverSource Massachusetts Tax-Exempt Fund................... $ 1,116,480 $ 500,000 4.00% RiverSource Michigan Tax-Exempt Fund........................ 558,240 250,000 4.00% RiverSource Minnesota Tax-Exempt Fund....................... 27,093,789 16,810,000 4.03% - 4.06% RiverSource New York Tax-Exempt Fund........................ 5,992,279 3,630,000 4.00% - 4.06% RiverSource Ohio Tax-Exempt Fund............................ 558,240 250,000 4.00%
GUARANTEES AND INDEMNIFICATIONS Under each Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to each Fund. In addition, certain of each Fund's contracts with its service providers contain general indemnification clauses. Each Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against each Fund cannot be determined and each Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES Each 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. Each Fund is treated as a separate entity for federal income tax purposes. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Funds. On the Statements of assets and liabilities, as a result of permanent book-to-tax differences, accumulated net realized loss has decreased by $23 resulting in a net reclassification adjustment to decrease paid-in capital by $23 for RiverSource Massachusetts Tax-Exempt Fund. The tax character of distributions paid for the periods indicated is as follows:
YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006* JUNE 30, 2006 ---------------------------------------------------------------------------------------------------------------- RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(a)................................... $6,417,368 $1,111,403 $6,798,475 Long-term capital gain................................ 1,912 -- 1,940,837 CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(a)................................... 257,011 47,396 373,460 Long-term capital gain................................ 100 -- 132,909 CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(a)................................... 65,019 11,212 77,483 Long-term capital gain................................ 24 -- 26,401
(a) Tax-exempt distributions were 98.95% for the year ended Aug. 31, 2007, 99.99% for the period ended Aug. 31, 2006 and 98% for the year ended June 30, 2006. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 73
YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006* JUNE 30, 2006 ---------------------------------------------------------------------------------------------------------------- RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(b)................................... $1,626,412 $289,620 $1,869,690 Long-term capital gain................................ -- -- 243,200 CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(b)................................... 221,288 47,646 392,511 Long-term capital gain................................ -- -- 66,162 CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(b)................................... 18,080 3,799 31,968 Long-term capital gain................................ -- -- 5,700
(b) Tax-exempt distributions were 99.19% for the year ended Aug. 31, 2007, 99.99% for the period ended Aug. 31, 2006 and 98.78% for the year ended June 30, 2006. RIVERSOURCE MICHIGAN TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(c)................................... $1,508,073 $265,857 $1,723,762 Long-term capital gain................................ 496 -- 365,213 CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(c)................................... 61,540 13,020 114,019 Long-term capital gain................................ 27 -- 30,490 CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(c)................................... 35,159 6,475 48,885 Long-term capital gain................................ 15 -- 14,275
(c) Tax-exempt distributions were 99.24% for the year ended Aug. 31, 2007, 99.98% for the period ended Aug. 31, 2006 and 97.36% for the year ended June 30, 2006. RIVERSOURCE MINNESOTA TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt distributions(d)........ $11,270,181 $1,869,249 $11,469,904 Long-term capital gain................................ -- -- 629,997 CLASS B Distributions paid from: Ordinary income -- tax-exempt distributions(d)........ 791,703 146,952 1,122,384 Long-term capital gain................................ -- -- 79,960 CLASS C Distributions paid from: Ordinary income -- tax-exempt distributions(d)........ 230,272 38,972 236,501 Long-term capital gain................................ -- -- 16,234
(d) Tax-exempt distributions were 99.25% for the year ended Aug. 31, 2007, 99.72% for the period ended Aug. 31, 2006 and 98.25% for the year ended June 30, 2006. -------------------------------------------------------------------------------- 74 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT
YEAR ENDED PERIOD ENDED YEAR ENDED AUG. 31, 2007 AUG. 31, 2006* JUNE 30, 2006 ---------------------------------------------------------------------------------------------------------------- RIVERSOURCE NEW YORK TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt distributions(e)........ $2,346,136 $405,739 $2,592,222 Long-term capital gain................................ 54,971 -- 625,995 CLASS B Distributions paid from: Ordinary income -- tax-exempt distributions(e)........ 183,409 35,821 273,864 Long-term capital gain................................ 5,654 -- 81,914 CLASS C Distributions paid from: Ordinary income -- tax-exempt distributions(e)........ 29,161 5,866 38,801 Long-term capital gain................................ 882 -- 12,038
(e) Tax-exempt distributions were 98.57% for the year ended Aug. 31, 2007, 99.98% for the period ended Aug. 31, 2006 and 98.21% for the year ended June 30, 2006. RIVERSOURCE OHIO TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt distributions(f)........ $1,383,231 $248,276 $1,594,779 Long-term capital gain................................ -- -- -- CLASS B Distributions paid from: Ordinary income -- tax-exempt distributions(f)........ 120,853 22,960 178,210 Long-term capital gain................................ -- -- -- CLASS C Distributions paid from: Ordinary income -- tax-exempt distributions(f)........ 33,380 6,879 45,451 Long-term capital gain................................ -- -- --
(f) Tax-exempt distributions were 99.19% for the year ended Aug. 31, 2007, 99.98% for the period ended Aug. 31, 2006 and 99.73% for the year ended June 30, 2006. * For the period from July 1, 2006 to Aug. 31, 2006. At Aug. 31, 2007, the components of distributable earnings on a tax basis for each Fund are as follows:
UNDISTRIBUTED UNREALIZED UNDISTRIBUTED ACCUMULATED ACCUMULATED APPRECIATION FUND TAX-EXEMPT INCOME LONG-TERM GAIN REALIZED LOSS (DEPRECIATION) --------------------------------------------------------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund................. $300,068 $1,124,311 $ -- $1,198,327 RiverSource Massachusetts Tax-Exempt Fund.............. 51,302 -- (121,051) 268,673 RiverSource Michigan Tax-Exempt Fund................... 63,338 13,204 -- 430,913 RiverSource Minnesota Tax-Exempt Fund.................. 335,689 -- (2,437,360) 3,612,671 RiverSource New York Tax-Exempt Fund................... 121,359 56,749 -- 492,784 RiverSource Ohio Tax-Exempt Fund....................... 41,857 33,017 -- (196,669)
RECENT ACCOUNTING PRONOUNCEMENTS On Sept. 20, 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of SFAS 157 is required for fiscal years beginning after Nov. 15, 2007 and interim periods within those fiscal years. The impact of SFAS 157 on the Fund's financial statements is being evaluated. In June 2006, the FASB issued FASB Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after Dec. 15, 2006. As a result, the Fund will incorporate FIN 48 in their semiannual report on Feb. 29, 2008. Tax positions of each Fund are being evaluated to determine the impact, if any, to the Funds. The adoption of FIN 48 is not anticipated to have a material impact on the Funds. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 75 DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of each 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 Under an Investment Management Services Agreement, RiverSource Investments, LLC (the Investment Manager) determines which securities will be purchased, held or sold. The management fee is a percentage of each Fund's average daily net assets that declines from 0.41% to 0.25% annually as each Fund's assets increase. The management fee for the year ended Aug. 31, 2007 was 0.41% of each Fund's average daily net assets for RiverSource California Tax-Exempt Fund, RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund, respectively, and 0.40% of the Fund's average daily net assets for RiverSource Minnesota Tax-Exempt Fund. Under an Administrative Services Agreement, each 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 each Fund's average daily net assets that declines from 0.07% to 0.04% annually as each Fund's assets increase. The fee for the year ended Aug. 31, 2007, was 0.07% of each Fund's average daily net assets. Other expenses are for, among other things, certain expenses of the Funds 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 Funds and the Board. For the year ended Aug. 31, 2007, these amounts are as follows:
FUND OTHER EXPENSES ------------------------------------------------------------------------------ RiverSource California Tax-Exempt Fund...................... $2,528 RiverSource Massachusetts Tax-Exempt Fund................... 1,712 RiverSource Michigan Tax-Exempt Fund........................ 1,635 RiverSource Minnesota Tax-Exempt Fund....................... 756 RiverSource New York Tax-Exempt Fund........................ 1,763 RiverSource Ohio Tax-Exempt Fund............................ 1,639
Compensation of Board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of each Fund or other RiverSource funds. Each Fund's liability for these amounts is adjusted for market value changes and remains in each Fund until distributed in accordance with the Plan. Professional fees included fees paid by each Fund for legal services and independent registered public accounting firm services. Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. Each Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: - Class A $20.50 - Class B $21.50 - Class C $21.00 The 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 Statements of operations. Each Fund has agreements with Ameriprise Financial Services, Inc. and RiverSource Distributors, Inc. (collectively, the Distributor) for distribution and shareholder services. As of Oct. 1, 2007, RiverSource Distributors serves as the sole underwriter and distributor to the Funds. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, each Fund pays a fee at an -------------------------------------------------------------------------------- 76 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT annual rate of up to 0.25% of each Fund's average daily net assets attributable to Class A shares and a fee at an annual rate of up to 1.00% of each Fund's average daily net assets attributable to Class B and Class C shares. For the year ended Aug. 31, 2007, the Investment Manager and its affiliates waived certain fees and expenses such that each Fund's net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs) are as follows:
FUND CLASS A CLASS B CLASS C --------------------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund...................... 0.79% 1.54% 1.54% RiverSource Massachusetts Tax-Exempt Fund................... 0.79 1.54 1.54 RiverSource Michigan Tax-Exempt Fund........................ 0.79 1.55 1.55 RiverSource Minnesota Tax-Exempt Fund....................... 0.79 1.55 1.55 RiverSource New York Tax-Exempt Fund........................ 0.79 1.55 1.55 RiverSource Ohio Tax-Exempt Fund............................ 0.79 1.55 1.55
Of these waived fees and expenses, the transfer agency fees waived (noted by share class) and management fees waived (noted by Fund level) for the year ended Aug. 31, 2007 are as follows:
FUND AMOUNT ----------------------------------------------------------------------------- RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND Class A............................................... $53,212 Class B............................................... 2,655 Class C............................................... 669 The management fees waived at the Fund level were $82,232. RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND Class A............................................... 9,829 Class B............................................... 1,699 Class C............................................... 139 The management fees waived at the Fund level were $113,490. RIVERSOURCE MICHIGAN TAX-EXEMPT FUND Class A............................................... 13,006 Class B............................................... 678 Class C............................................... 385 The management fees waived at the Fund level were $105,241. RIVERSOURCE MINNESOTA TAX-EXEMPT FUND Class A............................................... 41,667 Class B............................................... 3,677 Class C............................................... 1,066 The management fees waived at the Fund level were $152,256. RIVERSOURCE NEW YORK TAX-EXEMPT FUND Class A............................................... 13,049 Class B............................................... 1,276 Class C............................................... 203 The management fees waived at the Fund level were $108,933. RIVERSOURCE OHIO TAX-EXEMPT FUND Class A............................................... 6,582 Class B............................................... 740 Class C............................................... 205 The management fees waived at the Fund level were $109,586.
