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, 2009
(Prospectus also enclosed)
EACH FUND SEEKS TO PROVIDE SHAREHOLDERS WITH A HIGH
LEVEL OF INCOME GENERALLY EXEMPT FROM FEDERAL INCOME
TAX AS WELL AS FROM THE RESPECTIVE STATE AND LOCAL
INCOME TAX.
<Table>
This annual report includes a prospectus that
describes in detail the Fund's objective,
investment strategy, risks, sales charges,
fees and other matters of interest. Please
read the prospectus carefully before you
invest or send money. (SINGLE STRATEGY FUNDS ICON)
</Table>
TABLE OF CONTENTS --------------------------------------------------------------
<Table>
Your Fund at a Glance.............. 2
RiverSource California Tax-Exempt
Fund.......................... 2
RiverSource Minnesota Tax-Exempt
Fund.......................... 5
RiverSource New York Tax-Exempt
Fund.......................... 8
Manager Commentary................. 11
The Funds' Long-term Performance... 20
Fund Expenses Examples............. 26
Portfolios of Investments.......... 30
Statements of Assets and
Liabilities...................... 59
Statements of Operations........... 61
Statements of Changes in Net
Assets........................... 62
Financial Highlights............... 65
Notes to Financial Statements...... 77
Report of Independent Registered
Public Accounting Firm........... 94
Federal Income Tax Information..... 96
Board Members and Officers......... 98
Approval of Investment Management
Services Agreement............... 102
Proxy Voting....................... 105
</Table>
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."
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
RiverSource California Tax-Exempt Fund
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource California Tax-Exempt Fund's Class A shares, excluding sales
charge, rose 3.59% for the 12 months ended Aug. 31, 2009. The Fund
underperformed the Barclays Capital Municipal Bond California 2 Plus Year
Index which advanced 4.18%. The Fund outperformed the Lipper California
Municipal Debt Funds Index, which gained 1.25% for the same period.
> A broad barometer applicable to each of the Funds, the Barclays Capital
Municipal Bond Index was up 5.67% for the same 12-month period.
ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2009)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------
RiverSource California Tax-Exempt
Fund
Class A (excluding sales
charge) +3.59% +2.35% +3.10% +4.33%
- ---------------------------------------------------------------------
Barclays Capital Municipal Bond
California 2 Plus Year Index
(unmanaged) +4.18% +3.36% +3.98% +5.36%
- ---------------------------------------------------------------------
Barclays Capital Municipal Bond
Index (unmanaged) +5.67% +4.14% +4.15% +5.40%
- ---------------------------------------------------------------------
Lipper California Municipal Debt
Funds Index +1.25% +1.32% +2.65% +4.28%
- ---------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial intermediary,
visiting riversource.com/funds or calling 1(800) 221-2450.
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. The Fund's returns reflect the effect of fee waivers/expense
reimbursements, if any. Without such waivers/reimbursements, the Fund's returns
would be lower. 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 -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT AUG. 31, 2009
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) +3.59% +2.35% +3.10% +4.33% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +2.81% +1.59% +2.33% +3.55% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +2.60% +1.52% +2.32% N/A +3.59%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) -1.33% +0.71% +2.10% +3.82% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -2.14% +0.67% +1.99% +3.55% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +1.62% +1.52% +2.32% N/A +3.59%
- ---------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum initial sales charge of 4.75%.
Class B share performance reflects a contingent deferred sales charge (CDSC)
applied as follows: first year 5%; second year 4%; third and fourth years 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 -- 2009 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
RiverSource California Tax-Exempt Fund
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix approximates areas in which the Fund is designed
to generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 19.2 years
- --------------------------------------
Effective duration(2) 8.6 years
- --------------------------------------
Weighted average bond
rating(3) A+
- --------------------------------------
</Table>
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
There are risks associated with an investment in a municipal bond fund,
including credit risk, interest rate risk, prepayment and extension risk, and
geographic concentration risk. See the Fund's prospectus for information on
these and other risks associated with the Fund. In general, bond prices rise
when interest rates fall and vice versa. This effect is more pronounced for
longer-term securities. Non-investment grade securities, commonly called "high-
yield" or "junk" bonds, generally have more volatile prices and carry more risk
to principal and income than investment grade securities.
Because the Fund concentrates its investments in municipal securities issued by
a single state and its municipalities, specific events or factors affecting a
particular state can cause more volatility in the Fund than a fund that is more
geographically diversified. Income from tax-exempt funds may be subject to state
and local taxes and a portion of income may be subject to the federal and/or
state alternative minimum tax for certain investors. Federal income tax rules
will apply to any capital gains distribution.
- --------------------------------------------------------------------------------
4 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
YOUR FUND AT A GLANCE ----------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Minnesota Tax-Exempt Fund's Class A shares, excluding sales
charge, gained 5.50% for the 12 months ended Aug. 31, 2009. The Fund
underperformed the Barclays Capital Municipal Bond Minnesota 3 Plus Year
Enhanced Index which rose 7.32%, but outperformed the Lipper Minnesota
Municipal Debt Funds Index, which was up 4.65%, for the same period.
> A broad barometer applicable to each of the Funds, the Barclays Capital
Municipal Bond Index was up 5.67% for the same 12-month period.
ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2009)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt
Fund
Class A (excluding sales
charge) +5.50% +3.41% +3.32% +4.39%
- ---------------------------------------------------------------------
Barclays Capital Municipal Bond
Minnesota 3 Plus Year Enhanced
Index (unmanaged) +7.32% +4.99% +4.63% +5.65%
- ---------------------------------------------------------------------
Barclays Capital Municipal Bond
Index (unmanaged) +5.67% +4.14% +4.15% +5.40%
- ---------------------------------------------------------------------
Lipper Minnesota Municipal Debt
Funds Index +4.65% +3.10% +3.41% +4.53%
- ---------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial intermediary,
visiting riversource.com/funds or calling 1(800) 221-2450.
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. The Fund's returns reflect the effect of fee waivers/expense
reimbursements, if any. Without such waivers/reimbursements, the Fund's returns
would be lower. 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 -- 2009 ANNUAL REPORT 5
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT AUG. 31, 2009
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) +5.50% +3.41% +3.32% +4.39% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +4.50% +2.63% +2.55% +3.61% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +4.51% +2.63% +2.54% N/A +3.85%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) +0.49% +1.74% +2.32% +3.89% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -0.50% +1.69% +2.19% +3.61% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +3.51% +2.63% +2.54% N/A +3.85%
- ---------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum initial sales charge of 4.75%.
Class B share performance reflects a contingent deferred sales charge (CDSC)
applied as follows: first year 5%; second year 4%; third and fourth years 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.
- --------------------------------------------------------------------------------
6 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix approximates areas in which the Fund is designed
to generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 15.7 years
- --------------------------------------
Effective duration(2) 6.7 years
- --------------------------------------
Weighted average bond
rating(3) AA-
- --------------------------------------
</Table>
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 7
YOUR FUND AT A GLANCE ----------------------------------------------------------
RiverSource New York Tax-Exempt Fund
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource New York Tax-Exempt Fund's Class A shares, excluding sales charge,
advanced 4.62% for the 12 months ended Aug. 31, 2009. The Fund underperformed
the Barclays Capital Municipal Bond New York 4 Plus Year Index which rose
5.88%. However, the Fund outperformed the Lipper New York Municipal Debt Funds
Index, which gained 3.49% for the same period.
> A broad barometer applicable to each of the Funds, the Barclays Capital
Municipal Bond Index was up 5.67% for the same 12-month period.
ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2009)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
Class A (excluding sales charge) +4.62% +2.91% +3.11% +4.33%
- ------------------------------------------------------------------------
Barclays Capital Municipal Bond New
York 4 Plus Year Index (unmanaged) +5.88% +4.32% +4.38% +5.72%
- ------------------------------------------------------------------------
Barclays Capital Municipal Bond
Index (unmanaged) +5.67% +4.14% +4.15% +5.40%
- ------------------------------------------------------------------------
Lipper New York Municipal Debt Funds
Index +3.49% +2.50% +3.11% +4.49%
- ------------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial intermediary,
visiting riversource.com/funds or calling 1(800) 221-2450.
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. The Fund's returns reflect the effect of fee waivers/expense
reimbursements, if any. Without such waivers/reimbursements, the Fund's returns
would be lower. 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 -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT AUG. 31, 2009
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) +4.62% +2.91% +3.11% +4.33% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +3.83% +2.13% +2.34% +3.55% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +3.84% +2.13% +2.34% N/A +3.74%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) -0.35% +1.25% +2.12% +3.82% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -1.17% +1.20% +1.99% +3.55% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +2.84% +2.13% +2.34% N/A +3.74%
- ---------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum initial sales charge of 4.75%.
Class B share performance reflects a contingent deferred sales charge (CDSC)
applied as follows: first year 5%; second year 4%; third and fourth years 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 -- 2009 ANNUAL REPORT 9
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
RiverSource New York Tax-Exempt Fund
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix approximates areas in which the Fund is designed
to generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 18 years
- -------------------------------------
Effective duration(2) 7 years
- -------------------------------------
Weighted average bond
rating(3) AA-
- -------------------------------------
</Table>
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
- --------------------------------------------------------------------------------
10 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
Dear Shareholder,
Each of the RiverSource State Tax-Exempt Funds underperformed its respective
Barclays Capital benchmark index, but each outperformed its respective Lipper
peer group for the 12 months ended Aug. 31, 2009. All Fund returns are for Class
A shares, excluding sales charge, and all returns are for the 12 months ended
Aug. 31, 2009. All Lipper categories represent the respective Fund's peer group.
> RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND rose 3.59%. The Fund underperformed
the Barclays Capital Municipal Bond California 2 Plus Year Index (formerly
known as the Lehman Brothers California 2 Plus Year Municipal Bond Index),
which advanced 4.18%. The Fund outperformed the Lipper California Municipal
Debt Funds Index, which gained 1.25% for the same period.
> RIVERSOURCE MINNESOTA TAX-EXEMPT FUND gained 5.50%. The Fund underperformed
the Barclays Capital Municipal Bond Minnesota 3 Plus Year Enhanced Index
(formerly known as the Lehman Brothers Minnesota 3 Plus Year Enhanced
Municipal Bond Index), which rose 7.32%, but outperformed the Lipper
Minnesota Municipal Debt Funds Index, which was up 4.65%, for the same
period.
> RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 4.62%. The Fund underperformed
the Barclays Capital Municipal Bond New York 4 Plus Year Index (formerly
known as the Lehman Brothers New York 4 Plus Year Municipal Bond Index),
which rose 5.88%. However, the Fund outperformed the Lipper New York
Municipal Debt Funds Index, which gained 3.49% for the same period.
A broad barometer applicable to each of the Funds, the Barclays Capital
Municipal Bond Index was up 5.67% for the same 12-month period.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 11
MANAGER COMMENTARY (continued) -------------------------------------------------
RiverSource California Tax-Exempt Fund
QUALITY BREAKDOWN (at Aug. 31, 2009; % of bond portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 8.2%
- ------------------------------------------------
AA bonds 31.5%
- ------------------------------------------------
A bonds 46.4%
- ------------------------------------------------
BBB bonds 9.9%
- ------------------------------------------------
Non-investment grade bonds 2.8%
- ------------------------------------------------
Non-rated bonds 1.2%
- ------------------------------------------------
</Table>
Ratings for 5.8% of the bond portfolio assets were determined through internal
analysis.
RiverSource Minnesota Tax-Exempt Fund
QUALITY BREAKDOWN (at Aug. 31, 2009; % of bond portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 27.3%
- ------------------------------------------------
AA bonds 20.2%
- ------------------------------------------------
A bonds 35.6%
- ------------------------------------------------
BBB bonds 10.4%
- ------------------------------------------------
Non-investment grade bonds 4.9%
- ------------------------------------------------
Non-rated bonds 1.6%
- ------------------------------------------------
</Table>
Ratings for 0.9% of the bond portfolio assets were determined through internal
analysis.
RiverSource New York Tax-Exempt Fund
QUALITY BREAKDOWN (at Aug. 31, 2009; % of bond portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 24.5%
- ------------------------------------------------
AA bonds 45.4%
- ------------------------------------------------
A bonds 15.8%
- ------------------------------------------------
BBB bonds 8.0%
- ------------------------------------------------
Non-investment grade bonds 6.3%
- ------------------------------------------------
</Table>
Ratings for 1.3% of the bond portfolio assets were determined through internal
analysis.
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 Investment Manager), rates a security using
an internal rating system when Moody's doesn't provide a rating.
SIGNIFICANT PERFORMANCE FACTORS
Generating positive absolute returns, the tax-exempt fixed income market
significantly outpaced the U.S. equity market but underperformed the
- --------------------------------------------------------------------------------
12 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
taxable fixed income market for the fiscal year. That said, the performance of
the tax-exempt fixed income market can be divided into two distinct portions
during the 12 months ended Aug. 31, 2009.
From the start of the fiscal year in September 2008 through the end of the
calendar year, the tax-exempt bond market faced significant challenges. The
bankruptcy of Lehman Brothers in mid-September forced a number of financial
institutions to go out of business, either by merging with other institutions or
through takeover by the U.S. government. Liquidity dried up and demand for
municipal bonds dramatically slowed as the institutional buyer base shrunk
considerably due to consolidation within the industry and balance sheet
pressures among the survivors. There was a great deal of deleveraging (forced
selling) by hedge funds, and after-shocks from the unwinding of tender option
bond programs.* Investors grew increasingly cautious. At the same time, supply
was largely sidelined and/or postponed due to the lack of demand. Given these
difficult conditions, by the end of December the ratio of 10-year municipal bond
yields to 10-year Treasury yields had reached a new historical high of 186%. The
slope of the tax-exempt bond yield curve steepened significantly during these
months as longer-dated municipal bond yields rose and short-term tax-exempt
yields, driven largely by the Federal Reserve System's (the Fed's) dramatic
interest rate cuts, declined.
In January 2009, demand for municipal securities began to increase, boosted by
the entry (or re-entry) of several big name crossover, institutional and
individual buyers into the tax-exempt market and by the introduction of several
federal stimulus programs. For example, the American Recovery and Reinvestment
Act (ARRA), signed into law in February 2009, created new demand for municipal
bonds via provisions that altered the Tax Equity and Fiscal Responsibility Act
(TEFRA) of 1982 and the Tax Reform Act (TRA) of 1986. Among ARRA's provisions
were those that increased the limits on Bank Qualified** bonds, provided relief
in the Alternative Minimum Tax (AMT) rules, expanded tax-exempt financing
opportunities for select manufacturing facilities and created new forms of tax-
exempt bonds. ARRA also created a new Build America Bond program, which
authorizes state and local governments to issue Build America Bonds as taxable
bonds in 2009 and 2010 to finance any capital expenditures for which they
otherwise could issue tax-exempt government bonds. State and local governments
receive a direct federal subsidy payment for a portion of their borrowing costs
on Build America
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 13
MANAGER COMMENTARY (continued) -------------------------------------------------
Bonds equal to 35% of the total coupon interest paid to investments. This new
program was intended to assist state and local governments in financing capital
projects at lower borrowing costs and to stimulate the economy and create jobs.
It also would take supply out of the municipal bond market, especially at the
longer end of the tax-exempt bond yield curve. The first Build America Bond deal
came to market in April 2009.
As the municipal bond market rallied, yields were driven lower and, from January
through August 2009, the tax-exempt bond yield curve flattened significantly,
meaning that the difference in yields between shorter-term and longer-term
municipal securities narrowed. During these same months, flows into municipal
bond mutual funds were very strong, as expectations of higher marginal personal
income tax rates ahead and concerns regarding reduced municipal bond supply
dominated. Lower-quality, higher-yielding municipal bonds outperformed their
higher-quality, lower-yielding counterparts, and longer-dated municipal bonds
outperformed shorter-maturity tax-exempt securities. The ratio of 10-year
municipal bond yields to 10-year Treasury yields plummeted in 2009 (year-to-date
through August 31) toward an historical average of approximately 80%. It is well
worth noting that for the first eight months of 2009, the tax-exempt fixed
income market significantly outperformed the U.S. Treasury market.
For the fiscal year as a whole, yields declined across the tax-exempt bond yield
curve, or spectrum of maturities, with the yield curve steepening, as yields
fell more at the shorter-term end of the yield curve than at the longer-term
end.
Each of the RiverSource State Tax-Exempt Funds benefited from yield curve
positioning. As long-term municipal bond yields rose and short-term municipal
bond yields fell during the early portion of the annual period, the Funds
benefited from the yield curve steepening bias we had implemented several months
earlier. Early in 2009, we then took on a yield curve flattening bias in the
Funds, with an emphasis on securities at the longer-term end of the yield curve.
Such positioning proved prudent, as the tax-exempt bond yield curve, as
mentioned, indeed did flatten year-to-date through Aug. 31, 2009. Another
positive contributing factor to each of the three Funds' performance during this
annual period was duration positioning. Early in 2009, we actively lengthened
each Funds' duration, which were already modestly longer than each Fund's
respective
- --------------------------------------------------------------------------------
14 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
Barclays Capital benchmark index. Lengthening the Funds' duration helped as tax-
exempt bond rates subsequently 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 Barclays
Capital benchmark indices, was having a sizable allocation to utilities, which
outperformed other areas of the Barclays Capital Municipal Bond Index during the
fiscal year. Individual issue selection within the utility sector also was
effective. An increased exposure to higher-quality higher education bonds
further buoyed all three Funds' performance, as the education sector generated
strong returns during the period. Having only modest exposure to high-yield and
non-investment grade municipal bonds benefited the Funds' results as well, as
lower-quality sectors of the market such as these underperformed higher-quality
sectors during the fiscal period overall.
