-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MLKx1NSLL6WQcMWqFm+GibK4eA6P/YJPsGIsjAPTeug97pXF6VDuKlK6OHHbsyd2 oJfKkiQXbuh/bcJxDkbZDg== 0000950137-08-013393.txt : 20081104 0000950137-08-013393.hdr.sgml : 20081104 20081104111847 ACCESSION NUMBER: 0000950137-08-013393 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080831 FILED AS OF DATE: 20081104 DATE AS OF CHANGE: 20081104 EFFECTIVENESS DATE: 20081104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST CENTRAL INDEX KEY: 0000792717 IRS NUMBER: 411560213 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04646 FILM NUMBER: 081159640 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP CALIFORNIA TAX-EXEMPT TRUST DATE OF NAME CHANGE: 19990628 FORMER COMPANY: FORMER CONFORMED NAME: IDS CALIFORNIA TAX EXEMPT TRUST DATE OF NAME CHANGE: 19920703 0000792717 S000003336 RiverSource California Tax-Exempt Fund C000009057 RiverSource California Tax-Exempt Fund Class C RCTCX C000009058 RiverSource California Tax-Exempt Fund Class A ICALX C000009059 RiverSource California Tax-Exempt Fund Class B ACABX N-CSR 1 c35673cnvcsr.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 CALIFORNIA TAX-EXEMPT FUND RIVERSOURCE MINNESOTA TAX-EXEMPT FUND RIVERSOURCE NEW YORK TAX-EXEMPT FUND ANNUAL REPORT FOR THE PERIOD ENDED AUGUST 31, 2008 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. (SINGLE STRATEGY FUNDS ICON)
TABLE OF CONTENTS -------------------------------------------------------------- Your Fund at a Glance........................ 2 RiverSource California Tax-Exempt Fund..... 2 RiverSource Minnesota Tax-Exempt Fund...... 5 RiverSource New York Tax-Exempt Fund....... 8 Manager Commentary........................... 11 The Fund's Long-term Performance RiverSource California Tax-Exempt Fund..... 18 RiverSource Minnesota Tax-Exempt Fund...... 20 RiverSource New York Tax-Exempt Fund....... 22 Fund Expenses Examples....................... 24 Portfolio of Investments..................... 28 RiverSource California Tax-Exempt Fund..... 28 RiverSource Minnesota Tax-Exempt Fund...... 36 RiverSource New York Tax-Exempt Fund....... 46 Financial Statements......................... 53 Notes to Financial Statements................ 59 Report of Independent Registered Public Accounting Firm............................ 84 Federal Income Tax Information............... 86 Board Members and Officers................... 88 Approval of Investment Management Services Agreement.................................. 91 Proxy Voting................................. 94
RiverSource California Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund are, singularly and collectively, where the context requires, referred to as either "the Fund," "each Fund" or "the Funds." (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 -- 2008 ANNUAL REPORT 1 YOUR FUND AT A GLANCE ---------------------------------------------------------- RiverSource California Tax-Exempt Fund FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource California Tax-Exempt Fund Class A shares rose 2.13% (excluding sales charge) for the 12 months ended Aug. 31, 2008. The Fund underperformed the Lehman Brothers California 2 Plus Year Municipal Bond Index, which advanced 3.88%. The Fund outperformed the Lipper California Municipal Debt Funds Index, representing the Fund's peer group, which gained 1.65% for the same period. > A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, was up 4.48% for the same 12-month period. ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2008) - --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years - --------------------------------------------------------------------- RiverSource California Tax-Exempt Fund Class A (excluding sales charge) +2.13% +2.04% +3.75% +3.85% - --------------------------------------------------------------------- Lehman Brothers California 2 Plus Year Municipal Bond Index (unmanaged) +3.88% +3.08% +4.79% +4.96% - --------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (unmanaged) +4.48% +3.27% +4.43% +4.87% - --------------------------------------------------------------------- Lipper California Municipal Debt Funds Index +1.65% +1.97% +3.87% +4.05% - ---------------------------------------------------------------------
(See "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- 2 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund STYLE MATRIX - --------------------------------------------------------------------------------
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO STATISTICS - -------------------------------------------------------------------------------- Weighted average life(1) 16.3 years - -------------------------------------- Effective duration(2) 8.3 years - -------------------------------------- Weighted average bond rating(3) AA - --------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - --------------------------------------------------------------------------------
Total Net Expenses(a) - ---------------------------------------- Class A 0.87% 0.80% - ---------------------------------------- Class B 1.62% 1.55% - ---------------------------------------- Class C 1.62% 1.55% - ----------------------------------------
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 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. (1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Funds 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 more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, 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 distributions. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 3 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- RiverSource California Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT AUG. 31, 2008 SINCE Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 8/18/86) +2.13% +2.04% +3.75% +3.85% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) +1.37% +1.34% +3.01% +3.07% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) +1.38% +1.34% +3.01% N/A +3.71% - --------------------------------------------------------------------------- With sales charge Class A (inception 8/18/86) -2.71% +0.42% +2.74% +3.32% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -3.50% +0.12% +2.67% +3.07% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) +0.40% +1.34% +3.01% N/A +3.71% - ---------------------------------------------------------------------------
AT SEPT. 30, 2008 SINCE Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 8/18/86) -4.58% +0.41% +2.06% +3.14% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -5.50% -0.36% +1.29% +2.35% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) -5.48% -0.35% +1.29% N/A +2.95% - --------------------------------------------------------------------------- With sales charge Class A (inception 8/18/86) -9.05% -1.20% +1.08% +2.61% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -10.04% -1.56% +0.95% +2.35% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) -6.39% -0.35% +1.29% N/A +2.95% - ---------------------------------------------------------------------------
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. * For classes with less than 10 years performance. - -------------------------------------------------------------------------------- 4 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT YOUR FUND AT A GLANCE ---------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource Minnesota Tax-Exempt Fund Class A shares gained 3.50% (excluding sales charge) for the 12 months ended Aug. 31, 2008. The Fund underperformed the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, which rose 5.55%, but outperformed the Lipper Minnesota Municipal Debt Funds Index, representing the Fund's peer group, which was up 3.27%, for the same period. > A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, was up 4.48% for the same 12-month period. ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2008) - --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years - -------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund Class A (excluding sales charge) +3.50% +2.40% +3.49% +3.83% - -------------------------------------------------------------------- Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +5.55% +3.57% +4.55% +4.93% - -------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (unmanaged) +4.48% +3.27% +4.43% +4.87% - -------------------------------------------------------------------- Lipper Minnesota Municipal Debt Funds Index +3.27% +2.47% +3.74% +4.02% - --------------------------------------------------------------------
(See "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 5 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- RiverSource Minnesota Tax-Exempt Fund STYLE MATRIX - --------------------------------------------------------------------------------
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO STATISTICS - -------------------------------------------------------------------------------- Weighted average life(1) 13.3 years - -------------------------------------- Effective duration(2) 6.9 years - -------------------------------------- Weighted average bond rating(3) AA - --------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - --------------------------------------------------------------------------------
Total Net Expenses(a) - ---------------------------------------- Class A 0.99% 0.95% - ---------------------------------------- Class B 1.75% 1.70% - ---------------------------------------- Class C 1.75% 1.70% - ----------------------------------------
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.16% 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. (1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Funds 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 more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, 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 distributions. - -------------------------------------------------------------------------------- 6 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT AUG. 31, 2008 SINCE Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 8/18/86) +3.50% +2.40% +3.49% +3.83% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) +2.72% +1.70% +2.75% +3.07% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) +2.72% +1.70% +2.75% N/A +3.77% - --------------------------------------------------------------------------- With sales charge Class A (inception 8/18/86) -1.48% +0.73% +2.48% +3.30% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -2.25% +0.45% +2.39% +3.07% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) +1.73% +1.70% +2.75% N/A +3.77% - ---------------------------------------------------------------------------
AT SEPT. 30, 2008 SINCE Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 8/18/86) -2.64% +1.11% +1.96% +3.24% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -3.38% +0.35% +1.19% +2.47% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) -3.38% +0.34% +1.19% N/A +3.12% - --------------------------------------------------------------------------- With sales charge Class A (inception 8/18/86) -7.27% -0.50% +0.95% +2.71% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -8.05% -0.89% +0.84% +2.47% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) -4.31% +0.34% +1.19% N/A +3.12% - ---------------------------------------------------------------------------
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. * For classes with less than 10 years performance. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 7 YOUR FUND AT A GLANCE ---------------------------------------------------------- RiverSource New York Tax-Exempt Fund FUND SUMMARY - -------------------------------------------------------------------------------- > RiverSource New York Tax-Exempt Fund Class A shares advanced 2.59% (excluding sales charge) for the 12 months ended Aug. 31, 2008. The Fund underperformed the Lehman Brothers New York 4 Plus Year Municipal Bond Index, which rose 4.92%. However, the Fund closely tracked the Lipper New York Municipal Debt Funds Index, representing the Fund's peer group, which gained 2.61% for the same period. > A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, was up 4.48% for the same 12-month period. ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2008) - --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years - -------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund Class A (excluding sales charge) +2.59% +2.19% +3.41% +3.77% - -------------------------------------------------------------------- Lehman Brothers New York 4 Plus Year Municipal Bond Index (unmanaged) +4.92% +3.41% +4.75% +5.13% - -------------------------------------------------------------------- Lehman Brothers Municipal Bond Index (unmanaged) +4.48% +3.27% +4.43% +4.87% - -------------------------------------------------------------------- Lipper New York Municipal Debt Funds Index +2.61% +2.31% +3.68% +3.97% - --------------------------------------------------------------------
(See "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the table above. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. See the Average Annual Total Returns table for performance of other share classes of the Fund. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- 8 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund STYLE MATRIX - --------------------------------------------------------------------------------
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund is designed to generally invest. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and may serve as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO STATISTICS - -------------------------------------------------------------------------------- Weighted average life(1) 15.9 years - -------------------------------------- Effective duration(2) 6.7 years - -------------------------------------- Weighted average bond rating(3) AA - --------------------------------------
ANNUAL OPERATING EXPENSE RATIO (as of the current prospectus) - --------------------------------------------------------------------------------
Total Net Expenses(a) - ---------------------------------------- Class A 1.12% 0.93% - ---------------------------------------- Class B 1.87% 1.68% - ---------------------------------------- Class C 1.87% 1.68% - ----------------------------------------
(a) The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2009, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.14% 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. (1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the Funds 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 more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, 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 distributions. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 9 YOUR FUND AT A GLANCE (continued) ---------------------------------------------- RiverSource New York Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS - --------------------------------------------------------------------------------
AT AUG. 31, 2008 SINCE Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 8/18/86) +2.59% +2.19% +3.41% +3.77% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) +1.83% +1.42% +2.63% +2.99% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) +2.04% +1.42% +2.63% N/A +3.73% - --------------------------------------------------------------------------- With sales charge Class A (inception 8/18/86) -2.36% +0.53% +2.40% +3.24% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -3.09% +0.19% +2.29% +2.99% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) +1.05% +1.42% +2.63% N/A +3.73% - ---------------------------------------------------------------------------
AT SEPT. 30, 2008 SINCE Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION* Class A (inception 8/18/86) -4.25% +0.60% +1.65% +3.08% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -4.97% -0.16% +0.88% +2.31% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) -4.97% -0.16% +0.89% N/A +2.98% - --------------------------------------------------------------------------- With sales charge Class A (inception 8/18/86) -8.62% -0.99% +0.68% +2.56% N/A - --------------------------------------------------------------------------- Class B (inception 3/20/95) -9.56% -1.37% +0.55% +2.31% N/A - --------------------------------------------------------------------------- Class C (inception 6/26/00) -5.88% -0.16% +0.89% N/A +2.98% - ---------------------------------------------------------------------------
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. * For classes with less than 10 years performance. - -------------------------------------------------------------------------------- 10 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT MANAGER COMMENTARY ------------------------------------------------------------- Dear Shareholders, Each RiverSource State Tax-Exempt Fund underperformed its respective Lehman benchmark index, but outperformed or closely tracked its respective Lipper peer group for the 12 months ended Aug. 31, 2008. All Fund returns reported are for Class A shares, excluding sales charge, for the 12 months ended Aug. 31, 2008. All Lipper categories represent the respective fund's peer group. > RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND rose 2.13%. The Fund underperformed the Lehman Brothers California 2 Plus Year Municipal Bond Index, which advanced 3.88%. The Fund outperformed the Lipper California Municipal Debt Funds Index, which gained 1.65% for the same period. > RIVERSOURCE MINNESOTA TAX-EXEMPT FUND gained 3.50%. The Fund underperformed the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, which rose 5.55%, but outperformed the Lipper Minnesota Municipal Debt Funds Index, which was up 3.27% for the same period. > RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 2.59%. The Fund underperformed the Lehman Brothers New York 4 Plus Year Municipal Bond Index, which rose 4.92%. However, the Fund closely tracked the Lipper New York Municipal Debt Funds Index, which gained 2.61% for the same period. A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, was up 4.48% for the same 12-month period. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 11 MANAGER COMMENTARY (continued) ------------------------------------------------- RiverSource California Tax-Exempt Fund QUALITY BREAKDOWN (at Aug. 31, 2008; % of bond portfolio assets) - ---------------------------------------------------------------------
AAA bonds 25.2% - ------------------------------------------------ AA bonds 36.0% - ------------------------------------------------ A bonds 28.3% - ------------------------------------------------ BBB bonds 7.6% - ------------------------------------------------ Non-investment grade bonds 2.9% - ------------------------------------------------