Under an agreement, which was effective until Aug. 31, 2007, the Investment Manager and its affiliates contractually agreed to waive certain fees and expenses such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs) would not exceed 0.79% for Class A, 1.55% for Class B and 1.55% for Class C of each Fund's average daily net assets for RiverSource California Tax-Exempt Fund, RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund. Effective Sept. 1, 2007, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C of each Fund's average daily net assets for RiverSource California Tax-Exempt Fund, RiverSource Massachusetts Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 77 Fund and will not exceed 0.79% for Class A, 1.55% for Class B and 1.54% for Class C of the Fund's average daily net assets for RiverSource Michigan Tax-Exempt Fund, until Aug. 31, 2008, unless sooner terminated at the discretion of the Board. Sales charges received by the Distributor for distributing the Funds' shares for the year ended Aug. 31, 2007 are as follows:
FUND CLASS A CLASS B CLASS C --------------------------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund...................... $143,335 $7,133 $292 RiverSource Massachusetts Tax-Exempt Fund................... 37,516 16,349 15 RiverSource Michigan Tax-Exempt Fund........................ 18,368 2,488 602 RiverSource Minnesota Tax-Exempt Fund....................... 314,737 22,516 907 RiverSource New York Tax-Exempt Fund........................ 35,481 7,499 538 RiverSource Ohio Tax-Exempt Fund............................ 35,461 4,042 144
During the year ended Aug. 31, 2007, the Funds' custodian and transfer agency fees were reduced as a result of earnings and bank fee credits from overnight cash balances as follows:
FUND AMOUNT ----------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund...................... $19,325 RiverSource Massachusetts Tax-Exempt Fund................... 7,869 RiverSource Michigan Tax-Exempt Fund........................ 6,131 RiverSource Minnesota Tax-Exempt Fund....................... 23,755 RiverSource New York Tax-Exempt Fund........................ 7,147 RiverSource Ohio Tax-Exempt Fund............................ 5,404
3. SECURITIES TRANSACTIONS For the year ended Aug. 31, 2007, cost of purchases and proceeds from sales (other than short-term obligations) aggregated for each Fund are as follows:
FUND PURCHASES PROCEEDS -------------------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund...................... $104,138,789 $106,686,820 RiverSource Massachusetts Tax-Exempt Fund................... 12,697,673 22,175,585 RiverSource Michigan Tax-Exempt Fund........................ 8,772,341 16,409,804 RiverSource Minnesota Tax-Exempt Fund....................... 82,918,285 104,426,023 RiverSource New York Tax-Exempt Fund........................ 18,344,860 23,044,798 RiverSource Ohio Tax-Exempt Fund............................ 11,783,204 18,015,253
Realized gains and losses are determined on an identified cost basis. -------------------------------------------------------------------------------- 78 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the periods indicated are as follows:
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 4,499,436 878,175 (5,728,727) (351,116) Class B 120,531 42,022 (649,678) (487,125) Class C 53,247 11,825 (110,765) (45,693) ---------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(A) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 713,105 155,930 (1,573,086) (704,051) Class B 28,307 7,832 (438,186) (402,047) Class C 11,091 2,105 (15,324) (2,128) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 4,036,004 1,243,495 (7,590,967) (2,311,468) Class B 204,267 84,748 (1,255,215) (966,200) Class C 95,008 18,813 (269,704) (155,883) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 899,808 244,790 (2,478,702) (1,334,104) Class B 48,663 31,222 (666,073) (586,188) Class C 7,253 3,176 (55,756) (45,327) ---------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(A) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 363,719 44,686 (401,184) 7,221 Class B 10,202 6,934 (518,954) (501,818) Class C 3,388 672 (10,891) (6,831) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 1,209,044 322,790 (2,681,419) (1,149,585) Class B 159,477 67,314 (1,239,200) (1,012,409) Class C 28,692 6,428 (129,837) (94,717) ---------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 79
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET RIVERSOURCE MICHIGAN TAX-EXEMPT FUND SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 769,243 228,856 (2,421,079) (1,422,980) Class B 7,809 8,860 (283,448) (266,779) Class C 27,882 5,756 (102,424) (68,786) ---------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(A) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 125,670 42,120 (230,194) (62,404) Class B 1,992 1,857 (139,247) (135,398) Class C 5,188 1,100 (25,467) (19,179) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 1,007,240 318,908 (2,520,700) (1,194,552) Class B 25,135 19,353 (427,991) (383,503) Class C 99,433 10,644 (165,508) (55,431) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET RIVERSOURCE MINNESOTA TAX-EXEMPT FUND SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 6,206,727 1,733,826 (10,512,347) (2,571,794) Class B 198,662 129,453 (2,098,131) (1,770,016) Class C 189,325 38,520 (406,721) (178,876) ---------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(A) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 1,249,041 296,839 (1,650,357) (104,477) Class B 22,719 24,100 (1,099,618) (1,052,799) Class C 15,239 6,760 (62,221) (40,222) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 5,404,198 1,880,076 (12,427,629) (5,143,355) Class B 310,952 191,786 (2,948,175) (2,445,437) Class C 309,585 42,259 (447,815) (95,971) ---------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 80 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET RIVERSOURCE NEW YORK TAX-EXEMPT FUND SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 1,294,149 388,622 (2,330,222) (647,451) Class B 73,375 30,621 (532,071) (428,075) Class C 21,359 5,574 (93,550) (66,617) ---------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(A) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 252,039 66,580 (456,343) (137,724) Class B 20,852 5,730 (230,530) (203,948) Class C 6,460 1,126 (12,175) (4,589) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 1,420,333 525,877 (3,327,671) (1,381,461) Class B 123,189 57,046 (729,908) (549,673) Class C 46,590 9,561 (89,076) (32,925) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET RIVERSOURCE OHIO TAX-EXEMPT FUND SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 678,716 199,794 (1,553,012) (674,502) Class B 32,090 18,264 (382,685) (332,331) Class C 14,188 5,838 (120,483) (100,457) ---------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(A) ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 194,690 36,662 (401,786) (170,434) Class B 10,118 3,603 (96,356) (82,635) Class C 2,707 1,235 (20,427) (16,485) ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) --------------------------------------------------------------------------------------------------------------------------- Class A 892,271 229,263 (2,470,653) (1,349,119) Class B 35,150 26,859 (554,877) (492,868) Class C 21,350 7,950 (86,600) (57,300) ---------------------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006. 5. INTEREST RATE FUTURES CONTRACTS At Aug. 31, 2007, RiverSource California Tax-Exempt Fund's investments in securities included securities valued at $147,909 that were pledged as collateral to cover initial margin deposits on 117 open sale contracts. The notional market value of the open sale contracts at Aug. 31, 2007 was $12,484,266 with a net unrealized loss of $31,117. See "Summary of significant accounting policies" and "Notes to investments in securities." At Aug. 31, 2007, RiverSource Massachusetts Tax-Exempt Fund's investments in securities included securities valued at $52,900 that were pledged as collateral to cover initial margin deposits on 36 open sale contracts. The notional market value of the open -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 81 sale contracts at Aug. 31, 2007 was $3,841,313 with a net unrealized loss of $9,413. See "Summary of significant accounting policies" and "Notes to investments in securities." At Aug. 31, 2007, RiverSource Michigan Tax-Exempt Fund's investments in securities included securities valued at $52,253 that were pledged as collateral to cover initial margin deposits on 30 open sale contracts. The notional market value of the open sale contracts at Aug. 31, 2007 was $3,201,094 with a net unrealized loss of $7,606. See "Summary of significant accounting policies" and "Notes to investments in securities." At Aug. 31, 2007, RiverSource Minnesota Tax-Exempt Fund's investments in securities included securities valued at 278,790 that were pledged as collateral to cover initial margin deposits on 221 open sale contracts. The notional market value of the open sale contracts at Aug. 31, 2007 was $23,581,392 with a net unrealized loss of $57,969. See "Summary of significant accounting policies" and "Notes to investments in securities." At Aug. 31, 2007, RiverSource New York Tax-Exempt Fund's investments in securities included securities valued at $50,712 that were pledged as collateral to cover initial margin deposits on 47 open sale contracts. The notional market value of the open sale contracts at Aug. 31, 2007 was $5,015,047 with a net unrealized loss of $12,204. See "Summary of significant accounting policies" and "Notes to investments in securities." At Aug. 31, 2007, RiverSource Ohio Tax-Exempt Fund's investments in securities included securities valued at $43,381 that were pledged as collateral to cover initial margin deposits on 32 open sale contracts. The notional market value of the open sale contracts at Aug. 31, 2007 was $3,414,500 with a net unrealized loss of $7,768. See "Summary of significant accounting policies" and "Notes to investments in securities." 6. INTEREST RATE SWAP CONTRACTS At Aug. 31, 2007, the following Funds had open interest rate swap contracts: RiverSource California Tax-Exempt Fund
NOTIONAL PAY/RECEIVE FIXED RATE PAYMENT COUNTERPARTY AMOUNT FLOATING RATE INDEX FLOATING RATE FIXED RATE FREQUENCY -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. $2,000,000 Municipal Market Data Index Pay 4.05% Upon termination Lehman Brothers Special Financing Inc. 2,000,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 2,000,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 2,000,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 2,000,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 2,000,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly -------------------------------------------------------------------------------------------------------------------------- Total -------------------------------------------------------------------------------------------------------------------------- UNREALIZED TERMINATION APPRECIATION COUNTERPARTY EFFECTIVE DATE DATE (DEPRECIATION) Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 29, 2007 $13,878 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 30, 2007 13,878 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Dec. 3, 2007 13,878 Lehman Brothers Special Financing Inc. Nov. 27, 2007 Nov. 27, 2017 6,708 Lehman Brothers Special Financing Inc. Nov. 28, 2007 Nov. 28, 2017 6,708 Lehman Brothers Special Financing Inc. Nov. 29, 2007 Nov. 29, 2017 6,708 ---------------------------------------------------------------------------------------------- Total $61,758 --------------------------------------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
NOTIONAL PAY/RECEIVE FIXED RATE PAYMENT COUNTERPARTY AMOUNT FLOATING RATE INDEX FLOATING RATE FIXED RATE FREQUENCY -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. $560,000 Municipal Market Data Index Pay 4.05% Upon termination Lehman Brothers Special Financing Inc. 560,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 580,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 560,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 560,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 580,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly -------------------------------------------------------------------------------------------------------------------------- Total -------------------------------------------------------------------------------------------------------------------------- UNREALIZED TERMINATION APPRECIATION COUNTERPARTY EFFECTIVE DATE DATE (DEPRECIATION) -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 29, 2007 $ 3,886 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 30, 2007 3,886 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Dec. 3, 2007 4,025 Lehman Brothers Special Financing Inc. Nov. 27, 2007 Nov. 27, 2017 1,878 Lehman Brothers Special Financing Inc. Nov. 28, 2007 Nov. 28, 2017 1,878 Lehman Brothers Special Financing Inc. Nov. 29, 2007 Nov. 29, 2017 1,945 -------------------------------------------------------------------------------------------------------------------------- Total $17,498 --------------------------------------------------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
NOTIONAL PAY/RECEIVE FIXED RATE PAYMENT COUNTERPARTY AMOUNT FLOATING RATE INDEX FLOATING RATE FIXED RATE FREQUENCY -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. $460,000 Municipal Market Data Index Pay 4.05% Upon termination Lehman Brothers Special Financing Inc. 460,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 480,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 460,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 460,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 480,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly -------------------------------------------------------------------------------------------------------------------------- Total -------------------------------------------------------------------------------------------------------------------------- UNREALIZED TERMINATION APPRECIATION COUNTERPARTY EFFECTIVE DATE DATE (DEPRECIATION) -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 29, 2007 $ 3,192 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 30, 2007 3,192 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Dec. 3, 2007 3,330 Lehman Brothers Special Financing Inc. Nov. 27, 2007 Nov. 27, 2017 1,543 Lehman Brothers Special Financing Inc. Nov. 28, 2007 Nov. 28, 2017 1,543 Lehman Brothers Special Financing Inc. Nov. 29, 2007 Nov. 29, 2017 1,610 -------------------------------------------------------------------------------------------------------------------------- Total $14,410 --------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 82 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund
NOTIONAL PAY/RECEIVE FIXED RATE PAYMENT COUNTERPARTY AMOUNT FLOATING RATE INDEX FLOATING RATE FIXED RATE FREQUENCY ---------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. $3,700,000 Municipal Market Data Index Pay 4.05% Upon termination Lehman Brothers Special Financing Inc. 3,700,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 3,700,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 3,700,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 3,700,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 3,700,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly ---------------------------------------------------------------------------------------------------------------------------- Total ---------------------------------------------------------------------------------------------------------------------------- UNREALIZED TERMINATION APPRECIATION COUNTERPARTY EFFECTIVE DATE DATE (DEPRECIATION) ---------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 29, 2007 $ 25,674 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 30, 2007 25,675 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Dec. 3, 2007 25,674 Lehman Brothers Special Financing Inc. Nov. 27, 2007 Nov. 27, 2017 12,410 Lehman Brothers Special Financing Inc. Nov. 28, 2007 Nov. 28, 2017 12,410 Lehman Brothers Special Financing Inc. Nov. 29, 2007 Nov. 29, 2017 12,410 ---------------------------------------------------------------------------------------------------------------------------- Total $114,253 ----------------------------------------------------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
NOTIONAL PAY/RECEIVE FIXED RATE PAYMENT COUNTERPARTY AMOUNT FLOATING RATE INDEX FLOATING RATE FIXED RATE FREQUENCY -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. $760,000 Municipal Market Data Index Pay 4.05% Upon termination Lehman Brothers Special Financing Inc. 760,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 780,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 760,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 760,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 780,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly -------------------------------------------------------------------------------------------------------------------------- Total -------------------------------------------------------------------------------------------------------------------------- UNREALIZED TERMINATION APPRECIATION COUNTERPARTY EFFECTIVE DATE DATE (DEPRECIATION) -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 29, 2007 $ 5,274 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 30, 2007 5,274 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Dec. 3, 2007 5,412 Lehman Brothers Special Financing Inc. Nov. 27, 2007 Nov. 27, 2017 2,549 Lehman Brothers Special Financing Inc. Nov. 28, 2007 Nov. 28, 2017 2,549 Lehman Brothers Special Financing Inc. Nov. 29, 2007 Nov. 29, 2017 2,616 -------------------------------------------------------------------------------------------------------------------------- Total $23,674 --------------------------------------------------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
NOTIONAL PAY/RECEIVE FIXED RATE PAYMENT COUNTERPARTY AMOUNT FLOATING RATE INDEX FLOATING RATE FIXED RATE FREQUENCY ------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. $500,000 Municipal Market Data Index Pay 4.05% Upon termination Lehman Brothers Special Financing Inc. 500,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 500,000 Municipal Market Data Index Pay 4.05 Upon termination Lehman Brothers Special Financing Inc. 500,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 500,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly Lehman Brothers Special Financing Inc. 500,000 USD-BMA Municipal Swap Index Receive 3.80 Quarterly ------------------------------------------------------------------------------------------------------------------------- Total ------------------------------------------------------------------------------------------------------------------------- UNREALIZED TERMINATION APPRECIATION COUNTERPARTY EFFECTIVE DATE DATE (DEPRECIATION) ------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 29, 2007 $ 3,469 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Nov. 30, 2007 3,470 Lehman Brothers Special Financing Inc. Aug. 28, 2007 Dec. 3, 2007 3,470 Lehman Brothers Special Financing Inc. Nov. 27, 2007 Nov. 27, 2017 1,677 Lehman Brothers Special Financing Inc. Nov. 28, 2007 Nov. 28, 2017 1,677 Lehman Brothers Special Financing Inc. Nov. 29, 2007 Nov. 29, 2017 1,677 ------------------------------------------------------------------------------------------------------------------------- Total $15,440 -------------------------------------------------------------------------------------------------------------------------
7. BANK BORROWINGS Each Fund has a revolving credit agreement with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The agreement went into effect Sept. 19, 2006. Each Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables each Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the federal funds effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. Each 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. Prior to this agreement, each Fund paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. None of the Funds had borrowings under the facility during the year ended Aug. 31, 2007. 8. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, capital loss carry-overs at Aug. 31, 2007 are as follows:
FUND 2013 2014 --------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund $ -- $ 32,687 RiverSource Minnesota Tax-Exempt Fund 993,611 913,006
Because the measurement periods for a regulated investment company's income are different for excise tax purposes verses 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 Funds are permitted to treat net capital losses realized between November 1 and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At Aug. 31, 2007, RiverSource Massachusetts Tax-Exempt Fund and RiverSource Minnesota Tax-Exempt Fund had a post-October loss of $88,364 and $530,743, respectively that are treated as occurring on Sept. 1, 2007. It is unlikely the Board will authorize distributions of any net realized capital gains for the Funds until the respective capital loss carry-overs have been offset or expire. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 83 9. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), the parent company of RiverSource Investments, LLC (RiverSource Investments), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. In connection with these matters, the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain provisions of the federal and Minnesota securities laws by failing to adequately disclose market timing activities by allowing certain identified market timers to continue to market time contrary to disclosures in mutual fund and variable annuity product prospectuses. The Orders also alleged that AEFC failed to implement procedures to detect and prevent market timing in 401(k) plans for employees of AEFC and related companies and failed to adequately disclose that there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged that AEFC allowed inappropriate market timing to occur by failing to have written policies and procedures and failing to properly supervise its employees. As a result of the Orders, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to make presentations at least annually to its board of directors and the relevant mutual funds' board that include an overview of policies and procedures to prevent market timing, material changes to these policies and procedures and whether disclosures related to market timing are consistent with the SEC order and federal securities laws. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In addition, AEFC agreed to complete and submit to the MDOC a compliance review of its procedures regarding market timing within one year of the MDOC Order, including a summary of actions taken to ensure compliance with applicable laws and regulations and certification by a senior officer regarding compliance and supervisory procedures. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts 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. 10. CHANGE OF FUNDS' FISCAL YEAR The By-Laws of each Fund were amended on April 13, 2006, changing their fiscal year end from June 30 to Aug. 31, effective Aug. 31, 2006. -------------------------------------------------------------------------------- 84 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 11. SUBSEQUENT EVENTS The Board of Trustees (Board) of each of RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund (Selling Funds) has approved in principle proposed mergers of each of the Selling Funds into RiverSource Tax-Exempt High Income Fund. Completion of each merger is subject to approval by shareholders of each Selling Fund. It is currently anticipated that proxy materials regarding the proposed mergers will be distributed to shareholders of the Selling Funds during the fourth quarter of 2007, and that a meeting of shareholders to consider the proposed mergers will be scheduled for the first quarter of 2008. The Board of Trustees (Board) of RiverSource Minnesota Tax-Exempt Fund (Fund) has approved in principle a proposal to change the classification of the Fund from a "diversified" fund to a "non-diversified" fund as such terms are defined under the Investment Company Act of 1940, as amended. This proposal is subject to approval by shareholders of the Fund. It is currently anticipated that proxy materials regarding the proposal will be distributed to shareholders of the Fund during the fourth quarter of 2007, and that a meeting of shareholders to consider the proposal will be scheduled for the first quarter of 2008. 12. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating each Fund's results. RiverSource California Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.16 $5.06 $5.27 $5.11 $5.37 $5.23 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .20(c) .03 .19 .20 .21 .23 Net gains (losses) (both realized and unrealized) (.13) .10 (.15) .23 (.20) .14 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .07 .13 .04 .43 .01 .37 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.03) (.19) (.20) (.21) (.23) Distributions from realized gains -- -- (.06) (.07) (.06) -- --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.03) (.25) (.27) (.27) (.23) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.03 $5.16 $5.06 $5.27 $5.11 $5.37 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $164 $170 $171 $190 $194 $237 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d) .79%(e) .79%(e),(f) .81%(e) .86% .86% .85% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(g) .80%(e) N/A N/A N/A N/A N/A --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.89% 3.81%(f) 3.69% 3.71% 4.03% 4.34% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 62% 7% 20% 28% 30% 95% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) 1.35% 2.63%(i) .81% 8.53% .25% 7.26% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.87%, excluding interest and fee expense, and 0.88%, including interest and fee expense, for the year ended Aug. 31, 2007, and 0.87%, excluding interest and fee expense for the period ended Aug. 31, 2006, and 0.88%, excluding interest and fee expense for the year ended June 30, 2006. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 85 RiverSource California Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.16 $5.06 $5.27 $5.11 $5.37 $5.23 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .16(c) .03 .15 .16 .17 .19 Net gains (losses) (both realized and unrealized) (.13) .10 (.15) .23 (.20) .14 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .13 -- .39 (.03) .33 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.03) (.15) (.16) (.17) (.19) Distributions from realized gains -- -- (.06) (.07) (.06) -- --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.03) (.21) (.23) (.23) (.19) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.03 $5.16 $5.06 $5.27 $5.11 $5.37 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $6 $9 $11 $16 $21 $27 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d) 1.54%(e) 1.55%(e),(f) 1.57%(e) 1.61% 1.61% 1.60% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(g) 1.55%(e) N/A N/A N/A N/A N/A --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.12% 3.01%(f) 2.92% 2.95% 3.28% 3.58% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 62% 7% 20% 28% 30% 95% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .59% 2.50%(i) .05% 7.72% (.50%) 6.44% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.62%, excluding interest and fee expense, and 1.63%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.62%, excluding interest and fee expense for the period ended Aug. 31, 2006, and 1.63%, excluding interest and fee expense for the year ended June 30, 2006. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 86 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource California Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.17 $5.07 $5.28 $5.12 $5.38 $5.24 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .16(c) .03 .15 .16 .17 .19 Net gains (losses) (both realized and unrealized) (.13) .10 (.15) .23 (.20) .14 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .13 -- .39 (.03) .33 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.03) (.15) (.16) (.17) (.19) Distributions from realized gains -- -- (.06) (.07) (.06) -- --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.03) (.21) (.23) (.23) (.19) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.04 $5.17 $5.07 $5.28 $5.12 $5.38 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $2 $2 $2 $3 $4 $5 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d) 1.54%(e) 1.55%(e),(f) 1.58%(e) 1.62% 1.62% 1.61% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(g) 1.55%(e) N/A N/A N/A N/A N/A --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.13% 3.05%(f) 2.93% 2.94% 3.27% 3.56% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 62% 7% 20% 28% 30% 95% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .60% 2.50%(i) .06% 7.71% (.50%) 6.43% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.62%, excluding interest and fee expense, and 1.63%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.63%, excluding interest and fee expense for the period ended Aug. 31, 2006, and 1.64%, excluding interest and fee expense for the year ended June 30, 2006. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 87 RiverSource Massachusetts Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.33 $5.22 $5.45 $5.26 $5.51 $5.37 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(c) .03 .18 .17 .18 .19 Net gains (losses) (both realized and unrealized) (.12) .11 (.20) .22 (.19) .16 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .07 .14 (.02) .39 (.01) .35 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.03) (.18) (.17) (.18) (.19) Distributions from realized gains -- -- (.03) (.03) (.06) (.02) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.19) (.03) (.21) (.20) (.24) (.21) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.21 $5.33 $5.22 $5.45 $5.26 $5.51 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $41 $49 $48 $56 $59 $73 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) .79% .79%(f) .81% .88% .88% .88% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) .83% .82%(f) .87% .92% .90% .98% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.59% 3.52%(f) 3.38% 3.17% 3.35% 3.57% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 24% 5% 17% 9% 14% 141% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) 1.33% 2.72%(i) (.29%) 7.42% (.24%) 6.73% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 1.02%, excluding interest and fee expense, and 1.06%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.05%, excluding interest and fee expense, and 1.08% including interest and fee expense, for the period ended Aug. 31, 2006, and 0.97%, 0.94%, 0.93% and 0.92%, excluding interest and fee expense, and 1.03%, 0.98%, 0.95% and 1.02%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 88 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.33 $5.22 $5.45 $5.26 $5.51 $5.37 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .03 .14 .13 .14 .15 Net gains (losses) (both realized and unrealized) (.12) .10 (.20) .22 (.19) .16 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .13 (.06) .35 (.05) .31 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.02) (.14) (.13) (.14) (.15) Distributions from realized gains -- -- (.03) (.03) (.06) (.02) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.15) (.02) (.17) (.16) (.20) (.17) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.21 $5.33 $5.22 $5.45 $5.26 $5.51 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $6 $9 $12 $18 $21 $24 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) 1.54% 1.55%(f) 1.58% 1.64% 1.64% 1.63% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.58% 1.58%(f) 1.64% 1.68% 1.66% 1.73% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.83% 2.72%(f) 2.61% 2.41% 2.59% 2.81% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 24% 5% 17% 9% 14% 141% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .57% 2.58%(i) (1.05%) 6.61% (.99%) 5.92% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.77%, excluding interest and fee expense, and 1.81%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.79%, excluding interest and fee expense, and 1.82%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.72%, 1.69%, 1.69% and 1.68%, excluding interest and fee expense, and 1.78%, 1.73%, 1.71% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 89 RiverSource Massachusetts Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.32 $5.21 $5.44 $5.26 $5.51 $5.37 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .03 .14 .13 .14 .15 Net gains (losses) (both realized and unrealized) (.12) .11 (.20) .21 (.19) .16 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .14 (.06) .34 (.05) .31 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.03) (.14) (.13) (.14) (.15) Distributions from realized gains -- -- (.03) (.03) (.06) (.02) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.15) (.03) (.17) (.16) (.20) (.17) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.20 $5.32 $5.21 $5.44 $5.26 $5.51 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 $1 $2 $2 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) 1.54% 1.55%(f) 1.58% 1.64% 1.64% 1.64% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.58% 1.58%(f) 1.64% 1.68% 1.66% 1.74% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.83% 2.76%(f) 2.62% 2.41% 2.58% 2.88% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 24% 5% 17% 9% 14% 141% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .56% 2.59%(i) (1.05%) 6.41% (.97%) 5.91% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.78%, excluding interest and fee expense, and 1.82%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.81%, excluding interest and fee expense, and 1.84%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.73%, 1.70%, 1.69% and 1.68%, excluding interest and fee expense, and 1.79%, 1.74%, 1.71% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 90 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Michigan Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.25 $5.15 $5.35 $5.21 $5.47 $5.33 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(c) .03 .18 .18 .19 .22 Net gains (losses) (both realized and unrealized) (.08) .10 (.16) .17 (.18) .19 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .11 .13 .02 .35 .01 .41 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.03) (.18) (.18) (.19) (.22) Distributions from realized gains -- -- (.04) (.03) (.08) (.05) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.19) (.03) (.22) (.21) (.27) (.27) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.17 $5.25 $5.15 $5.35 $5.21 $5.47 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $38 $46 $45 $53 $56 $70 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) .79% .79%(f) .81% .88% .88% .88% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) .81% .81%(f) .81% .88% .89% .97% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.58% 3.44%(f) 3.38% 3.45% 3.55% 4.06% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 20% 6% 16% 9% 32% 113% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) 2.07% 2.54%(i) .40% 6.80% .19% 8.00% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 1.06%, excluding interest and fee expense, and 1.08%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.09%, excluding interest and fee expense and 1.11%, including interest and fee expense, for the period ended Aug. 31, 2006, and 0.98%, 0.96%, 0.94% and 0.93%, excluding interest and fee expense, and 0.98%, 0.96%, 0.95% and 1.02%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 91 RiverSource Michigan Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.26 $5.16 $5.35 $5.21 $5.47 $5.33 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .02 .14 .14 .15 .18 Net gains (losses) (both realized and unrealized) (.09) .10 (.15) .17 (.18) .19 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .06 .12 (.01) .31 (.03) .37 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.02) (.14) (.14) (.15) (.18) Distributions from realized gains -- -- (.04) (.03) (.08) (.05) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.15) (.02) (.18) (.17) (.23) (.23) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.17 $5.26 $5.16 $5.35 $5.21 $5.47 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $3 $3 $5 $7 $9 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) 1.55% 1.55%(f) 1.58% 1.64% 1.63% 1.63% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.57% 1.57%(f) 1.58% 1.64% 1.64% 1.72% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.80% 2.65%(f) 2.61% 2.69% 2.79% 3.28% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 20% 6% 16% 9% 32% 113% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) 1.10% 2.39%(i) (.17%) 5.99% (.56%) 7.18% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.79%, excluding interest and fee expense, and 1.81%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.83%, excluding interest and fee expense, and 1.85%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.74%, 1.71%, 1.70% and 1.69%, excluding interest and fee expense, and 1.74%, 1.71%, 1.71% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 92 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Michigan Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.26 $5.15 $5.35 $5.21 $5.47 $5.33 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .02 .14 .14 .15 .18 Net gains (losses) (both realized and unrealized) (.09) .11 (.16) .17 (.18) .19 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .06 .13 (.02) .31 (.03) .37 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.02) (.14) (.14) (.15) (.18) Distributions from realized gains -- -- (.04) (.03) (.08) (.05) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.15) (.02) (.18) (.17) (.23) (.23) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.17 $5.26 $5.15 $5.35 $5.21 $5.47 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 $2 $2 $2 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) 1.55% 1.55%(f) 1.57% 1.64% 1.64% 1.63% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.57% 1.57%(f) 1.57% 1.64% 1.65% 1.72% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.82% 2.67%(f) 2.61% 2.70% 2.80% 3.27% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 20% 6% 16% 9% 32% 113% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) 1.11% 2.59%(i) (.36%) 5.99% (.57%) 7.18% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.81%, excluding interest and fee expense, and 1.83%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.84%, excluding interest and fee expense, and 1.86%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.74%, 1.72%, 1.70% and 1.69%, excluding interest and fee expense, and 1.74%, 1.72%, 1.71% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 93 RiverSource Minnesota Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.27 $5.17 $5.35 $5.20 $5.37 $5.20 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(c) .03 .18 .18 .19 .22 Net gains (losses) (both realized and unrealized) (.13) .10 (.17) .17 (.17) .17 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .06 .13 .01 .35 .02 .39 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.03) (.18) (.18) (.19) (.22) Distributions from realized gains -- -- (.01) (.02) -- -- --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.19) (.03) (.19) (.20) (.19) (.22) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.14 $5.27 $5.17 $5.35 $5.20 $5.37 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in millions) $288 $309 $303 $341 $347 $393 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d) .79%(e) .79%(e),(f) .81%(e) .85% .84% .84% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(g) .99%(e) .98%(e),(f) .96%(e) .95% .90% .96% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.70% 3.60%(f) 3.52% 3.37% 3.60% 4.26% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 26% 3% 13% 15% 23% 73% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) 1.26% 2.56%(i) .29% 6.73% .32% 7.78% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.85%, excluding interest and fee expense, and 1.05%, including interest and fee expense, for the year ended Aug. 31, 2007, and 0.87%, excluding interest and fee expense, and 1.06%, including interest and fee expense, for the period ended Aug. 31, 2006, and 0.86%, excluding interest and fee expense, and 1.01%, including interest and fee expense, for the year ended June 30, 2006. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 94 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.27 $5.17 $5.35 $5.20 $5.37 $5.20 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .03 .14 .14 .15 .18 Net gains (losses) (both realized and unrealized) (.11) .10 (.17) .17 (.17) .17 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .04 .13 (.03) .31 (.02) .35 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.03) (.14) (.14) (.15) (.18) Distributions from realized gains -- -- (.01) (.02) -- -- --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.03) (.15) (.16) (.15) (.18) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.15 $5.27 $5.17 $5.35 $5.20 $5.37 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $20 $29 $34 $49 $59 $68 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d) 1.55%(e) 1.55%(e),(f) 1.57%(e) 1.60% 1.59% 1.59% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(g) 1.75%(e) 1.74%(e),(f) 1.72%(e) 1.70% 1.65% 1.71% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.93% 2.81%(f) 2.75% 2.62% 2.85% 3.48% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 26% 3% 13% 15% 23% 73% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .70% 2.42%(i) (.47%) 5.94% (.44%) 6.97% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.60%, excluding interest and fee expense, and 1.80%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.62%, excluding interest and fee expense, and 1.81%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.62%, excluding interest and fee expense, and 1.77%, including interest and fee expense, for the year ended June 30, 2006. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 95 RiverSource Minnesota Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.27 $5.17 $5.35 $5.20 $5.37 $5.20 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .03 .14 .14 .15 .18 Net gains (losses) (both realized and unrealized) (.11) .10 (.17) .17 (.17) .17 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .04 .13 (.03) .31 (.02) .35 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.03) (.14) (.14) (.15) (.18) Distributions from realized gains -- -- (.01) (.02) -- -- --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.03) (.15) (.16) (.15) (.18) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.15 $5.27 $5.17 $5.35 $5.20 $5.37 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $7 $8 $8 $9 $9 $9 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d) 1.55%(e) 1.55%(e),(f) 1.57%(e) 1.61% 1.60% 1.60% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(g) 1.75%(e) 1.74%(e),(f) 1.72%(e) 1.71% 1.66% 1.72% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.94% 2.84%(f) 2.76% 2.62% 2.84% 3.44% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 26% 3% 13% 15% 23% 73% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .70% 2.42%(i) (.47%) 5.94% (.44%) 6.96% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.60%, excluding interest and fee expense, and 1.80%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.63%, excluding interest and fee expense, and 1.82%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.62%, excluding interest and fee expense, and 1.77%, including interest and fee expense, for the year ended June 30, 2006. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 96 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource New York Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.05 $4.95 $5.18 $5.07 $5.36 $5.16 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19(c) .03 .19 .18 .18 .20 Net gains (losses) (both realized and unrealized) (.11) .10 (.18) .17 (.18) .22 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .08 .13 .01 .35 -- .42 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.03) (.19) (.18) (.18) (.20) Distributions from realized gains (.01) -- (.05) (.06) (.11) (.02) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.03) (.24) (.24) (.29) (.22) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.93 $5.05 $4.95 $5.18 $5.07 $5.36 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $58 $63 $63 $73 $79 $97 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) .79% .79%(f) .81% .88% .88% .88% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.00% .98%(f) .98% .98% .95% 1.00% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.81% 3.77%(f) 3.75% 3.47% 3.44% 3.88% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 28% 7% 17% 30% 36% 91% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) 1.53% 2.67%(i) .20% 7.04% (.02%) 8.43% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.97%, excluding interest and fee expense, and 1.18%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.01%, excluding interest and fee expense, and 1.20%, including interest and fee expense, for the period ended Aug. 31, 2006, and 0.96%, 0.92%, 0.93% and 0.90%, excluding interest and fee expense, and 1.13%, 1.02%, 1.00% and 1.02%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 97 RiverSource New York Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.05 $4.95 $5.18 $5.07 $5.36 $5.16 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .03 .15 .14 .14 .16 Net gains (losses) (both realized and unrealized) (.11) .10 (.18) .17 (.18) .22 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .04 .13 (.03) .31 (.04) .38 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.03) (.15) (.14) (.14) (.16) Distributions from realized gains (.01) -- (.05) (.06) (.11) (.02) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.03) (.20) (.20) (.25) (.18) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.93 $5.05 $4.95 $5.18 $5.07 $5.36 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $7 $8 $11 $15 $18 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) 1.55% 1.55%(f) 1.58% 1.64% 1.63% 1.63% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.76% 1.74%(f) 1.75% 1.74% 1.70% 1.75% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.05% 2.98%(f) 2.98% 2.70% 2.69% 3.13% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 28% 7% 17% 30% 36% 91% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .76% 2.54%(i) (.55%) 6.23% (.78%) 7.61% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.72%, excluding interest and fee expense, and 1.93%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.76%, excluding interest and fee expense, and 1.95%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.71%, 1.67%, 1.69% and 1.66%, excluding interest and fee expense, and 1.88%, 1.77%, 1.76% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 98 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource New York Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.05 $4.95 $5.18 $5.07 $5.36 $5.16 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15(c) .03 .15 .14 .14 .16 Net gains (losses) (both realized and unrealized) (.12) .10 (.18) .17 (.18) .22 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .13 (.03) .31 (.04) .38 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.03) (.15) (.14) (.14) (.16) Distributions from realized gains (.01) -- (.05) (.06) (.11) (.02) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.16) (.03) (.20) (.20) (.25) (.18) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.92 $5.05 $4.95 $5.18 $5.07 $5.36 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 $1 $2 $2 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) 1.55% 1.55%(f) 1.58% 1.64% 1.63% 1.64% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.76% 1.74%(f) 1.75% 1.74% 1.70% 1.76% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.05% 3.01%(f) 2.99% 2.70% 2.68% 3.07% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 28% 7% 17% 30% 36% 91% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .56% 2.54%(i) (.55%) 6.23% (.78%) 7.60% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.72%, excluding interest and fee expense, and 1.93%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.78%, excluding interest and fee expense, and 1.97%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.72%, 1.68%, 1.69% and 1.66%, excluding interest and fee expense, and 1.89%, 1.78%, 1.76% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 99 RiverSource Ohio Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.26 $5.15 $5.35 $5.16 $5.43 $5.35 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18(c) .03 .17 .16 .17 .18 Net gains (losses) (both realized and unrealized) (.10) .11 (.19) .19 (.20) .19 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .08 .14 (.02) .35 (.03) .37 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.03) (.18) (.16) (.17) (.18) Distributions from realized gains -- -- -- -- (.07) (.11) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.18) (.03) (.18) (.16) (.24) (.29) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.16 $5.26 $5.15 $5.35 $5.16 $5.43 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $38 $42 $42 $51 $56 $67 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) .79% .79%(f) .81% .88% .88% .88% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) .81% .81%(f) .81% .89% .90% .96% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.46% 3.45%(f) 3.31% 3.07% 3.13% 3.40% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 27% 7% 18% 33% 17% 194% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) 1.55% 2.73%(i) (.41%) 6.90% (.67%) 7.08% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 1.05%, excluding interest and fee expense, and 1.07%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.10%, excluding interest and fee expense, and 1.12%, including interest and fee expense, for the period ended Aug. 31, 2006, and 0.99%, 0.95%, 0.95% and 0.92%, excluding interest and fee expense, and 0.99%, 0.96%, 0.97% and 1.00%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 100 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Ohio Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.26 $5.15 $5.35 $5.16 $5.43 $5.34 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14(c) .02 .13 .12 .13 .14 Net gains (losses) (both realized and unrealized) (.10) .11 (.19) .19 (.20) .20 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .04 .13 (.06) .31 (.07) .34 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.02) (.14) (.12) (.13) (.14) Distributions from realized gains -- -- -- -- (.07) (.11) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.14) (.02) (.14) (.12) (.20) (.25) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.16 $5.26 $5.15 $5.35 $5.16 $5.43 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $5 $5 $8 $10 $13 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) 1.55% 1.55%(f) 1.58% 1.64% 1.63% 1.63% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.57% 1.57%(f) 1.58% 1.65% 1.65% 1.71% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.69% 2.67%(f) 2.54% 2.31% 2.38% 2.62% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 27% 7% 18% 33% 17% 194% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .78% 2.60%(i) (1.17%) 6.10% (1.43%) 6.47% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.79%, excluding interest and fee expense, and 1.81%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.85%, excluding interest and fee expense, and 1.87%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.74%, 1.70%, 1.71% and 1.68%, excluding interest and fee expense, and 1.74%, 1.71%, 1.73% and 1.76%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 101 RiverSource Ohio Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(A) YEAR ENDED PERIOD ENDED AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2007 2006(B) 2006 2005 2004 2003 Net asset value, beginning of period $5.26 $5.16 $5.35 $5.16 $5.43 $5.35 --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14(c) .02 .13 .12 .13 .14 Net gains (losses) (both realized and unrealized) (.10) .10 (.18) .19 (.20) .19 --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .04 .12 (.05) .31 (.07) .33 --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.02) (.14) (.12) (.13) (.14) Distributions from realized gains -- -- -- -- (.07) (.11) --------------------------------------------------------------------------------------------------------------------------------- Total distributions (.14) (.02) (.14) (.12) (.20) (.25) --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.16 $5.26 $5.16 $5.35 $5.16 $5.43 --------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $2 $2 $2 $3 --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(d),(e) 1.55% 1.55%(f) 1.58% 1.64% 1.63% 1.63% --------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(e),(g) 1.57% 1.57%(f) 1.58% 1.65% 1.65% 1.71% --------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.69% 2.69%(f) 2.55% 2.31% 2.38% 2.54% --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 27% 7% 18% 33% 17% 194% --------------------------------------------------------------------------------------------------------------------------------- Total return(h) .77% 2.40%(i) (.98%) 6.10% (1.44%) 6.26% ---------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amount has been calculated using average shares outstanding method. (d) Expense ratio is based on total expenses of the Fund after Investment Manager waiver/reimbursement and before reduction of earnings and bank fee credits on cash balances. (e) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.79%, excluding interest and fee expense, and 1.82%, including interest and fee expense, for the year ended Aug. 31, 2007, and 1.86%, excluding interest and fee expense, and 1.88%, including interest and fee expense, for the period ended Aug. 31, 2006, and 1.75%, 1.71%, 1.71% and 1.68%, excluding interest and fee expense, and 1.75%, 1.72%, 1.73% and 1.76%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (f) Adjusted to an annual basis. (g) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (h) Total return does not reflect payment of a sales charge. (i) Not annualized. -------------------------------------------------------------------------------- 102 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF TRUSTEES AND SHAREHOLDERS OF RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST AND RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST: We have audited the accompanying statements of assets and liabilities, including the schedule of investments in securities, of RiverSource Special Tax Exempt Trust (comprising, respectively, the RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund, and RiverSource Ohio Tax-Exempt Fund) and RiverSource California Tax-Exempt Fund (collectively, the Funds), as of August 31, 2007, and the related statements of operations, changes in net assets, and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial statements and financial highlights of the Funds for each of the periods presented through August 31, 2006, were audited by other auditors whose reports dated October 20, 2006 (for the RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource California Tax-Exempt Fund, and RiverSource Ohio Tax-Exempt Fund), and October 20, 2006 and February 21, 2007 (for the RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund), expressed an unqualified opinion on those financial statements and financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2007, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the 2007 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds listed above constituting portfolios within RiverSource California Tax-Exempt Trust and RiverSource Special Tax-Exempt Series Trust at August 31, 2007, the results of their operations, changes in their net assets, and financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota October 18, 2007 -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 103 FEDERAL INCOME TAX INFORMATION (UNAUDITED) Each Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on your year-end statement. RiverSource California Tax-Exempt Fund Fiscal year ended Aug. 31, 2007 CLASS A
INCOME DISTRIBUTIONS - 98.95% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01471 Oct. 26, 2006............................................... $0.01652 Nov. 27, 2006............................................... $0.01726 Dec. 18, 2006............................................... $0.01198 Jan. 23, 2007............................................... $0.01963 Feb. 23, 2007............................................... $0.01695 March 26, 2007.............................................. $0.01810 April 25, 2007.............................................. $0.01668 May 25, 2007................................................ $0.01651 June 25, 2007............................................... $0.01713 July 25, 2007............................................... $0.01668 Aug. 24, 2007............................................... $0.01649 Total distributions......................................... $0.19864
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00006 Total distributions......................................... $0.19870
CLASS B
INCOME DISTRIBUTIONS - 98.95% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01164 Oct. 26, 2006............................................... $0.01318 Nov. 27, 2006............................................... $0.01379 Dec. 18, 2006............................................... $0.00969 Jan. 23, 2007............................................... $0.01571 Feb. 23, 2007............................................... $0.01365 March 26, 2007.............................................. $0.01474 April 25, 2007.............................................. $0.01344 May 25, 2007................................................ $0.01334 June 25, 2007............................................... $0.01386 July 25, 2007............................................... $0.01325 Aug. 24, 2007............................................... $0.01335 Total distributions......................................... $0.15964
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00006 Total distributions......................................... $0.15970
-------------------------------------------------------------------------------- 104 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT CLASS C
INCOME DISTRIBUTIONS - 98.95% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01172 Oct. 26, 2006............................................... $0.01320 Nov. 27, 2006............................................... $0.01381 Dec. 18, 2006............................................... $0.00971 Jan. 23, 2007............................................... $0.01574 Feb. 23, 2007............................................... $0.01366 March 26, 2007.............................................. $0.01476 April 25, 2007.............................................. $0.01347 May 25, 2007................................................ $0.01327 June 25, 2007............................................... $0.01388 July 25, 2007............................................... $0.01354 Aug. 24, 2007............................................... $0.01338 Total distributions......................................... $0.16014