RiverSource New York Tax-Exempt Fund and RiverSource California Tax-Exempt Fund
both benefitted during the fiscal period from their sizable holdings in single-
family housing bonds. Single-family housing was one of the best performing areas
within the Barclays Capital Municipal Bond Index during the 12 months ended Aug.
31, 2009. Effective issue selection within the health care sector benefited
RiverSource Minnesota Tax-Exempt Fund, more than offsetting the impact of its
sizable exposure to this underperforming sector. However, such allocation
positioning to the health care sector in RiverSource California Tax-Exempt Fund
and RiverSource New York Tax-Exempt Fund outweighed issue selection and thus
detracted.
In all three Funds, having only a modest position in general obligation bonds
detracted most, as general obligation bonds outperformed revenue bonds during
the fiscal year. Individual issue selection among general obligation bonds also
weighed negatively on performance.
Finally, a significant allocation to bonds rated A across a variety of sectors
detracted from the performance of all three Funds. Similarly, RiverSource New
York Tax-Exempt Fund's and RiverSource Minnesota Tax-Exempt Fund's sizable
positions in bonds rated BBB across a variety of sectors negatively impacted the
performance of these Funds. A-rated and BBB-rated credits materially
underperformed higher-quality tax-exempt bonds for the fiscal year.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 15
MANAGER COMMENTARY (continued) -------------------------------------------------
CHANGES TO THE FUNDS' PORTFOLIOS
As mentioned, we lengthened the duration of each of the Funds, relative to each
Fund's respective Barclays Capital benchmark index early in 2009 and shifted
from a yield-curve-steepening to a yield-curve-flattening bias. We also
increased the Funds' exposure to the education sector in all three Funds, but
most especially in RiverSource New York Tax-Exempt Fund. We focused on higher-
quality higher education bonds, as we feel that these bonds may potentially
enable the Funds to pick up incremental yield without taking on significant
risk, as these bonds tend to be less economically sensitive.
We eliminated the Funds' positions in tender option bond programs, as their cost
structure became less attractive with the steepening of the yield curve during
the first several months of the fiscal year.
In RiverSource California Tax-Exempt Fund, we reduced exposure to prepaid
natural gas municipal bonds and to pre-refunded bonds.*** Seeking to use market
weakness as a buying opportunity, we increased this Fund's exposure to State of
California general obligation bonds. As the state's economy as a whole, and its
real estate market in particular, remained under pressure, spreads (the
difference in yields between these securities and AAA-rated municipals) widened
to what we considered to be attractive levels.
Conversely, we reduced exposure to local general obligation bonds in RiverSource
Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund. We remained
concerned that spreads on these bonds would widen further over the coming
months, as budget imbalances and job losses continued to climb.
Primarily based on individual issue analysis, we modestly increased exposure to
the health care sector in RiverSource California Tax-Exempt Fund and RiverSource
Minnesota Tax-Exempt Fund. For the same reason, we decreased positioning in
health care bonds in RiverSource New York Tax-Exempt Fund.
OUR FUTURE STRATEGY
At the end of August, we viewed the prospects for the tax-exempt bond market to
be quite attractive. We believed that the tax-exempt bond market would continue
to outperform U.S. Treasury securities, due primarily to favorable supply/demand
technical factors. Demand was anticipated to
- --------------------------------------------------------------------------------
16 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
remain strong, given widespread expectations for higher federal, and in many
cases, state and local, income taxes. At the same time, new issuance of
municipal bonds was down 15% year-to-date through Aug. 31, 2009, a trend that we
believed was likely to continue for some time. Such declining supply was due in
part to the effect of the Build America Bonds.
Importantly, despite headlines regarding municipal and state budget gaps, the
credit quality of the U.S. tax-exempt market generally remained in sound
condition compared to other fixed income classes during the annual period and
the default rate among issuers remained historically low.
We believe the Fed is likely to keep the targeted federal funds rate in the
near-zero range for an extended period of time, and so we expect to maintain the
Funds' duration at longer than that of each Fund's respective Barclays Capital
benchmark index. Given our view of market conditions, we also believe that the
tax-exempt bond yield curve may well continue to flatten during the remaining
months of 2009. Thus, we expect to maintain the Funds' yield curve flattening
bias for the near term.
As we expect credit quality spreads to continue tightening over the coming
months, we intend to seek lower-rated investment grade bonds, i.e. those with
ratings in the A and BBB categories, as we go forward in all three tax-exempt
bond Funds. We expect to move the Funds' allocations to bonds in these credit
categories to a moderately greater weighting than each Fund's respective
Barclays Capital benchmark index. At the same time, we expect to steer away from
high-yield and non-investment grade municipal bonds. We similarly intend to only
opportunistically invest in city and
Importantly, despite headlines regarding municipal and state budget gaps, the
credit quality of the U.S. tax-exempt market generally remained in sound
condition compared to other fixed income classes during the annual period and
the default rate among issuers remained historically low.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 17
MANAGER COMMENTARY (continued) -------------------------------------------------
local municipal debt, as the pressures of lower property values are likely to
heighten before they ease. We will, of course, continue to carefully monitor the
fundamentals of the issuers and their budgets, seeking to avoid bonds issued by
those under ratings pressure.
As always, and ever more so in the current environment, deep research resources,
a forward-looking investment process and truly actively managed portfolios are
keys, in our view, to meeting the Funds' investment objectives over the long
term. Each Fund's emphasis continues to be on generating a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
Catherine Stienstra
Portfolio Manager
*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 Bond Market Association 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."
**Bank Qualified bonds are issued by communities that qualify as "small
issuers," i.e. issuers that issue no more than $10 million worth of tax-
exempt bonds annually. ARRA increased the limit on the amount of Bank
Qualified bonds that can be designated by a "small issuer" during calendar
years 2009 and 2010 from $10 million per year to $30 million per year.
***Pre-refunded 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.
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 fund in the RiverSource Family of Funds are
based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any fund in the RiverSource Family of Funds.
- --------------------------------------------------------------------------------
18 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
THIS PAGE LEFT BLANK INTENTIONALLY
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
For 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 9/1/99
to 8/31/09) as compared to the performance of three widely cited performance
indices, the Barclays Capital Municipal Bond California 2 Plus Year Index, the
Barclays Capital 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
distributions 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 intermediary or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Aug. 31, 2009
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,867 $10,214 $11,094 $14,556
- ------------------------------------------------------------------------------------------
Average annual total return -1.33% +0.71% +2.10% +3.82%
- ------------------------------------------------------------------------------------------
BARCLAYS CAPITAL MUNICIPAL BOND CALIFORNIA 2 PLUS YEAR INDEX(1)
Cumulative value of $10,000 $10,418 $11,041 $12,153 $16,851
- ------------------------------------------------------------------------------------------
Average annual total return +4.18% +3.36% +3.98% +5.36%
- ------------------------------------------------------------------------------------------
BARCLAYS CAPITAL MUNICIPAL BOND INDEX(2)
Cumulative value of $10,000 $10,567 $11,295 $12,255 $16,922
- ------------------------------------------------------------------------------------------
Average annual total return +5.67% +4.14% +4.15% +5.40%
- ------------------------------------------------------------------------------------------
LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS INDEX(3)
Cumulative value of $10,000 $10,125 $10,402 $11,399 $15,199
- ------------------------------------------------------------------------------------------
Average annual total return +1.25% +1.32% +2.65% +4.28%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 3.
- --------------------------------------------------------------------------------
20 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE CALIFORNIA TAX-EXEMPT
FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE CALIFORNIA BARCLAYS CAPITAL
TAX-EXEMPT FUND CALIFORNIA 2
CLASS A PLUS YEAR BARCLAYS CAPITAL LIPPER CALIFORNIA
(INCLUDES SALES MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL DEBT
CHARGE) INDEX(1) INDEX(2) FUNDS INDEX(3)
---------------------- ------------------ ------------------ -----------------
8/99 $ 9,525 $10,000 $10,000 $10,000
11/99 9,421 9,986 10,001 9,919
2/00 9,452 9,998 9,998 9,904
5/00 9,558 10,125 10,103 10,016
8/00 10,193 10,802 10,677 10,698
11/00 10,298 10,916 10,819 10,808
2/01 10,578 11,305 11,232 11,169
5/01 10,601 11,329 11,330 11,157
8/01 10,993 11,877 11,766 11,706
11/01 10,968 11,878 11,766 11,651
2/02 11,114 12,074 12,000 11,807
5/02 11,160 12,106 12,067 11,828
8/02 11,574 12,548 12,500 12,225
11/02 11,439 12,536 12,510 12,181
2/03 11,779 12,903 12,920 12,523
5/03 12,180 13,319 13,318 12,929
8/03 11,689 12,800 12,892 12,418
11/03 12,086 13,300 13,342 12,898
2/04 12,446 13,725 13,733 13,295
5/04 12,047 13,290 13,313 12,844
8/04 12,496 13,866 13,809 13,333
11/04 12,564 13,986 13,886 13,431
2/05 12,830 14,293 14,140 13,718
5/05 13,031 14,545 14,373 13,963
8/05 13,226 14,766 14,542 14,158
11/05 13,093 14,648 14,425 14,025
2/06 13,343 14,939 14,687 14,316
5/06 13,289 14,884 14,645 14,282
8/06 13,576 15,262 14,983 14,612
11/06 13,889 15,616 15,308 14,934
2/07 13,971 15,732 15,415 15,029
5/07 13,920 15,665 15,355 14,966
8/07 13,759 15,571 15,327 14,767
11/07 13,984 15,942 15,723 15,050
2/08 13,377 15,331 15,234 14,311
5/08 14,052 16,128 15,949 15,053
8/08 14,052 16,175 16,014 15,011
11/08 12,878 15,025 15,155 13,539
2/09 13,643 15,921 16,023 14,220
5/09 14,151 16,338 16,519 14,801
8/09 14,556 16,851 16,922 15,199
</Table>
(1) The Barclays Capital Municipal Bond California 2 Plus Year 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 Barclays Capital 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 Barclays Capital 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 -- 2009 ANNUAL REPORT 21
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
For 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 9/1/99
to 8/31/09) as compared to the performance of three widely cited performance
indices, the Barclays Capital Municipal Bond Minnesota 3 Plus Year Enhanced
Index, the Barclays Capital 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 distributions 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 intermediary or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Aug. 31, 2009
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $10,049 $10,531 $11,216 $14,644
- ------------------------------------------------------------------------------------------
Average annual total return +0.49% +1.74% +2.32% +3.89%
- ------------------------------------------------------------------------------------------
BARCLAYS CAPITAL MUNICIPAL BOND MINNESOTA 3 PLUS YEAR ENHANCED INDEX(1)
Cumulative value of $10,000 $10,732 $11,574 $12,542 $17,332
- ------------------------------------------------------------------------------------------
Average annual total return +7.32% +4.99% +4.63% +5.65%
- ------------------------------------------------------------------------------------------
BARCLAYS CAPITAL MUNICIPAL BOND INDEX(2)
Cumulative value of $10,000 $10,567 $11,295 $12,255 $16,922
- ------------------------------------------------------------------------------------------
Average annual total return +5.67% +4.14% +4.15% +5.40%
- ------------------------------------------------------------------------------------------
LIPPER MINNESOTA MUNICIPAL DEBT FUNDS INDEX(3)
Cumulative value of $10,000 $10,465 $10,961 $11,827 $15,579
- ------------------------------------------------------------------------------------------
Average annual total return +4.65% +3.10% +3.41% +4.53%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 6.
- --------------------------------------------------------------------------------
22 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MINNESOTA TAX-EXEMPT
FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE MINNESOTA BARCLAYS CAPITAL
TAX-EXEMPT FUND MINNESOTA 3
CLASS A PLUS YEAR BARCLAYS CAPITAL LIPPER MINNESOTA
(INCLUDES SALES ENHANCED MUNICIPAL MUNICIPAL BOND MUNICIPAL DEBT
CHARGE) BOND INDEX(1) INDEX(2) FUNDS INDEX(3)
--------------------- ------------------ ------------------ ----------------
8/99 $ 9,525 $10,000 $10,000 $10,000
11/99 9,420 9,985 10,001 9,910
2/00 9,388 9,973 9,998 9,872
5/00 9,465 10,075 10,103 9,945
8/00 9,951 10,655 10,677 10,456
11/00 10,050 10,807 10,819 10,582
2/01 10,347 11,235 11,232 10,946
5/01 10,446 11,323 11,330 11,012
8/01 10,767 11,727 11,766 11,409
11/01 10,796 11,728 11,766 11,410
2/02 10,983 11,951 12,000 11,597
5/02 11,053 12,043 12,067 11,670
8/02 11,420 12,446 12,500 12,015
11/02 11,286 12,446 12,510 12,002
2/03 11,741 12,877 12,920 12,418
5/03 12,078 13,305 13,318 12,791
8/03 11,693 12,928 12,892 12,392
11/03 12,072 13,348 13,342 12,787
2/04 12,381 13,738 13,733 13,144
5/04 12,025 13,359 13,313 12,774
8/04 12,435 13,819 13,809 13,172
11/04 12,468 13,903 13,886 13,244
2/05 12,636 14,156 14,140 13,470
5/05 12,817 14,391 14,373 13,684
8/05 12,924 14,536 14,542 13,837
11/05 12,795 14,426 14,425 13,728
2/06 13,029 14,684 14,687 13,965
5/06 12,973 14,628 14,645 13,925
8/06 13,243 14,976 14,983 14,214
11/06 13,495 15,285 15,308 14,486
2/07 13,568 15,390 15,415 14,576
5/07 13,489 15,322 15,355 14,525
8/07 13,411 15,302 15,327 14,416
11/07 13,730 15,754 15,723 14,727
2/08 13,200 15,339 15,234 14,267
5/08 13,872 16,060 15,949 14,892
8/08 13,880 16,150 16,014 14,887
11/08 12,990 15,408 15,155 13,919
2/09 13,780 16,563 16,023 14,685
5/09 14,319 17,054 16,519 15,235
8/09 14,644 17,332 16,922 15,579
</Table>
(1) The Barclays Capital Municipal Bond Minnesota 3 Plus Year Enhanced 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 Barclays Capital 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 Barclays Capital 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 -- 2009 ANNUAL REPORT 23
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
For 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 9/1/99
to 8/31/09) as compared to the performance of three widely cited performance
indices, the Barclays Capital Municipal Bond New York 4 Plus Year Index, the
Barclays Capital 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
distributions 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 intermediary or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Aug. 31, 2009
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,965 $10,380 $11,103 $14,554
- ------------------------------------------------------------------------------------------
Average annual total return -0.35% +1.25% +2.12% +3.82%
- ------------------------------------------------------------------------------------------
BARCLAYS CAPITAL MUNICIPAL BOND NEW YORK 4 PLUS YEAR INDEX(1)
Cumulative value of $10,000 $10,588 $11,354 $12,392 $17,450
- ------------------------------------------------------------------------------------------
Average annual total return +5.88% +4.32% +4.38% +5.72%
- ------------------------------------------------------------------------------------------
BARCLAYS CAPITAL MUNICIPAL BOND INDEX(2)
Cumulative value of $10,000 $10,567 $11,295 $12,255 $16,922
- ------------------------------------------------------------------------------------------
Average annual total return +5.67% +4.14% +4.15% +5.40%
- ------------------------------------------------------------------------------------------
LIPPER NEW YORK MUNICIPAL DEBT FUNDS INDEX(3)
Cumulative value of $10,000 $10,349 $10,770 $11,653 $15,522
- ------------------------------------------------------------------------------------------
Average annual total return +3.49% +2.50% +3.11% +4.49%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 9.
- --------------------------------------------------------------------------------
24 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE NEW YORK TAX-EXEMPT
FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE NEW BARCLAYS CAPITAL
YORK TAX-EXEMPT NEW YORK LIPPER NEW
FUND CLASS 4 PLUS BARCLAYS CAPITAL YORK MUNICIPAL
A (INCLUDES YEAR MUNICIPAL MUNICIPAL BOND DEBT FUNDS
SALES CHARGE) BOND INDEX(1) INDEX(2) INDEX(3)
--------------- ---------------- ------------------ ------------------
8/99 $ 9,525 $10,000 $10,000 $10,000
11/99 9,396 9,977 10,001 9,893
2/00 9,415 9,967 9,998 9,862
5/00 9,485 10,084 10,103 9,951
8/00 9,990 10,717 10,677 10,538
11/00 10,118 10,883 10,819 10,672
2/01 10,444 11,324 11,232 11,097
5/01 10,549 11,459 11,330 11,190
8/01 10,896 11,913 11,766 11,649
11/01 10,842 11,840 11,766 11,548
2/02 11,022 12,109 12,000 11,779
5/02 11,104 12,169 12,067 11,810
8/02 11,555 12,641 12,500 12,227
11/02 11,432 12,641 12,510 12,174
2/03 11,878 13,091 12,920 12,568
5/03 12,207 13,545 13,318 12,945
8/03 11,765 13,070 12,892 12,517
11/03 12,144 13,586 13,342 12,971
2/04 12,482 14,006 13,733 13,317
5/04 12,087 13,538 13,313 12,876
8/04 12,484 14,081 13,809 13,319
11/04 12,541 14,175 13,886 13,367
2/05 12,728 14,470 14,140 13,622
5/05 12,892 14,724 14,373 13,836
8/05 13,036 14,901 14,542 14,007
11/05 12,903 14,753 14,425 13,858
2/06 13,127 15,064 14,687 14,142
5/06 13,069 15,001 14,645 14,089
8/06 13,355 15,368 14,983 14,412
11/06 13,640 15,730 15,308 14,728
2/07 13,702 15,838 15,415 14,814
5/07 13,617 15,753 15,355 14,743
8/07 13,560 15,707 15,327 14,617
11/07 13,811 16,135 15,723 14,915
2/08 13,239 15,554 15,234 14,324
5/08 13,942 16,402 15,949 15,010
8/08 13,912 16,481 16,014 14,998
11/08 12,872 15,353 15,155 13,695
2/09 13,601 16,426 16,023 14,434
5/09 14,101 16,963 16,519 15,032
8/09 14,554 17,450 16,922 15,522
</Table>
(1) The Barclays Capital Municipal Bond New York 4 Plus Year 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 Barclays Capital 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 Barclays Capital 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 -- 2009 ANNUAL REPORT 25
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 ongoing expenses of any funds in which the Fund
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 ongoing expenses charged by
acquired funds using the expense ratio of each of the acquired funds as of the
acquired fund's most recent shareholder report.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six months ended Aug. 31, 2009.