Bond ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 5.8% of the bond portfolio assets were determined through internal analysis. RiverSource Minnesota Tax-Exempt Fund QUALITY BREAKDOWN (at Aug. 31, 2008; % of bond portfolio assets) - ---------------------------------------------------------------------
AAA bonds 38.3% - ------------------------------------------------ AA bonds 30.6% - ------------------------------------------------ A bonds 17.5% - ------------------------------------------------ BBB bonds 8.3% - ------------------------------------------------ Non-investment grade bonds 5.3% - ------------------------------------------------
Bond ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 7.4% of the bond portfolio assets were determined through internal analysis. RiverSource New York Tax-Exempt Fund QUALITY BREAKDOWN (at Aug. 31, 2008; % of bond portfolio assets) - ---------------------------------------------------------------------
AAA bonds 30.8% - ------------------------------------------------ AA bonds 47.0% - ------------------------------------------------ A bonds 5.1% - ------------------------------------------------ BBB bonds 8.4% - ------------------------------------------------ Non-investment grade bonds 8.7% - ------------------------------------------------
Bond ratings apply to the underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 3.1% of the bond portfolio assets were determined through internal analysis. - -------------------------------------------------------------------------------- 12 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- SIGNIFICANT PERFORMANCE FACTORS The tax-exempt fixed income market produced positive returns but underperformed the taxable fixed income market for the annual period, as credit market turmoil, subprime mortgage market concerns and fears regarding liquidity spilled over into the municipal market. Through February 2008, a flight to quality into Treasuries ensued as investors grew increasingly risk averse. Investors also grew concerned that the main bond insurance companies might be challenged to maintain their AAA ratings. Further, liquidity evaporated, as hedge funds and other leveraged municipal participants were forced to sell assets in an already distressed market to obtain cash for margin calls. Plus, balance sheet pressure for several Wall Street firms caused a lack of support and failure of the auction rate securities market during the period. February 2008 was the worst month in the history of municipal bond market performance, with the ratio of municipal bond yields to Treasury yields across the yield curve, or spectrum of maturities, reaching record high levels. Then, as new, nontraditional buyers came into the market seeking to take advantage of weakness, demand increased, which calmed unwarranted fears of excess new issue supply. As a result, the ratio of municipal bond yields to Treasury yields was driven back down toward historical averages. The tax-exempt fixed income market rallied significantly from March through May, notably outperforming Treasuries during these months. Indeed, March through May generated the best relative performance for the tax-exempt fixed income market since 1980. In June, the ratio of municipal bond yields to Treasury yields rose amidst several bond insurance company downgrades, investment bank balance sheet deterioration and heightened inflation pressures. The tax-exempt bond market rallied until mid July, when FSA, a bond insurance company, was put on "negative watch" by Moody's. As the market weakened, more nontraditional buyers returned, serving as the catalyst for positive performance in August. By the end of August, the ratio of 5-year municipal bond yields to Treasury yields had been driven back down to approximately 91%, having reached triple digits just months earlier. Interestingly, only 8% of new municipal bonds issued in August 2008 were insured, compared with 53% in August 2007, indicating the dramatically declining use of insurance within the tax-exempt bond market. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 13 MANAGER COMMENTARY (continued) ------------------------------------------------- For the annual period overall, short-term tax-exempt yields declined, as the Federal Reserve (the Fed) sought to strengthen liquidity and calm market fears by cutting the targeted federal funds rate seven times during the period by a total of 3.25%. Demand from money market funds increased as well. Longer-dated municipal bond yields rose. All told, the slope of the tax-exempt bond yield curve grew steeper over the annual period. As long-term municipal bond yields rose and short-term municipal bond yields fell during the annual period, each of the RiverSource State Tax-Exempt Funds benefited from our bias toward a steeper yield curve, which we implemented in December 2007. Another contributing factor to each of the three Funds' performance during the period was duration positioning. The Funds maintained a longer duration than their respective Lehman benchmark indexes for most of the annual period, which helped as short-term rates declined. Duration is a measure of a fund's sensitivity to changes in interest rates. Further boosting the three Funds' results relative to their respective peers was having only modest exposure to high yield and non-investment grade municipal bonds, which underperformed during the annual period. A sizable allocation to pre-refunded* bonds, which are higher quality securities, helped RiverSource California Tax-Exempt Fund. RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund, however, had only modest exposure to pre-refunded bonds, which detracted from returns. Significant exposure to health care bonds, especially BBB-rated hospital credits, detracted from each of the three RiverSource State Tax-Exempt Funds, as these securities were under pressure during most of the annual period. Among these pressures were potential budget cuts to Medicaid and the challenges of a slowing economy. RiverSource California Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund were hurt by significant exposure to municipal bonds subject to the Alternative Minimum Tax (AMT) and to non-enhanced municipal tobacco bonds because both categories lagged. - -------------------------------------------------------------------------------- 14 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- Investments in non-rated special district land development bonds, commonly known as "dirt deals," further detracted from RiverSource California Tax-Exempt Fund's results, as these bonds were impacted by the especially severe housing market slowdown in that state. A sizable allocation to AA-rated prepaid natural gas municipal bonds also hurt this Fund's performance. These bonds, which carry the backing of major investment firms, were impacted by concerns regarding these institutions and their exposure to subprime mortgages. RiverSource New York Tax-Exempt Fund and RiverSource Minnesota Tax-Exempt Fund were both hurt during the annual period by their holdings in single-family housing bonds. A significant allocation to bonds rated A and BBB across a variety of sectors detracted from all three RiverSource State Tax-Exempt Funds' performance, as spreads, or the difference in yields between these securities and Treasuries, widened over the annual period. CHANGES TO THE FUNDS' PORTFOLIOS Overall, we sought to upgrade quality in the Funds' portfolios during the annual period. In implementing this strategy, we increased all three Funds' positions in investment grade essential service revenue bonds, such as public power, water and sewer issues. In RiverSource California Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund, we also increased exposure to higher quality school district general obligation bonds. We feel that both the utilities and education sectors may enable the Funds to potentially pick up incremental yield without taking on significant risk, as they tend to be less economically sensitive. We intend to use any near-term weakness in the tax-exempt bond market as a buying opportunity, focusing on high quality issues like education and essential service revenue sector bonds. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 15 MANAGER COMMENTARY (continued) ------------------------------------------------- In RiverSource California Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund, we correspondingly reduced exposure to the following: non-enhanced municipal tobacco bonds, transportation municipal bonds, Commonwealth of Puerto Rico municipal bonds and tender option bond programs.** We also reduced RiverSource California Tax-Exempt Fund's allocations to prepaid natural gas municipal bonds and to state general obligation bonds given our view that spreads on these bonds would widen further over the near term. In RiverSource New York Tax-Exempt Fund, we reduced exposure to New York City general obligation bonds due primarily to the ongoing concerns Wall Street faces. We reduced each of the Funds' duration slightly during the annual period but kept duration longer than each Funds' respective Lehman benchmark index. OUR FUTURE STRATEGY At the end of August 2008, we viewed the longer-term prospects for the tax- exempt bond market as attractive. However, for the near term, we believe the tax-exempt bond market may be under pressure, as still-elevated levels of new issue supply, the unwinding of tender option bond programs, the dysfunction of the auction rate securities markets and headlines about bond insurance companies remain ongoing concerns. We intend to use any near-term weakness in the tax- exempt bond market as a buying opportunity, focusing on high quality issues like education and essential service revenue sector bonds. We expect to maintain a duration that is modestly longer than its respective Lehman benchmark index. We also believe that the tax-exempt yield curve may grow a bit steeper but will basically remain within its current range. Longer term, we remain quite constructive on the tax-exempt bond market for several reasons. First, we believe federal income taxes will go up regardless of the outcome of the November 2008 presidential election. As a result, we expect the appeal of municipal bond funds to increase. Second, with less reliance on bond insurance companies, we anticipate an enhanced focus on the fundamentals of individual municipal bonds. It remains our ongoing policy to focus on the underlying credit quality and fundamentals of all municipal securities held in the RiverSource State Tax-Exempt Funds, including those covered by bond insurance, as we make investment decisions. - -------------------------------------------------------------------------------- 16 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- Each Fund's emphasis continues to be on generating a high level of income generally exempt from federal income tax as well as from respective state and local taxes. Catherine Stienstra Portfolio Manager *Pre-refunding bonds, also known as 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 invested, usually in Treasury securities, which in turn, are held in escrow collateralizing the first bond. Advance refunded bonds no longer represent the credit risk profile of the original borrower, and given the high credit quality of the escrow account they often increase in value -- sometimes significantly. **Tender option bond programs are programs in which investors effectively earn the fixed rates on long term bonds whose purchase is financed by paying something close to the Securities Industry and Financial Markets Municipal Swap Index rate. This leveraged trade, where investors borrow at low short rates to earn significantly higher returns further out on the yield curve, is referred to as a "carry trade." Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource fund. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 17 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 9/1/98 to 8/31/08) 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 - --------------------------------------------------------------------------------
Results at Aug. 31, 2008 1 YEAR 3 YEARS 5 YEARS 10 YEARS RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,729 $10,127 $11,447 $13,899 - ------------------------------------------------------------------------------------------ Average annual total return -2.71% +0.42% +2.74% +3.32% - ------------------------------------------------------------------------------------------ LEHMAN BROTHERS CALIFORNIA 2 PLUS YEAR MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,388 $10,953 $12,636 $16,223 - ------------------------------------------------------------------------------------------ Average annual total return +3.88% +3.08% +4.79% +4.96% - ------------------------------------------------------------------------------------------ LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,448 $11,013 $12,420 $16,093 - ------------------------------------------------------------------------------------------ Average annual total return +4.48% +3.27% +4.43% +4.87% - ------------------------------------------------------------------------------------------ LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,165 $10,603 $12,091 $14,879 - ------------------------------------------------------------------------------------------ Average annual total return +1.65% +1.97% +3.87% +4.05% - ------------------------------------------------------------------------------------------
Results for other share classes can be found on page 4. - -------------------------------------------------------------------------------- 18 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND LINE GRAPH)
RIVERSOURCE CALIFORNIA LEHMAN BROTHERS TAX-EXEMPT FUND CALIFORNIA 2 CLASS A PLUS YEAR LEHMAN BROTHERS LIPPER CALIFORNIA (INCLUDES SALES MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL DEBT CHARGE) INDEX(1) INDEX(2) FUNDS INDEX(3) ---------------------- ------------------ ------------------ ----------------- '98 $ 9,525 $10,000 $10,000 $10,000 '99 9,423 10,028 10,050 9,911 '00 10,084 10,832 10,730 10,603 '01 10,875 11,910 11,824 11,602 '02 11,449 12,584 12,562 12,117 '03 11,564 12,837 12,956 12,308 '04 12,362 13,906 13,877 13,215 '05 13,083 14,809 14,614 14,033 '06 13,428 15,307 15,057 14,482 '07 13,609 15,617 15,403 14,637 '08 13,899 16,223 16,093 14,879
(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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 19 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 9/1/98 to 8/31/08) 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 - --------------------------------------------------------------------------------
Results at Aug. 31, 2008 1 YEAR 3 YEARS 5 YEARS 10 YEARS RIVERSOURCE MINNESOTA TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,852 $10,221 $11,303 $13,868 - ------------------------------------------------------------------------------------------ Average annual total return -1.48% +0.73% +2.48% +3.30% - ------------------------------------------------------------------------------------------ LEHMAN BROTHERS MINNESOTA 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,555 $11,110 $12,492 $16,184 - ------------------------------------------------------------------------------------------ Average annual total return +5.55% +3.57% +4.55% +4.93% - ------------------------------------------------------------------------------------------ LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,448 $11,013 $12,420 $16,093 - ------------------------------------------------------------------------------------------ Average annual total return +4.48% +3.27% +4.43% +4.87% - ------------------------------------------------------------------------------------------ LIPPER MINNESOTA MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,327 $10,759 $12,015 $14,836 - ------------------------------------------------------------------------------------------ Average annual total return +3.27% +2.47% +3.74% +4.02% - ------------------------------------------------------------------------------------------
Results for other share classes can be found on page 7. - -------------------------------------------------------------------------------- 20 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MINNESOTA TAX-EXEMPT FUND LINE GRAPH)
RIVERSOURCE MINNESOTA LEHMAN BROTHERS TAX-EXEMPT FUND MINNESOTA 3 CLASS A PLUS YEAR LEHMAN BROTHERS LIPPER MINNESOTA (INCLUSDES SALES ENHANCED MUNICIPALL MUNICIPAL BOND MUNICIPAL DEBT CHARGE) BOND INDEX(1) INDEX(2) FUNDS INDEX(3) --------------------- ------------------- ----------------- ---------------- '98 $ 9,525 $10,000 $10,000 $10,000 '99 9,518 10,022 10,050 9,965 '00 9,944 10,678 10,730 10,419 '01 10,757 11,753 11,824 11,369 '02 11,410 12,473 12,562 11,973 '03 11,683 12,956 12,956 12,349 '04 12,425 13,848 13,877 13,127 '05 12,914 14,566 14,614 13,790 '06 13,232 15,007 15,057 14,165 '07 13,399 15,333 15,403 14,367 '08 13,868 16,184 16,093 14,836
(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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 21 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 9/1/98 to 8/31/08) 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 - --------------------------------------------------------------------------------
Results at Aug. 31, 2008 1 YEAR 3 YEARS 5 YEARS 10 YEARS RIVERSOURCE NEW YORK TAX-EXEMPT FUND (INCLUDES SALES CHARGE) Class A Cumulative value of $10,000 $9,764 $10,160 $11,259 $13,793 - ------------------------------------------------------------------------------------------ Average annual total return -2.36% +0.53% +2.40% +3.24% - ------------------------------------------------------------------------------------------ LEHMAN BROTHERS NEW YORK 4 PLUS YEAR MUNICIPAL BOND INDEX(1) Cumulative value of $10,000 $10,492 $11,058 $12,612 $16,488 - ------------------------------------------------------------------------------------------ Average annual total return +4.92% +3.41% +4.75% +5.13% - ------------------------------------------------------------------------------------------ LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) Cumulative value of $10,000 $10,448 $11,013 $12,420 $16,093 - ------------------------------------------------------------------------------------------ Average annual total return +4.48% +3.27% +4.43% +4.87% - ------------------------------------------------------------------------------------------ LIPPER NEW YORK MUNICIPAL DEBT FUNDS INDEX(3) Cumulative value of $10,000 $10,261 $10,709 $11,980 $14,758 - ------------------------------------------------------------------------------------------ Average annual total return +2.61% +2.31% +3.68% +3.97% - ------------------------------------------------------------------------------------------