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00006 Total distributions......................................... $0.16020
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at Aug. 31, 2007 was 12.10%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. RiverSource Massachusetts Tax-Exempt Fund Fiscal year ended Aug. 31, 2007 CLASS A
INCOME DISTRIBUTIONS - 99.19% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01429 Oct. 26, 2006............................................... $0.01572 Nov. 27, 2006............................................... $0.01638 Dec. 18, 2006............................................... $0.01085 Jan. 23, 2007............................................... $0.01865 Feb. 23, 2007............................................... $0.01623 March 26, 2007.............................................. $0.01602 April 25, 2007.............................................. $0.01596 May 25, 2007................................................ $0.01601 June 25, 2007............................................... $0.01666 July 25, 2007............................................... $0.01604 Aug. 24, 2007............................................... $0.01612 Total distributions......................................... $0.18893
-------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 105 CLASS B
INCOME DISTRIBUTIONS - 99.19% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01118 Oct. 26, 2006............................................... $0.01228 Nov. 27, 2006............................................... $0.01281 Dec. 18, 2006............................................... $0.00849 Jan. 23, 2007............................................... $0.01467 Feb. 23, 2007............................................... $0.01283 March 26, 2007.............................................. $0.01256 April 25, 2007.............................................. $0.01256 May 25, 2007................................................ $0.01289 June 25, 2007............................................... $0.01322 July 25, 2007............................................... $0.01272 Aug. 24, 2007............................................... $0.01288 Total distributions......................................... $0.14909
CLASS C
INCOME DISTRIBUTIONS - 99.19% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01118 Oct. 26, 2006............................................... $0.01229 Nov. 27, 2006............................................... $0.01280 Dec. 18, 2006............................................... $0.00848 Jan. 23, 2007............................................... $0.01463 Feb. 23, 2007............................................... $0.01282 March 26, 2007.............................................. $0.01254 April 25, 2007.............................................. $0.01255 May 25, 2007................................................ $0.01278 June 25, 2007............................................... $0.01316 July 25, 2007............................................... $0.01279 Aug. 24, 2007............................................... $0.01288 Total distributions......................................... $0.14890
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at Aug. 31, 2007 was 4.78%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. -------------------------------------------------------------------------------- 106 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Michigan Tax-Exempt Fund Fiscal year ended Aug. 31, 2007 CLASS A
INCOME DISTRIBUTIONS - 99.24% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01398 Oct. 26, 2006............................................... $0.01549 Nov. 27, 2006............................................... $0.01635 Dec. 18, 2006............................................... $0.01079 Jan. 23, 2007............................................... $0.01853 Feb. 23, 2007............................................... $0.01602 March 26, 2007.............................................. $0.01599 April 25, 2007.............................................. $0.01567 May 25, 2007................................................ $0.01553 June 25, 2007............................................... $0.01617 July 25, 2007............................................... $0.01564 Aug. 24, 2007............................................... $0.01562 Total distributions......................................... $0.18578
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00006 Total distributions......................................... $0.18584
CLASS B
INCOME DISTRIBUTIONS - 99.24% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01092 Oct. 26, 2006............................................... $0.01209 Nov. 27, 2006............................................... $0.01283 Dec. 18, 2006............................................... $0.00848 Jan. 23, 2007............................................... $0.01459 Feb. 23, 2007............................................... $0.01264 March 26, 2007.............................................. $0.01258 April 25, 2007.............................................. $0.01241 May 25, 2007................................................ $0.01226 June 25, 2007............................................... $0.01284 July 25, 2007............................................... $0.01217 Aug. 24, 2007............................................... $0.01241 Total distributions......................................... $0.14622
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00006 Total distributions......................................... $0.14628
-------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 107 CLASS C
INCOME DISTRIBUTIONS 99.24% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01092 Oct. 26, 2006............................................... $0.01209 Nov. 27, 2006............................................... $0.01284 Dec. 18, 2006............................................... $0.00849 Jan. 23, 2007............................................... $0.01458 Feb. 23, 2007............................................... $0.01263 March 26, 2007.............................................. $0.01258 April 25, 2007.............................................. $0.01242 May 25, 2007................................................ $0.01221 June 25, 2007............................................... $0.01286 July 25, 2007............................................... $0.01243 Aug. 24, 2007............................................... $0.01242 Total distributions......................................... $0.14647
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00006 Total distributions......................................... $0.14653
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at Aug. 31, 2007 was 3.36%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. RiverSource Minnesota Tax-Exempt Fund Fiscal year ended Aug. 31, 2007 CLASS A
INCOME DISTRIBUTIONS 99.25% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01479 Oct. 26, 2006............................................... $0.01701 Nov. 27, 2006............................................... $0.01763 Dec. 18, 2006............................................... $0.01156 Jan. 23, 2007............................................... $0.01907 Feb. 23, 2007............................................... $0.01664 March 26, 2007.............................................. $0.01675 April 25, 2007.............................................. $0.01610 May 25, 2007................................................ $0.01613 June 25, 2007............................................... $0.01672 July 25, 2007............................................... $0.01610 Aug. 24, 2007............................................... $0.01623 Total distributions......................................... $0.19473
-------------------------------------------------------------------------------- 108 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT CLASS B
INCOME DISTRIBUTIONS 99.25% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01170 Oct. 26, 2006............................................... $0.01363 Nov. 27, 2006............................................... $0.01410 Dec. 18, 2006............................................... $0.00935 Jan. 23, 2007............................................... $0.01511 Feb. 23, 2007............................................... $0.01328 March 26, 2007.............................................. $0.01334 April 25, 2007.............................................. $0.01283 May 25, 2007................................................ $0.01286 June 25, 2007............................................... $0.01340 July 25, 2007............................................... $0.01279 Aug. 24, 2007............................................... $0.01304 Total distributions......................................... $0.15543
CLASS C
INCOME DISTRIBUTIONS 99.25% are tax-exempt. Sept. 25, 2006.............................................. $0.01171 Oct. 26, 2006............................................... $0.01361 Nov. 27, 2006............................................... $0.01409 Dec. 18, 2006............................................... $0.00935 Jan. 23, 2007............................................... $0.01512 Feb. 23, 2007............................................... $0.01330 March 26, 2007.............................................. $0.01333 April 25, 2007.............................................. $0.01284 May 25, 2007................................................ $0.01286 June 25, 2007............................................... $0.01340 July 25, 2007............................................... $0.01289 Aug. 24, 2007............................................... $0.01304 Total distributions......................................... $0.15554
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at Aug. 31, 2007 was 8.72%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 109 RiverSource New York Tax-Exempt Fund Fiscal year ended Aug. 31, 2007 CLASS A
INCOME DISTRIBUTIONS 98.57% are tax-exempt. PAYABLE DATE PER SHARE Sep. 25, 2006............................................... $0.01427 Oct. 26, 2006............................................... $0.01597 Nov. 27, 2006............................................... $0.01665 Dec. 18, 2006............................................... $0.01220 Jan. 23, 2007............................................... $0.01888 Feb. 23, 2007............................................... $0.01658 March 26, 2007.............................................. $0.01623 April 25, 2007.............................................. $0.01584 May 25, 2007................................................ $0.01595 June 25, 2007............................................... $0.01645 July 25, 2007............................................... $0.01594 Aug. 24, 2007............................................... $0.01590 Total distributions......................................... $0.19086
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00452 Total distributions......................................... $0.19538
CLASS B
INCOME DISTRIBUTIONS 98.57% are tax-exempt. PAYABLE DATE PER SHARE Sep. 25, 2006............................................... $0.01131 Oct. 26, 2006............................................... $0.01271 Nov. 27, 2006............................................... $0.01326 Dec. 18, 2006............................................... $0.00997 Jan. 23, 2007............................................... $0.01508 Feb. 23, 2007............................................... $0.01331 March 26, 2007.............................................. $0.01297 April 25, 2007.............................................. $0.01269 May 25, 2007................................................ $0.01281 June 25, 2007............................................... $0.01327 July 25, 2007............................................... $0.01278 Aug. 24, 2007............................................... $0.01283 Total distributions......................................... $0.15299
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00452 Total distributions......................................... $0.15751
-------------------------------------------------------------------------------- 110 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT CLASS C
INCOME DISTRIBUTIONS 98.57% are tax-exempt. PAYABLE DATE PER SHARE Sep. 25, 2006............................................... $0.01132 Oct. 26, 2006............................................... $0.01272 Nov. 27, 2006............................................... $0.01325 Dec. 18, 2006............................................... $0.00997 Jan. 23, 2007............................................... $0.01508 Feb. 23, 2007............................................... $0.01332 March 26, 2007.............................................. $0.01298 April 25, 2007.............................................. $0.01269 May 25, 2007................................................ $0.01267 June 25, 2007............................................... $0.01329 July 25, 2007............................................... $0.01286 Aug. 24, 2007............................................... $0.01283 Total distributions......................................... $0.15298
CAPITAL GAIN DISTRIBUTION - taxable as long-term capital gain. PAYABLE DATE PER SHARE Dec. 18, 2006............................................... $0.00452 Total distributions......................................... $0.15750
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at Aug. 31, 2007 was 4.84%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. RiverSource Ohio Tax-Exempt Fund Fiscal year ended Aug. 31, 2007 RiverSource Ohio Tax-Exempt Fund Fiscal year ended Aug. 31, 2007 CLASS A
INCOME DISTRIBUTIONS 99.19% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01381 Oct. 26, 2006............................................... $0.01521 Nov. 27, 2006............................................... $0.01587 Dec. 18, 2006............................................... $0.01038 Jan. 23, 2007............................................... $0.01803 Feb. 23, 2007............................................... $0.01540 March 26, 2007.............................................. $0.01531 April 25, 2007.............................................. $0.01514 May 25, 2007................................................ $0.01509 June 25, 2007............................................... $0.01558 July 25, 2007............................................... $0.01483 Aug. 24, 2007............................................... $0.01485 Total distributions......................................... $0.17950
-------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 111 CLASS B