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 this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in 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.
- --------------------------------------------------------------------------------
26 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2009 AUG. 31, 2009 THE PERIOD(a) EXPENSE RATIO(b)
- ---------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,067.00 $4.40 .84%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.08 $4.30 .84%
- ---------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,063.00 $8.31 1.59%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.28 $8.13 1.59%
- ---------------------------------------------------------------------------------------------
Class C
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,060.70 $8.30 1.59%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.28 $8.13 1.59%
- ---------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the annualized expense ratio for each class as
indicated above, multiplied by the average account value over the period,
multiplied by 185/365 (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, 2009: +6.70%
for Class A, +6.30% for Class B and +6.07% for Class C.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 27
FUND EXPENSES EXAMPLES (continued) ---------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2009 AUG. 31, 2009 THE PERIOD(a) EXPENSE RATIO(b)
- ---------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,062.80 $4.65 .89%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.83 $4.56 .89%
- ---------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,058.70 $8.61(d) 1.65%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.98 $8.43(d) 1.65%
- ---------------------------------------------------------------------------------------------
Class C
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,058.80 $8.56 1.64%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.03 $8.38 1.64%
- ---------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the annualized expense ratio for each class as
indicated above, multiplied by the average account value over the period,
multiplied by 185/365 (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, 2009: +6.28%
for Class A, +5.87% for Class B and +5.88 for Class C.
(d) RiverSource Investments, LLC (the Investment Manager) and its affiliates
have contractually agreed to waive certain fees and to absorb certain
expenses until Oct. 31, 2010, unless sooner terminated at the discretion of
the Fund's Board, such that net expenses (excluding interest and fee
expenses related to the Fund's participation in certain inverse floater
programs and fees and expenses of acquired funds) will not exceed 1.55% for
Class B. Any amounts waived will not be reimbursed by the Fund. This change
was effective Sept. 1, 2009. If this change had been in place for the entire
six month period ended Aug. 31, 2009, the actual expenses paid would have
been $8.66 for Class B; the hypothetical expenses paid would have been $8.48
for Class B.
- --------------------------------------------------------------------------------
28 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2009 AUG. 31, 2009 THE PERIOD(a) EXPENSE RATIO(b)
- ---------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,070.00 $4.35 .83%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,021.14 $4.25 .83%
- ---------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,065.90 $8.27 1.58%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.33 $8.08 1.58%
- ---------------------------------------------------------------------------------------------
Class C
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,066.00 $8.27 1.58%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.33 $8.08 1.58%
- ---------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the annualized expense ratio for each class as
indicated above, multiplied by the average account value over the period,
multiplied by 185/365 (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, 2009: +7.00%
for Class A, +6.59% for Class B and +6.60 for Class C.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 29
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
RiverSource California Tax-Exempt Fund
AUG. 31, 2009
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
MUNICIPAL BONDS (98.6%)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(e,f) RATE AMOUNT VALUE(a)
ADVANCED REFUNDED (0.6%)
Los Angeles Harbor Department
Revenue Bonds
Series 1988 Escrowed to Maturity
10-01-18 7.60% $780,000 $950,750
- -------------------------------------------------------------------------------------
AIRPORT (1.2%)
County of Sacramento
Revenue Bonds
Series 2009B
07-01-39 5.75 2,000,000 2,003,240
- -------------------------------------------------------------------------------------
CERTIFICATE OF PARTICIPATION (0.9%)
County of Riverside
Certificate of Participation
Series 1998 (National)
12-01-21 5.00 1,530,000 1,535,401
- -------------------------------------------------------------------------------------
CITY (1.0%)
City of Martinez
Unlimited General Obligation Bonds
Election of 2008
Series 2009A
08-01-34 5.00 1,560,000 1,578,548
- -------------------------------------------------------------------------------------
COLLEGE (11.5%)
California Municipal Finance Authority
Revenue Bonds
Biola University
Series 2008
10-01-28 5.80 2,000,000 1,970,420
California Municipal Finance Authority
Revenue Bonds
Loma Linda University
Series 2007
04-01-32 4.75 2,300,000 2,024,299
California State University
Revenue Bonds
Systemwide
Series 2009A
11-01-29 5.25 3,000,000 3,086,850
Chabot-Las Positas Community College District
Unlimited General Obligation Bonds
Capital Appreciation Election of 2004
Zero Coupon
Series 2006B (AMBAC)
08-01-19 4.75 1,000,000(b) 604,080
Los Angeles Community College District
Unlimited General Obligation Bonds
2001 Election
Series 2008E-1
08-01-28 5.00 2,000,000 2,057,900
Merced Community College District
Refunding Revenue Bonds
School Facilities Financing Authority
Series 2006 (National)
08-01-21 5.00 700,000 763,385
San Bernardino Community College District
Unlimited General Obligation Bonds
Election of 2002
Series 2008A
08-01-33 6.25 1,000,000 1,117,750
San Diego Community College District
Unlimited General Obligation Bonds
Election of 2006
Series 2007 (FSA)
08-01-30 5.00 2,500,000 2,544,050
San Mateo County Community College District
Unlimited General Obligation Bonds
Election of 2001
Series 2002A (National/FGIC)
09-01-18 5.38 1,000,000 1,080,280
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
30 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(e,f) RATE AMOUNT VALUE(a)
COLLEGE (CONT.)
University of California Regents Medical Center
Revenue Bonds
Series 2008D
05-15-27 5.00% $1,500,000 $1,546,305
University of California
Revenue Bonds
Series 2009Q
05-15-34 5.00 1,750,000 1,780,783
---------------
Total 18,576,102
- -------------------------------------------------------------------------------------
COUNTY (0.6%)
California Statewide Communities Development Authority
Revenue Bonds
Thomas Jefferson School of Law
Series 2008A
10-01-38 7.25 1,000,000 901,810
- -------------------------------------------------------------------------------------
ELECTRIC (3.8%)
California State Department of Water Resources
Revenue Bonds
Power Supply
Series 2008H
05-01-22 5.00 2,000,000 2,113,620
City of Vernon
Revenue Bonds
Series 2009A
08-01-21 5.13 1,500,000 1,495,170
Walnut Energy Center Authority
Revenue Bonds
Series 2004A (AMBAC)
01-01-29 5.00 2,500,000 2,516,275
---------------
Total 6,125,065
- -------------------------------------------------------------------------------------
HEALTH CARE -- HOSPITAL (20.3%)
Abag Finance Authority for Nonprofit Corporations
Refunding Revenue Bonds
Children's Hospital & Research Center
Series 2007A
12-01-37 5.00 1,000,000 849,050
California Health Facilities Financing Authority
Refunding Revenue Bonds
Cedars-Sinai Medical Center
Series 2005
11-15-18 5.00 1,500,000 1,535,220
11-15-34 5.00 1,525,000 1,360,605
California Health Facilities Financing Authority
Revenue Bonds
Adventist Health System West
Series 2009A
09-01-39 5.75 3,000,000 2,928,810
California Health Facilities Financing Authority
Revenue Bonds
Catholic Healthcare West
Series 2004G
07-01-23 5.25 3,500,000 3,452,364
California Health Facilities Financing Authority
Revenue Bonds
Providence Health & Services
Series 2008C
10-01-28 6.25 500,000 547,835
10-01-38 6.50 1,500,000 1,627,230
California Health Facilities Financing Authority
Revenue Bonds
Providence Health & Services
Series 2009B
10-01-39 5.50 3,200,000 3,176,544
California Health Facilities Financing Authority
Revenue Bonds
Scripps Health
Series 2008A
10-01-22 5.00 3,250,000 3,212,983
California Health Facilities Financing Authority
Revenue Bonds
Sutter Health
Series 2008A
08-15-30 5.00 2,500,000 2,322,075
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 31
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(e,f) RATE AMOUNT VALUE(a)
HEALTH CARE -- HOSPITAL (CONT.)
California Statewide Communities Development Authority
Revenue Bonds
Catholic Healthcare West
Series 2008B
07-01-30 5.50% $1,975,000 $1,912,985
California Statewide Communities Development Authority
Revenue Bonds
Daughters of Charity Health
Series 2005A
07-01-30 5.25 3,015,000 2,527,535
California Statewide Communities Development Authority
Revenue Bonds
Kaiser Permanente
Series 2006B
03-01-45 5.25 1,000,000 919,030
City of Turlock
Certificate of Participation
Emanuel Medical Center
Series 2007A
10-15-31 5.13 3,930,000 2,902,266
Sierra View Local Health Care District
Revenue Bonds
Series 2007
07-01-37 5.25 2,000,000 1,758,960
Tulare Local Health Care District
Refunding Revenue Bonds
Series 2007
11-01-32 5.20 2,180,000 1,718,472
---------------
Total 32,751,964
- -------------------------------------------------------------------------------------
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 1,363,965
- -------------------------------------------------------------------------------------
HOUSING -- SINGLE FAMILY (3.8%)
California Housing Finance Agency
Revenue Bonds
Home Mortgage
Series 2006H (FGIC) A.M.T.
08-01-30 5.75 1,550,000 1,564,989
California Housing Finance Agency
Revenue Bonds
Home Mortgage
Series 2006K A.M.T.
02-01-42 5.50 800,000 784,984
California Housing Finance Agency
Revenue Bonds
Home Mortgage
Series 2007D (FGIC) A.M.T.
02-01-17 4.35 1,555,000 1,457,051
08-01-17 4.35 2,470,000 2,305,225
---------------
Total 6,112,249
- -------------------------------------------------------------------------------------
LEASE (4.5%)
Eastern Municipal Water District
Certificate of Participation
Series 2008H
07-01-33 5.00 1,000,000 1,005,610
Golden State Tobacco Securitization Corporation
Revenue Bonds
Series 2003A-1
06-01-33 6.25 2,095,000 2,338,062
Los Angeles Municipal Improvement Corporation
Revenue Bonds
Series 2008B
09-01-38 5.00 3,000,000 2,863,170
San Mateo County Board of Education
Refunding Certificate of Participation
Series 2009
06-01-35 5.25 1,000,000 1,002,190
---------------
Total 7,209,032
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
32 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(e,f) RATE AMOUNT VALUE(a)
MISCELLANEOUS REVENUE (5.3%)
California Infrastructure & Economic Development Bank
Revenue Bonds
Walt Disney Family Museum
Series 2008
02-01-33 5.25% $2,000,000 $1,921,800
Golden State Tobacco Securitization Corporation
Asset-backed Revenue Bonds
Series 2007A-1
06-01-47 5.13 3,500,000 2,443,945
Golden State Tobacco Securitization Corporation
Prerefunded Revenue Bonds
Series 2003A-1
06-01-40 6.63 750,000 879,645
Los Angeles County Public Works Financing Authority
Refunding Revenue Bonds
Master Project
Series 2005A (National)
12-01-26 5.00 2,000,000 1,851,500
Oakley Redevelopment Agency
Revenue Bonds
Oakley Redevelopment Project Area
Series 2008A (AMBAC)
09-01-38 5.00 1,750,000 1,419,005
---------------
Total 8,515,895
- -------------------------------------------------------------------------------------
PORT DISTRICT (0.6%)
Port of Oakland
Refunding Revenue Bonds
Series 2000K (National/FGIC) A.M.T.
11-01-18 5.63 1,000,000 1,012,880
- -------------------------------------------------------------------------------------
SCHOOL (13.2%)
Alhambra City Elementary School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999A (FSA)
09-01-22 5.95 1,055,000(b) 520,906
Centinela Valley Union High School District
Unlimited General Obligation Bonds
Series 2002A (National)
08-01-31 5.25 2,000,000 1,864,420
Encinitas Union School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1996 (National)
08-01-15 5.85 2,500,000(b) 1,975,925
Fremont Union High School District/Santa Clara County
Unlimited General Obligation Bonds
Election of 2008
Series 2008
08-01-30 4.75 2,500,000 2,480,250
Grant Joint Union High School District
Unlimited General Obligation Bonds
Election of 2006
Series 2008 (FSA)
08-01-25 5.00 1,000,000 1,050,600
Lakeside Union School District/San Diego County
Unlimited General Obligation Bonds
Series 2009
08-01-33 5.00 1,750,000 1,762,180
Lammersville School District Community Facilities
Special Tax Bonds
Mountain House
Series 2006
09-01-35 5.13 1,000,000 666,730
Los Angeles Unified School District
Unlimited General Obligation Bonds
Election of 2002
Series 2007B (AMBAC)
07-01-22 5.00 1,395,000 1,479,760
Menifee Union School District
Unlimited General Obligation Bonds
2008 Election
Series 2008A
08-01-33 5.50 3,125,000 3,224,813
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 33
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(e,f) RATE AMOUNT VALUE(a)
SCHOOL (CONT.)
Oxnard School District
Unlimited General Obligation Refunding Bonds
Series 2001A (National)
08-01-30 5.75% $2,575,000 $2,583,575
San Juan Unified School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999 (FSA)
08-01-21 5.68 820,000(b) 434,313
08-01-24 5.70 1,810,000(b) 774,101
Simi Valley School Financing Authority
Refunding Revenue Bonds
University School District
Series 2007 (FSA)
08-01-23 5.00 1,500,000 1,608,165
Western Placer Unified School District
Certificate of Participation
Series 2008 (Assured Guaranty)
08-01-32 4.75 1,000,000 940,110
---------------
Total 21,365,848
- -------------------------------------------------------------------------------------
SPECIAL DISTRICT -- ASSESSMENT (2.4%)
City of Azusa
Special Tax Bonds Escrow
Community Facilities
Series 2007
09-01-27 5.00 1,110,000 1,110,000
Palmdale Civic Authority
Refunding Revenue Bonds
Redevelopment Project #1
Series 2009A
07-01-27 6.00 2,780,000 2,814,722
---------------
Total 3,924,722
- -------------------------------------------------------------------------------------
SPECIAL DISTRICT -- SPECIAL TAX (3.8%)
Anaheim Community Facilities District
Special Tax Bonds
Stadium Lofts
Series 2007
09-01-37 5.00 1,000,000 643,960
Beaumont Financing Authority
Prerefunded Revenue Bonds
Series 2000A
09-01-32 7.38 1,955,000 2,123,404
Orange Unified School District Community Facilities
Special Tax Bonds
#2005-2 Del Rio School Facilities
Series 2007
09-01-37 5.00 1,000,000 675,670
Pittsburg Redevelopment Agency
Tax Allocation Bonds
Los Medanos Community Development Project
Zero Coupon
Series 1999 (AMBAC)
08-01-24 6.05 2,100,000(b) 835,401
Rancho Cucamonga Redevelopment Agency
Tax Allocation Bonds
Housing Set Aside
Series 2007A (National)
09-01-34 5.00 2,200,000 1,884,080
---------------
Total 6,162,515
- -------------------------------------------------------------------------------------
SPECIAL DISTRICT -- TAX ALLOCATION (2.4%)
Bakersfield Redevelopment Agency
Tax Allocation Bonds
Old Town Kern Pioneer
Series 2009A
08-01-29 7.50 1,650,000 1,606,687
Bakersfield Redevelopment Agency
Tax Allocation Bonds
Southeast Bakersfield
Series 2009B
08-01-29 7.25 740,000 739,164
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
34 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(e,f) RATE AMOUNT VALUE(a)
SPECIAL DISTRICT -- TAX ALLOCATION (CONT.)
Inglewood Redevelopment Agency
Refunding Tax Allocation Bonds
Merged Redevelopment Project
Series 1998A (AMBAC)
05-01-23 5.25% $1,100,000 $1,082,477
San Francisco City & County Redevelopment Financing Authority
Tax Allocation
Mission Bay South Redevelopment Agency
Series 2009D
08-01-29 6.38 500,000(d) 501,970
---------------
Total 3,930,298
- -------------------------------------------------------------------------------------
SPECIAL DISTRICT -- TAX INCREMENT (1.5%)
San Francisco City & County Redevelopment Financing Authority
Revenue Bonds
Mission Bay North Redevelopment Agency
Series 2009C
08-01-29 6.00 500,000(d) 493,115
08-01-39 6.50 1,625,000(d) 1,630,769
San Francisco City & County Redevelopment Financing Authority
Tax Allocation Bonds
San Francisco Redevelopment Projects
Series 2009B
08-01-28 6.13 310,000(d) 314,464
---------------
Total 2,438,348
- -------------------------------------------------------------------------------------
STATE (12.5%)
State of California
Unlimited General Obligation Bonds
Series 2002
02-01-15 6.00 1,000,000 1,144,140
State of California
Unlimited General Obligation Bonds
Series 2003
02-01-21 5.00 3,000,000 3,078,540
State of California
Unlimited General Obligation Bonds
Series 2004
02-01-22 5.00 1,000,000 1,021,600
State of California
Unlimited General Obligation Bonds
Series 2008
08-01-34 5.00 1,800,000 1,731,240
State of California
Unlimited General Obligation Bonds
Various Purpose
Series 2003
11-01-24 5.13 2,000,000 2,027,380
State of California
Unlimited General Obligation Bonds
Various Purpose
Series 2008
03-01-32 5.00 1,000,000 967,220
State of California
Unlimited General Obligation Bonds
Various Purpose
Series 2009
04-01-31 5.75 5,000,000 5,224,450
State of California
Unlimited General Obligation Bonds
Veterans
Series 2000BJ-RMKT A.M.T.