Results for other share classes can be found on page 10. - -------------------------------------------------------------------------------- 22 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- (VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE NEW YORK TAX-EXEMPT FUND LINE GRAPH)
RIVERSOURCE NEW LEHMAN BROTHERS YORK TAX-EXEMPT NEW YORK LIPPER NEW FUND CLASS 4 PLUS LEHMAN BROTHERS YORK MUNICIPAL A (INCLUDES YEAR MUNICIPAL MUNICIPAL BOND DEBT FUNDS SALES CHARGE) BOND INDEX(1) INDEX(2) INDEX(3) --------------- --------------- ----------------- ----------------- '98 $ 9,525 $10,000 $10,000 $10,000 '99 9,444 10,005 10,050 9,840 '00 9,905 10,722 10,730 10,369 '01 10,802 11,919 11,824 11,463 '02 11,457 12,647 12,562 12,032 '03 11,665 13,076 12,956 12,317 '04 12,378 14,088 13,877 13,107 '05 12,927 14,908 14,614 13,783 '06 13,242 15,375 15,057 14,181 '07 13,445 15,714 15,403 14,383 '08 13,793 16,488 16,093 14,758
(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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 23 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 expense ratio of each of the acquired funds as of the acquired fund's 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, 2008. 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. - -------------------------------------------------------------------------------- 24 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED MARCH 1, 2008 AUG. 31, 2008 THE PERIOD(A) EXPENSE RATIO(B) - --------------------------------------------------------------------------------------------- Class A - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,050.50 $4.14 .81% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.89 $4.08 .81% - --------------------------------------------------------------------------------------------- Class B - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,046.50 $7.96 1.56% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,017.15 $7.85 1.56% - --------------------------------------------------------------------------------------------- Class C - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,046.40 $7.96 1.56% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,017.15 $7.85 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 182/365 (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. (c) Based on the actual return for the six months ended Aug. 31, 2008: +5.05% for Class A, +4.65% for Class B and +4.64% for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 25 FUND EXPENSES EXAMPLES (continued) --------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED MARCH 1, 2008 AUG. 31, 2008 THE PERIOD(A) EXPENSE RATIO(B) - --------------------------------------------------------------------------------------------- Class A - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,051.50 $4.71 .92% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.34 $4.63 .92% - --------------------------------------------------------------------------------------------- Class B - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,049.60 $8.53 1.67% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.60 $8.40 1.67% - --------------------------------------------------------------------------------------------- Class C - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,049.60 $8.53 1.67% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.60 $8.40 1.67% - ---------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) 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. (c) Based on the actual return for the six months ended Aug. 31, 2008: +5.15% for Class A, +4.96% for Class B and +4.96% for Class C. - -------------------------------------------------------------------------------- 26 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED MARCH 1, 2008 AUG. 31, 2008 THE PERIOD(A) EXPENSE RATIO(B) - --------------------------------------------------------------------------------------------- Class A - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,050.70 $4.45 .87% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.59 $4.38 .87% - --------------------------------------------------------------------------------------------- Class B - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,046.80 $8.27 1.62% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.85 $8.15 1.62% - --------------------------------------------------------------------------------------------- Class C - --------------------------------------------------------------------------------------------- Actual(c) $1,000 $1,046.80 $8.27 1.62% - --------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,016.85 $8.15 1.62% - ---------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) 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. (c) Based on the actual return for the six months ended Aug. 31, 2008: +5.07% for Class A, +4.68% for Class B and +4.68% for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 27 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- RiverSource California Tax-Exempt Fund AUG. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (93.3%) 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% $830,000 $1,008,002 - --------------------------------------------------------------------- CERTIFICATE OF PARTICIPATION (0.9%) County of Riverside Certificate of Participation Series 1998 (MBIA) 12-01-21 5.00 1,530,000 1,550,640 - --------------------------------------------------------------------- COLLEGE (9.4%) California Educational Facilities Authority Prerefunded Revenue Bonds University of Southern California Series 2003A 10-01-33 5.00 2,000,000 2,200,860 California Educational Facilities Authority Revenue Bonds University of Southern California Series 2007A 10-01-37 4.75 2,000,000 1,947,620 California Municipal Finance Authority Revenue Bonds Biola University Series 2008 10-01-28 5.80 4,000,000 3,995,040 California Municipal Finance Authority Revenue Bonds Loma Linda University Series 2007 04-01-32 4.75 2,300,000 2,172,097 Chabot-Las Positas Community College District Unlimited General Obligation Bonds Capital Appreciation Election of 2004B Zero Coupon Series 2006 (AMBAC) 08-01-19 4.75 1,000,000(g) 597,190 Foothill-De Anza Community College District Unlimited General Obligation Bonds Series 2007A (AMBAC) 08-01-27 5.00 2,500,000 2,568,725 Merced Community College District Refunding Revenue Bonds School Facilities Financing Authority Series 2006 (MBIA) 08-01-21 5.00 700,000 737,499 San Mateo County Community College District Unlimited General Obligation Bonds Election of 2001 Series 2002A (FGIC) 09-01-18 5.38 1,000,000 1,065,280 University of California Regents Medical Center Revenue Bonds Series 2008D 05-15-27 5.00 1,500,000 1,531,755 ----------- Total 16,816,066 - --------------------------------------------------------------------- COMBINED UTILITY (1.3%) California Pollution Control Financing Authority Refunding Revenue Bonds Pacific Gas Series 2004D (FGIC) A.M.T. 12-01-23 4.75 1,000,000 863,510
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 28 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 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) COMBINED UTILITY (CONT.) California Pollution Control Financing Authority Revenue Bonds Waste Management Incorporated Project Series 2005C A.M.T. 11-01-23 5.13% $1,500,000 $1,290,435 Roseville Natural Gas Finance Authority Revenue Bonds Series 2007 02-15-23 5.00 225,000 205,682 ----------- Total 2,359,627 - --------------------------------------------------------------------- COUNTY (0.5%) California Statewide Communities Development Authority Revenue Bonds Thomas Jefferson School of Law Series 2008A 10-01-38 7.25 1,000,000 969,050 - --------------------------------------------------------------------- ELECTRIC (3.6%) California State Department of Water Resources Revenue Bonds Power Supply Series 2008H 05-01-22 5.00 2,000,000 2,087,180 Southern California Public Power Authority Revenue Bonds Project #1 Series 2007A 11-01-33 5.00 1,000,000 924,530 Walnut Energy Center Authority Revenue Bonds Series 2004A (AMBAC) 01-01-29 5.00 2,500,000 2,499,825 01-01-34 5.00 1,000,000 984,400 ----------- Total 6,495,935 - --------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (14.4%) Abag Finance Authority for Nonprofit Corporations Refunding Revenue Bonds Children's Hospital & Research Center Series 2007A 12-01-37 5.00 1,000,000 920,790 Abag Finance Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 2,500,000 2,569,150 California Health Facilities Financing Authority Refunding Revenue Bonds Cedars-Sinai Medical Center Series 2005 11-15-18 5.00 1,500,000 1,540,065 11-15-34 5.00 1,525,000 1,452,181 California Health Facilities Financing Authority Revenue Bonds Catholic Healthcare West Series 2004G 07-01-23 5.25 3,500,000 3,487,260 California Health Facilities Financing Authority Revenue Bonds Scripps Health Series 2008A 10-01-22 5.00 3,250,000 3,234,595 California Health Facilities Financing Authority Revenue Bonds Sutter Health Series 2008A 08-15-30 5.00 2,500,000 2,431,750 California Statewide Communities Development Authority Revenue Bonds Catholic Healthcare West Series 2008B 07-01-30 5.50 1,975,000 1,962,419 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2006B 03-01-45 5.25 1,000,000 968,450 Sierra View Local Healthcare District Revenue Bonds Series 2007 07-01-37 5.25 2,000,000 1,838,800
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 29 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.) Tulare Local Healthcare District Refunding Revenue Bonds Series 2007 11-01-32 5.20% $2,180,000 $1,944,015 Turlock Certificate of Participation Emanuel Medical Center Series 2007A 10-15-31 5.13 3,930,000 3,432,580 ----------- Total 25,782,055 - --------------------------------------------------------------------- HOUSING -- OTHER (0.8%) California Statewide Communities Development Authority Revenue Bonds CHF- Irvine LLC -- UCI East Campus Series 2008 05-15-32 5.75 1,500,000 1,478,850 - --------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (3.7%) California Housing Finance Agency Revenue Bonds Home Mortgage Series 2006H (FGIC) A.M.T. 08-01-30 5.75 1,820,000 1,848,137 California Housing Finance Agency Revenue Bonds Home Mortgage Series 2006K A.M.T. 02-01-42 5.50 935,000 949,988 California Housing Finance Agency Revenue Bonds Home Mortgage Series 2007D (FGIC) A.M.T. 02-01-17 4.35 1,555,000 1,483,579 08-01-17 4.35 2,470,000 2,347,784 Stockton Revenue Bonds Mortgage-backed Securities Program Series 1990A (GNMA/FNMA/FHLMC) A.M.T. 02-01-23 7.50 25,000 25,452 ----------- Total 6,654,940 - --------------------------------------------------------------------- LEASE (5.1%) Eastern Municipal Water District Certificate of Participation Series 2008H 07-01-33 5.00 1,000,000 992,900 Golden State Tobacco Securitization Corporation Enhanced Asset-backed Revenue Bonds Series 2005A 06-01-45 5.00 2,000,000 1,793,760 Golden State Tobacco Securitization Corporation Revenue Bonds Series 2003A-1 06-01-33 6.25 2,325,000 2,533,599 Los Angeles Municipal Improvement Revenue Bonds Series 2008B 09-01-38 5.00 4,000,000 3,879,120 ----------- Total 9,199,379 - --------------------------------------------------------------------- MISCELLANEOUS REVENUE (5.2%) California County Tobacco Securitization Agency Asset-backed Revenue Bonds Alameda County Series 2002 06-01-29 5.75 785,000 727,342 06-01-42 6.00 240,000 214,258 California Infrastructure & Economic Development Bank Revenue Bonds Series 2008W 02-01-33 5.25 2,000,000 1,997,179 Golden State Tobacco Securitization Corporation Prerefunded Enhanced Asset-backed Revenue Bonds Series 2003B (FSA) 06-01-43 5.00 110,000 118,715 Golden State Tobacco Securitization Corporation Prerefunded Revenue Bonds Series 2003A-1 06-01-39 6.75 1,510,000 1,745,364 06-01-40 6.63 750,000 862,793
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 30 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 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) MISCELLANEOUS REVENUE (CONT.) Los Angeles County Public Works Financing Authority Refunding Revenue Bonds Master Project Series 2005A (MBIA) 12-01-26 5.00% $2,000,000 $1,983,299 Oakley Redevelopment Agency Revenue Bonds Oakley Redevelopment Project Area Series 2008A (AMBAC) 09-01-38 5.00 1,750,000 1,671,548 ----------- Total 9,320,498 - --------------------------------------------------------------------- PORT DISTRICT (0.6%) Port of Oakland Revenue Bonds Series 2000K (FGIC) A.M.T. 11-01-18 5.63 1,000,000 1,005,660 - --------------------------------------------------------------------- SCHOOL (18.0%) Alhambra City Elementary School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999A (FSA) 09-01-22 5.95 1,055,000(g) 534,822 Anaheim Union High School District Prerefunded Unlimited General Obligation Bonds Series 2002A (FSA) 08-01-16 5.38 1,550,000 1,717,803 Centinela Valley Union High School District Unlimited General Obligation Bonds Series 2002A (MBIA) 08-01-31 5.25 2,000,000 1,978,880 Encinitas Union School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1996 (MBIA) 08-01-15 5.85 2,500,000(g) 1,879,375 Fontana Unified School District Unlimited General Obligation Bonds Convertible Capital Appreciation Series 1997D (FGIC) 05-01-22 5.75 2,000,000 2,072,700 Fremont Union High School District/Santa Clara County Unlimited General Obligation Bonds Election of 2008 Series 2008 08-01-30 4.75 5,000,000 5,007,649 Grant Joint Union High School District Unlimited General Obligation Bonds Election of 2006 Series 2008 (FSA) 08-01-25 5.00 1,000,000 1,039,630 Lammersville School District Community Facilities Special Tax Bonds Mountain House Series 2006 09-01-35 5.13 1,000,000 854,150 Los Angeles Unified School District Unlimited General Obligation Bonds Election of 2002 Series 2007B (AMBAC) 07-01-22 5.00 1,395,000 1,455,669 Menifee Union School District Unlimited General Obligation Bonds Election of 2008 Series 2008A 08-01-33 5.50 3,125,000 3,155,781 Oxnard School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA) 08-01-30 5.75 2,575,000 2,720,797 San Juan Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999 (FSA) 08-01-21 5.68 820,000(g) 440,332 08-01-24 5.70 1,810,000(g) 813,034
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 31 RiverSource California Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) SCHOOL (CONT.) 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 $3,357,930 Simi Valley School Financing Authority Refunding Revenue Bonds University School District Series 2007 (FSA) 08-01-23 5.00 1,500,000 1,582,665 Western Placer Unified School District Certificate of Participation Series 2008 (Assured Guaranty) 08-01-32 4.75 1,000,000 940,070 Whittier Union High School District Prerefunded Unlimited General Obligation Bonds Election of 1999 Series 2003D (FSA) 08-01-28 5.00 2,615,000 2,868,341 ----------- Total 32,419,628 - --------------------------------------------------------------------- SPECIAL DISTRICT -- ASSESSMENT (0.5%) City of Azusa Special Tax Bonds Escrow Community Facilities Series 2007 09-01-27 5.00 1,110,000 938,361 - --------------------------------------------------------------------- SPECIAL DISTRICT -- OTHER (1.6%) Puerto Rico Highway & Transportation Authority Prerefunded Revenue Bonds Series 2004J 07-01-43 5.13 2,500,000(b) 2,795,275 - --------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (4.7%) Anaheim Community Facilities District Special Tax Bonds Stadium Lofts Series 2007 09-01-37 5.00 1,000,000 816,430 Beaumont Financing Authority Prerefunded Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,188,857 Orange Unified School District Community Facilities Special Tax Bonds Del Rio School Facilities Series 2007-2 09-01-37 5.00 1,000,000 856,040 Pittsburg Redevelopment Agency Tax Allocation Bonds Los Medanos Community Development Project Zero Coupon Series 1999 (AMBAC) 08-01-24 6.05 2,100,000(g) 878,346 Rancho Cucamonga Redevelopment Agency Tax Allocation Bonds Housing Set Aside Series 2007A (MBIA) 09-01-34 5.00 2,200,000 2,140,710 San Francisco Bay Area Transit Financing Authority Prerefunded Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 1,475,000 1,592,631 ----------- Total 8,473,014 - --------------------------------------------------------------------- SPECIAL DISTRICT -- TAX ALLOCATION (0.6%) Inglewood Redevelopment Agency Refunding Tax Allocation Bonds Merged Redevelopment Project Series 1998A (AMBAC) 05-01-23 5.25 1,100,000 1,164,911 - --------------------------------------------------------------------- STATE (14.6%) State of California Prerefunded Unlimited General Obligation Bonds Series 2000 05-01-19 5.63 250,000 267,488 State of California Prerefunded Unlimited General Obligation Bonds Series 2004 04-01-29 5.30 1,998,000 2,247,550
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 32 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 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) STATE (CONT.) State of California Prerefunded Unlimited General Obligation Bonds Series 2004 (FGIC) 02-01-33 5.00% $2,500,000 $2,756,450 State of California Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000 1,141,600 State of California Unlimited General Obligation Bonds Series 2003 02-01-21 5.25 2,500,000 2,584,100 02-01-29 5.25 2,500,000 2,529,350 State of California Unlimited General Obligation Bonds Series 2008B 07-01-23 5.00 1,000,000 1,068,640 State of California Unlimited General Obligation Bonds Various Purpose Series 2003 11-01-22 5.00 2,000,000 2,036,320 11-01-23 5.13 2,500,000 2,549,275 11-01-24 5.13 2,000,000 2,034,820 11-01-29 5.25 500,000 506,735 State of California Unlimited General Obligation Bonds Veterans Series 2000BJ A.M.T. 12-01-12 4.95 2,250,000 2,333,745 12-01-13 5.05 1,435,000 1,484,134 12-01-14 5.15 2,535,000 2,611,456 State of California Unrefunded Unlimited General Obligation Bonds Series 2004 04-01-29 5.30 2,000 2,035 ----------- Total 26,153,698 - --------------------------------------------------------------------- WATER & SEWER (7.2%) Anaheim Public Financing Authority Revenue Bonds Series 2007 (MBIA) 02-01-33 4.75 3,500,000 3,401,300 California State Department of Water Resources Revenue Bonds Central Valley Project Series 2008AE 12-01-29 5.00 2,500,000 2,587,675 Eastern Municipal Water District Special Tax Bonds District #2004-27 Cottonwood Series 2006 09-01-27 5.00 200,000 178,336 09-01-36 5.00 500,000 420,150 Fresno Revenue Bonds Series 2008A (Assured Guaranty) 09-01-33 5.00 2,500,000 2,519,575 Semitropic Improvement District Revenue Bonds Series 2004A (XLCA) 12-01-28 5.00 2,000,000 1,974,760 Turlock Public Financing Authority Revenue Bonds Series 2008 05-01-32 4.75 2,000,000 1,925,560 ----------- Total 13,007,356 - --------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $167,442,341) $167,592,945 - ---------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 33 RiverSource California Tax-Exempt Fund