INCOME DISTRIBUTIONS 99.19% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01074 Oct. 26, 2006............................................... $0.01180 Nov. 27, 2006............................................... $0.01235 Dec. 18, 2006............................................... $0.00806 Jan. 23, 2007............................................... $0.01407 Feb. 23, 2007............................................... $0.01199 March 26, 2007.............................................. $0.01190 April 25, 2007.............................................. $0.01181 May 25, 2007................................................ $0.01173 June 25, 2007............................................... $0.01226 July 25, 2007............................................... $0.01154 Aug. 24, 2007............................................... $0.01165 Total distributions......................................... $0.13990
CLASS C
INCOME DISTRIBUTIONS 99.19% are tax-exempt. PAYABLE DATE PER SHARE Sept. 25, 2006.............................................. $0.01074 Oct. 26, 2006............................................... $0.01180 Nov. 27, 2006............................................... $0.01237 Dec. 18, 2006............................................... $0.00806 Jan. 23, 2007............................................... $0.01407 Feb. 23, 2007............................................... $0.01200 March 26, 2007.............................................. $0.01199 April 25, 2007.............................................. $0.01181 May 25, 2007................................................ $0.01144 June 25, 2007............................................... $0.01223 July 25, 2007............................................... $0.01163 Aug. 24, 2007............................................... $0.01166 Total distributions......................................... $0.13980
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at Aug. 31, 2007 was 3.60%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. -------------------------------------------------------------------------------- 112 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT FUND EXPENSES EXAMPLES (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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds expense ratio as of the most recent shareholder report. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Aug. 31, 2007. ACTUAL EXPENSES The first line of each 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 each table provides information about hypothetical account values and hypothetical expenses based on each 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 each 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 each 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 each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 113 RiverSource California Tax-Exempt Fund
EXPENSES BEGINNING ENDING PAID DURING ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE THE EXPENSE MARCH 1, 2007 AUG. 31, 2007 PERIOD(A) RATIO(B) Class A Actual(c) $1,000 $ 984.80 $3.98(d) .80% Hypothetical (5% return before expenses) $1,000 $1,021.19 $4.06(d) .80% Class B Actual(c) $1,000 $ 981.10 $7.72(d) 1.55% Hypothetical (5% return before expenses) $1,000 $1,017.41 $7.87(d) 1.55% Class C Actual(c) $1,000 $ 981.20 $7.74(d) 1.55% Hypothetical (5% return before expenses) $1,000 $1,017.39 $7.88(d) 1.55%
(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 184/365 (to reflect the one-half year period). (b) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.54% for Class B and 1.55% for Class C. See notes 1 and 11 to the financial statements. (c) Based on the actual return for the six months ended Aug. 31, 2007: -1.52% for Class A, -1.89% for Class B and -1.88% for Class C. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs and fees and expenses of acquired funds) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. Any amounts waived will not be reimbursed by the Fund. This change was effective Sept. 1, 2007. If this change had been in place for the entire six month period ended Aug. 31, 2007, the actual expenses paid would have been $7.71 for Class B and $7.72 for Class C; the hypothetical expenses paid would have been $7.86 for Class B and $7.86 for Class C. The actual hypothetical expenses paid for Class A would have been the same as those expenses presented in the table above. RiverSource Massachusetts Tax-Exempt Fund
EXPENSES BEGINNING ENDING PAID DURING ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE THE EXPENSE MARCH 1, 2007 AUG. 31, 2007 PERIOD(A) RATIO(B) Class A Actual(c) $1,000 $ 990.30 $4.15(d) .83% Hypothetical (5% return before expenses) $1,000 $1,021.04 $4.21(d) .83% Class B Actual(c) $1,000 $ 986.60 $7.91(d) 1.58% Hypothetical (5% return before expenses) $1,000 $1,017.24 $8.03(d) 1.58% Class C Actual(c) $1,000 $ 984.60 $7.90(d) 1.58% Hypothetical (5% return before expenses) $1,000 $1,017.24 $8.03(d) 1.58%
(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 184/365 (to reflect the one-half year period). (b) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See notes 1 and 11 to the financial statements. (c) Based on the actual return for the six months ended Aug. 31, 2007: -0.97% for Class A, -1.34% for Class B and -1.54% for Class C. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs and fees and expenses of acquired funds) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. Any amounts waived will not be reimbursed by the Fund. This change was effective Sept. 1, 2007. If this change had been in place for the entire six month period ended Aug. 31, 2007, the actual expenses paid would have been $7.90 for Class B and $7.88 for Class C; the hypothetical expenses paid would have been $8.02 for Class B and $8.01 for Class C. The actual and hypothetical expenses paid for Class A would have been the same as those expenses presented in the table above. -------------------------------------------------------------------------------- 114 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT RiverSource Michigan Tax-Exempt Fund
EXPENSES BEGINNING ENDING PAID DURING ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE THE EXPENSE MARCH 1, 2007 AUG. 31, 2007 PERIOD(A) RATIO(B) Class A Actual(c) $1,000 $ 997.40 $4.09(d) .81% Hypothetical (5% return before expenses) $1,000 $1,021.11 $4.14(d) .81% Class B Actual(c) $1,000 $ 991.60 $7.87(d) 1.57% Hypothetical (5% return before expenses) $1,000 $1,017.30 $7.97(d) 1.57% Class C Actual(c) $1,000 $ 993.60 $7.87(d) 1.57% Hypothetical (5% return before expenses) $1,000 $1,017.31 $7.97(d) 1.57%
(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 184/365 (to reflect the one-half year period). (b) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.55% for Class B and 1.55% for Class C. See notes 1 and 11 to the financial statements. (c) Based on the actual return for the six months ended Aug. 31, 2007: -0.26% for Class A, -0.84% for Class B and -0.64% for Class C. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs and fees and expenses of acquired funds) will not exceed 0.79% for Class A, 1.55% for Class B and 1.54% for Class C. Any amounts waived will not be reimbursed by the Fund. This change was effective Sept. 1, 2007. If this change had been in place for the entire six month period ended Aug. 31, 2007, the actual expenses for Class C would have been $7.85 and the hypothetical expenses for Class C would have been $7.94. The actual and hypothetical expenses paid for Class A and Class B would have been the same as those expenses presented in the table above. RiverSource Minnesota Tax-Exempt Fund
EXPENSES BEGINNING ENDING PAID DURING ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE THE EXPENSE MARCH 1, 2007 AUG. 31, 2007 PERIOD(A) RATIO(B) Class A Actual(c) $1,000 $ 988.40 $5.02(d) 1.00% Hypothetical (5% return before expenses) $1,000 $1,020.15 $5.10(d) 1.00% Class B Actual(c) $1,000 $ 986.60 $8.78(d) 1.75% Hypothetical (5% return before expenses) $1,000 $1,016.37 $8.91(d) 1.75% Class C Actual(c) $1,000 $ 986.60 $8.78(d) 1.75% Hypothetical (5% return before expenses) $1,000 $1,016.36 $8.91(d) 1.75%
(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 184/365 (to reflect the one-half year period). (b) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See notes 1 and 11 to the financial statements. (c) Based on the actual return for the six months ended Aug. 31, 2007: -1.16% for Class A, -1.34% for Class B and -1.34% for Class C. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs and fees and expenses of acquired funds) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. Any amounts waived will not be reimbursed by the Fund. This change was effective Sept. 1, 2007. If this change had been in place for the entire six month period ended Aug. 31, 2007, the actual expenses paid would have been $8.77 for Class B and $8.77 for Class C; the hypothetical expenses paid would have been $8.90 for Class B and $8.90 for Class C. The actual and hypothetical expenses paid for Class A would have been the same as those expenses presented in the table above. -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 115 RiverSource New York Tax-Exempt Fund
EXPENSES BEGINNING ENDING PAID DURING ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE THE EXPENSE MARCH 1, 2007 AUG. 31, 2007 PERIOD(A) RATIO(B) Class A Actual(c) $1,000 $ 989.60 $5.01(d) 1.00% Hypothetical (5% return before expenses) $1,000 $1,020.17 $5.09(d) 1.00% Class B Actual(c) $1,000 $ 985.80 $8.76(d) 1.75% Hypothetical (5% return before expenses) $1,000 $1,016.38 $8.90(d) 1.75% Class C Actual(c) $1,000 $ 983.80 $8.78(d) 1.76% Hypothetical (5% return before expenses) $1,000 $1,016.35 $8.92(d) 1.76%
(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 184/365 (to reflect the one-half year period). (b) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.54% for Class B and 1.55% for Class C. See notes 1 and 11 to the financial statements. (c) Based on the actual return for the six months ended Aug. 31, 2007: -1.04% for Class A, -1.42% for Class B and -1.62% for Class C. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs and fees and expenses of acquired funds) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. Any amounts waived will not be reimbursed by the Fund. This change was effective Sept. 1, 2007. If this change had been in place for the entire six month period ended Aug. 31, 2007, the actual expenses paid would have been $8.75 for Class B and $8.75 for Class C; the hypothetical expenses paid would have been $8.89 for Class B and $8.89 for Class C. The actual and hypothetical expenses paid for Class A would have been the same as those expenses presented in the table above. RiverSource Ohio Tax-Exempt Fund
EXPENSES BEGINNING ENDING PAID DURING ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE THE EXPENSE MARCH 1, 2007 AUG. 31, 2007 PERIOD(A) RATIO(B) Class A Actual(c) $1,000 $ 990.90 $4.07(d) .81% Hypothetical (5% return before expenses) $1,000 $1,021.12 $4.13(d) .81% Class B Actual(c) $1,000 $ 987.10 $7.81(d) 1.56% Hypothetical (5% return before expenses) $1,000 $1,017.34 $7.93(d) 1.56% Class C Actual(c) $1,000 $ 987.10 $7.81(d) 1.56% Hypothetical (5% return before expenses) $1,000 $1,017.34 $7.93(d) 1.56%
(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 184/365 (to reflect the one-half year period). (b) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See notes 1 and 11 to the financial statements. (c) Based on the actual return for the six months ended Aug. 31, 2007: -0.91% for Class A, -1.29% for Class B and -1.29% for Class C. (d) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs and fees and expenses of acquired funds) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. Any amounts waived will not be reimbursed by the Fund. This change was effective Sept. 1, 2007. If this change had been in place for the entire six month period ended Aug. 31, 2007, the actual and hypothetical expenses paid would have been the same as those expenses presented in the table above. -------------------------------------------------------------------------------- 116 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Funds' Board members. Each member oversees 104 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. INDEPENDENT BOARD MEMBERS
NAME, ADDRESS, POSITION HELD WITH FUND AGE AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS ------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Board member since 2006 Chief Justice, Minnesota Supreme Court, 901 S. Marquette Ave. 1998-2005 Minneapolis, MN 55402 Age 53 ------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member since 1999 Chair, RiverSource Funds, 1999-2006; former 901 S. Marquette Ave. Governor of Minnesota Minneapolis, MN 55402 Age 72 ------------------------------------------------------------------------------------------------------------------------------- Pamela G. Carlton Board member since 2007 President, Springboard -- Partners in Cross 901 S. Marquette Ave. Cultural Leadership (consulting company) Minneapolis, MN 55402 Age 52 ------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member since 2004 Trustee Professor of Economics and 901 S. Marquette Ave. Management, Bentley College; former Dean, Minneapolis, MN 55402 McCallum Graduate School of Business, Age 56 Bentley College ------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member since 1985 Attorney and Consultant 901 S. Marquette Ave. Minneapolis, MN 55402 Age 72 ------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind, CFA Board member since 2005 Former Managing Director, Shikiar Asset American Progressive 901 S. Marquette Ave. Management Insurance Minneapolis, MN 55402 Age 72 ------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member since 2002 President Emeritus and Professor of Valmont Industries, 901 S. Marquette Ave. and Chair of the Board Economics, Carleton College Inc. (manufactures Minneapolis, MN 55402 since 2007 irrigation systems) Age 68 ------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member since 2004 Director, Enterprise Asset Management, Inc. Strategic 901 S. Marquette Ave. (private real estate and asset management Distribution, Inc. Minneapolis, MN 55402 company) (transportation, Age 54 distribution and logistics consultants) ------------------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member since 2002 Chief Executive Officer, RiboNovix, Inc. Hybridon, Inc. 901 S. Marquette Ave. since 2003 (biotechnology); former (biotechnology); Minneapolis, MN 55402 President, Forester Biotech American Healthways, Age 63 Inc. (health management programs) -------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 117 BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, ADDRESS, POSITION HELD WITH FUND AGE AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS OTHER DIRECTORSHIPS ------------------------------------------------------------------------------------------------------------------------------- William F. Truscott Board member since President -- U.S. Asset Management and 53600 Ameriprise 2001, Vice President Chief Investment Officer, Ameriprise Financial Center since 2002 Financial, Inc. and President, Chairman of Minneapolis, MN 55474 the Board and Chief Investment Officer, Age 46 RiverSource Investments, LLC since 2005; President, Ameriprise Certificate Company since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 -------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. The SAI has additional information about the Fund's Board members and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting riversource.com/funds. The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the Fund's other officers are: FUND OFFICERS