12-01-12 4.95 1,000,000 1,024,770
12-01-13 5.05 1,435,000 1,459,682
12-01-14 5.15 2,535,000 2,573,988
State of California
Unrefunded Unlimited General Obligation Bonds
Series 2004
04-01-29 5.30 2,000 2,016
---------------
Total 20,255,026
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 35
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(e,f) RATE AMOUNT VALUE(a)
WATER & SEWER (7.9%)
Anaheim Public Financing Authority
Revenue Bonds
Series 2007 (National)
02-01-33 4.75% $3,500,000 $3,446,380
Eastern Municipal Water District
Special Tax Bonds
District #2004-27 Cottonwood
Series 2006
09-01-27 5.00 200,000 152,836
09-01-36 5.00 500,000 348,755
Los Angeles Department of Water & Power
Revenue Bonds
Series 2009A
07-01-34 5.38 2,495,000 2,588,413
Rowland Water District
Certificate of Participation
Recycled Water Project
Series 2008
12-01-39 6.25 2,235,000 2,368,653
Semitropic Improvement District
Revenue Bonds
Series 2004A (XLCA)
12-01-28 5.00 2,000,000 2,002,580
Turlock Public Financing Authority
Revenue Bonds
Series 2008
05-01-32 4.75 2,000,000 1,953,720
---------------
Total 12,861,337
- -------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $161,327,974) $159,574,995
- -------------------------------------------------------------------------------------
<Caption>
MUNICIPAL NOTES (2.0%)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(c,e,f) YIELD MATURITY VALUE(a)
City of Santa Clara
Subordinated Revenue Bonds
V.R.D.N.
Series 2008A (Bank of America)
07-01-34 0.12% $1,800,000 $1,800,000
City of Irvine
Limited Obligation Special Assessment Bonds
District #93-14 V.R.D.N.
Series 2000 (Bank of America)
09-02-25 0.16 1,500,000 1,500,000
- -------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $3,300,000) $3,300,000
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (--%)
SHARES VALUE(a)
JPMorgan Tax-Free Money Market Fund 30,445 $30,445
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $30,445) $30,445
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $164,658,419(g) $162,905,440
=====================================================================================
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using policies described in Note 2 to the
financial statements.
(b) For zero coupons, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
- --------------------------------------------------------------------------------
36 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(c) 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, 2009.
(d) At Aug. 31, 2009, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$2,908,340. See Note 2 to the financial statements.
(e) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
<Table>
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BHAC -- Berkshire Hathaway Assurance Corporation
BIG -- Bond Investors Guarantee
BNY -- Bank of New York
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
TCRS -- Transferable Custodial Receipts
XLCA -- XL Capital Assurance
</Table>
(f) The following abbreviations may be used in the portfolio descriptions:
<Table>
A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2009, the value
of securities subject to alternative minimum tax
represented 7.5% 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
</Table>
(g) At Aug. 31, 2009, the cost of securities for federal income tax purposes
was $165,011,382 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $4,336,173
Unrealized depreciation (6,442,115)
-----------------------------------------------------------
Net unrealized depreciation $(2,105,942)
-----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 37
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource California Tax-Exempt Fund
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) requires
disclosure regarding the inputs and valuation techniques used to measure fair
value and any changes in valuation inputs or techniques. In addition,
investments shall be disclosed by major category.
SFAS 157 establishes a fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by prioritizing that the most observable input be used when
available. Observable inputs are those that market participants would use in
pricing an investment based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are those that reflect the Fund's
assumptions about the information market participants would use in pricing an
investment. An investment's level within the fair value hierarchy is based on
the lowest level of any input that is deemed significant to the asset or
liability's fair value measurement. When a valuation uses multiple inputs from
varying levels of the hierarchy, the hierarchy level is determined based on the
lowest level input or inputs that are significant to the fair value measurement
in its entirety. The input levels are not necessarily an indication of the risk
or liquidity associated with investments at that level. For example, certain
U.S. government securities are generally high quality and liquid, however, they
are reflected as Level 2 because the inputs used to determine fair value may not
always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels listed below:
- Level 1 -- Valuations based on quoted prices for investments in active
markets that the Fund has the ability to access at the measurement date.
Valuation adjustments are not applied to Level 1 investments.
- Level 2 -- Valuations based on other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment speeds, credit risks, etc.).
- Level 3 -- Valuations based on significant unobservable inputs (including
the Fund's own assumptions and judgment in determining the fair value of
investments).
Inputs that are used in determining fair value of an investment may include
price information, credit data, volatility statistics, and other factors. These
inputs can be either observable or unobservable. The availability of observable
inputs can vary between investments, and is affected by various factors such as
the type of investment, and the volume and level of activity for that investment
or similar investments in the marketplace. The inputs will be considered by the
Fund Administrator, along with any other relevant factors in the calculation of
an investment's fair value. The Fund uses prices and inputs that are current as
of the measurement date, which may include periods of market dislocations.
During these periods, the availability of prices and inputs may be reduced for
many investments. This condition could cause an investment to be reclassified
between the various levels within the hierarchy.
Investments falling into the Level 3 category are primarily supported by quoted
prices from brokers and dealers participating in the market for those
investments. However, these may be classified as Level 3 investments due to lack
of market transparency and corroboration to support these quoted
- --------------------------------------------------------------------------------
38 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS (CONTINUED)
prices. Additionally, valuation models may be used as the pricing source for any
remaining investments classified as Level 3. These models rely on one or more
significant unobservable inputs and/or significant assumptions by the Fund
Administrator. Inputs used in a valuation model may include, but are not limited
to, financial statement analysis, discount rates and estimated cash flows, and
comparable company data.
The following table is a summary of the inputs used to value the Fund's
investments as of Aug. 31, 2009:
<Table>
<Caption>
FAIR VALUE AT AUG. 31, 2009
----------------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- ---------------------------------------------------------------------------------------------
Bonds
Municipal Bonds $-- $159,574,995 $-- $159,574,995
- ---------------------------------------------------------------------------------------------
Total Bonds -- 159,574,995 -- 159,574,995
- ---------------------------------------------------------------------------------------------
Other
Municipal Notes -- 3,300,000 -- 3,300,000
Money Market Fund(a) 30,445 -- -- 30,445
- ---------------------------------------------------------------------------------------------
Total Other 30,445 3,300,000 -- 3,330,445
- ---------------------------------------------------------------------------------------------
Total $30,445 $162,874,995 $-- $162,905,440
- ---------------------------------------------------------------------------------------------
</Table>
(a) Money market fund that is a sweep investment for cash balances in the Fund
at Aug. 31, 2009.
HOW TO FIND INFORMATION ABOUT THE FUND'S QUARTERLY 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 filed on Form N-Q,
can be obtained without charge, upon request, by calling the RiverSource
Family of Funds at 1(800) 221-2450.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 39
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
AUG. 31, 2009
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
MUNICIPAL BONDS (98.7%)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d,e) RATE AMOUNT VALUE(a)
AIRPORT (3.0%)
Minneapolis-St. Paul Metropolitan Airports Commission
Prerefunded Revenue Bonds
Sub Series 2001C (FGIC)
01-01-18 5.50% $2,000,000 $2,125,500
01-01-32 5.25 7,000,000 7,416,080
---------------
Total 9,541,580
- -------------------------------------------------------------------------------------
COLLEGE (11.5%)
Minnesota Higher Education Facilities Authority
Revenue Bonds
Bethel University
6th Series 2007R
05-01-37 5.50 6,000,000 5,226,720
Minnesota Higher Education Facilities Authority
Revenue Bonds
Carleton College
6th Series 2008T
01-01-28 5.00 3,000,000 3,143,460
Minnesota Higher Education Facilities Authority
Revenue Bonds
Macalester College
6th Series 2004B
03-01-17 5.00 2,395,000 2,597,449
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Benedict College
Series 2008V
03-01-18 5.00 500,000 530,550
03-01-23 4.75 800,000 789,024
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. John's University
6th Series 2005G
10-01-22 5.00 3,000,000 3,126,240
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. John's University
6th Series 2008U
10-01-28 4.75 1,000,000 1,005,390
10-01-33 4.75 825,000 777,010
Minnesota Higher Education Facilities Authority
Revenue Bonds
University of St. Thomas
6th Series 2008W
10-01-30 6.00 3,625,000 3,814,551
Minnesota Higher Education Facilities Authority
Revenue Bonds
University of St. Thomas
6th Series 2009X
04-01-39 5.25 4,900,000 5,003,880
University of Minnesota
Revenue Bonds
Series 1996A Escrowed to Maturity
07-01-21 5.50 8,500,000 9,971,180
University of Minnesota
Revenue Bonds
Series 2009A
04-01-34 5.13 1,000,000 1,053,120
---------------
Total 37,038,574
- -------------------------------------------------------------------------------------
COUNTY (5.2%)
County of Hennepin
Unlimited General Obligation Bonds
Series 2003
12-01-23 4.75 2,000,000 2,049,700
County of Hennepin
Unlimited General Obligation Bonds
Series 2008D
12-01-28 5.00 9,355,000 9,974,581
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
40 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d,e) RATE AMOUNT VALUE(a)
COUNTY (CONT.)
County of Ramsey
Unlimited General Obligation Bonds
Capital Improvement Plan
Series 2007A
02-01-21 5.00% $1,035,000 $1,162,357
02-01-22 5.00 1,080,000 1,202,591
02-01-23 5.00 1,125,000 1,244,621
02-01-24 5.00 1,170,000 1,285,994
---------------
Total 16,919,844
- -------------------------------------------------------------------------------------
ELECTRIC (19.1%)
City of Chaska
Refunding Revenue Bonds
Generating Facilities
Series 2005A
10-01-20 5.25 1,165,000 1,233,875
10-01-30 5.00 3,800,000 3,827,588
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2004A
10-01-29 5.13 5,500,000 5,611,870
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2005
10-01-30 5.00 3,000,000 3,058,140
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2007
10-01-32 4.75 3,000,000 2,974,950
Northern Municipal Power Agency
Refunding Revenue Bonds
Series 1998B (AMBAC)
01-01-20 4.75 5,000,000 5,041,550
Northern Municipal Power Agency
Revenue Bonds
Series 2007A (AMBAC)
01-01-26 5.00 2,500,000 2,573,650
Northern Municipal Power Agency
Revenue Bonds
Series 2008A
01-01-21 5.00 2,500,000 2,673,725
Puerto Rico Electric Power Authority
Prerefunded Revenue Bonds
Series 2003NN (National)
07-01-32 5.00 2,820,000(b) 3,200,954
Southern Minnesota Municipal Power Agency
Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1994A (National)
01-01-19 6.67 17,000,000(f) 11,703,650
01-01-26 5.19 12,500,000(f) 5,660,125
Southern Minnesota Municipal Power Agency
Revenue Bonds
Series 2002A (AMBAC)
01-01-17 5.25 6,000,000 6,673,680
Western Minnesota Municipal Power Agency
Revenue Bonds
Series 2003A (National)
01-01-26 5.00 7,250,000 7,331,490
---------------
Total 61,565,247
- -------------------------------------------------------------------------------------
HEALTH CARE -- HOSPITAL (21.0%)
City of Breckenridge
Revenue Bonds
Catholic Health Initiatives
Series 2004A
05-01-30 5.00 4,300,000 4,321,027
City of Maple Grove
Revenue Bonds
Maple Grove Hospital Corporation
Series 2007
05-01-20 5.00 1,000,000 999,110
05-01-21 5.00 1,500,000 1,476,465
05-01-37 5.25 4,715,000 4,199,415
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 41
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d,e) RATE AMOUNT VALUE(a)
HEALTH CARE -- HOSPITAL (CONT.)
City of Minneapolis
Revenue Bonds
Fairview Health Services
Series 2002B (National)
05-15-15 5.50% $2,160,000 $2,257,783
05-15-16 5.50 2,200,000 2,288,088
City of Minneapolis
Revenue Bonds
Fairview Health Services
Series 2008A
11-15-32 6.75 5,240,000 5,723,442
City of Shakopee
Revenue Bonds
St. Francis Regional Medical Center
Series 2004
09-01-25 5.10 6,300,000 5,776,596
City of Winona
Refunding Revenue Bonds
Winona Health Obligation Group
Series 2007
07-01-31 5.15 2,000,000 1,697,520
County of Chippewa
Revenue Bonds
Montevideo Hospital Project
Series 2007
03-01-20 5.38 1,940,000 1,788,253
03-01-21 5.38 1,045,000 950,020
County of Meeker
Revenue Bonds
Memorial Hospital Project
Series 2007
11-01-27 5.75 1,000,000 918,620
11-01-37 5.75 2,250,000 1,945,125
Minnesota Agricultural & Economic Development Board
Prerefunded Revenue Bonds
Benedictine Health System
Series 1999A (National)
02-15-16 4.75 245,000 251,924
Minnesota Agricultural & Economic Development Board
Prerefunded Revenue Bonds
Health Care System
Series 2000A
11-15-22 6.38 4,845,000 5,211,185
11-15-29 6.38 2,910,000 3,129,938
Minnesota Agricultural & Economic Development Board
Unrefunded Revenue Bonds
Benedictine Health System
Series 1999A (National)
02-15-16 4.75 755,000 757,786
Northfield
Revenue Bonds
Series 2006
11-01-31 5.38 1,500,000 1,301,550
St. Louis Park
Revenue Bonds
Park Nicollet Health Services
Series 2008C
07-01-26 5.63 6,145,000 6,240,616
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Allina Health Systems
Series 2007A (National)
11-15-22 5.00 3,000,000 3,007,800
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Healtheast Project
Series 2005
11-15-25 6.00 2,000,000 1,775,840
11-15-35 6.00 1,500,000 1,214,355
St. Paul Housing & Redevelopment Authority
Revenue Bonds
HealthPartners Obligation Group Project
Series 2006
05-15-23 5.25 1,000,000 935,820
05-15-26 5.25 1,000,000 907,730
05-15-36 5.25 6,500,000 5,541,185
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
42 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d,e) RATE AMOUNT VALUE(a)
HEALTH CARE -- HOSPITAL (CONT.)
Todd Morrison Cass & Wadena Counties
United Hospital District
Unlimited General Obligation Bonds
Health Care Facilities -- Lakewood
Series 2004
12-01-34 5.00% $3,525,000 $3,489,785
---------------
Total 68,106,978
- -------------------------------------------------------------------------------------
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 1,660,225
- -------------------------------------------------------------------------------------
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 2,496,201
City of North Oaks
Revenue Bonds
Presbyterian Homes
Series 2007
10-01-27 6.00 1,250,000 1,093,838
10-01-33 6.00 3,000,000 2,507,429
City of Stillwater
Revenue Bonds
Health System Obligation Group
Series 2005
06-01-19 5.00 2,505,000 2,523,461
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Lyngblomsten Care Center Housing Project
Series 1993
11-01-17 7.13 1,250,000 1,170,238
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Rental -- Lyngblomsten Housing Project
Series 1993
11-01-24 7.00 1,545,000 1,326,970
---------------
Total 11,118,137
- -------------------------------------------------------------------------------------
HEALTH CARE -- OTHER (0.3%)
Minneapolis & St. Paul
Housing & Redevelopment Authority
Revenue Bonds
HealthPartners Obligation Group Project
Series 2003
12-01-12 5.25 1,000,000 1,029,010
- -------------------------------------------------------------------------------------
HOUSING -- MULTI-FAMILY (2.0%)
Austin Housing & Redevelopment Authority
Revenue Bonds
Courtyard Residence Project
Series 2000A
01-01-32 7.25 2,000,000 1,926,040
City of Rochester
Refunding Revenue Bonds
Madonna Towers Incorporated Project
Series 2007A
11-01-28 5.88 2,050,000 1,641,579
Duluth Housing & Redevelopment Authority
Revenue Bonds
Benedictine Health Center Project
Series 2007
11-01-33 5.88 750,000 563,033
Steele County
Revenue Bonds
Elderly Housing Project
Series 2000
06-01-30 6.88 2,205,000 2,297,234
---------------
Total 6,427,886
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 43
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d,e) RATE AMOUNT VALUE(a)
HOUSING -- SINGLE FAMILY (6.0%)
Minneapolis/St. Paul Housing Finance Board
Revenue Bonds
Mortgage-backed City Living
Series 2006A-5 (GNMA/FNMA/FHLMC)
04-01-27 5.45% $1,874,365 $1,916,238
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 85,598
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2002B A.M.T.
07-01-33 5.65 2,515,000 2,523,023
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2006B A.M.T.
07-01-26 4.75 1,890,000 1,777,054
07-01-31 4.85 2,555,000 2,374,643
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2006I A.M.T.
07-01-26 5.05 3,510,000 3,423,127
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2006M A.M.T.
01-01-37 5.75 2,900,000 2,929,551
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2007D A.M.T.
01-01-38 5.50 3,690,000 3,735,054
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1996J A.M.T.
07-01-21 5.60 35,000 35,079
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1997K A.M.T.
01-01-26 5.75 590,000 590,183
---------------
Total 19,389,550
- -------------------------------------------------------------------------------------
LEASE (5.1%)
St. Paul Port Authority
Revenue Bonds
Office Building at Cedar Street
Series 2003-12
12-01-23 5.00 5,000,000 5,221,550
12-01-27 5.13 10,815,000 11,204,232
---------------
Total 16,425,782
- -------------------------------------------------------------------------------------
MISCELLANEOUS REVENUE (2.8%)
City of Minneapolis
Limited Tax Revenue Bonds
Common Bond Fund
Series 2007-2A A.M.T.
06-01-22 5.13 1,035,000 979,700
06-01-28 5.00 1,500,000 1,313,985
Minneapolis Community Development Agency
Limited Tax Revenue Bonds
Common Bond Fund
Series 1996-1
06-01-11 6.00 590,000 595,629
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 1,088,110
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
44 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d,e) RATE AMOUNT VALUE(a)
MISCELLANEOUS REVENUE (CONT.)