MUNICIPAL BONDS HELD IN TRUST (2.5%)(f) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) WATER & SEWER Austin Trust Various States Certificate of Participation Series 2008 (FSA) 05-01-33 5.00% $4,500,000 $4,558,275 - --------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $4,585,869) $4,558,275 - --------------------------------------------------------------------- MUNICIPAL NOTES (1.2%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(c,d,e) YIELD MATURITY VALUE(a) California State Department of Water Resources Revenue Bonds V.R.D.N. Series 2002B-3 (Bank of New York) 05-01-22 2.10% $1,100,000 $1,100,000 Irvine Revenue Bonds Assessment District No 97-16 V.R.D.N. Series 1997 (State Street B&T) 09-02-22 2.25 530,000 530,000 Irvine Special Assessment Bonds Assessment District No 94-13 V.R.D.N. Series 1997 (State Street B&T) 09-02-22 2.25 500,000 500,000 - --------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $2,130,000) $2,130,000 - --------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $174,158,210)(h) $174,281,220 =====================================================================
NOTES TO PORTFOLIO OF INVESTMENTS (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 1.6% of net assets at Aug. 31, 2008. (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 FHLMC -- Federal Home Loan Mortgage Corporation FNMA -- Federal National Mortgage Association FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
- -------------------------------------------------------------------------------- 34 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource California Tax-Exempt Fund NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax - At Aug. 31, 2008, the value of securities subject to alternative minimum tax represented 9.0% 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, 2008. (f) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (h) At Aug. 31, 2008, the cost of securities for federal income tax purposes was $ 174,916,647 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $3,464,538 Unrealized depreciation (4,099,965) ----------------------------------------------------------- Net unrealized depreciation $(635,427) -----------------------------------------------------------
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 -- 2008 ANNUAL REPORT 35 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund AUG. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (94.2%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) AIRPORT (3.1%) Minneapolis-St. Paul Metropolitan Airports Commission Prerefunded Revenue Bonds Sub Series 2001C (FGIC) 01-01-18 5.50% $2,000,000 $2,147,700 01-01-32 5.25 7,000,000 7,477,260 ----------- Total 9,624,960 - --------------------------------------------------------------------- CITY (1.0%) City of Minneapolis Prerefunded Unlimited General Obligation Bonds Various Purpose Series 2001 Escrowed to Maturity 12-01-11 5.00 145,000 156,087 City of Minneapolis Unrefunded Unlimited General Obligation Bonds Various Purpose Series 2001 12-01-11 5.00 2,890,000 3,115,651 ----------- Total 3,271,738 - --------------------------------------------------------------------- COLLEGE (3.2%) Minnesota Higher Education Facilities Authority Revenue Bonds Macalester College 6th Series 2004B 03-01-17 5.00 2,395,000 2,549,286 Minnesota Higher Education Facilities Authority Revenue Bonds St. Benedict College Series 2008V 03-01-18 5.00 500,000 523,890 03-01-23 4.75 800,000 788,456 Minnesota Higher Education Facilities Authority Revenue Bonds St. John's University 6th Series 2005G 10-01-22 5.00 3,000,000 3,075,420 Minnesota Higher Education Facilities Authority Revenue Bonds St. John's University 6th Series 2008U 10-01-28 4.75 1,000,000 983,430 10-01-33 4.75 825,000 782,562 Minnesota Higher Education Facilities Authority Revenue Bonds University of St. Thomas 6th Series 2006I 04-01-13 5.00 1,115,000 1,187,497 ----------- Total 9,890,541 - --------------------------------------------------------------------- COUNTY (4.7%) Anoka County Housing & Redevelopment Authority Unlimited General Obligation Bonds Housing Development Series 2004 (AMBAC) 02-01-34 5.00 1,355,000 1,354,946 County of Ramsey Unlimited General Obligation Bonds Capital Improvement Plan Series 2007A 02-01-20 5.00 1,000,000 1,079,060 02-01-21 5.00 1,035,000 1,107,978 02-01-22 5.00 1,080,000 1,149,498 02-01-23 5.00 1,125,000 1,192,219 02-01-24 5.00 1,170,000 1,235,450 02-01-25 5.00 1,215,000 1,278,350
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 36 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) COUNTY (CONT.) County of Ramsey Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2002B 02-01-14 5.25% $3,840,000 $4,069,593 Hennepin County Unlimited General Obligation Bonds Series 2003 12-01-23 4.75 2,000,000 2,031,200 ----------- Total 14,498,294 - --------------------------------------------------------------------- ELECTRIC (16.4%) City of Chaska Refunding Revenue Bonds Generating Facilities Series 2005A 10-01-20 5.25 1,165,000 1,216,190 10-01-30 5.00 3,800,000 3,749,802 Minnesota State Municipal Power Agency Revenue Bonds Series 2004A 10-01-29 5.13 3,500,000 3,504,375 Minnesota State Municipal Power Agency Revenue Bonds Series 2005 10-01-30 5.00 2,000,000 1,963,180 Minnesota State Municipal Power Agency Revenue Bonds Series 2007 10-01-32 4.75 3,000,000 2,776,830 Northern Municipal Power Agency Refunding Revenue Bonds Series 1998B (AMBAC) 01-01-20 4.75 5,000,000 5,024,150 Northern Municipal Power Agency Revenue Bonds Series 2007A (AMBAC) 01-01-26 5.00 2,500,000 2,512,800 Northern Municipal Power Agency Revenue Bonds Series 2008A 01-01-21 5.00 2,500,000 2,607,875 Puerto Rico Electric Power Authority Prerefunded Revenue Bonds Series 2003NN (MBIA) 07-01-32 5.00 2,820,000(b) 3,102,846 Southern Minnesota Municipal Power Agency Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA) 01-01-19 6.67 17,000,000(f) 10,817,950 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2002A (AMBAC) 01-01-17 5.25 6,000,000 6,535,920 Western Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-26 5.00 7,250,000 7,316,990 ----------- Total 51,128,908 - --------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (17.8%) City of Breckenridge Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 2,000,000 1,950,760 City of Maple Grove Revenue Bonds Maple Grove Hospital Corporation Series 2007 05-01-20 5.00 1,000,000 987,750 05-01-21 5.00 1,500,000 1,469,580 05-01-37 5.25 4,715,000 4,391,551
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 37 RiverSource Minnesota 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.) City of Minneapolis Revenue Bonds Fairview Health Services Series 2002B (MBIA) 05-15-14 5.50% $2,050,000 $2,193,459 05-15-15 5.50 2,160,000 2,299,082 05-15-16 5.50 2,200,000 2,330,680 City of Winona Refunding Revenue Bonds Winona Health Obligation Group Series 2007 07-01-31 5.15 2,000,000 1,811,820 County of Chippewa Revenue Bonds Montevideo Hospital Project Series 2007 03-01-20 5.38 1,940,000 1,888,920 03-01-21 5.38 1,045,000 1,008,582 County of Meeker Revenue Bonds Memorial Hospital Project Series 2007 11-01-27 5.75 1,000,000 963,390 11-01-37 5.75 2,250,000 2,071,485 Minnesota Agricultural & Economic Development Board Prerefunded Revenue Bonds Benedictine Health System Series 1999A (MBIA) 02-15-16 4.75 245,000 256,831 Minnesota Agricultural & Economic Development Board Prerefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 4,845,000 5,315,789 11-15-29 6.38 2,910,000 3,192,765 Minnesota Agricultural & Economic Development Board Unrefunded Revenue Bonds Benedictine Health System Series 1999A (MBIA) 02-15-16 4.75 755,000 766,770 Northfield Revenue Bonds Series 2006 11-01-31 5.38 1,500,000 1,373,175 Shakopee Revenue Bonds St. Francis Regional Medical Center Series 2004 09-01-25 5.10 3,300,000 3,105,696 St. Louis Park Revenue Bonds Park Nicollet Health Services Series 2008C 07-01-26 5.63 6,145,000 6,179,043 St. Paul Housing & Redevelopment Authority Revenue Bonds Allina Health Systems Series 2007A (MBIA) 11-15-22 5.00 3,000,000 3,037,350 St. Paul Housing & Redevelopment Authority Revenue Bonds Healtheast Project Series 2005 11-15-25 6.00 1,250,000 1,236,650 St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2006 05-15-23 5.25 1,000,000 962,820 05-15-26 5.25 1,000,000 946,190 05-15-36 5.25 3,500,000 3,112,725
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 38 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource Minnesota 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.) 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 $2,394,125 ----------- Total 55,246,988 - --------------------------------------------------------------------- HEALTH CARE -- LIFE CARE CENTER (0.5%) City of Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-25 5.00 1,750,000 1,683,010 - --------------------------------------------------------------------- HEALTH CARE -- NURSING HOME (3.5%) Annandale Economic Development Authority Revenue Bonds Annandale Care Center Project Series 2007A 11-01-37 5.90 3,385,000 3,071,549 City of North Oaks Revenue Bonds Presbyterian Homes Series 2007 10-01-27 6.00 1,250,000 1,186,038 10-01-33 6.00 1,500,000 1,397,205 City of Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-19 5.00 2,505,000 2,500,691 St. Paul Housing & Redevelopment Authority Revenue Bonds Lyngblomsten Care Center Housing Project Series 1993 11-01-17 7.13 1,335,000 1,296,018 St. Paul Housing & Redevelopment Authority Revenue Bonds Rental -- Lyngblomsten Housing Project Series 1993 11-01-24 7.00 1,595,000 1,529,382 ----------- Total 10,980,883 - --------------------------------------------------------------------- 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 1,035,730 12-01-15 5.13 1,500,000 1,518,120 12-01-16 5.25 1,250,000 1,260,163 ----------- Total 3,814,013 - --------------------------------------------------------------------- HOUSING -- MULTI-FAMILY (2.6%) Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Project Series 2000A 01-01-32 7.25 2,000,000 2,028,260 City of Rochester Refunding Revenue Bonds Madonna Towers Incorporated Project Series 2007A 11-01-28 5.88 1,000,000 939,810 Duluth Housing & Redevelopment Authority Revenue Bonds Benedictine Health Center Project Series 2007 11-01-33 5.88 750,000 684,885 Plymouth Housing & Redevelopment Authority Unlimited General Obligation Bonds Governmental Housing Project Series 2005 02-01-35 5.00 2,135,000 2,125,606
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 39 RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) HOUSING -- MULTI-FAMILY (CONT.) Steele County Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88% $2,205,000 $2,364,289 ----------- Total 8,142,850 - --------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (6.2%) Minneapolis/St. Paul Housing Finance Board Revenue Bonds Mortgage-backed City Living Series 2006A-5 (GNMA/FNMA/FHLMC) 04-01-27 5.45 2,151,184 2,238,264 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 91,737 81,195 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006B A.M.T. 07-01-26 4.75 1,905,000 1,694,078 07-01-31 4.85 2,570,000 2,210,586 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006I A.M.T. 07-01-26 5.05 3,520,000 3,254,486 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006M A.M.T. 01-01-37 5.75 2,920,000 2,987,131 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2007D A.M.T. 01-01-38 5.50 3,935,000 3,990,365 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2007I A.M.T. 07-01-22 4.65 2,330,000 2,119,461 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1996J A.M.T. 07-01-21 5.60 50,000 50,020 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1997K A.M.T. 01-01-26 5.75 765,000 765,306 ----------- Total 19,390,892 - --------------------------------------------------------------------- LEASE (3.4%) St. Paul Port Authority Revenue Bonds Office Building at Cedar Street Series 2003 12-01-23 5.00 5,000,000 5,194,900 12-01-27 5.13 5,350,000 5,451,918 ----------- Total 10,646,818 - --------------------------------------------------------------------- MISCELLANEOUS REVENUE (3.2%) City of Minneapolis Limited Tax Revenue Bonds Common Bond Fund Series 2007-2A A.M.T. 06-01-22 5.13 1,035,000 986,283 06-01-28 5.00 1,500,000 1,343,580 Minneapolis Community Development Agency Limited Tax Revenue Bonds Common Bond Fund Series 1996-1 06-01-11 6.00 855,000 861,413
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 40 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) MISCELLANEOUS REVENUE (CONT.) Minneapolis Community Development Agency Prerefunded Limited Tax Revenue Bonds Common Bond Fund Series 2001-2A A.M.T. 06-01-19 5.88% $1,000,000 $1,075,440 St. Cloud Housing & Redevelopment Authority Revenue Bonds State University Foundation Project Series 2002 05-01-18 5.13 3,000,000 3,129,659 St. Paul Port Authority Tax Allocation River Bend Project Lot 1 Series 2007-5 02-01-32 6.38 2,685,000 2,488,565 ----------- Total 9,884,940 - --------------------------------------------------------------------- SALES OR USE TAX (2.9%) Hennepin County Revenue Bonds 2nd Lien Ballpark Project Series 2008B 12-15-27 4.75 4,205,000 4,226,697 12-15-29 5.00 1,825,000 1,872,633 Hennepin County Revenue Bonds Sales Tax Series 2007 12-15-33 4.75 3,000,000 2,982,300 ----------- Total 9,081,630 - --------------------------------------------------------------------- SCHOOL (15.7%) 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 4,442,993 02-01-15 5.00 1,990,000 2,117,738 02-01-16 5.00 2,000,000 2,128,380 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 4,271,160 City of Maple Grove Revenue Bonds North Memorial Health Care Series 2005 09-01-35 5.00 2,500,000 2,279,475 Duluth Independent School District #709 Certificate of Participation Series 2008B (School District Credit Enhancement Program) 02-01-26 4.75 4,000,000 4,032,600 Edina Independent School District #273 Unlimited General Obligation Bonds Series 2004 02-01-23 4.50 3,000,000 3,026,250 02-01-24 4.50 3,400,000 3,420,196 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 3,225,180 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 3,774,928 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 71,087
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 41 RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) SCHOOL (CONT.) 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 $1,890,838 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 1,579,781 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 1,168,365 Osseo Independent School District #279 Unlimited General Obligation Bonds Series 2002A (FSA) (School District Credit Enhancement Program) 02-01-15 5.25 3,585,000 3,824,944 St. Paul Housing & Redevelopment Authority Prerefunded Revenue Bonds Community of Peace Academy Project Series 2001A 12-01-30 7.88 2,390,000 2,714,801 St. Paul Housing & Redevelopment Authority Refunding Revenue Bonds St. Paul Academy & Summit School Series 2007 10-01-24 5.00 2,000,000 2,011,520 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 1,499,065 02-01-14 5.00 1,480,000 1,561,977 ----------- Total 49,041,278 - --------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (0.1%) Lakeville Revenue Bonds Series 2007 02-01-22 5.00 175,000 165,492 02-01-27 5.00 225,000 203,340 ----------- Total 368,832 - --------------------------------------------------------------------- SPECIAL PURPOSE CERTIFICATES -- GENERAL OBLIGATIONS (0.1%) Minneapolis Community Development Agency Limited Tax Revenue Bonds Common Bond Fund Series 1997-7A 06-01-12 5.50 210,000 211,132 - --------------------------------------------------------------------- STATE (3.9%) Commonwealth of Puerto Rico Prerefunded Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 860,000(b) 976,865 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001 (FSA) 07-01-16 5.50 1,500,000(b) 1,650,030 State of Minnesota Unlimited General Obligation Bonds Series 2002 11-01-15 5.25 3,575,000 3,886,633 State of Minnesota Unlimited General Obligation Bonds Series 2008A 06-01-18 5.00 5,000,000 5,549,150 ----------- Total 12,062,678 - --------------------------------------------------------------------- TOLL ROAD (0.6%) Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 1,650,000(b) 1,808,334 - ---------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 42 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) WATER & SEWER (4.1%) Minnesota Public Facilities Authority Revenue Bonds Series 2002B 03-01-13 5.25% $2,500,000 $2,759,125 03-01-14 5.25 2,500,000 2,784,450 Minnesota Public Facilities Authority Revenue Bonds Series 2005C 03-01-25 5.00 7,000,000 7,259,420 ----------- Total 12,802,995 - --------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $291,618,223) $293,581,714 - --------------------------------------------------------------------- MUNICIPAL BONDS HELD IN TRUST (8.7%)(g) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(c,d) RATE AMOUNT VALUE(a) COLLEGE (3.1%) University of Minnesota Revenue Bonds Series 2002 07-01-21 5.50% $8,500,000 $9,585,531 - --------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (0.9%) Minnesota Housing Finance Agency Revenue Bonds Series 2002 A.M.T. 07-01-33 5.65 2,795,000 2,656,150 - --------------------------------------------------------------------- SCHOOL (4.7%) 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 3,907,080 02-01-19 5.25 3,450,000 3,744,285 02-01-20 5.25 2,850,000 3,093,105 02-01-21 5.25 3,865,000 4,193,832 ----------- Total 14,938,302 - --------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $25,775,720) $27,179,983 - --------------------------------------------------------------------- MUNICIPAL NOTES (1.3%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(c,d,e) YIELD MATURITY VALUE(a) Arden Hills Revenue Bonds Presbyterian Homes V.R.D.N. Series 1999B (U.S. Bank) 09-01-29 2.48% $222,000 $222,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M1 (Harris) 10-01-32 2.45 3,500,000 3,500,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M2 (Harris) 10-01-20 2.45 400,000 400,000 - --------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $4,122,000) $4,122,000 - --------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $321,515,943)(h) $324,883,697 =====================================================================