NAME, ADDRESS, POSITION HELD WITH FUND AGE AND LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS --------------------------------------------------------------------------------------------------------------- Patrick T. Bannigan President since 2006 Senior Vice President -- Asset Management, RiverSource 172 Ameriprise Investments, LLC since 2006; Managing Director and Global Financial Center Head of Product, Morgan Stanley Investment Management, Minneapolis, MN 55474 2004-2006; President, Touchstone Investments, 2002-2004; Age 41 Director of Strategic Planning, Evergreen Investments, 1995-2002 --------------------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income, 172 Ameriprise 2004 Ameriprise Financial, Inc. and RiverSource Investments, LLC Financial Center since 2006; Vice President -- Investments, Ameriprise Minneapolis, MN 55474 Certificate Company since 2003; Senior Vice Age 43 President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006; Managing Director, Zurich Global Assets, 2001-2002 --------------------------------------------------------------------------------------------------------------- Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company 5228 Ameriprise 2006 Services, RiverSource Investments, LLC since 2006; Vice Financial Center President -- Operations and Compliance, RiverSource Minneapolis, MN 55474 Investments, LLC, 2004-2006; Director of Product Age 42 Development -- Mutual Funds, Ameriprise Financial, Inc., 2001-2004 --------------------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise 105 Ameriprise Financial, Inc. since 2002; Vice President -- Finance, Financial Center American Express Company, 2000-2002 Minneapolis, MN 55474 Age 52 --------------------------------------------------------------------------------------------------------------- Scott R. Plummer Vice President, General Vice President and Chief Counsel -- Asset Management, 5228 Ameriprise Counsel and Secretary Ameriprise Financial, Inc. since 2005; Vice President, Financial Center since 2006 General Counsel and Secretary, Ameriprise Certificate Minneapolis, MN 55474 Company since 2005; Vice President -- Asset Management Age 48 Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, U.S. Bancorp Asset Management, 2002-2004; Second Vice President and Assistant General Counsel, Hartford Life, 2001-2002 --------------------------------------------------------------------------------------------------------------- Jennifer D. Lammers Chief Compliance Officer U.S. Asset Management Chief Compliance Officer, RiverSource 172 Ameriprise since 2006 Investments, LLC since 2006; Director -- Mutual Funds, Financial Center Voyageur Asset Management, 2003-2006; Director of Finance, Minneapolis, MN 55474 Voyageur Asset Management, 2000-2003 Age 46 --------------------------------------------------------------------------------------------------------------- Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering Officer, 2934 Ameriprise Prevention Officer since Ameriprise Financial, Inc. since 2004; Manager Anti- Money Financial Center 2004 Laundering, Ameriprise Financial, Inc., 2003-2004; Minneapolis, MN 55474 Compliance Director and Bank Secrecy Act Officer, American Age 43 Express Centurion Bank, 2000-2003 ---------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 118 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RiverSource Investments, LLC ("RiverSource"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment manager to RiverSource California Tax-Exempt Fund, RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund (each a "State Tax-Exempt Fund" and collectively, the "State Tax-Exempt Funds"). Under an investment management services agreement (the "IMS Agreement") RiverSource provides investment advice and other services to the State Tax-Exempt Funds and all RiverSource funds (collectively, the "Funds"). The Funds' Board of Trustees (the "Board") and the Board's Investment Review and Contracts Committees monitor these services throughout the year. On an annual basis, the Board, including the independent Board members (the "Independent Directors"), considers renewal of the IMS Agreement. RiverSource prepares detailed reports for the Board and its Contracts Committee in March and April, including reports based on data provided by independent organizations to assist the Board in making this determination. In addition, throughout the year, the Board (or its committees) reviews information prepared by RiverSource addressing the services RiverSource provides and each State Tax-Exempt Fund's performance. The Board accords particular weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. At the April 11-12, 2007 in-person Board meeting, independent legal counsel to the Independent Directors reviewed with the Independent Directors various factors relevant to the Board's consideration of advisory agreements and the Board's legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors, approved renewal of the IMS Agreement. Nature, Extent and Quality of Services Provided by RiverSource: The Board analyzed various reports and presentations it had received detailing the services performed by RiverSource, as well as its expertise, resources and capabilities. The Board specifically considered many developments during the past year concerning the services provided by RiverSource, including, in particular, the growing strength and capabilities of many RiverSource offices and the increased investment and resources dedicated to the State Tax-Exempt Funds' operations, particularly in the areas of trading systems, legal and compliance. Further, in connection with the Board's evaluation of the overall package of services provided by RiverSource, the Board considered the quality of the administrative, custody and transfer agency services provided by RiverSource affiliates to the State Tax-Exempt Funds. The Board also reviewed the financial condition of RiverSource and the entity's ability to carry out its responsibilities under the IMS Agreement. The Board also discussed the acceptability of the terms of the IMS Agreement (including the relatively broad scope of services required to be performed by RiverSource). The Board concluded that the services being performed under the IMS Agreement were of a reasonably high quality. Based on the foregoing, and based on other information received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board determined that RiverSource was in a position to continue to provide a high quality and level of services to the State Tax-Exempt Funds. Investment Performance: For purposes of evaluating the nature, extent and quality of services provided under the IMS Agreement, the Board carefully reviewed the investment performance of each of the State Tax-Exempt Funds. In this regard, the Board considered: (i) detailed reports containing data prepared by an independent organization showing, for various periods, the performance of each State Tax-Exempt Fund, the performance of a benchmark index, the percentage ranking of each State Tax-Exempt Fund among its comparison group and the net assets of each State Tax-Exempt Fund; and (ii) a report detailing each State Tax-Exempt Fund's performance over various periods (including since inception), recent State Tax-Exempt Fund inflows (and outflows) and a comparison of each State Tax-Exempt Funds' net assets from December 2006 to December 2005. The Board observed that the investment performance of each State Tax-Exempt Fund, with the exception of RiverSource Michigan Tax-Exempt Fund, was appropriate in light of the particular management style and market conditions involved and for RiverSource Michigan Tax-Exempt Fund, reflected the interrelationship of particular market conditions with the specific management style employed by the portfolio management team. Comparative Fees, Costs of Services Provided and the Profits Realized By RiverSource and its Affiliates from their Relationships with the Fund: The Board reviewed comparative fees and the costs of services to be provided under the IMS Agreement. The Board members considered detailed comparative information set forth in an annual report on fees and expenses, including, among other things, data (prepared by an independent organization) showing a comparison of each State Tax-Exempt Fund's expenses with median expenses paid by funds in its peer group, as well as data showing each State Tax-Exempt Fund's contribution to RiverSource's profitability. The Board accorded particular weight to the notion that the level of fees should -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT 119 reflect a rational pricing model applied consistently across the various product lines in the Funds' family, while assuring that the overall fees for each fund are generally in line with the "pricing philosophy" (i.e., that the total expense ratio of each fund, with few exceptions, is at or below the median expense ratio of funds in the same comparison group). The Board took into account that each State Tax-Exempt Fund's total expense ratio (after considering proposed expense caps/waivers) was below the peer group's median expense ratio shown in the reports. Based on its review, the Board concluded that each State Tax-Exempt Fund's management fee was fair and reasonable in light of the extent and quality of services that each State Tax-Exempt Fund receives. The Board also considered the expected profitability of RiverSource and its affiliates in connection with RiverSource providing investment management services to the State Tax-Exempt Funds. In this regard, the Board referred to a detailed profitability report, discussing the profitability to RiverSource and Ameriprise Financial from managing and operating the State Tax-Exempt Funds, including data showing comparative profitability. The Board also considered the services acquired by the investment manager through the use of commission dollars paid by the Funds on portfolio transactions. The Board noted that the fees paid by the State Tax-Exempt Funds should permit the investment manager to offer competitive compensation to its personnel, make necessary investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable. Economies of Scale to be Realized: The Board also considered the economies of scale that might be realized by RiverSource as each State Tax-Exempt Fund grows and took note of the extent to which State Tax-Exempt Fund shareholders might also benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. Based on the foregoing, the Board, including all of the Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 12, 2007, the Board, including all of the Independent Directors, approved the renewal of the IMS Agreement. PROXY VOTING The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM On April 12, 2007, Ernst & Young LLP was selected as the Funds' independent registered public accounting firm for the 2007 fiscal year. A majority of the Funds' Board of Trustees, including a majority of the Independent Trustees, approved the appointment of Ernst & Young LLP. The predecessor independent registered public accounting firm's reports on the Funds' financial statements for the period ended Aug. 31, 2006 and the years ended June 30, 2006 and 2005 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During such fiscal periods and through April 12, 2007 there were no disagreements between the Funds and the predecessor independent registered public accounting firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which such disagreements, if not resolved to the satisfaction of the predecessor independent registered public accounting firm, would have caused them to make reference to the subject matter of the disagreement in connection with their reports on the financial statements for such fiscal periods. -------------------------------------------------------------------------------- 120 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2007 ANNUAL REPORT (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE STATE TAX-EXEMPT FUNDS 734 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R) mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. (C)2007 RiverSource Distributors, Inc. S-6328 AF (10/07) Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Pamela G. Carlton, Jeffrey Laikind and Anne P. Jones, each qualify as audit committee financial experts. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fund - Related Fees (a) Audit Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for professional services rendered for the audit of the annual financial statements for RiverSource California Tax-Exempt Trust were as follows: 2007 - $24,650 (b) Audit - Related Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for additional professional services rendered in connection with the registrant's semiannual financial statement review for RiverSource California Tax-Exempt Trust were as follows: 2007 - $350 (c) Tax Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for tax compliance related services for RiverSource California Tax-Exempt Trust were as follows: 2007 - $3,000 (d) All Other Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for additional professional services rendered for RiverSource California Tax-Exempt Trust were as follows: 2007 - $0 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by Ernst & Young LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2007 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP by the registrant for non-audit fees and by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2007 - $511,430 (h) 100% of the services performed in item (g) above during 2007 were pre-approved by the Ameriprise Financial Audit Committee and/or the RiverSource Mutual Funds Audit Committee. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource California Tax-Exempt Trust By /s/ Patrick T. Bannigan ----------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date November 2, 2007 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 November 2, 2007 By /s/ Jeffrey P. Fox ----------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date November 2, 2007