St. Cloud Housing & Redevelopment Authority
Revenue Bonds
State University Foundation Project
Series 2002
05-01-18 5.13% $3,000,000 $3,146,280
St. Paul Port Authority
Tax Allocation Bonds
River Bend Project Lot 1
Series 2007-5
02-01-32 6.38 2,685,000 1,820,618
---------------
Total 8,944,322
- -------------------------------------------------------------------------------------
SALES OR USE TAX (2.9%)
County of Hennepin
Revenue Bonds
2nd Lien Ballpark Project
Series 2008B
12-15-27 4.75 4,205,000 4,383,166
12-15-29 5.00 1,825,000 1,928,806
County of Hennepin
Revenue Bonds
Sales Tax
Series 2007
12-15-33 4.75 3,000,000 3,051,210
---------------
Total 9,363,182
- -------------------------------------------------------------------------------------
SCHOOL (10.8%)
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 4,345,800
City of Maple Grove
Revenue Bonds
North Memorial Health Care
Series 2005
09-01-35 5.00 2,500,000 2,146,600
Duluth Independent School District #709
Certificate of Participation
Series 2008B
(School District Credit Enhancement Program)
02-01-26 4.75 4,000,000 4,150,600
Edina Independent School District #273
Unlimited General Obligation Bonds
Series 2004
02-01-24 4.50 3,400,000 3,477,452
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 73,077
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 1,943,672
Rocori Area Schools Independent School District #750
Unlimited General Obligation Bonds
School Building
Series 2009B
(School District Credit Enhancement Program)
02-01-34 4.75 9,200,000 9,395,868
St. Paul Housing & Redevelopment Authority
Prerefunded Revenue Bonds
Community of Peace Academy Project
Series 2001A
12-01-30 7.88 2,390,000 2,648,072
St. Paul Housing & Redevelopment Authority
Refunding Revenue Bonds
St. Paul Academy & Summit School
Series 2007
10-01-24 5.00 5,000,000 5,140,350
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 45
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d,e) RATE AMOUNT VALUE(a)
SCHOOL (CONT.)
White Bear Lake Independent School District #624
Unlimited General Obligation Refunding Bonds
Series 2002B (National/FGIC)
(School District Credit Enhancement Program)
02-01-14 5.00% $1,480,000 $1,591,370
---------------
Total 34,912,861
- -------------------------------------------------------------------------------------
SPECIAL DISTRICT -- SPECIAL TAX (1.2%)
City of Lakeville
Revenue Bonds
Series 2007
02-01-22 5.00 175,000 147,427
02-01-27 5.00 225,000 182,178
Territory of Guam
Revenue Bonds
Section 30
Series 2009A
12-01-34 5.75 3,500,000(c) 3,521,175
---------------
Total 3,850,780
- -------------------------------------------------------------------------------------
SPECIAL PURPOSE CERTIFICATES -- GENERAL
OBLIGATIONS (--%)
Minneapolis Community Development Agency
Limited Tax Revenue Bonds
Common Bond Fund
Series 1997-7A
06-01-12 5.50 160,000 161,074
- -------------------------------------------------------------------------------------
STATE (3.8%)
State of Minnesota
Unlimited General Obligation Bonds
Series 2002
11-01-15 5.25 3,575,000 3,955,809
State of Minnesota
Unlimited General Obligation Refunding Bonds
Various Purpose
Series 2009F
08-01-21 5.00 7,105,000 8,316,758
---------------
Total 12,272,567
- -------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $313,655,944) $318,727,599
- -------------------------------------------------------------------------------------
<Caption>
MUNICIPAL NOTES (0.4%)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(d,e,g) YIELD MATURITY VALUE(a)
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Olaf College
V.R.D.N. 5th Series 2002M2 (Harris)
10-01-20 0.20% $1,200,000 $1,200,000
- -------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $1,200,000) $1,200,000
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (--%)
SHARES VALUE(a)
JPMorgan Tax-Free Money Market Fund 56,086 $56,086
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $56,086) $56,086
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $314,912,030)(h) $319,983,685
=====================================================================================
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using policies described in Note 2 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
1.0% of net assets at Aug. 31, 2009.
- --------------------------------------------------------------------------------
46 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in U.S. dollar currency unless otherwise
noted. At Aug. 31, 2009, the value of foreign securities represented 1.1%
of net assets.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
<Table>
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BHAC -- Berkshire Hathaway Assurance Corporation
BIG -- Bond Investors Guarantee
BNY -- Bank of New York
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
TCRS -- Transferable Custodial Receipts
XLCA -- XL Capital Assurance
</Table>
(e) The following abbreviations may be used in the portfolio descriptions:
<Table>
A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2009, the value
of securities subject to alternative minimum tax
represented 6.5% 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
</Table>
(f) For zero coupons, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) The Fund is entitled to receive principal and interest from the party, if
indicated in parentheses, after a day or a week's notice or upon maturity.
The maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on Aug. 31, 2009.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 47
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(h) At Aug. 31, 2009, the cost of securities for federal income tax purposes
was $315,582,344 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $11,431,965
Unrealized depreciation (7,030,624)
-----------------------------------------------------------
Net unrealized appreciation $4,401,341
-----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
48 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) requires
disclosure regarding the inputs and valuation techniques used to measure fair
value and any changes in valuation inputs or techniques. In addition,
investments shall be disclosed by major category.
SFAS 157 establishes a fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by prioritizing that the most observable input be used when
available. Observable inputs are those that market participants would use in
pricing an investment based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are those that reflect the Fund's
assumptions about the information market participants would use in pricing an
investment. An investment's level within the fair value hierarchy is based on
the lowest level of any input that is deemed significant to the asset or
liability's fair value measurement. When a valuation uses multiple inputs from
varying levels of the hierarchy, the hierarchy level is determined based on the
lowest level input or inputs that are significant to the fair value measurement
in its entirety. The input levels are not necessarily an indication of the risk
or liquidity associated with investments at that level. For example, certain
U.S. government securities are generally high quality and liquid, however, they
are reflected as Level 2 because the inputs used to determine fair value may not
always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels listed below:
- Level 1 -- Valuations based on quoted prices for investments in active
markets that the Fund has the ability to access at the measurement date.
Valuation adjustments are not applied to Level 1 investments.
- Level 2 -- Valuations based on other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment speeds, credit risks, etc.).
- Level 3 -- Valuations based on significant unobservable inputs (including
the Fund's own assumptions and judgment in determining the fair value of
investments).
Inputs that are used in determining fair value of an investment may include
price information, credit data, volatility statistics, and other factors. These
inputs can be either observable or unobservable. The availability of observable
inputs can vary between investments, and is affected by various factors such as
the type of investment, and the volume and level of activity for that investment
or similar investments in the marketplace. The inputs will be considered by the
Fund Administrator, along with any other relevant factors in the calculation of
an investment's fair value. The Fund uses prices and inputs that are current as
of the measurement date, which may include periods of market dislocations.
During these periods, the availability of prices and inputs may be reduced for
many investments. This condition could cause an investment to be reclassified
between the various levels within the hierarchy.
Investments falling into the Level 3 category are primarily supported by quoted
prices from brokers and dealers participating in the market for those
investments. However, these may be classified as Level 3 investments due to lack
of market transparency and corroboration to support these quoted
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 49
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
FAIR VALUE MEASUREMENTS (CONTINUED)
prices. Additionally, valuation models may be used as the pricing source for any
remaining investments classified as Level 3. These models rely on one or more
significant unobservable inputs and/or significant assumptions by the Fund
Administrator. Inputs used in a valuation model may include, but are not limited
to, financial statement analysis, discount rates and estimated cash flows, and
comparable company data.
The following table is a summary of the inputs used to value the Fund's
investments as of Aug. 31, 2009:
<Table>
<Caption>
FAIR VALUE AT AUG. 31, 2009
----------------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- ---------------------------------------------------------------------------------------------
Bonds
Municipal Bonds $-- $318,727,599 $-- $318,727,599
- ---------------------------------------------------------------------------------------------
Total Bonds -- 318,727,599 -- 318,727,599
- ---------------------------------------------------------------------------------------------
Other
Municipal Notes -- 1,200,000 -- 1,200,000
Money Market Fund(a) 56,086 -- -- 56,086
- ---------------------------------------------------------------------------------------------
Total Other 56,086 1,200,000 -- 1,256,086
- ---------------------------------------------------------------------------------------------
Total $56,086 $319,927,599 $-- $319,983,685
- ---------------------------------------------------------------------------------------------
</Table>
(a) Money market fund that is a sweep investment for cash balances in the Fund
at Aug. 31, 2009.
HOW TO FIND INFORMATION ABOUT THE FUND'S QUARTERLY 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 filed on Form N-Q,
can be obtained without charge, upon request, by calling the RiverSource
Family of Funds at 1(800) 221-2450.
- --------------------------------------------------------------------------------
50 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
RiverSource New York Tax-Exempt Fund
AUG. 31, 2009
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
MUNICIPAL BONDS (98.5%)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b,c) RATE AMOUNT VALUE(a)
ADVANCED REFUNDED (2.5%)
Metropolitan Transportation Authority
Prerefunded Revenue Bonds
Series 1998A (FGIC)
04-01-28 4.75% $1,000,000 $1,155,830
New York State Dormitory Authority
Prerefunded Revenue Bonds
Series 1990B
05-15-11 7.50 230,000 240,562
---------------
Total 1,396,392
- -------------------------------------------------------------------------------------
CITY (1.9%)
City of New York
Unrefunded Unlimited General Obligation Bonds
Series 2002E
08-01-16 5.75 1,000,000 1,087,080
- -------------------------------------------------------------------------------------
COLLEGE (21.9%)
Dutchess County Industrial Development Agency
Refunding Revenue Bonds
Bard College Civic Facilities
Series 2007-A1
08-01-22 5.00 500,000 509,470
New York State Dormitory Authority
Revenue Bonds
Brooklyn Law School
Series 2003B (XLCA)
07-01-30 5.13 1,000,000 934,950
New York State Dormitory Authority
Revenue Bonds
Columbia University
Series 2007C
07-01-29 5.00 1,250,000 1,335,012
New York State Dormitory Authority
Revenue Bonds
Cornell University
Series 2006A
07-01-26 5.00 1,000,000 1,068,470
07-01-31 5.00 1,000,000 1,040,410
New York State Dormitory Authority
Revenue Bonds
Education
Series 2008B
03-15-38 5.25 1,000,000 1,041,870
New York State Dormitory Authority
Revenue Bonds
North Shore-Long Island Jewish Health System
Series 2009A
05-01-37 5.50 750,000(f) 736,343
New York State Dormitory Authority
Revenue Bonds
Rochester Institute of Technology
Series 2008A
07-01-33 6.00 1,000,000 1,066,950
New York State Dormitory Authority
Revenue Bonds
Rochester University
Series 2009A
07-01-39 5.13 900,000 914,886
New York State Dormitory Authority
Revenue Bonds
Rockefeller University
Series 2009C
07-01-40 5.00 1,000,000 1,039,320
New York State Dormitory Authority
Revenue Bonds
Teacher's College
Series 2009
03-01-39 5.50 500,000 514,800
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 51
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource New York Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b,c) RATE AMOUNT VALUE(a)
COLLEGE (CONT.)
New York State Dormitory Authority
Revenue Bonds
Yeshiva University
Series 2009
09-01-38 5.00% $1,500,000 $1,516,469
Seneca County Industrial Development Agency
Revenue Bonds
New York Chiropractic College
Series 2007
10-01-27 5.00 750,000 578,895
---------------
Total 12,297,845
- -------------------------------------------------------------------------------------
COUNTY (2.5%)
County of Monroe
Unlimited General Obligation
Refunding & Public Improvement Bonds
Series 1996 (National)
03-01-15 6.00 1,250,000 1,418,150
- -------------------------------------------------------------------------------------
ELECTRIC (1.4%)
Long Island Power Authority
Revenue Bonds
Series 2009A
04-01-23 5.00 750,000 782,468
- -------------------------------------------------------------------------------------
HEALTH CARE -- HOSPITAL (9.1%)
Albany Industrial Development Agency
Revenue Bonds
St. Peters Hospital Project
Series 2008A
11-15-27 5.25 1,000,000 895,090
New York State Dormitory Authority
Revenue Bonds
Mental Health Services Facilities Improvement
Series 2005E (National/FGIC)
02-15-22 5.00 750,000 786,173
New York State Dormitory Authority
Revenue Bonds
New York University Hospital Center
Series 2007B
07-01-24 5.25 690,000 646,013
New York State Dormitory Authority
Revenue Bonds
Orange Regional Medical Center
Series 2008
12-01-29 6.13 1,250,000 1,039,499
New York State Dormitory Authority
Revenue Bonds
Sloan-Kettering Memorial Center
Series 2006-1
07-01-35 5.00 1,000,000 1,005,100
Ulster County Industrial Development Agency
Revenue Bonds
Series 2007A
09-15-42 6.00 1,000,000 697,910
---------------
Total 5,069,785
- -------------------------------------------------------------------------------------
HEALTH CARE -- LIFE CARE CENTER (0.5%)
Suffolk County Industrial Development Agency
Prerefunded Revenue Bonds
1st Mortgage Jeffersons Ferry
Series 1999A
11-01-28 7.25 250,000 257,495
- -------------------------------------------------------------------------------------
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 1,025,060
- -------------------------------------------------------------------------------------
HOUSING -- SINGLE FAMILY (4.2%)
New York Mortgage Agency
Revenue Bonds
Series 2002-101 A.M.T.
04-01-32 5.40 1,240,000 1,225,591
New York Mortgage Agency
Revenue Bonds
Series 2007-140 A.M.T.
10-01-21 4.60 500,000 489,545
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
52 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b,c) RATE AMOUNT VALUE(a)
HOUSING -- SINGLE FAMILY (CONT.)
New York Mortgage Agency
Revenue Bonds
Series 2007-143 A.M.T.
10-01-27 4.85% $675,000 $625,104
---------------
Total 2,340,240
- -------------------------------------------------------------------------------------
LEASE (8.7%)
New York City Industrial Development Agency
Revenue Bonds
Terminal One Group Association Project
Series 2005 A.M.T.
01-01-24 5.50 500,000 482,195
New York State Dormitory Authority
Revenue Bonds
Consolidated City University System
Series 1993A
07-01-13 5.75 3,000,000 3,217,590
New York State Dormitory Authority
Revenue Bonds
New York University Hospital Center
Series 2006A
07-01-20 5.00 500,000 473,120
New York State Dormitory Authority
Unrefunded Revenue Bonds
Series 1990B
05-15-11 7.50 645,000 710,158
---------------
Total 4,883,063
- -------------------------------------------------------------------------------------
MISCELLANEOUS (3.1%)
New York City Trust for Cultural Resources
Revenue Bonds
Lincoln Center
Series 2008C
12-01-18 5.25 750,000 816,158
New York State Dormitory Authority
Revenue Bonds
Mt. Sinai School of Medicine
New York University
Series 2007 (National)
07-01-37 4.50 1,000,000 898,930
---------------
Total 1,715,088
- -------------------------------------------------------------------------------------
MISCELLANEOUS REVENUE (11.7%)
Metropolitan Transportation Authority
Revenue Bonds
Series 2006A
11-15-22 5.00 750,000 774,488
Metropolitan Transportation Authority
Revenue Bonds
Series 2009A
11-15-26 5.30 700,000 744,387
New York City Industrial Development Agency
Revenue Bonds
Queens Baseball Stadium Pilot
Series 2006 (AMBAC)
01-01-23 5.00 500,000 492,795
01-01-24 5.00 500,000 490,940
New York City Industrial Development Agency
Revenue Bonds
Yankee Stadium Pilot
Series 2009 (Assured Guaranty)
03-01-49 7.00 250,000 286,450
New York City Trust for Cultural Resources
Revenue Bonds
Julliard School
Series 2009A
01-01-34 5.00 1,000,000 1,040,800
New York State Thruway Authority
Revenue Bonds
Transportation
Series 2008A
03-15-28 5.00 1,000,000 1,052,720
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 138th
Series 2004 (National/FGIC) A.M.T.
12-01-12 5.00 1,000,000 1,078,609
Seneca Nation Indians Capital Improvements Authority
Revenue Bonds
Series 2007A
12-01-16 5.25 500,000(d) 431,835
12-01-23 5.00 250,000(d) 187,745
---------------
Total 6,580,769
- -------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 53
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource New York Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b,c) RATE AMOUNT VALUE(a)
PORT DISTRICT (5.3%)
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 $1,021,490
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 1,436,055
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 147th
Series 2007 (National/FGIC) A.M.T.
10-15-26 5.00 500,000 507,250
---------------
Total 2,964,795
- -------------------------------------------------------------------------------------
SPECIAL DISTRICT -- SPECIAL TAX (7.8%)
Metropolitan Transportation Authority
Revenue Bonds
Series 2009B
11-15-34 5.00 1,500,000 1,514,220
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2003D
02-01-23 5.00 500,000 519,155
02-01-31 5.00 1,000,000 1,016,580
New York City Transitional Finance Authority
Revenue Bonds
Series 2009S-5
01-15-32 5.00 1,000,000 1,024,000
New York State Dormitory Authority
Revenue Bonds
Education
Series 2005F
03-15-23 5.00 250,000 264,905
---------------
Total 4,338,860
- -------------------------------------------------------------------------------------
TOLL ROAD (6.0%)
Metropolitan Transportation Authority
Revenue Bonds
Series 2005F
11-15-35 5.00 500,000 499,235
New York State Thruway Authority
Revenue Bonds
Series 2007H (National/FGIC)
01-01-23 5.00 500,000 533,285
New York State Thruway Authority
Revenue Bonds
Series 2009A-1
04-01-29 5.00 1,000,000 1,038,540
Triborough Bridge & Tunnel Authority
Refunding Revenue Bonds
Series 2002B
11-15-29 5.13 1,000,000 1,021,390
Triborough Bridge & Tunnel Authority
Revenue Bonds
Series 2008C
11-15-38 5.00 250,000 253,853
---------------
Total 3,346,303
- -------------------------------------------------------------------------------------
WATER & SEWER (10.1%)
Erie County Water Authority
Revenue Bonds
4th Resolution
Series 2007 (National)
12-01-34 4.75 500,000 502,000
New York City Municipal Water Finance Authority
Revenue Bonds
Fiscal 2009
Series 2008A
06-15-40 5.75 1,000,000 1,090,980
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2008CC
06-15-34 5.00 1,500,000 1,530,900
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2008DD
06-15-38 4.50 500,000 472,965
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
54 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b,c) RATE AMOUNT VALUE(a)
WATER & SEWER (CONT.)