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 43 RiverSource Minnesota Tax-Exempt Fund NOTES TO PORTFOLIO OF INVESTMENTS (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 2.4% of net assets at Aug. 31, 2008. (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 FHLMC -- Federal Home Loan Mortgage Corporation FNMA -- Federal National Mortgage Association 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: A.M.T. -- Alternative Minimum Tax - At Aug. 31, 2008, the value of securities subject to alternative minimum tax represented 7.4% 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, 2008. (f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (g) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (h) At Aug. 31, 2008, the cost of securities for federal income tax purposes was $322,675,283 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $8,261,457 Unrealized depreciation (6,053,043) - ---------------------------------------------------------- Net unrealized appreciation $2,208,414 - ----------------------------------------------------------
- -------------------------------------------------------------------------------- 44 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 45 PORTFOLIO OF INVESTMENTS ------------------------------------------------------- RiverSource New York Tax-Exempt Fund AUG. 31, 2008 (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (96.4%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b,c) RATE AMOUNT VALUE(a) ADVANCED REFUNDED (2.7%) Metropolitan Transportation Authority Prerefunded Revenue Bonds Series 1998A (FGIC) 04-01-28 4.75% $1,000,000 $1,100,920 New York State Dormitory Authority Prerefunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 441,133 ----------- Total 1,542,053 - -------------------------------------------------------------------- CITY (7.6%) City of New York Prerefunded Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 100,000 112,156 City of New York Unlimited General Obligation Bonds Series 2002C (XLCA) 03-15-12 5.00 500,000 534,475 City of New York Unlimited General Obligation Bonds Series 2004D 11-01-34 5.00 1,000,000 1,001,670 City of New York Unrefunded Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 1,000,000 1,094,810 City of New York Unrefunded Unlimited General Obligation Bonds Series 2003J 06-01-18 5.50 1,425,000 1,553,535 ----------- Total 4,296,646 - -------------------------------------------------------------------- COLLEGE (11.6%) Dutchess County Industrial Development Agency Refunding Revenue Bonds Bard College Civic Facilities Series 2007-A1 08-01-22 5.00 500,000 509,715 New York State Dormitory Authority Revenue Bonds Brooklyn Law School Series 2003B (XLCA) 07-01-30 5.13 1,000,000 1,001,840 New York State Dormitory Authority Revenue Bonds Columbia University Series 2007C 07-01-29 5.00 1,250,000 1,291,400 New York State Dormitory Authority Revenue Bonds Cornell University Series 2006A 07-01-26 5.00 1,000,000 1,038,010 New York State Dormitory Authority Revenue Bonds Education Series 2006D 03-15-31 5.00 500,000 510,275 New York State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00 1,500,000 1,549,979
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 46 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 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) COLLEGE (CONT.) Seneca County Industrial Development Agency Revenue Bonds New York Chiropractic College Series 2007 10-01-27 5.00% $750,000 $693,713 ----------- Total 6,594,932 - -------------------------------------------------------------------- COUNTY (2.6%) County of Monroe Unlimited General Obligation Refunding & Public Improvement Bonds Series 1996 (MBIA) 03-01-15 6.00 1,250,000 1,448,288 - -------------------------------------------------------------------- HEALTH CARE - HOSPITAL (10.8%) Albany Industrial Development Agency Revenue Bonds St. Peters Hospital Project Series 2008A 11-15-27 5.25 1,000,000 955,760 New York State Dormitory Authority Revenue Bonds Mental Health Services Facilities Improvement Series 2005E (FGIC) 02-15-22 5.00 750,000 773,775 New York State Dormitory Authority Revenue Bonds New York University Hospital Center Series 2007B 07-01-24 5.25 750,000 726,435 New York State Dormitory Authority Revenue Bonds Orange Regional Medical Center Series 2008 12-01-29 6.13 1,250,000 1,214,588 New York State Dormitory Authority Revenue Bonds Sloan-Kettering Memorial Center Series 2003-1 (MBIA) 07-01-21 5.00 1,000,000 1,024,090 New York State Dormitory Authority Revenue Bonds Sloan-Kettering Memorial Center Series 2006-1 07-01-35 5.00 500,000 503,515 Ulster County Industrial Development Agency Revenue Bonds Series 2007A 09-15-42 6.00 1,000,000 920,280 ----------- Total 6,118,443 - -------------------------------------------------------------------- HEALTH CARE - LIFE CARE CENTER (0.5%) Suffolk County Industrial Development Agency Prerefunded Revenue Bonds 1st Mortgage Jeffersons Ferry Series 1999A 11-01-28 7.25 250,000 270,323 - -------------------------------------------------------------------- HOUSING - OTHER (1.8%) New York State Dormitory Authority Revenue Bonds Consolidated City University System 5th General Resolution Series 2008B 07-01-27 5.00 1,000,000 1,015,470 - -------------------------------------------------------------------- HOUSING - SINGLE FAMILY (1.9%) New York Mortgage Agency Revenue Bonds Series 2007-140 A.M.T. 10-01-21 4.60 500,000 459,385 New York Mortgage Agency Revenue Bonds Series 2007-143 A.M.T. 10-01-27 4.85 675,000 602,242 ----------- Total 1,061,627 - -------------------------------------------------------------------- LEASE (12.2%) Hudson Yards Infrastructure Corporation Revenue Bonds Series 2006A 02-15-47 5.00 500,000 482,060
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 47 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 City Industrial Development Agency Revenue Bonds Terminal One Group Association Project Series 2005 A.M.T. 01-01-24 5.50% $500,000 $494,350 New York State Dormitory Authority Revenue Bonds Consolidated City University System Series 1993A 07-01-13 5.75 3,000,000 3,228,359 New York State Dormitory Authority Revenue Bonds New York University Hospital Center Series 2006A 07-01-20 5.00 500,000 477,165 New York State Dormitory Authority Unrefunded Revenue Bonds Series 1990B 05-15-11 7.50 645,000 720,742 New York State Urban Development Corporation Refunding Revenue Bonds Service Contract Series 2005 (FSA) 01-01-17 5.00 1,000,000 1,068,520 Tobacco Settlement Financing Authority Asset-backed Revenue Bonds Series 2003A-1 06-01-16 5.50 500,000 513,760 ----------- Total 6,984,956 - -------------------------------------------------------------------- MISCELLANEOUS (3.0%) New York City Trust for Cultural Resources Revenue Bonds Museum of American Folk Art Series 2000 (ACA) 07-01-22 6.00 825,000 797,115 New York State Dormitory Authority Revenue Bonds Mt. Sinai School of Medicine University Series 2007 (MBIA) 07-01-37 4.50 1,000,000 905,630 ----------- Total 1,702,745 - -------------------------------------------------------------------- MISCELLANEOUS REVENUE (12.5%) Metropolitan Transportation Authority Revenue Bonds Series 2006A 11-15-22 5.00 750,000 765,645 New York City Industrial Development Agency Revenue Bonds Queens Baseball Stadium Pilot Series 2006 (AMBAC) 01-01-23 5.00 500,000 501,320 01-01-24 5.00 500,000 499,435 New York City Trust for Cultural Resources Refunding Revenue Bonds Museum of Modern Art Series 2008-1A 04-01-28 5.00 1,000,000 1,031,139 New York State Thruway Authority Revenue Bonds 2nd General Resolution Series 2003B (FSA) 04-01-21 4.75 835,000 851,859 New York State Thruway Authority Revenue Bonds Transportation Series 2008A 03-15-28 5.00 1,000,000(g) 1,030,240
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 48 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 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) MISCELLANEOUS REVENUE (CONT.) New York State Urban Development Corporation Refunding Revenue Bonds Service Contract Series 2008B 01-01-29 4.75% $755,000 $754,955 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 1,048,809 Seneca Nation Indians Capital Improvements Authority Revenue Bonds Series 2007A 12-01-16 5.25 500,000(d) 477,695 12-01-23 5.00 250,000(d) 215,548 ----------- Total 7,176,645 - -------------------------------------------------------------------- PORT DISTRICT (5.1%) 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 1,004,340 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 1,390,245 Port Authority of New York & New Jersey Revenue Bonds Consolidated 147th Series 2007 (FGIC) A.M.T. 10-15-26 5.00 500,000 490,625 ----------- Total 2,885,210 - -------------------------------------------------------------------- SALES OR USE TAX (1.8%) New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2004C 02-01-33 5.00 1,000,000 1,009,410 - -------------------------------------------------------------------- SPECIAL DISTRICT - SPECIAL TAX (4.9%) New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2003D 02-01-23 5.00 500,000 519,655 02-01-31 5.00 1,000,000 1,012,210 New York State Dormitory Authority Revenue Bonds Education Series 2005F 03-15-23 5.00 250,000 259,740 New York State Dormitory Authority Revenue Bonds Education Series 2006C 12-15-31 5.00 750,000 765,773 New York State Dormitory Authority Revenue Bonds Education Series 2007A 03-15-37 5.00 250,000 252,940 ----------- Total 2,810,318 - -------------------------------------------------------------------- TOLL ROAD (5.8%) Metropolitan Transportation Authority Revenue Bonds Series 2005F 11-15-12 5.00 560,000 599,138 11-15-35 5.00 500,000 491,205 New York State Thruway Authority Revenue Bonds Series 2007H (FGIC) 01-01-23 5.00 500,000 524,305 Triborough Bridge & Tunnel Authority Refunding Revenue Bonds Series 2002B 11-15-29 5.13 1,000,000 1,011,810
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 49 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 Revenue Bonds Series 2008 11-15-15 5.00% $620,000 $685,441 ----------- Total 3,311,899 - -------------------------------------------------------------------- WATER & SEWER (11.5%) Erie County Water Authority 4th Resolution Revenue Bonds Series 2007 (MBIA) 12-01-34 4.75 500,000 484,785 New York City Municipal Water Finance Authority Revenue Bonds Series 2002A 06-15-29 5.00 1,000,000 1,007,830 New York City Municipal Water Finance Authority Revenue Bonds Series 2005A 06-15-39 5.00 1,000,000 1,006,320 New York City Municipal Water Finance Authority Revenue Bonds Series 2008CC 06-15-34 5.00 1,500,000 1,519,605 New York City Municipal Water Finance Authority Revenue Bonds Series 2008DD 06-15-38 4.50 500,000 465,840 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 1,010,590 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 1,015,100 ----------- Total 6,510,070 - -------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $54,567,973) $54,739,035 - -------------------------------------------------------------------- MUNICIPAL BONDS HELD IN TRUST (2.0%)(f) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b,c) RATE AMOUNT VALUE(a) HOUSING - SINGLE FAMILY New York Mortgage Agency Revenue Bonds Series 2002 A.M.T. 04-01-32 5.40% $1,200,000 $1,112,532 - -------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $1,199,892) $1,112,532 - -------------------------------------------------------------------- MUNICIPAL NOTES (3.0%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(b,c,e) YIELD MATURITY VALUE(a) City of New York Unlimited General Obligation Bonds V.R.D.N. Sub Series 2005E-2 (Bank of America) 08-01-34 2.30% $1,700,000 $1,700,000 - -------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $1,700,000) $1,700,000 - -------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $57,467,865)(h) $57,551,567 ====================================================================
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 50 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource New York Tax-Exempt Fund NOTES TO PORTFOLIO OF INVESTMENTS (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 FHLMC -- Federal Home Loan Mortgage Corporation FNMA -- Federal National Mortgage Association 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: A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2008, the value of securities subject to alternative minimum tax represented 11.6% 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) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Trustees. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Aug. 31, 2008, the value of these securities amounted to $693,243 or 1.2% 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, 2008. (f) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (g) At Aug. 31, 2008, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $1,031,800. See Note 1 to the financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 51 RiverSource New York Tax-Exempt Fund NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (h) At Aug. 31, 2008, the cost of securities for federal income tax purposes was $57,697,404 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $866,140 Unrealized depreciation (1,011,977) - ----------------------------------------------------------- Net unrealized depreciation $(145,837) - -----------------------------------------------------------
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. - -------------------------------------------------------------------------------- 52 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT FINANCIAL STATEMENTS ----------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MINNESOTA NEW YORK TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT AUG. 31, 2008 FUND FUND FUND ASSETS Investments in securities, at value (identified cost $174,158,210, $321,515,943 and $57,467,865) $174,281,220 $324,883,697 $57,551,567 Cash 127,376 59,897 94,161 Capital shares receivable 2,048,169 140,036 1,349 Accrued interest receivable 1,897,591 3,599,146 656,635 Receivable for investment securities sold 4,805,617 -- 435,350 - ----------------------------------------------------------------------------------------------------------- Total assets 183,159,973 328,682,776 58,739,062 - ----------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 40,071 59,694 12,124 Capital shares payable 41,272 79,970 40,411 Payable for investment securities purchased -- -- 1,031,800 Short-term floating rate notes outstanding 3,375,000 16,670,000 800,000 Accrued investment management services fees 1,988 3,449 636 Accrued distribution fees 36,665 63,929 11,677 Accrued transfer agency fees 176 45 59 Accrued administrative services fees 339 596 109 Other accrued expenses 70,393 74,417 49,165 - ----------------------------------------------------------------------------------------------------------- Total liabilities 3,565,904 16,952,100 1,945,981 - ----------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $179,594,069 $311,730,676 $56,793,081 - ----------------------------------------------------------------------------------------------------------- REPRESENTED BY Shares of beneficial interest -- $.01 par value $ 366,390 $ 609,488 $ 117,127 Additional paid-in capital 181,273,261 311,502,359 56,924,671 Undistributed net investment income 43,826 256,370 15,877 Accumulated net realized gain (loss) (2,212,418) (4,005,295) (348,296) Unrealized appreciation (depreciation) on investments 123,010 3,367,754 83,702 - ----------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $179,594,069 $311,730,676 $56,793,081 - -----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 53 STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MINNESOTA NEW YORK TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT AUG. 31, 2008 FUND FUND FUND Net assets applicable to outstanding shares: Class A $172,038,905 $289,301,362 $52,571,799 Class B $ 4,711,779 $ 13,968,961 $ 3,503,352 Class C $ 2,843,385 $ 8,460,353 $ 717,930 Outstanding shares of beneficial interest: Class A shares 35,097,770 56,564,455 10,842,089 Class B shares 961,893 2,730,369 722,515 Class C shares 579,342 1,653,947 148,072 Net asset value per share: Class A(1) $ 4.90 $ 5.11 $ 4.85 Class B $ 4.90 $ 5.12 $ 4.85 Class C $ 4.91 $ 5.12 $ 4.85 - ----------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A for RiverSource California Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund is $5.14, $5.36 and $5.09, respectively. The offering price is calculated by dividing the net asset value by 1.0 minus the maximum sales charge of 4.75%. The accompanying Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- 54 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT STATEMENTS OF OPERATIONS