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 $1,017,360
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 1,022,900
---------------
Total 5,637,105
- -------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $54,354,487) $55,140,498
- -------------------------------------------------------------------------------------
<Caption>
MUNICIPAL NOTES (0.6%)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUER(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 0.12% $360,000 $360,000
- -------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $360,000) $360,000
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONEY MARKET FUND (--%)
SHARES VALUE(a)
JPMorgan Tax-Free Money Market Fund 5,383 $5,383
- -------------------------------------------------------------------------------------
TOTAL MONEY MARKET FUND
(Cost: $5,383) $5,383
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $54,719,870)(g) $55,505,881
=====================================================================================
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using policies described in Note 2 to the
financial statements.
(b) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
<Table>
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BHAC -- Berkshire Hathaway Assurance Corporation
BIG -- Bond Investors Guarantee
BNY -- Bank of New York
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
TCRS -- Transferable Custodial Receipts
XLCA -- XL Capital Assurance
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 55
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource New York Tax-Exempt Fund
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(c) The following abbreviations may be used in the portfolio descriptions:
<Table>
A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2009, the value
of securities subject to alternative minimum tax
represented 12.3% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
</Table>
(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,
2009, the value of these securities amounted to $619,580 or 1.1% of net
assets.
(e) The Fund is entitled to receive principal and interest from the party, if
indicated in parentheses, after a day or a week's notice or upon maturity.
The maturity date disclosed represents the final maturity.
(f) At Aug. 31, 2009, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$724,148. See Note 2 to the financial statements.
(g) At Aug. 31, 2009, the cost of securities for federal income tax purposes
was $54,889,069 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $1,964,265
Unrealized depreciation (1,347,453)
----------------------------------------------------------
Net unrealized appreciation $616,812
----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
56 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FAIR VALUE MEASUREMENTS
Statement of Financial Accounting Standards No. 157 (SFAS 157) requires
disclosure regarding the inputs and valuation techniques used to measure fair
value and any changes in valuation inputs or techniques. In addition,
investments shall be disclosed by major category.
SFAS 157 establishes a fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by prioritizing that the most observable input be used when
available. Observable inputs are those that market participants would use in
pricing an investment based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are those that reflect the Fund's
assumptions about the information market participants would use in pricing an
investment. An investment's level within the fair value hierarchy is based on
the lowest level of any input that is deemed significant to the asset or
liability's fair value measurement. When a valuation uses multiple inputs from
varying levels of the hierarchy, the hierarchy level is determined based on the
lowest level input or inputs that are significant to the fair value measurement
in its entirety. The input levels are not necessarily an indication of the risk
or liquidity associated with investments at that level. For example, certain
U.S. government securities are generally high quality and liquid, however, they
are reflected as Level 2 because the inputs used to determine fair value may not
always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels listed below:
- Level 1 -- Valuations based on quoted prices for investments in active
markets that the Fund has the ability to access at the measurement date.
Valuation adjustments are not applied to Level 1 investments.
- Level 2 -- Valuations based on other significant observable inputs
(including quoted prices for similar securities, interest rates,
prepayment speeds, credit risks, etc.).
- Level 3 -- Valuations based on significant unobservable inputs (including
the Fund's own assumptions and judgment in determining the fair value of
investments).
Inputs that are used in determining fair value of an investment may include
price information, credit data, volatility statistics, and other factors. These
inputs can be either observable or unobservable. The availability of observable
inputs can vary between investments, and is affected by various factors such as
the type of investment, and the volume and level of activity for that investment
or similar investments in the marketplace. The inputs will be considered by the
Fund Administrator, along with any other relevant factors in the calculation of
an investment's fair value. The Fund uses prices and inputs that are current as
of the measurement date, which may include periods of market dislocations.
During these periods, the availability of prices and inputs may be reduced for
many investments. This condition could cause an investment to be reclassified
between the various levels within the hierarchy.
Investments falling into the Level 3 category are primarily supported by quoted
prices from brokers and dealers participating in the market for those
investments. However, these may be classified as Level 3 investments due to lack
of market transparency and corroboration to support these quoted
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 57
PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------
RiverSource New York Tax-Exempt Fund
FAIR VALUE MEASUREMENTS (CONTINUED)
prices. Additionally, valuation models may be used as the pricing source for any
remaining investments classified as Level 3. These models rely on one or more
significant unobservable inputs and/or significant assumptions by the Fund
Administrator. Inputs used in a valuation model may include, but are not limited
to, financial statement analysis, discount rates and estimated cash flows, and
comparable company data.
The following table is a summary of the inputs used to value the Fund's
investments as of Aug. 31, 2009:
<Table>
<Caption>
FAIR VALUE AT AUG. 31, 2009
--------------------------------------------------------------
LEVEL 1 LEVEL 2
QUOTED PRICES OTHER LEVEL 3
IN ACTIVE SIGNIFICANT SIGNIFICANT
MARKETS FOR OBSERVABLE UNOBSERVABLE
DESCRIPTION IDENTICAL ASSETS INPUTS INPUTS TOTAL
- --------------------------------------------------------------------------------------------
Bonds
Municipal Bonds $-- $55,140,498 $-- $55,140,498
- --------------------------------------------------------------------------------------------
Total Bonds -- 55,140,498 -- 55,140,498
- --------------------------------------------------------------------------------------------
Other
Municipal Notes -- 360,000 -- 360,000
Money Market Fund(a) 5,383 -- -- 5,383
- --------------------------------------------------------------------------------------------
Total Other 5,383 360,000 -- 365,383
- --------------------------------------------------------------------------------------------
Total $5,383 $55,500,498 $-- $55,505,881
- --------------------------------------------------------------------------------------------
</Table>
(a) Money market fund that is a sweep investment for cash balances in the Fund
at Aug. 31, 2009.
HOW TO FIND INFORMATION ABOUT THE FUND'S QUARTERLY 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 filed on Form N-Q,
can be obtained without charge, upon request, by calling the RiverSource
Family of Funds at 1(800) 221-2450.
- --------------------------------------------------------------------------------
58 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
STATEMENTS OF ASSETS AND LIABILITIES -------------------------------------------
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE RIVERSOURCE
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
AUG. 31, 2009 FUND FUND FUND
ASSETS
Investments in securities, at value
Unaffiliated issuers (identified cost $164,627,974,
$314,855,944 and $54,714,487) $162,874,995 $319,927,599 $55,500,498
Money market fund (identified cost $30,445, $56,086 and
$5,383) 30,445 56,086 5,383
- -----------------------------------------------------------------------------------------------------------
Total investments in securities (identified cost
$164,658,419, $314,912,030 and $54,719,870) 162,905,440 319,983,685 55,505,881
Capital shares receivable 25,129 126,518 1,018
Accrued interest receivable 2,041,018 4,091,856 731,072
Receivable for investment securities sold 2,596,167 2,134,168 572,702
- -----------------------------------------------------------------------------------------------------------
Total assets 167,567,754 326,336,227 56,810,673
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 134,482 252,328 44,078
Capital shares payable 86,709 245,499 2,200
Payable for investment securities purchased 5,333,931 2,594,868 724,148
Accrued investment management services fees 5,452 10,733 1,886
Accrued distribution fees 35,537 71,235 12,394
Accrued transfer agency fees 487 1,355 269
Accrued administrative services fees 931 1,858 322
Other accrued expenses 56,216 71,087 46,471
- -----------------------------------------------------------------------------------------------------------
Total liabilities 5,653,745 3,248,963 831,768
- -----------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares $161,914,009 $323,087,264 $55,978,905
- -----------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 59
STATEMENT OF ASSETS AND LIABILITIES (continued) --------------------------------
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE RIVERSOURCE
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
AUG. 31, 2009 FUND FUND FUND
REPRESENTED BY
Shares of beneficial interest -- $.01 par value $ 333,914 $ 626,350 $ 115,194
Additional paid-in capital 166,423,922 320,385,872 56,145,529
Undistributed net investment income 56,391 99,537 20,364
Accumulated net realized gain (loss) (3,147,239) (3,096,150) (1,088,193)
Unrealized appreciation (depreciation) on investments (1,752,979) 5,071,655 786,011
- -----------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
shares $161,914,009 $323,087,264 $55,978,905
- -----------------------------------------------------------------------------------------------------------
</Table>
<Table>
Net assets applicable to
outstanding shares: Class A $156,529,091 $301,420,555 $52,995,844
Class B $ 2,746,317 $ 9,061,802 $ 2,051,875
Class C $ 2,638,601 $ 12,604,907 $ 931,186
Outstanding shares of
beneficial interest: Class A shares 32,281,411 58,435,558 10,905,515
Class B shares 566,512 1,755,984 422,258
Class C shares 543,497 2,443,475 191,649
Net asset value per
share: Class A(1) $ 4.85 $ 5.16 $ 4.86
Class B $ 4.85 $ 5.16 $ 4.86
Class C $ 4.85 $ 5.16 $ 4.86
- -----------------------------------------------------------------------------------------------------------
</Table>
(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 $5.09, $5.42 and $5.10, 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.
- --------------------------------------------------------------------------------
60 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
STATEMENTS OF OPERATIONS -------------------------------------------------------
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE RIVERSOURCE
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
YEAR ENDED AUG. 31, 2009 FUND FUND FUND
INVESTMENT INCOME
Income:
Interest $ 8,662,005 $15,645,814 $2,747,017
Income distributions from money market fund 7,028 5,045 1,434
- ---------------------------------------------------------------------------------------------------
Total income 8,669,033 15,650,859 2,748,451
- ---------------------------------------------------------------------------------------------------
Expenses:
Investment management services fees 663,711 1,230,393 220,172
Distribution fees
Class A 388,632 703,042 124,348
Class B 39,496 127,738 32,203
Class C 24,784 92,844 7,408
Transfer agency fees
Class A 58,703 149,574 30,894
Class B 1,659 7,443 2,168
Class C 996 5,149 491
Administrative services fees 113,317 212,293 37,590
Interest and fee expense 38,551 164,141 10,496
Compensation of board members 5,090 9,555 1,690
Custodian fees 9,905 12,510 5,632
Printing and postage 7,935 27,333 20,390
Registration fees 39,120 50,020 48,054
Professional fees 34,746 36,582 33,084
Other 8,974 15,135 3,556
- ---------------------------------------------------------------------------------------------------
Total expenses 1,435,619 2,843,752 578,176
Expenses waived/reimbursed by the Investment Manager and
its affiliates (68,760) (116,020) (113,110)
Earnings and bank fee credits on cash balances (2,507) (3,043) --
- ---------------------------------------------------------------------------------------------------
Total net expenses 1,364,352 2,724,689 465,066
- ---------------------------------------------------------------------------------------------------
Investment income (loss) -- net 7,304,681 12,926,170 2,283,385
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on security transactions (934,821) 909,145 (739,903)
Net change in unrealized appreciation (depreciation) on
investments (1,875,989) 1,703,901 702,309
- ---------------------------------------------------------------------------------------------------
Net gain (loss) on investments (2,810,810) 2,613,046 (37,594)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 4,493,871 $15,539,216 $2,245,791
- ---------------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 61
STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------
<Table>
<Caption>
RIVERSOURCE
CALIFORNIA TAX-EXEMPT FUND
YEAR ENDED AUG. 31, 2009 2008
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 7,304,681 $ 6,941,429
Net realized gain (loss) on investments (934,821) (1,876,280)
Net change in unrealized appreciation (depreciation) on
investments (1,875,989) (1,439,312)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 4,493,871 3,625,837
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (7,049,353) (6,676,981)
Class B (149,044) (186,183)
Class C (93,719) (67,785)
Net realized gain
Class A -- (1,181,240)
Class B -- (42,325)
Class C -- (10,896)
- ---------------------------------------------------------------------------------------------
Total distributions (7,292,116) (8,165,410)
- ---------------------------------------------------------------------------------------------
Share transactions
Proceeds from sales
Class A shares 19,923,096 64,314,623
Class B shares 443,125 841,055
Class C shares 472,755 1,663,705
Reinvestment of distributions at net asset value
Class A shares 4,800,389 5,715,149
Class B shares 124,705 208,722
Class C shares 77,165 69,070
Conversions from Class B to Class A
Class A shares 1,139,538 1,234,174
Class B shares (1,139,538) (1,234,174)
Payments for redemptions
Class A shares (38,756,535) (59,067,436)
Class B shares (1,267,870) (1,064,401)
Class C shares (698,645) (741,437)
- ---------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions (14,881,815) 11,939,050
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (17,680,060) 7,399,477
Net assets at beginning of year 179,594,069 172,194,592
- ---------------------------------------------------------------------------------------------
Net assets at end of year $161,914,009 $179,594,069
- ---------------------------------------------------------------------------------------------
Undistributed net investment income $ 56,391 $ 43,826
- ---------------------------------------------------------------------------------------------
</Table>
Certain line items from the prior year have been renamed to conform to the
current year presentation.
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
62 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
<Table>
<Caption>
RIVERSOURCE
MINNESOTA TAX-EXEMPT FUND
YEAR ENDED AUG. 31, 2009 2008
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 12,926,170 $ 12,238,164
Net realized gain (loss) on investments 909,145 (1,301,693)
Net change in unrealized appreciation (depreciation) on
investments 1,703,901 (383,745)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 15,539,216 10,552,726
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (12,286,856) (11,396,501)
Class B (461,961) (578,310)
Class C (334,186) (248,552)
Net realized gain
Class A -- --
Class B -- --
Class C -- --
- ---------------------------------------------------------------------------------------------
Total distributions (13,083,003) (12,223,363)
- ---------------------------------------------------------------------------------------------
Share transactions
Proceeds from sales
Class A shares 41,948,263 43,503,320
Class B shares 1,076,993 1,495,288
Class C shares 4,828,068 2,599,145
Reinvestment of distributions at net asset value
Class A shares 10,050,436 9,552,532
Class B shares 407,559 516,735
Class C shares 292,939 222,405
Conversions from Class B to Class A
Class A shares 3,807,793 3,540,727
Class B shares (3,807,793) (3,540,727)
Payments for redemptions
Class A shares (45,969,582) (53,551,129)
Class B shares (2,591,129) (4,098,902)
Class C shares (1,143,172) (1,341,812)
- ---------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions 8,900,375 (1,102,418)
- ---------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 11,356,588 (2,773,055)
Net assets at beginning of year 311,730,676 314,503,731
- ---------------------------------------------------------------------------------------------
Net assets at end of year $323,087,264 $311,730,676
- ---------------------------------------------------------------------------------------------
Undistributed net investment income $ 99,537 $ 256,370
- ---------------------------------------------------------------------------------------------
</Table>
Certain line items from the prior year have been renamed to conform to the
current year presentation.
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 63
STATEMENTS OF CHANGES IN NET ASSETS (continued) --------------------------------
<Table>
<Caption>
RIVERSOURCE
NEW YORK TAX-EXEMPT FUND
YEAR ENDED AUG. 31, 2009 2008
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 2,283,385 $ 2,349,562
Net realized gain (loss) on investments (739,903) (245,291)
Net change in unrealized appreciation (depreciation) on
investments 702,309 (522,090)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 2,245,791 1,582,181
- --------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (2,138,780) (2,189,003)
Class B (113,911) (134,397)
Class C (26,205) (23,906)
Net realized gain
Class A -- (98,846)
Class B -- (7,550)
Class C -- (1,363)
- --------------------------------------------------------------------------------------------
Total distributions (2,278,896) (2,455,065)
- --------------------------------------------------------------------------------------------
Share transactions
Proceeds from sales
Class A shares 6,574,142 3,812,133
Class B shares 259,408 277,150
Class C shares 322,075 115,478
Reinvestment of distributions at net asset value
Class A shares 1,749,901 1,915,808
Class B shares 95,703 125,138
Class C shares 24,460 24,019
Conversions from Class B to Class A
Class A shares 1,435,523 373,093
Class B shares (1,435,523) (373,093)
Payments for redemptions
Class A shares (9,315,791) (11,068,956)
Class B shares (350,063) (1,021,545)
Class C shares (140,906) (204,109)
- --------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions (781,071) (6,024,884)
- --------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (814,176) (6,897,768)
Net assets at beginning of year 56,793,081 63,690,849
- --------------------------------------------------------------------------------------------
Net assets at end of year $55,978,905 $ 56,793,081
- --------------------------------------------------------------------------------------------
Undistributed net investment income $ 20,364 $ 15,877
- --------------------------------------------------------------------------------------------
</Table>
Certain line items from the prior year have been renamed to conform to the
current year presentation.
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
64 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
FINANCIAL HIGHLIGHTS -----------------------------------------------------------
The following tables are intended to help you understand the Fund's financial
performance. Certain information reflects financial results for a single share
of a class held for the periods shown. For periods ended 2007 and after, per
share amounts are calculated based on average shares outstanding during the
period. Total returns assume reinvestment of all dividends and distributions.
Total returns do not reflect payment of sales charges, if any, and are not
annualized for periods of less than one year.