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MINNESOTA NEW YORK TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT YEAR ENDED AUG. 31, 2008 FUND FUND FUND INVESTMENT INCOME Income: Interest $ 8,385,488 $15,327,441 $2,930,103 - ---------------------------------------------------------------------------------------------------- Expenses: Investment management services fees 715,946 1,246,083 242,807 Distribution fees Class A 417,044 705,661 135,961 Class B 57,189 176,620 41,064 Class C 20,845 75,716 7,302 Transfer agency fees Class A 63,090 149,336 33,006 Class B 2,370 10,088 2,682 Class C 841 4,196 474 Administrative services fees 122,235 215,249 41,455 Interest and fee expense 18,730 489,609 82,238 Compensation of board members 3,464 6,074 1,163 Custodian fees 29,340 28,392 14,964 Printing and postage 29,920 42,900 15,425 Registration fees 46,980 46,615 46,345 Professional fees 32,679 34,101 29,061 Other 8,312 11,028 3,897 - ---------------------------------------------------------------------------------------------------- Total expenses 1,568,985 3,241,668 697,844 Expenses waived/reimbursed by the Investment Manager and its affiliates (113,521) (136,017) (111,966) Earnings and bank fee credits on cash balances (11,405) (16,374) (5,337) - ---------------------------------------------------------------------------------------------------- Total net expenses 1,444,059 3,089,277 580,541 - ---------------------------------------------------------------------------------------------------- Investment income (loss) -- net 6,941,429 12,238,164 2,349,562 - ---------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (1,780,399) (1,125,163) (217,470) Swap transactions 548,135 972,099 206,669 Futures contracts (644,016) (1,148,629) (234,490) - ---------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (1,876,280) (1,301,693) (245,291) Net change in unrealized appreciation (depreciation) on investments (1,439,312) (383,745) (522,090) - ---------------------------------------------------------------------------------------------------- Net gain (loss) on investments (3,315,592) (1,685,438) (767,381) - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 3,625,837 $10,552,726 $1,582,181 - ----------------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 55 STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND YEAR ENDED YEAR ENDED AUG. 31, 2008 AUG. 31, 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 6,941,429 $ 6,724,239 Net realized gain (loss) on investments (1,876,280) 1,177,737 Net change in unrealized appreciation (depreciation) on investments (1,439,312) (5,475,259) - ------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 3,625,837 2,426,717 - ------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (6,676,981) (6,398,570) Class B (186,183) (256,028) Class C (67,785) (64,777) Net realized gain Class A (1,181,240) (20,710) Class B (42,325) (1,083) Class C (10,896) (266) - ------------------------------------------------------------------------------------------- Total distributions (8,165,410) (6,741,434) - ------------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 65,548,797 22,983,104 Class B shares 841,055 623,385 Class C shares 1,663,705 273,162 Reinvestment of distributions at net asset value Class A shares 5,715,149 4,522,917 Class B shares 208,722 216,468 Class C shares 69,070 61,001 Payments for redemptions Class A shares (59,067,436) (29,519,324) Class B shares (2,298,575) (3,319,777) Class C shares (741,437) (569,804) - ------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions 11,939,050 (4,728,868) - ------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 7,399,477 (9,043,585) Net assets at beginning of year 172,194,592 181,238,177 - ------------------------------------------------------------------------------------------- Net assets at end of year $179,594,069 $172,194,592 - ------------------------------------------------------------------------------------------- Undistributed net investment income $ 43,826 $ 35,481 - -------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- 56 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND YEAR ENDED YEAR ENDED AUG. 31, 2008 AUG. 31, 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 12,238,164 $ 12,119,582 Net realized gain (loss) on investments (1,301,693) (255,908) Net change in unrealized appreciation (depreciation) on investments (383,745) (7,598,634) - ------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 10,552,726 4,265,040 - ------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (11,396,501) (11,270,181) Class B (578,310) (791,703) Class C (248,552) (230,272) - ------------------------------------------------------------------------------------------- Total distributions (12,223,363) (12,292,156) - ------------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 47,044,047 32,528,076 Class B shares 1,495,288 1,039,072 Class C shares 2,599,145 995,410 Reinvestment of distributions at net asset value Class A shares 9,552,532 9,097,879 Class B shares 516,735 680,057 Class C shares 222,405 202,223 Payments for redemptions Class A shares (53,551,129) (55,109,296) Class B shares (7,639,629) (10,945,982) Class C shares (1,341,812) (2,138,810) - ------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (1,102,418) (23,651,371) - ------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (2,773,055) (31,678,487) Net assets at beginning of year 314,503,731 346,182,218 - ------------------------------------------------------------------------------------------- Net assets at end of year $311,730,676 $314,503,731 - ------------------------------------------------------------------------------------------- Undistributed net investment income $ 256,370 $ 241,569 - -------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 57 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
RIVERSOURCE NEW YORK TAX-EXEMPT FUND YEAR ENDED YEAR ENDED AUG. 31, 2008 AUG. 31, 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 2,349,562 $ 2,546,399 Net realized gain (loss) on investments (245,291) 167,905 Net change in unrealized appreciation (depreciation) on investments (522,090) (1,748,799) - ------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,582,181 965,505 - ------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (2,189,003) (2,330,813) Class B (134,397) (181,832) Class C (23,906) (28,915) Net realized gain Class A (98,846) (70,294) Class B (7,550) (7,231) Class C (1,363) (1,128) - ------------------------------------------------------------------------------------------- Total distributions (2,455,065) (2,620,213) - ------------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 4,185,226 6,507,070 Class B shares 277,150 371,363 Class C shares 115,478 107,676 Reinvestment of distributions at net asset value Class A shares 1,915,808 1,953,853 Class B shares 125,138 154,068 Class C shares 24,019 28,046 Payments for redemptions Class A shares (11,068,956) (11,708,520) Class B shares (1,394,638) (2,667,241) Class C shares (204,109) (471,813) - ------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (6,024,884) (5,725,498) - ------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (6,897,768) (7,380,206) Net assets at beginning of year 63,690,849 71,071,055 - ------------------------------------------------------------------------------------------- Net assets at end of year $ 56,793,081 $ 63,690,849 - ------------------------------------------------------------------------------------------- Undistributed net investment income $ 15,877 $ 13,646 - -------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of these statements. - -------------------------------------------------------------------------------- 58 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS -------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource California Tax-Exempt Trust and RiverSource Special Tax-Exempt Series Trust are 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 Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund (together with RiverSource California Tax-Exempt Fund, herein after referred to as the Funds). The Funds are non-diversified, 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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 59 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. When market quotes are not readily available, the pricing service, in determining fair values of debt securities, takes into consideration such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. The procedures adopted by the Board of Trustees (the Board) generally contemplate the use of fair valuation in the event that price quotations or valuations are not readily available, price quotations or valuations from other sources are not reflective of market value and thus deemed unreliable, or a significant event has occurred in relation to a security or class of securities that is not reflected in price quotations or valuations from other sources. A fair value price is a good faith estimate of the value of a security at a given point in time. Swap transactions are valued through an authorized pricing service, broker, or an internal model. Short-term securities maturing in more than 60 days from the valuation date are valued at the market price or approximate market value based on current interest rates; those maturing in 60 days or less are valued at amortized cost. 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, 2008, RiverSource New York Tax-Exempt Fund has outstanding when-issued securities of $1,031,800. 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 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. 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 - -------------------------------------------------------------------------------- 60 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 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. 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, 2008, and for the year then ended, 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. At Aug. 31, 2008, the Funds had no outstanding futures contracts. INTEREST RATE SWAP TRANSACTIONS Each Fund 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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 61 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. At Aug. 31, 2008, the Funds had no outstanding interest rate swap contracts. 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 income received by the inverse floating rate security holder varies inversely with the short-term rate paid to the floating rate note holders, and in most circumstances the inverse floating rate security holder bears substantially all of the underlying bond's downside investment risk and also benefits disproportionately from any potential appreciation of the underlying bond's value. The inverse floating rate security holder will be subject to greater interest rate risk than if they were to hold the underlying bond because the interest rate is dependent on both the fixed coupon rate of the underlying bond and the short-term interest paid on the floating rate notes. The inverse floating rate security holder is also subject to the credit risk, liquidity risk and market risk associated with the underlying bond. 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 - -------------------------------------------------------------------------------- 62 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT in trust at Aug. 31, 2008, are presented in the Portfolio of Investments. 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, 2008, the market value of municipal bonds held in trust and short-term floating rate notes outstanding were as follows:
MARKET VALUE SHORT-TERM WEIGHTED AVERAGE OF MUNICIPAL FLOATING RATE OF INTEREST RATES BONDS HELD NOTES FOR SHORT-TERM FUND IN TRUST OUTSTANDING FLOATING RATE NOTES - ------------------------------------------------------------------------------ RiverSource California Tax- Exempt Fund $ 4,558,275 $ 3,375,000 10.76% RiverSource Minnesota Tax- Exempt Fund 27,179,983 16,670,000 9.60 RiverSource New York Tax- Exempt Fund 1,112,532 800,000 9.73
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. Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 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. Management of the Funds has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Generally, the tax authorities can examine all the tax returns filed for the last three years. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of futures contracts, recognition of unrealized appreciation (depreciation) for certain derivative - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 63 investments, post-October losses, and market discount. 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, undistributed net investment income and accumulated net realized gain (loss) have been increased (decreased), resulting in net reclassification adjustments to additional paid-in capital by the following:
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MINNESOTA NEW YORK TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND - ------------------------------------------------------------------------- Undistributed net investment income $(2,135) $-- $(25) Accumulated net realized gain (loss) 2,135 -- 25 - ------------------------------------------------------------------------- Additional paid-in capital reduction (increase) $ -- $-- $ -- - -------------------------------------------------------------------------
The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED AUG. 31, 2008 2007 - ----------------------------------------------------------------- RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(a)........ $ 6,677,475 $ 6,417,368 Long-term capital gain............. 1,180,746 1,912 CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(a)........ 186,201 257,011 Long-term capital gain............. 42,307 100 CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(a)........ 67,790 65,019 Long-term capital gain............. 10,891 24 (a) Tax-exempt interest distributions were 99.93% and 98.95% for the years ended Aug. 31, 2008 and 2007, respectively.
- -------------------------------------------------------------------------------- 64 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
YEAR ENDED AUG. 31, 2008 2007 - ----------------------------------------------------------------- RIVERSOURCE MINNESOTA TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(b)........ $11,396,501 $11,270,181 Long-term capital gain............. -- -- CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(b)........ 578,310 791,703 Long-term capital gain............. -- -- CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(b)........ 248,552 230,272 Long-term capital gain............. -- -- (b) Tax-exempt interest distributions were 98.75% and 99.25% for the years ended Aug. 31, 2008 and 2007, respectively. RIVERSOURCE NEW YORK TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(c)........ 2,189,026 2,346,136 Long-term capital gain............. 98,823 54,971 CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(c)........ 134,399 183,409 Long-term capital gain............. 7,548 5,654 CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(c)........ 23,906 29,161 Long-term capital gain............. 1,363 882
(c) Tax-exempt interest distributions were 100% and 98.57% for the years ended Aug. 31, 2008 and 2007, respectively. At Aug. 31, 2008, the components of distributable earnings on a tax basis are as follows:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED TAX-EXEMPT ACCUMULATED REALIZED APPRECIATION FUND INCOME LONG-TERM GAIN LOSS (DEPRECIATION) - -------------------------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund $ 47,346 $-- $(1,415,210) $ (637,647) RiverSource Minnesota Tax-Exempt Fund 251,634 -- (2,765,793) 2,192,682 RiverSource New York Tax-Exempt Fund 12,801 -- (102,852) (146,542)
RECENT ACCOUNTING PRONOUNCEMENTS In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 65 Activities -- an amendment of FASB Statement No. 133," which requires enhanced disclosures about a fund's derivative and hedging activities. Funds are required to provide enhanced disclosures about (a) how and why a fund uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a fund's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after Nov. 15, 2008. As of Aug. 31, 2008, management does not believe the adoption of SFAS 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets out a hierarchy for measuring fair value, and requires additional disclosures about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statements of Operations for a fiscal period. The application of SFAS 157 will be effective for the Fund's fiscal year beginning Sept. 1, 2008. The adoption of SFAS 157 is not anticipated to have a material impact on each Fund's financial statements; however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain measurements reported in the Statements of Operations for a fiscal period. 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 INVESTMENT MANAGEMENT SERVICES FEES 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, 2008 was 0.41% of each Fund's average daily net assets. - -------------------------------------------------------------------------------- 66 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT ADMINISTRATIVE SERVICES FEES 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, 2008 was 0.07% of each Fund's average daily net assets. OTHER EXPENSES 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, 2008, other expenses paid to this company are as follows:
FUND AMOUNT - ---------------------------------------------------------- RiverSource California Tax-Exempt Fund $504 RiverSource Minnesota Tax-Exempt Fund 909 RiverSource New York Tax-Exempt Fund 163
COMPENSATION OF BOARD MEMBERS Compensation of board members includes, for a former Board Chair, compensation as well as retirement benefits. Certain other aspects of a former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of 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. TRANSFER AGENCY FEES Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. Each Fund pays the Transfer Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50 for Class B and $21.00 for Class C for this service. The Transfer Agent 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. DISTRIBUTION FEES Each Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 67 Financial Services, Inc. also served as a principal 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 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 Class B and Class C shares, up to 0.75% of the fee is reimbursed for distribution expenses. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed expense") for each Fund was approximately as follows:
FUND CLASS B CLASS C - -------------------------------------------------------------- RiverSource California Tax-Exempt Fund $114,000 $21,000 RiverSource Minnesota Tax-Exempt Fund 295,000 61,000 RiverSource New York Tax-Exempt Fund 73,000 5,000
These amounts are based on the most recent information available as of July 31, 2008, and may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed expense has been fully recovered, the distribution fee is reduced. SALES CHARGES Sales charges received by the Distributor for distributing the Funds' shares for the year ended Aug. 31, 2008 are as follows:
FUND CLASS A CLASS B CLASS C - ----------------------------------------------------------------- RiverSource California Tax-Exempt Fund $ 87,133 $ 4,735 $ 60 RiverSource Minnesota Tax-Exempt Fund 450,973 11,963 511 RiverSource New York Tax-Exempt Fund 26,370 2,969 62
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES For the year ended Aug. 31, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that the Funds' net expenses (excluding interest and fee expenses related to the Funds' 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 Minnesota Tax-Exempt Fund 0.79 1.54 1.54 RiverSource New York Tax-Exempt Fund 0.79 1.54 1.54
- -------------------------------------------------------------------------------- 68 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT The waived/reimbursed fees and expenses for the transfer agency fees (noted by share class) and management fees (noted by Fund level) for the year ended Aug. 31, 2008 are as follows:
FUND AMOUNT - ----------------------------------------------------------- RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND Class A $30,133 Class B 1,282 Class C 440 The management fees waived at the Fund level were $81,666. RIVERSOURCE MINNESOTA TAX-EXEMPT FUND Class A 65,392 Class B 4,969 Class C 1,991 The management fees waived at the Fund level were $63,665. RIVERSOURCE NEW YORK TAX-EXEMPT FUND Class A 11,404 Class B 1,082 Class C 189 The management fees waived at the Fund level were $99,291.
The Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Aug. 31, 2009, unless sooner terminated at the discretion of the Board, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs), will not exceed the following percentage of each Fund's average daily net assets:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------ RiverSource California Tax-Exempt Fund 0.79% 1.54% 1.54% RiverSource Minnesota Tax-Exempt Fund 0.79 1.54 1.54 RiverSource New York Tax-Exempt Fund 0.79 1.54 1.54
During the year ended Aug. 31, 2008, 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 $11,405 RiverSource Minnesota Tax-Exempt Fund 16,374 RiverSource New York Tax-Exempt Fund 5,337
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 69 3. SECURITIES TRANSACTIONS For the year ended Aug. 31, 2008, 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 $84,807,883 $77,577,885 RiverSource Minnesota Tax-Exempt Fund 70,073,639 67,925,331 RiverSource New York Tax-Exempt Fund 16,688,476 23,190,540
Realized gains and losses are determined on an identified cost basis. 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the years indicated are as follows:
RiverSource California Tax-Exempt Fund YEAR ENDED AUG. 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - --------------------------------------------------------------------------------- Class A 13,173,910 1,151,547 (11,856,270) 2,469,187 Class B 170,107 42,038 (462,980) (250,835) Class C 337,281 13,927 (147,407) 203,801 - --------------------------------------------------------------------------------- YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET 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) - ---------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund YEAR ENDED AUG. 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - -------------------------------------------------------------------------------- Class A 9,122,186 1,854,907 (10,357,016) 620,077 Class B 291,180 100,267 (1,480,144) (1,088,697) Class C 503,745 43,204 (259,716) 287,233 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 70 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET 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) - --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund YEAR ENDED AUG. 31, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - -------------------------------------------------------------------------------- Class A 851,576 390,445 (2,246,691) (1,004,670) Class B 56,763 25,495 (284,042) (201,784) Class C 23,555 4,894 (41,259) (12,810) - -------------------------------------------------------------------------------- YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET 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) - --------------------------------------------------------------------------------
5. BANK BORROWINGS Each Fund has entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby each Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between each Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest is charged to each Fund based on its borrowings at a rate equal to the federal funds effective rate plus 0.30%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. 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. Under the prior credit facility, each fund paid interest on its outstanding borrowings at a rate equal to either the higher of the federal funds effective rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. None of the Funds had borrowings during the year ended Aug. 31, 2008. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 71 6. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, capital loss carry-overs at Aug. 31, 2008 were as follows:
FUND 2013 2014 2015 2016 - --------------------------------------------------------------------- RiverSource California Tax- Exempt Fund $ -- $ -- $ -- $359,905 RiverSource Minnesota Tax- Exempt Fund 1,199,755 913,006 3,601 -- RiverSource New York Tax- Exempt Fund -- -- -- 3,668
Because the measurement periods for a regulated investment company's income are different for excise tax purposes versus income tax purposes, special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, each Fund is permitted to treat net capital losses realized between Nov. 1, 2007, and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At Aug. 31, 2008, post-October losses that are treated as occurring on Sept. 1, 2008 were as follows:
FUND POST-OCTOBER LOSS - ---------------------------------------------------------------- RiverSource California Tax-Exempt Fund $1,055,305 RiverSource Minnesota Tax-Exempt Fund 649,431 RiverSource New York Tax-Exempt Fund 99,184
It is unlikely the Board will authorize distributions of any net realized capital gains until the available capital loss carry-overs have been offset or expire. 7. RISKS RELATING TO CERTAIN INVESTMENTS DIVERSIFICATION RISK Each Fund is non-diversified. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. The Fund may be more exposed to the risks of loss and volatility than a fund that invests more broadly. GEOGRAPHIC CONCENTRATION RISK Because state-specific tax-exempt funds invest primarily in the municipal securities issued by the state and political sub-divisions of the state, each Fund will be particularly affected by political and economic conditions and developments in the state in which it invests. This vulnerability to factors affecting the state fund's tax-exempt investments will be significantly greater than that of a more geographically diversified fund, which may result in greater losses and volatility. The value of municipal securities owned by a Fund also may be adversely affected by future changes in federal or state income tax laws. - -------------------------------------------------------------------------------- 72 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. As a result, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. 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 - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 73 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. - -------------------------------------------------------------------------------- 74 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 9. 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 YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $5.03 $5.16 $5.06 $5.27 $5.11 $5.37 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .20(c) .20(c) .03 .19 .20 .21 Net gains (losses) (both realized and unrealized) (.09) (.13) .10 (.15) .23 (.20) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .11 .07 .13 .04 .43 .01 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.20) (.03) (.19) (.20) (.21) Distributions from realized gains (.04) -- -- (.06) (.07) (.06) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.24) (.20) (.03) (.25) (.27) (.27) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.90 $5.03 $5.16 $5.06 $5.27 $5.11 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $172 $164 $170 $171 $190 $194 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) .87% .88% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(f),(g) .80% .80% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) .86% .87% .87%(h) .88% .86% .86% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(f),(g) .79% .79% .79%(h) .81% .86% .86% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.01% 3.89% 3.81%(h) 3.69% 3.71% 4.03% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 49% 62% 7% 20% 28% 30% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 2.13% 1.35% 2.63%(j) .81% 8.53% .25% - ---------------------------------------------------------------------------------------------------------------------------
(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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (h) Adjusted to an annual basis. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 75 RiverSource California Tax-Exempt Fund (continued) CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) YEAR YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $5.03 $5.16 $5.06 $5.27 $5.11 $5.37 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .16(c) .16(c) .03 .15 .16 .17 Net gains (losses) (both realized and unrealized) (.09) (.13) .10 (.15) .23 (.20) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .07 .03 .13 -- .39 (.03) - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.16) (.03) (.15) (.16) (.17) Distributions from realized gains (.04) -- -- (.06) (.07) (.06) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.16) (.03) (.21) (.23) (.23) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.90 $5.03 $5.16 $5.06 $5.27 $5.11 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $6 $9 $11 $16 $21 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.62% 1.63% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(f),(g) 1.55% 1.55% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.61% 1.62% 1.62%(h) 1.63% 1.61% 1.61% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(f),(g) 1.54% 1.54% 1.55%(h) 1.57% 1.61% 1.61% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.27% 3.12% 3.01%(h) 2.92% 2.95% 3.28% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 49% 62% 7% 20% 28% 30% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 1.37% .59% 2.50%(j) .05% 7.72% (.50%) - ---------------------------------------------------------------------------------------------------------------------------
(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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (h) Adjusted to an annual basis. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 76 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource California Tax-Exempt Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) YEAR YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $5.04 $5.17 $5.07 $5.28 $5.12 $5.38 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .16(c) .16(c) .03 .15 .16 .17 Net gains (losses) (both realized and unrealized) (.09) (.13) .10 (.15) .23 (.20) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .07 .03 .13 -- .39 (.03) - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.16) (.03) (.15) (.16) (.17) Distributions from realized gains (.04) -- -- (.06) (.07) (.06) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.16) (.03) (.21) (.23) (.23) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.91 $5.04 $5.17 $5.07 $5.28 $5.12 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $2 $2 $2 $3 $4 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.62% 1.63% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(f),(g) 1.55% 1.55% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.61% 1.62% 1.63%(h) 1.64% 1.62% 1.62% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(f),(g) 1.54% 1.54% 1.55%(h) 1.58% 1.62% 1.62% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.18% 3.13% 3.05%(h) 2.93% 2.94% 3.27% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 49% 62% 7% 20% 28% 30% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 1.38% .60% 2.50%(j) .06% 7.71% (.50%) - ---------------------------------------------------------------------------------------------------------------------------
(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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (g) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (h) Adjusted to an annual basis. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 77 RiverSource Minnesota Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) YEAR YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $5.14 $5.27 $5.17 $5.35 $5.20 $5.37 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .21(c) .19(c) .03 .18 .18 .19 Net gains (losses) (both realized and unrealized) (.03) (.13) .10 (.17) .17 (.17) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .18 .06 .13 .01 .35 .02 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.21) (.19) (.03) (.18) (.18) (.19) Distributions from realized gains -- -- -- (.01) (.02) -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.21) (.19) (.03) (.19) (.20) (.19) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.11 $5.14 $5.27 $5.17 $5.35 $5.20 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $289 $288 $309 $303 $341 $347 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) .99% 1.05% 1.06%(f) 1.01% .95% .90% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) .95% .99% .98%(f) .96% .95% .90% - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) .83% .85% .87%(f) .86% .85% .84% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) .79% .79% .79%(f) .81% .85% .84% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.05% 3.70% 3.60%(f) 3.52% 3.37% 3.60% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 23% 26% 3% 13% 15% 23% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 3.50% 1.26% 2.56%(j) .29% 6.73% .32% - ---------------------------------------------------------------------------------------------------------------------------
(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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 78 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund (continued) CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) YEAR YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $5.15 $5.27 $5.17 $5.35 $5.20 $5.37 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17(c) .15(c) .03 .14 .14 .15 Net gains (losses) (both realized and unrealized) (.03) (.11) .10 (.17) .17 (.17) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .14 .04 .13 (.03) .31 (.02) - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.16) (.03) (.14) (.14) (.15) Distributions from realized gains -- -- -- (.01) (.02) -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.16) (.03) (.15) (.16) (.15) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.12 $5.15 $5.27 $5.17 $5.35 $5.20 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $14 $20 $29 $34 $49 $59 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.75% 1.80% 1.81%(f) 1.77% 1.70% 1.65% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.70% 1.75% 1.74%(f) 1.72% 1.70% 1.65% - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.59% 1.60% 1.62%(f) 1.62% 1.60% 1.59% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54% 1.55% 1.55%(f) 1.57% 1.60% 1.59% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.29% 2.93% 2.81%(f) 2.75% 2.62% 2.85% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 23% 26% 3% 13% 15% 23% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 2.72% .70% 2.42%(j) (.47%) 5.94% (.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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 79 RiverSource Minnesota Tax-Exempt Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) YEAR YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $5.15 $5.27 $5.17 $5.35 $5.20 $5.37 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17(c) .15(c) .03 .14 .14 .15 Net gains (losses) (both realized and unrealized) (.03) (.11) .10 (.17) .17 (.17) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .14 .04 .13 (.03) .31 (.02) - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.17) (.16) (.03) (.14) (.14) (.15) Distributions from realized gains -- -- -- (.01) (.02) -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.16) (.03) (.15) (.16) (.15) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.12 $5.15 $5.27 $5.17 $5.35 $5.20 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $8 $7 $8 $8 $9 $9 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.75% 1.80% 1.82%(f) 1.77% 1.71% 1.66% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.70% 1.75% 1.74%(f) 1.72% 1.71% 1.66% - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.59% 1.60% 1.63%(f) 1.62% 1.61% 1.60% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54% 1.55% 1.55%(f) 1.57% 1.61% 1.60% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.29% 2.94% 2.84%(f) 2.76% 2.62% 2.84% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 23% 26% 3% 13% 15% 23% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 2.72% .70% 2.42%(j) (.47%) 5.94% (.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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 80 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource New York Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) YEAR YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $4.93 $5.05 $4.95 $5.18 $5.07 $5.36 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .20(c) .19(c) .03 .19 .18 .18 Net gains (losses) (both realized and unrealized) (.07) (.11) .10 (.18) .17 (.18) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .13 .08 .13 .01 .35 -- - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.20) (.19) (.03) (.19) (.18) (.18) Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.21) (.20) (.03) (.24) (.24) (.29) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.85 $4.93 $5.05 $4.95 $5.18 $5.07 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $53 $58 $63 $63 $73 $79 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.12% 1.18% 1.20%(f) 1.13% 1.02% 1.00% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) .93% 1.00% .98%(f) .98% .98% .95% - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) .98% .97% 1.01%(f) .96% .92% .93% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) .79% .79% .79%(f) .81% .88% .88% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.03% 3.81% 3.77%(f) 3.75% 3.47% 3.44% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 31% 28% 7% 17% 30% 36% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 2.59% 1.53% 2.67%(j) .20% 7.04% (.02%) - ---------------------------------------------------------------------------------------------------------------------------
(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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 81 RiverSource New York Tax-Exempt Fund (continued) CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) YEAR YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $4.93 $5.05 $4.95 $5.18 $5.07 $5.36 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .16(c) .15(c) .03 .15 .14 .14 Net gains (losses) (both realized and unrealized) (.07) (.11) .10 (.18) .17 (.18) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .09 .04 .13 (.03) .31 (.04) - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.15) (.03) (.15) (.14) (.14) Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.16) (.03) (.20) (.20) (.25) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.85 $4.93 $5.05 $4.95 $5.18 $5.07 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $4 $5 $7 $8 $11 $15 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.87% 1.93% 1.95%(f) 1.88% 1.77% 1.76% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.68% 1.76% 1.74%(f) 1.75% 1.74% 1.70% - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.73% 1.72% 1.76%(f) 1.71% 1.67% 1.69% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54% 1.55% 1.55%(f) 1.58% 1.64% 1.63% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.28% 3.05% 2.98%(f) 2.98% 2.70% 2.69% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 31% 28% 7% 17% 30% 36% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 1.83% .76% 2.54%(j) (.55%) 6.23% (.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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 82 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource New York Tax-Exempt Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) YEAR YEAR PERIOD ENDED ENDED ENDED AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(b) 2006 2005 2004 Net asset value, beginning of period $4.92 $5.05 $4.95 $5.18 $5.07 $5.36 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .16(c) .15(c) .03 .15 .14 .14 Net gains (losses) (both realized and unrealized) (.06) (.12) .10 (.18) .17 (.18) - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .10 .03 .13 (.03) .31 (.04) - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.16) (.15) (.03) (.15) (.14) (.14) Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.16) (.03) (.20) (.20) (.25) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.85 $4.92 $5.05 $4.95 $5.18 $5.07 - --------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 $1 $1 $2 - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.87% 1.93% 1.97%(f) 1.89% 1.78% 1.76% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.68% 1.76% 1.74%(f) 1.75% 1.74% 1.70% - --------------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.73% 1.72% 1.78%(f) 1.72% 1.68% 1.69% - --------------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54% 1.55% 1.55%(f) 1.58% 1.64% 1.63% - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.28% 3.05% 3.01%(f) 2.99% 2.70% 2.68% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 31% 28% 7% 17% 30% 36% - --------------------------------------------------------------------------------------------------------------------------- Total return(i) 2.04% .56% 2.54%(j) (.55%) 6.23% (.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 amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) 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. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive/reimburse certain fees and expenses. (h) Expense ratio is before reduction for earnings and bank fee credits on cash balances. Earnings and bank fee credits lowered the expense ratio by 0.01% for the year ended Aug. 31, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 83 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------ TO 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 portfolios of investments, of RiverSource California Tax-Exempt Fund of the RiverSource California Tax-Exempt Trust and of RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund (two of the portfolios constituting the RiverSource Special Tax-Exempt Series Trust), (collectively, the Funds) as of August 31, 2008, and the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period 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 highlights of the Funds for the periods presented through August 31, 2006, were audited by other auditors whose reports dated February 21, 2007 (for RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund) and October 20, 2006, (for RiverSource California Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund), expressed unqualified opinions on those 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 audits 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 audits 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 - -------------------------------------------------------------------------------- 84 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2008, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights audited by us as 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, 2008, the results of their operations for the year then ended, and changes in their net assets and the financial highlights for each of the two years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota October 21, 2008 - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 85 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. Individual shareholders should refer to their Form 1099 or other tax information, which will be mailed in January 2009, to determine the calendar year amounts to be included on their 2008 tax returns. 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 California Tax-Exempt Fund Fiscal year ended Aug. 31, 2008
INCOME DISTRIBUTIONS -- the Fund designates the following tax attributes for distributions: Exempt-Interest Dividends.................................... 99.93% 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 for Aug. 31, 2008 was 12.53%. CAPITAL GAIN DISTRIBUTION -- the Fund designates $1,233,944 to be taxed as long-term capital gain. The Fund also designates as distributions of long-term gains, to the extent necessary to fully distribute such capital gains, earnings and profits distributed to shareholders on the redemption of shares.