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED AUG. 31, JUNE 30,
CLASS A ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $4.90 $5.03 $5.16 $5.06 $5.27 $5.11
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .21 .20 .20 .03 .19 .20
Net gains (losses) (both realized and
unrealized) (.05) (.09) (.13) .10 (.15) .23
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .16 .11 .07 .13 .04 .43
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.20) (.20) (.03) (.19) (.20)
Distributions from realized gains -- (.04) -- -- (.06) (.07)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.24) (.20) (.03) (.25) (.27)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.85 $4.90 $5.03 $5.16 $5.06 $5.27
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.59% 2.13% 1.35% 2.63% .81% 8.53%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) .86% .87% .88% N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) .82% .80%(e) .80% N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) .83% .86% .87% .87%(f) .88% .86%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) .79% .79%(e) .79% .79%(f) .81% .86%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.54% 4.01% 3.89% 3.81%(f) 3.69% 3.71%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $157 $172 $164 $170 $171 $190
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 49% 62% 7% 20% 28%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 65
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED AUG. 31, JUNE 30,
CLASS B ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $4.90 $5.03 $5.16 $5.06 $5.27 $5.11
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18 .16 .16 .03 .15 .16
Net gains (losses) (both realized and
unrealized) (.06) (.09) (.13) .10 (.15) .23
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .12 .07 .03 .13 -- .39
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.17) (.16) (.16) (.03) (.15) (.16)
Distributions from realized gains -- (.04) -- -- (.06) (.07)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.20) (.16) (.03) (.21) (.23)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.85 $4.90 $5.03 $5.16 $5.06 $5.27
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.81% 1.37% .59% 2.50% .05% 7.72%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) 1.61% 1.62% 1.63% N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) 1.57% 1.55%(e) 1.55% N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) 1.58% 1.61% 1.62% 1.62%(f) 1.63% 1.61%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) 1.54% 1.54%(e) 1.54% 1.55%(f) 1.57% 1.61%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.78% 3.27% 3.12% 3.01%(f) 2.92% 2.95%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $3 $5 $6 $9 $11 $16
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 49% 62% 7% 20% 28%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
66 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED AUG. 31, JUNE 30,
CLASS C ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $4.91 $5.04 $5.17 $5.07 $5.28 $5.12
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18 .16 .16 .03 .15 .16
Net gains (losses) (both realized and
unrealized) (.07) (.09) (.13) .10 (.15) .23
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .11 .07 .03 .13 -- .39
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.17) (.16) (.16) (.03) (.15) (.16)
Distributions from realized gains -- (.04) -- -- (.06) (.07)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.20) (.16) (.03) (.21) (.23)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.85 $4.91 $5.04 $5.17 $5.07 $5.28
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 2.60% 1.38% .60% 2.50% .06% 7.71%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) 1.61% 1.62% 1.63% N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) 1.57% 1.55%(e) 1.55% N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) 1.58% 1.61% 1.62% 1.63%(f) 1.64% 1.62%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) 1.54% 1.54%(e) 1.54% 1.55%(f) 1.58% 1.62%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.78% 3.18% 3.13% 3.05%(f) 2.93% 2.94%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $3 $3 $2 $2 $2 $3
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 49% 62% 7% 20% 28%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 67
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
RiverSource California Tax-Exempt Fund
NOTES TO FINANCIAL HIGHLIGHTS
(a) For the period from July 1, 2006 to Aug. 31, 2006.
(b) In addition to the fees and expenses the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(c) 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.
(d) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(e) Expense ratio is before the reduction for earnings/bank fee credits on cash
balances. For the year ended Aug. 31, 2008, earnings/bank fee credits
lowered the expense ratio by 0.01% of average daily net assets.
(f) Annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
68 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED AUG. 31, JUNE 30,
CLASS A ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $5.11 $5.14 $5.27 $5.17 $5.35 $5.20
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .21 .21 .19 .03 .18 .18
Net gains (losses) (both realized and
unrealized) .05 (.03) (.13) .10 (.17) .17
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .26 .18 .06 .13 .01 .35
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.21) (.19) (.03) (.18) (.18)
Distributions from realized gains -- -- -- -- (.01) (.02)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.21) (.19) (.03) (.19) (.20)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.16 $5.11 $5.14 $5.27 $5.17 $5.35
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.50% 3.50% 1.26% 2.56% .29% 6.73%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) .88% .99% 1.05% 1.06%(f) 1.01% .95%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) .84% .95%(e) .99% .98%(f) .96% .95%
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) .83% .83% .85% .87%(f) .86% .85%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) .79% .79%(e) .79% .79%(f) .81% .85%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.31% 4.05% 3.70% 3.60%(f) 3.52% 3.37%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $301 $289 $288 $309 $303 $341
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 33% 23% 26% 3% 13% 15%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 69
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED AUG. 31, JUNE 30,
CLASS B ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $5.12 $5.15 $5.27 $5.17 $5.35 $5.20
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18 .17 .15 .03 .14 .14
Net gains (losses) (both realized and
unrealized) .04 (.03) (.11) .10 (.17) .17
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .22 .14 .04 .13 (.03) .31
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.17) (.16) (.03) (.14) (.14)
Distributions from realized gains -- -- -- -- (.01) (.02)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.17) (.16) (.03) (.15) (.16)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.16 $5.12 $5.15 $5.27 $5.17 $5.35
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.50% 2.72% .70% 2.42% (.47%) 5.94%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE DAILY NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) 1.63% 1.75% 1.80% 1.81%(f) 1.77% 1.70%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) 1.59% 1.70%(e) 1.75% 1.74%(f) 1.72% 1.70%
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) 1.58% 1.59% 1.60% 1.62%(f) 1.62% 1.60%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) 1.54% 1.54%(e) 1.55% 1.55%(f) 1.57% 1.60%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.56% 3.29% 2.93% 2.81%(f) 2.75% 2.62%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $9 $14 $20 $29 $34 $49
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 33% 23% 26% 3% 13% 15%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
70 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED AUG. 31, JUNE 30,
CLASS C ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $5.12 $5.15 $5.27 $5.17 $5.35 $5.20
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18 .17 .15 .03 .14 .14
Net gains (losses) (both realized and
unrealized) .04 (.03) (.11) .10 (.17) .17
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .22 .14 .04 .13 (.03) .31
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.17) (.16) (.03) (.14) (.14)
Distributions from realized gains -- -- -- -- (.01) (.02)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.17) (.16) (.03) (.15) (.16)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.16 $5.12 $5.15 $5.27 $5.17 $5.35
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.51% 2.72% .70% 2.42% (.47%) 5.94%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) 1.63% 1.75% 1.80% 1.82%(f) 1.77% 1.71%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) 1.59% 1.70%(e) 1.75% 1.74%(f) 1.72% 1.71%
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) 1.58% 1.59% 1.60% 1.63%(f) 1.62% 1.61%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) 1.54% 1.54%(e) 1.55% 1.55%(f) 1.57% 1.61%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.55% 3.29% 2.94% 2.84%(f) 2.76% 2.62%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $13 $8 $7 $8 $8 $9
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 33% 23% 26% 3% 13% 15%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 71
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
NOTES TO FINANCIAL HIGHLIGHTS
(a) For the period from July 1, 2006 to Aug. 31, 2006.
(b) In addition to the fees and expenses which the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(c) 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.
(d) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(e) Expense ratio is before the reduction for earnings/bank fee credits on cash
balances. For the year ended Aug. 31, 2008, earnings/bank fee credits
lowered the expense ratio by 0.01% of average daily net assets.
(f) Annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
72 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED JULY 31, JUNE 30,
CLASS A ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $4.85 $4.93 $5.05 $4.95 $5.18 $5.07
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20 .20 .19 .03 .19 .18
Net gains (losses) (both realized and
unrealized) .01 (.07) (.11) .10 (.18) .17
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .21 .13 .08 .13 .01 .35
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.20) (.19) (.03) (.19) (.18)
Distributions from realized gains -- (.01) (.01) -- (.05) (.06)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.21) (.20) (.03) (.24) (.24)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.86 $4.85 $4.93 $5.05 $4.95 $5.18
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 4.62% 2.59% 1.53% 2.67% .20% 7.04%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) 1.02% 1.12% 1.18% 1.20%(f) 1.13% 1.02%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) .81% .93%(e) 1.00% .98%(f) .98% .98%
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) 1.00% .98% .97% 1.01%(f) .96% .92%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) .79% .79%(e) .79% .79%(f) .81% .88%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.30% 4.03% 3.81% 3.77%(f) 3.75% 3.47%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $53 $53 $58 $63 $63 $73
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 34% 31% 28% 7% 17% 30%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 73
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
RiverSource New York Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED AUG. 31, JUNE 30,
CLASS B ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $4.85 $4.93 $5.05 $4.95 $5.18 $5.07
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17 .16 .15 .03 .15 .14
Net gains (losses) (both realized and
unrealized) -- (.07) (.11) .10 (.18) .17
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .17 .09 .04 .13 (.03) .31
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.16) (.15) (.03) (.15) (.14)
Distributions from realized gains -- (.01) (.01) -- (.05) (.06)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.17) (.16) (.03) (.20) (.20)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.86 $4.85 $4.93 $5.05 $4.95 $5.18
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.83% 1.83% .76% 2.54% (.55%) 6.23%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) 1.77% 1.87% 1.93% 1.95%(f) 1.88% 1.77%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) 1.56% 1.68%(e) 1.76% 1.74%(f) 1.75% 1.74%
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) 1.75% 1.73% 1.72% 1.76%(f) 1.71% 1.67%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) 1.54% 1.54%(e) 1.55% 1.55%(f) 1.58% 1.64%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.54% 3.28% 3.05% 2.98%(f) 2.98% 2.70%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $2 $4 $5 $7 $8 $11
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 34% 31% 28% 7% 17% 30%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
74 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED
YEAR ENDED AUG. 31, JUNE 30,
CLASS C ---------------------------------------- ----------------
PER SHARE DATA 2009 2008 2007 2006(a) 2006 2005
Net asset value, beginning of period $4.85 $4.92 $5.05 $4.95 $5.18 $5.07
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17 .16 .15 .03 .15 .14
Net gains (losses) (both realized and
unrealized) -- (.06) (.12) .10 (.18) .17
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations .17 .10 .03 .13 (.03) .31
- -----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.16) (.15) (.03) (.15) (.14)
Distributions from realized gains -- (.01) (.01) -- (.05) (.06)
- -----------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.17) (.16) (.03) (.20) (.20)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.86 $4.85 $4.92 $5.05 $4.95 $5.18
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.84% 2.04% .56% 2.54% (.55%) 6.23%
- -----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(b)
Gross expenses prior to expense waiver/
reimbursement (including interest and fee
expense)(c) 1.77% 1.87% 1.93% 1.97%(f) 1.89% 1.78%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (including interest and fee
expense)(c),(d) 1.56% 1.68%(e) 1.76% 1.74%(f) 1.75% 1.74%
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense waiver/
reimbursement (excluding interest and fee
expense) 1.75% 1.73% 1.72% 1.78%(f) 1.72% 1.68%
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense waiver/
reimbursement (excluding interest and fee
expense)(d) 1.54% 1.54%(e) 1.55% 1.55%(f) 1.58% 1.64%
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.55% 3.28% 3.05% 3.01%(f) 2.99% 2.70%
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1 $1 $1 $1 $1 $1
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 34% 31% 28% 7% 17% 30%
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying Notes to Financial Highlights.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 75
FINANCIAL HIGHLIGHTS (continued) -----------------------------------------------
RiverSource New York Tax-Exempt Fund
NOTES TO FINANCIAL HIGHLIGHTS
(a) For the period from July 1, 2006 to Aug. 31, 2006.
(b) In addition to the fees and expenses the Fund bears directly, the Fund
indirectly bears a pro rata share of the fees and expenses of the acquired
funds in which it invests. Such indirect expenses are not included in the
above reported expense ratios.
(c) 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.
(d) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses (excluding fees and expenses of acquired funds).
(e) Expense ratio is before reduction for earnings/bank fee credits on cash
balances. For the year ended Aug. 31, 2008, earnings/bank fee credits
lowered the expense ratio by 0.01%.
(f) Annualized.
The accompanying Notes to Financial Statements are an integral part of this
statement.
- --------------------------------------------------------------------------------
76 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. ORGANIZATION
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 (the 1940 Act).
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 offered with a front-end sales charge, which may be waived
under certain circumstances.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares one month after the completion of
the eighth year of ownership if originally purchased in a RiverSource fund on
or after May 21, 2005 or originally purchased in a Seligman fund on or after
June 13, 2009. Class B shares originally purchased in a RiverSource fund
prior to May 21, 2005 will convert to Class A shares in the ninth calendar
year of ownership. Class B shares originally purchased in a Seligman fund
prior to June 13, 2009 will convert to Class A shares in the month prior to
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.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 77
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
VALUATION OF SECURITIES
All securities are valued at the close of business of the New York Stock
Exchange (NYSE). Securities traded on national securities exchanges or included
in national market systems are valued at the last quoted sales price. Debt
securities are generally traded in the over-the-counter market and are valued by
an independent pricing service using an evaluated bid. 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 each Fund's 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. Typically, those maturing in 60 days or less that originally had
maturities of more than 60 days at acquisition date are valued at amortized cost
using the market value on the 61st day before maturity. Short-term securities
maturing in 60 days or less at acquisition date are valued at amortized cost.
Amortized cost is an approximation of market value. Investments in money market
funds are valued at net asset value.
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. Each Fund designates
cash or liquid securities at least equal to the amount of its forward-
- --------------------------------------------------------------------------------
78 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
commitments. At Aug. 31, 2009, the outstanding when-issued securities for the
Funds are as follows:
<Table>
<Caption>
WHEN-ISSUED
FUND SECURITIES
- ------------------------------------------------------------
RiverSource California Tax-Exempt Fund $2,908,340
RiverSource New York Tax-Exempt Fund 724,148
</Table>
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, if
any, 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 rate 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. 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, 2009, the Funds had no outstanding short-term floating rate notes held in
trust.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 79
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
GUARANTEES AND INDEMNIFICATIONS
Under each Fund's organizational documents, its officers and trustees 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 (which includes net short-term capital gains) and tax-
exempt ordinary 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.
Management of each Fund has concluded that there are no significant uncertain
tax positions that would require recognition in the financial statements.
Generally, the tax authorities can examine all the tax returns filed for the
last three years.
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.
3. INVESTMENTS IN DERIVATIVES
Each Fund may invest in certain derivative instruments, which are transactions
whose values depend on or are derived from (in whole or in part) the value of
one or more other assets, such as securities, currencies, commodities or
indices. Such derivative instruments may be used to maintain cash reserves while
maintaining exposure to certain other assets, to offset anticipated declines in
values of investments, to facilitate trading, to reduce transaction costs, and
to pursue higher investment returns. Each Fund may also use derivative
instruments to mitigate certain investment risks, such as foreign currency
exchange rate risk, interest rate risk, and credit risk.
- --------------------------------------------------------------------------------
80 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FUTURES TRANSACTIONS
Each Fund may buy and sell financial futures contracts traded on any U.S. or
foreign exchange to produce incremental earnings, hedge existing positions or
protect against market changes in the value of equities, interest rates or
foreign currencies. Each Fund may also buy and write put and call options on
these futures contracts. A futures contract represents a commitment for the
future purchase or sale of an asset at a specified price on a specified date.
Futures and options on futures are valued daily based upon the last sale price
at the close of the market on the principal exchange on which they are traded.
Upon entering into a futures contract, each Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by each Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. Each Fund recognizes a realized gain or loss when the contract is closed
or expires.
Upon entering into futures contracts, each Fund bears the risk of interest
rates, exchange rates or securities prices moving unexpectedly, in which case,
each Fund may not achieve the anticipated benefits of the futures contracts and
may realize a loss. Additional risks include counterparty credit risk, 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. At Aug. 31, 2009, and for the year then ended, the Funds had no
outstanding futures contracts.
INTEREST RATE SWAP TRANSACTIONS
Each Fund may enter into interest rate swap transactions to produce incremental
earnings, or to gain exposure to or protect itself from market rate changes, or
to synthetically add or subtract principal exposure to a market. 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.
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); each Fund will
realize
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 81
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
a gain or loss upon the payment or receipt of accrued interest. Each Fund will
realize a gain or a loss when the interest rate swap is terminated.
Risks of entering into interest rate swaps include a lack of correlation between
the swaps and the portfolio of bonds the swaps are designed to hedge or
replicate. A lack of correlation may cause the interest rate swaps 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 taken. Each Fund's maximum risk of loss from counterparty credit risk
is the discounted net value of the cash flows to be received from/paid to the
counterparty over the contract's remaining life to the extent that such amount
is positive, plus the cost of entering into a similar transaction with another
counterparty. This risk is mitigated by having a master netting arrangement
between each Fund and the counterparty and by the posting of collateral by the
counterparty to each Fund to cover each Fund's exposure to the counterparty. At
Aug. 31, 2009, and for the year then ended, the Funds had no outstanding
interest rate swap contracts.
4. 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 an annual fee that is equal to a percentage of each
Fund's average daily net assets that declines from 0.41% to 0.25% as each Fund's
net assets increase. The management fee for the year ended Aug. 31, 2009 was
0.41% of each Fund's average daily net assets.
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, each Fund pays Ameriprise Financial,
Inc., the parent company of the Investment Manager, an annual fee for
administration and accounting services equal to a percentage of each Fund's
average daily net assets that declines from 0.07% to 0.04% as each Fund's net
assets increase. The fee for the year ended Aug. 31, 2009 was 0.07% of each
Fund's average daily net assets.