RiverSource Minnesota Tax-Exempt Fund Fiscal year ended Aug. 31, 2008
INCOME DISTRIBUTIONS -- the Fund designates the following tax attributes for distributions: Exempt-Interest Dividends.................................... 98.75% 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 for Aug. 31, 2008 was 9.74%. The Fund also designates as distributions of long-term gains, to the extent necessary to fully distribute such capital gains, earnings and profits distributed to shareholders on the redemption of shares.
- -------------------------------------------------------------------------------- 86 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT RiverSource New York Tax-Exempt Fund Fiscal year ended Aug. 31, 2008
INCOME DISTRIBUTIONS -- the Fund designates the following tax attributes for distributions: Exempt-Interest Dividends.................................... 100% 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 for Aug. 31, 2008 was 10.45%. CAPITAL GAIN DISTRIBUTION -- the Fund designates $107,734 to be taxed as long-term capital gain. The Fund also designates as distributions of long-term gains, to the extent necessary to fully distribute such capital gains, earnings and profits distributed to shareholders on the redemption of shares.
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 87 BOARD MEMBERS AND OFFICERS ----------------------------------------------------- Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board members. Each member oversees 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, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ------------------------------------------------------------------------------------------------------------------------------ Kathleen Blatz Board member since Chief Justice, Minnesota Supreme Court, 1998-2006; None 901 S. Marquette Ave. 2006 Attorney Minneapolis, MN 55402 Age 54 - ------------------------------------------------------------------------------------------------------------------------------ Arne H. Carlson Board member since Chair, RiverSource Funds, 1999-2006; former Governor of None 901 S. Marquette Ave. 1999 Minnesota Minneapolis, MN 55402 Age 73 - ------------------------------------------------------------------------------------------------------------------------------ Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None 901 S. Marquette Ave. 2007 Leadership (consulting company) Minneapolis, MN 55402 Age 53 - ------------------------------------------------------------------------------------------------------------------------------ Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None 901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of Minneapolis, MN 55402 Business, Bentley College Age 57 - ------------------------------------------------------------------------------------------------------------------------------ Anne P. Jones Board member since Attorney and Consultant None 901 S. Marquette Ave. 1985 Minneapolis, MN 55402 Age 73 - ------------------------------------------------------------------------------------------------------------------------------ Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive 901 S. Marquette Ave. 2005 Insurance Minneapolis, MN 55402 Age 72 - ------------------------------------------------------------------------------------------------------------------------------ Stephen R. Lewis, Jr. Board member since President Emeritus and Professor of Economics, Carleton Valmont Industries, 901 S. Marquette Ave. 2002 and Chair of College Inc. (manufactures Minneapolis, MN 55402 the Board since 2007 irrigation systems) Age 69 - ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 88 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT INDEPENDENT BOARD MEMBERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ------------------------------------------------------------------------------------------------------------------------------ Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None 901 S. Marquette Ave. 2004 real estate and asset management company) Minneapolis, MN 55402 Age 55 - ------------------------------------------------------------------------------------------------------------------------------ Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera 901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceutical, Inc. Minneapolis, MN 55402 Biotech (biotechnology); Age 64 Healthways, Inc. (health management programs) - ------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ------------------------------------------------------------------------------------------------------------------------------ William F. Truscott Board member since President -- U.S. Asset Management and Chief Investment None 53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. and President, Financial Center Vice President since Chairman of the Board and Chief Investment Officer, Minneapolis, MN 55474 2002 RiverSource Investments, LLC since 2005; Director, Age 47 President and Chief Executive Officer, Ameriprise Certificate Company since 2006; Chairman of the Board, Chief Executive Officer and President, RiverSource Distributors, Inc. since 2006; Senior Vice President -- Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001- 2005 - ------------------------------------------------------------------------------------------------------------------------------
* 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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 89 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, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------- Patrick T. Bannigan President since 2006 Director and Senior Vice President -- Asset Management, 172 Ameriprise Financial Products and Marketing, RiverSource Investments, LLC Center since 2006; Director and Vice President -- Asset Minneapolis, MN 55474 Management, Products and Marketing, RiverSource Age 42 Distributors, Inc. since 2006; Managing Director and Global Head of Product, Morgan Stanley Investment Management, 2004-2006; President, Touchstone Investments, 2002-2004 - -------------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income, 172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments, Center LLC since 2006; Vice President -- Investments, Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice Age 44 President -- Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006 - -------------------------------------------------------------------------------------------------------- Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company 5228 Ameriprise Financial 2006 Services, RiverSource Investments, LLC since 2006; Vice Center Minneapolis, MN President -- Operations and Compliance, RiverSource 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 Financial, Inc. since 2002; Chief Financial Officer, Center RiverSource Distributors, Inc. since 2006 Minneapolis, MN 55474 Age 53 - -------------------------------------------------------------------------------------------------------- Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management, 5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel, Center Secretary since 2006 RiverSource Distributors, Inc. since 2006; Vice Minneapolis, MN 55474 President, General Counsel and Secretary, Ameriprise Age 49 Certificate Company since 2005; Vice President -- Asset Management Compliance, Ameriprise Financial, Inc., 2004-2005; Senior Vice President and Chief Compliance Officer, USBancorp Asset Management, 2002-2004 - -------------------------------------------------------------------------------------------------------- Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance Officer, 172 Ameriprise Financial Officer since 2006 RiverSource Investments, LLC since 2006; Center Director -- Mutual Funds, Voyageur Asset Management, Minneapolis, MN 55474 2003-2006; Director of Finance, Voyageur Asset Age 47 Management, 2000-2003 - -------------------------------------------------------------------------------------------------------- Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering Officer, 2934 Ameriprise Financial Prevention Officer Ameriprise Financial, Inc. since 2004; Manager Anti- Center since 2004 Money Laundering, Ameriprise Financial, Inc., 2003- Minneapolis, MN 55474 2004; Compliance Director and Bank Secrecy Act Officer, Age 44 American Express Centurion Bank, 2000-2003 - --------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 90 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT ---------------------------------------------------------------------- RiverSource Investments, LLC ("RiverSource Investments" or the "investment manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), serves as the investment manager to the RiverSource California Tax- Exempt Fund, RiverSource Minnesota Tax-Exempt Fund and RiverSource New York 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 Investments provides investment advice and other services to the State Tax-Exempt Funds and all RiverSource funds (collectively, the "Funds"). On an annual basis, the State Tax-Exempt Funds' Board of Trustees (the "Board"), including the independent Board members (the "Independent Directors"), consider renewal of the IMS Agreement. RiverSource Investments prepared detailed reports for the Board and its Contracts Committee in March and April 2008, including reports based on data provided by independent organizations to assist the Board in making this determination. In addition, throughout the year, the Board (or its committees) reviews information prepared by RiverSource Investments addressing the services RiverSource Investments provides and each State Tax- Exempt Fund's performance. The Board accords particular weight to the work, deliberations and conclusions of the Contracts, Investment Review and Compliance Committees in determining whether to continue the IMS Agreement. At the April 9- 10, 2008 in-person Board meeting, independent legal counsel to the Independent Directors reviewed with the Independent Directors various factors relevant to the Board's consideration of advisory agreements and the Board's legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Directors, approved renewal of the IMS Agreement. Nature, Extent and Quality of Services Provided by RiverSource Investments: The Board analyzed various reports and presentations it had received detailing the services performed by RiverSource Investments, as well as its expertise, resources and capabilities. The Board specifically considered many developments during the past year concerning the services provided by RiverSource Investments, including, in particular, the continued investment in, and resources dedicated to, the State Tax-Exempt Funds' operations, particularly in the areas of trading systems, new product initiatives, legal and compliance. Further, in connection with the Board's evaluation of the overall package of services provided by RiverSource Investments, the Board considered the quality of the administrative and transfer agency services provided by RiverSource Investments' affiliates to the State Tax-Exempt Funds. The Board also reviewed the financial - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 91 APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT (continued) --------------------------------------------------------- condition of RiverSource Investments (and its affiliates) and each entity's ability to carry out its responsibilities under the IMS Agreement. The Board also discussed the acceptability of the terms of the IMS Agreement (including the relatively broad scope of services required to be performed by RiverSource Investments). The Board concluded that the services being performed under the IMS Agreement were of a reasonably high quality, particularly in light of recent market conditions. Based on the foregoing, and based on other information received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board concluded that RiverSource Investments and its affiliates were in a position to continue to provide a high quality and level of services to the 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 inflows (and outflows) of each State Tax-Exempt Fund and a comparison of each State Tax-Exempt Fund's net assets from December 2006 to December 2007. The Board observed that the investment performance of each State Tax-Exempt Fund was appropriate in light of the particular management style and market conditions involved. Comparative Fees, Costs of Services Provided and the Profits Realized By RiverSource Investments and its Affiliates from their Relationships with each State Tax-Exempt 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 each State Tax-Exempt Fund's peer group, as well as data showing each State Tax-Exempt Fund's contribution to RiverSource Investments' profitability. - -------------------------------------------------------------------------------- 92 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT - -------------------------------------------------------------------------------- The Board accorded particular weight to the notion that the level of fees should reflect a rational pricing model applied consistently across the various product lines in the Funds' family, while assuring that the overall fees for each fund are generally in line with the "pricing philosophy" (i.e., that the total expense ratio of each fund, with few exceptions, is at or below the median expense ratio of funds in the same comparison group). The Board took into account that each of the State Tax-Exempt Fund's total expense ratio (after considering proposed expense caps/waivers) was below its 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 Investments and its affiliates in connection with RiverSource Investments 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 Investments and Ameriprise Financial from managing and operating the State Tax-Exempt Funds, including data showing comparative profitability over the past two years. The Board also considered the services acquired by the investment manager through the use of commission dollars paid by the Funds on portfolio transactions. The Board noted that the fees paid by the 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 Investments as the State Tax-Exempt Funds grow and took note of the extent to which the State Tax-Exempt Funds' shareholders might also benefit from such growth. The Board considered that the IMS Agreement provides for lower fees as assets increase at pre-established breakpoints and concluded that the IMS Agreement satisfactorily provided for sharing these economies of scale. Based on the foregoing, the Board, including all of the Independent Directors, concluded that the investment management service fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was determinative. On April 10, 2008, the Board, including all of the Independent Directors, approved the renewal of the IMS Agreement. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 93 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. - -------------------------------------------------------------------------------- 94 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 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. (RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6328 AH (10/08)
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: 2008 - $26,125 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: 2008 - $375 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: 2008 - $3,180 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: 2008 - $0 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 2008 and 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: 2008 - $616,755 2007 - $511,430 (h) 100% of the services performed in item (g) above during 2008 and 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 4, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ Patrick T. Bannigan --------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date November 4, 2008 By /s/ Jeffrey P. Fox --------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date November 4, 2008 EX-99.CODEETH 2 c35673cexv99wcodeeth.txt CODE OF ETHICS RIVERSOURCE FUNDS' CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS PURPOSE OF THE CODE; COVERED OFFICERS This code of ethics ("Code") for the RiverSource Funds (collectively, "Funds," and each, "Fund") applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers," each of whom is identified in Exhibit A) for the purpose of promoting, in connection with his or her duties: honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions, such as the purchase or sale of securities or other property, with the Funds because of their status as "affiliated persons" of the Funds. The compliance programs and procedures of the Funds and of Ameriprise Financial, Inc. and its affiliates ("Ameriprise") are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and Ameriprise, of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Funds or for Ameriprise, or for both, be involved in establishing policies and implementing decisions that will have different effects on Ameriprise and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and Ameriprise and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. Each Covered Officer must: not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; and not use material non-public knowledge of portfolio transactions made or contemplated for the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. DISCLOSURE AND COMPLIANCE Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including any member of the Board of Directors or Board of Trustees of any Fund ("Boards"), auditors, governmental regulators, and representatives of self-regulatory organizations; should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and Ameriprise with the goal of promoting full, fair, accurate, timely, and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, and regulations. REPORTING AND ACCOUNTABILITY Each Covered Officer must: i. upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he or she has received, read, and understands the Code; ii. annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; iii. not retaliate against any other Covered Officer or any employee of Ameriprise for reports of potential violations that are made in good faith; and - notify the Funds' General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. APPLYING THE CODE The Funds' General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. Any approvals or waivers sought by a Covered Officers will be considered by each Board or appropriate committee of the Board. The Funds' General Counsel iv. shall notify the Boards whenever any evidence of a material violation has been reported, it being understood that the Funds' General Counsel may determine whether to provide such notice immediately or at the next meetings of the Boards based on the nature of the violation; v. will take all appropriate action to investigate such reported violations; vi. shall make a determination after the investigation and if the Funds' General Counsel believes that no violation has occurred, the Boards will be so notified and no further action is required; if the Funds' General Counsel believes a violation has occurred, the matter shall be reported to the Boards or the committees of the Funds affected by the potential violation for further determination; if the Boards or the committees determine that a violation has occurred the Boards will consider appropriate action, which may include: a review of applicable policies and procedures; the appropriate modifications to such policies and procedures; the notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; will cause to be made such disclosures as are required by SEC rules if any changes to or waivers of this Code is made by the Boards; and shall maintain a record of each reported evidence of material violation, the response thereto, and all related correspondence for a period of not less than 10 years. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds or Ameriprise govern or purport to govern the activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. Ameriprise's code of ethics under Rule 17j-1 under the Investment Company Act is a separate requirement applying to the Covered Officers and others, and is not part of this Code. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Fund's Board, including a majority of its independent directors. Adopted: July 9, 2003; Amended: April 12, 2006 EXHIBIT A Persons Covered by this Code of Ethics: Patrick T. Bannigan President Jeffrey P. Fox Treasurer EX-99.CERT 3 c35673cexv99wcert.txt CERTIFICATION Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Patrick T. Bannigan, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource California Tax-Exempt Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 21, 2008 /s/ Patrick T. Bannigan - ------------------------------------- Name: Patrick T. Bannigan Title: President and Principal Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey P. Fox, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource California Tax-Exempt Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 21, 2008 /s/ Jeffrey P. Fox - ------------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Principal Financial Officer EX-99.906.CERT 4 c35673cexv99w906wcert.txt 906 CERTIFICATION CERTIFICATION RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: October 21, 2008 /s/ Patrick T. Bannigan ----------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date: October 21, 2008 /s/ Jeffrey P. Fox ----------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----