OTHER FEES
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
- --------------------------------------------------------------------------------
82 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
administrative services to the Funds and the Board. For the year ended Aug. 31,
2009, other expenses paid to this company are as follows:
<Table>
<Caption>
FUND AMOUNT
- ----------------------------------------------------------
RiverSource California Tax-Exempt Fund $1,025
RiverSource Minnesota Tax-Exempt Fund 1,756
RiverSource New York Tax-Exempt Fund 351
</Table>
COMPENSATION OF BOARD MEMBERS
Under a Deferred Compensation Plan (the Plan), the board members who are not
"interested persons" of each Fund under the 1940 Act 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 funds in the RiverSource
Family of Funds. Each Fund's liability for these amounts is adjusted for market
value changes and remains in the funds until distributed in accordance with the
Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains Fund shareholder accounts and records and provides Fund
shareholder services. 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 also charges an annual fee of $3
per account serviced directly by each Fund or its designated agent for Class A,
Class B and Class C shares. The Transfer Agent charges an annual fee of $5 per
inactive account, charged on a pro rata basis for the 12 month period from the
date the account becomes inactive. These fees are included in the transfer
agency fees in the Statements of Operations.
DISTRIBUTION FEES
Each Fund has an agreement with RiverSource Fund Distributors, Inc. (the
Distributor) for distribution and shareholder services. 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, of the 1.00% fee, up to 0.75% is reimbursed for distribution
expenses.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 83
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed (unreimbursed expense) for each Fund was approximately as follows:
<Table>
<Caption>
FUND CLASS B CLASS C
- ---------------------------------------------------------------
RiverSource California Tax-Exempt Fund $ 88,000 $23,000
RiverSource Minnesota Tax-Exempt Fund 239,000 80,000
RiverSource New York Tax-Exempt Fund 64,000 8,000
</Table>
These amounts are based on the most recent information available as of July 31,
2009, 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, including front-end and CDSCs, received by the Distributor for
distributing the Funds' shares for the year ended Aug. 31, 2009 are as follows:
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C
- -------------------------------------------------------------------
RiverSource California Tax-Exempt Fund $ 85,410 $6,569 $ 368
RiverSource Minnesota Tax-Exempt Fund 401,213 4,070 1,499
RiverSource New York Tax-Exempt Fund 19,110 1,807 75
</Table>
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended Aug. 31, 2009, 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 each Fund's participation in
certain inverse floater programs and fees and expenses of acquired funds*) are
as follows:
<Table>
<Caption>
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
</Table>
The waived/reimbursed fees and expenses for the transfer agency fees at the
class level were as follows:
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C
- -------------------------------------------------------------------
RiverSource California Tax-Exempt Fund $11,662 $ 434 $ 228
RiverSource Minnesota Tax-Exempt Fund 36,360 2,207 1,359
RiverSource New York Tax-Exempt Fund 10,869 848 188
</Table>
- --------------------------------------------------------------------------------
84 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
The management fees waived/reimbursed at the Fund level were as follows:
<Table>
<Caption>
FUND AMOUNT
- -----------------------------------------------------------
RiverSource California Tax-Exempt Fund $ 56,436
RiverSource Minnesota Tax-Exempt Fund 76,094
RiverSource New York Tax-Exempt Fund 101,205
</Table>
Under an agreement which was effective until Aug. 31, 2009, the Investment
Manager and its affiliates contractually agreed to waive certain fees and
expenses such that net expenses (excluding interest and fee expenses related to
each Fund's participation in certain inverse floater programs and fees and
expenses of acquired funds*), would not exceed 0.79% for Class A, 1.54% for
Class B and 1.54% for Class C of each class' average daily net assets.
Effective Sept. 1, 2009, the Investment Manager and its affiliates have
contractually agreed to waive certain fees and expenses until Oct. 31, 2010,
unless sooner terminated at the discretion of the Board, such that net expenses
(excluding interest and fee expenses related to each Fund's participation in
certain inverse floater programs and fees and expenses of acquired funds*), will
not exceed the following percentage of the class' average daily net assets:
<Table>
<Caption>
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 1.55 1.54
RiverSource New York Tax-Exempt Fund 0.79 1.54 1.54
</Table>
* In addition to the fees and expenses which each Fund bears directly, each
Fund indirectly bears a pro rata share of the fees and expenses of the funds
in which it invests (also referred to as "acquired funds"), including
affiliated and non-affiliated pooled investment vehicles (including mutual
funds and exchange traded funds). Because the acquired funds have varied
expense and fee levels and each Fund may own different proportions of
acquired funds at different times, the amount of fees and expenses incurred
indirectly by each Fund will vary.
EARNINGS AND BANK FEE CREDITS
During the year ended Aug. 31, 2009, the Funds' custodian and transfer agency
fees were reduced as a result of earnings and bank fee credits from overnight
cash balances as follows:
<Table>
<Caption>
FUND AMOUNT
- ----------------------------------------------------------
RiverSource California Tax-Exempt Fund $2,507
RiverSource Minnesota Tax-Exempt Fund 3,043
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 85
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
5. SECURITIES TRANSACTIONS
For the year ended Aug. 31, 2009, cost of purchases and proceeds from sales
(other than short-term obligations) aggregated for each Fund are as follows:
<Table>
<Caption>
FUND PURCHASES PROCEEDS
- ------------------------------------------------------------------
RiverSource California Tax-Exempt Fund $ 76,367,361 $82,865,015
RiverSource Minnesota Tax-Exempt Fund 109,714,575 97,651,277
RiverSource New York Tax-Exempt Fund 17,785,310 17,562,597
</Table>
Realized gains and losses are determined on an identified cost basis.
6. SHARE TRANSACTIONS
Transactions in shares for each Fund for the periods indicated are as follows:
<Table>
<Caption>
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT FUND TAX-EXEMPT FUND TAX-EXEMPT FUND
----------------------- ----------------------- ----------------------
YEAR ENDED AUG. 31, 2009 2008 2009 2008 2009 2008
- ---------------------------------------------------------------------------------------------
CLASS A
Sold 4,355,164 12,923,570 8,539,717 8,434,666 1,430,554 775,122
Converted from
Class B shares* 240,409 250,340 748,093 687,520 300,948 76,454
Reinvested
distributions 1,037,102 1,151,547 2,034,376 1,854,907 377,970 390,445
Redeemed (8,449,034) (11,856,270) (9,451,083) (10,357,016) (2,046,046) (2,246,691)
- ---------------------------------------------------------------------------------------------
Net increase
(decrease) (2,816,359) 2,469,187 1,871,103 620,077 63,426 (1,004,670)
- ---------------------------------------------------------------------------------------------
CLASS B
Sold 96,134 170,107 218,554 291,180 56,152 56,763
Reinvested
distributions 27,005 42,038 82,625 100,267 20,715 25,495
Converted to Class
A shares* (240,917) (250,340) (748,093) (687,520) (300,948) (76,454)
Redeemed (277,603) (212,640) (527,471) (792,624) (76,176) (207,588)
- ---------------------------------------------------------------------------------------------
Net increase
(decrease) (395,381) (250,835) (974,385) (1,088,697) (300,257) (201,784)
- ---------------------------------------------------------------------------------------------
CLASS C
Sold 100,253 337,281 964,981 503,745 68,512 23,555
Reinvested
distributions 16,658 13,927 59,157 43,204 5,278 4,894
Redeemed (152,756) (147,407) (234,610) (259,716) (30,213) (41,259)
- ---------------------------------------------------------------------------------------------
Net increase
(decrease) (35,845) 203,801 789,528 287,233 43,577 (12,810)
- ---------------------------------------------------------------------------------------------
</Table>
* Automatic conversion of Class B shares to Class A shares based on the
original purchase.
7. BANK BORROWINGS
Each Fund has entered into a revolving credit facility with a syndicate of banks
led by JPMorgan Chase Bank, N.A. (the Administrative Agent), 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.
16, 2008, replacing a prior credit facility. The credit facility agreement,
- --------------------------------------------------------------------------------
86 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
which is a collective agreement between each Fund and certain other funds in the
RiverSource Family of Funds, severally and not jointly, permits collective
borrowings up to $475 million. The borrowers shall have the right, upon written
notice to the Administrative Agent to request an increase of up to $175 million
in the aggregate amount of the credit facility from new or existing lenders,
provided that the aggregate amount of the credit facility shall at no time
exceed $650 million. Participation in such increase by any existing lender shall
be at such lender's sole discretion. Interest is charged to each Fund based on
its borrowings at a rate equal to the federal funds rate plus 0.75%. Each
borrowing under the credit facility matures no later than 60 days after the date
of borrowing. 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, in addition
to an upfront fee equal to its pro rata share of 0.02% of the amount of the
credit facility. The Funds had no borrowings during the year ended Aug. 31,
2009.
Under the prior credit facility which was effective until Oct. 15, 2008, each
Fund had entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A., whereby each Fund was permitted to borrow
for the temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The credit facility agreement, which was a collective
agreement between each Fund and certain other RiverSource funds, severally and
not jointly, permitted collective borrowings up to $500 million. Interest was
charged to each Fund based on its borrowings at a rate equal to the federal
funds rate plus 0.30%. Each borrowing under the credit facility matured no later
than 60 days after the date of borrowing. Each Fund also paid a commitment fee
equal to its pro rata share of the amount of the credit facility at a rate of
0.06% per annum.
8. FEDERAL TAX INFORMATION
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures contracts,
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.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 87
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
In 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:
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE RIVERSOURCE
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
FUND FUND FUND
- -------------------------------------------------------------------------
Undistributed net investment
income $-- $-- $(2)
Accumulated net realized gain
(loss) -- -- 6
- -------------------------------------------------------------------------
Additional paid-in capital
reduction (increase) $-- $-- $ 4
- -------------------------------------------------------------------------
</Table>
The tax character of distributions paid for the years indicated is as follows:
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED AUG. 31,
2009 2008
------------------------ ------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME(a) CAPITAL GAIN INCOME(a) CAPITAL GAIN
- ------------------------------------------------------------------------------
Class A $7,049,353 $-- $6,677,475 $1,180,746
Class B 149,044 -- 186,201 42,307
Class C 93,719 -- 67,790 10,891
</Table>
(a) Tax-exempt interest distributions were 100% and 99.93% of cash basis
distributions paid for the years ended Aug. 31, 2009 and 2008, respectively.
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED AUG. 31,
2009 2008
------------------------- -------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME(b) CAPITAL GAIN INCOME(b) CAPITAL GAIN
- ------------------------------------------------------------------------------
Class A $12,286,856 $-- $11,396,501 $--
Class B 461,961 -- 578,310 --
Class C 334,186 -- 248,552 --
</Table>
(b) Tax-exempt interest distributions were 99.98% and 98.75% of cash basis
distributions paid for the years ended Aug. 31, 2009 and 2008, respectively.
- --------------------------------------------------------------------------------
88 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
<Table>
<Caption>
YEAR ENDED AUG. 31,
2009 2008
------------------------ ------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME(c) CAPITAL GAIN INCOME(c) CAPITAL GAIN
- ------------------------------------------------------------------------------
Class A $2,138,780 $-- $2,189,026 $98,823
Class B 113,911 -- 134,399 7,548
Class C 26,205 -- 23,906 1,363
</Table>
(c) Tax-exempt interest distributions were 100% of cash basis distributions paid
for the years ended Aug. 31, 2009 and 2008.
At Aug. 31, 2009, the components of distributable earnings on a tax basis are as
follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED
TAX-EXEMPT ACCUMULATED REALIZED APPRECIATION
FUND INCOME LONG-TERM GAIN LOSS (DEPRECIATION)
- ----------------------------------------------------------------------------------
RiverSource California
Tax-Exempt Fund $135,061 $-- $(2,622,059) $(2,222,347)
RiverSource Minnesota
Tax-Exempt Fund 254,063 -- (2,322,451) 4,395,758
RiverSource New York
Tax-Exempt Fund 44,362 -- (897,923) 615,821
</Table>
For federal income tax purposes, capital loss carry-overs at Aug. 31, 2009 were
as follows:
<Table>
<Caption>
FUND 2013 2014 2015 2016 2017
- --------------------------------------------------------------------------
RiverSource California
Tax-Exempt Fund $ -- $ -- $ -- $359,905 $1,247,347
RiverSource Minnesota
Tax-Exempt Fund 1,199,755 913,006 3,601 -- 206,089
RiverSource New York
Tax-Exempt Fund -- -- -- 3,664 341,015
</Table>
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, 2008, and its fiscal year end (post-October
loss) as occurring on the first day of the following tax year. At Aug. 31, 2009,
post-October losses that are treated as occurring on Sept. 1, 2009 were as
follows:
<Table>
<Caption>
FUND POST-OCTOBER LOSS
- ----------------------------------------------------------------
RiverSource California Tax-Exempt Fund $1,014,807
RiverSource New York Tax-Exempt Fund 553,244
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 89
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
It is unlikely the Board will authorize a distribution of any net realized
capital gains until the available capital loss carry-overs have been offset or
expire. There is no assurance that the Funds will be able to utilize all of its
capital loss carry-overs before they expire.
9. 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. Each 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.
10. SUBSEQUENT EVENTS
Management has evaluated Fund related events and transactions that occurred
during the period from the date of the Statements of Assets and Liabilities
through Oct. 21, 2009, the date of issuance of each Fund's financial statements.
There were no events or transactions that occurred during the period that
materially impacted the amounts or disclosures in each Fund's financial
statements.
11. 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 (now known as
RiverSource) 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
- --------------------------------------------------------------------------------
90 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
agreements. The plaintiffs voluntarily agreed to transfer this case to the
United States District Court for the District of Minnesota (the District Court).
In response to defendants' motion to dismiss the complaint, the District 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 (the Eighth Circuit)
on August 8, 2007. On April 8, 2009, the Eighth Circuit reversed summary
judgment and remanded to the District Court for further proceedings. On August
6, 2009, defendants filed a writ of certiorari with the U.S. Supreme Court,
asking the U.S. Supreme Court to stay the District Court proceedings while the
U.S. Supreme Court considers and rules in a case captioned Jones v. Harris
Associates, which involves issues of law similar to those presented in the
Gallus case.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any violations of certain
provisions of the Investment Advisers Act of 1940, the Investment Company Act of
1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million
and civil money penalties of $7 million. AEFC also agreed to retain an
independent distribution consultant to assist in developing a plan for
distribution of all disgorgement and civil penalties ordered by the SEC in
accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
On November 7, 2008, RiverSource Investments, LLC, a subsidiary of Ameriprise
Financial, Inc., acquired J. & W. Seligman & Co. Incorporated (Seligman). In
late 2003, Seligman conducted an extensive internal review concerning mutual
fund trading practices. Seligman's review, which covered the period 2001-2003,
noted one arrangement that permitted frequent trading in certain open-end
registered investment companies managed by Seligman (the Seligman Funds); this
arrangement was in the process of being closed down by Seligman before September
2003. Seligman identified three other arrangements that permitted frequent
trading, all of which had been terminated by September 2002. In January 2004,
Seligman, on a voluntary basis, publicly disclosed these four arrangements to
its clients and to shareholders of the
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 91
NOTES TO FINANCIAL STATEMENTS (continued) --------------------------------------
Seligman Funds. Seligman also provided information concerning mutual fund
trading practices to the SEC and the Office of the Attorney General of the State
of New York (NYAG).
In September 2006, the NYAG commenced a civil action in New York State Supreme
Court against Seligman, Seligman Advisors, Inc. (now known as RiverSource Fund
Distributors, Inc.), Seligman Data Corp. and Brian T. Zino (collectively, the
Seligman Parties), alleging, in substance, that the Seligman Parties permitted
various persons to engage in frequent trading and, as a result, the prospectus
disclosure used by the registered investment companies then managed by Seligman
was and had been misleading. The NYAG included other related claims and also
claimed that the fees charged by Seligman to the Seligman Funds were excessive.
On March 13, 2009, without admitting or denying any violations of law or
wrongdoing, the Seligman Parties entered into a stipulation of settlement with
the NYAG and settled the claims made by the NYAG. Under the terms of the
settlement, Seligman paid $11.3 million to four Seligman Funds. This settlement
resolved all outstanding matters between the Seligman Parties and the NYAG. In
addition to the foregoing matter, the New York staff of the SEC indicated in
September 2005 that it was considering recommending to the Commissioners of the
SEC the instituting of a formal action against Seligman and Seligman Advisors,
Inc. relating to frequent trading in the Seligman Funds. Seligman responded to
the staff in October 2005 that it believed that any action would be both
inappropriate and unnecessary, especially in light of the fact that Seligman had
previously resolved the underlying issue with the Independent Directors of the
Seligman Funds and made recompense to the affected Seligman Funds. There have
been no further developments with the SEC on this matter.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
- --------------------------------------------------------------------------------
92 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 93
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, 2009, the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the three 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
October 20, 2006, (for RiverSource California Tax-Exempt Fund, RiverSource
Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund) and February
20, 2007, (for RiverSource Minnesota Tax-Exempt Fund and RiverSource New York
Tax-Exempt Fund) expressed unqualified opinions on those financial highlights.
- --------------------------------------------------------------------------------
94 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our 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 significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of August 31, 2009, 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, 2009, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 21, 2009
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 95
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 2010, to determine the calendar
year amounts to be included on their 2009 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, 2009
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Exempt-Interest Dividends.................................... 100%
</Table>
Tax-exempt distributions are exempt from federal income taxes and should not be
included in the shareholders' gross income. The income from this Fund is subject
to the alternative minimum tax (AMT). The AMT percentage for Aug. 31, 2009 was
8.22%.
The Fund 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, 2009
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Exempt-Interest Dividends.................................... 99.98%
</Table>
Tax-exempt distributions are exempt from federal income taxes and should not be
included in the shareholders' gross income. The income from this Fund is subject
to the alternative minimum tax (AMT). The AMT percentage for Aug. 31, 2009 was
7.12%.
The Fund 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.
- --------------------------------------------------------------------------------
96 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
Fiscal year ended Aug. 31, 2009
<Table>
<Caption>
INCOME DISTRIBUTIONS - the Fund designates the following tax attributes for
distributions:
Exempt-Interest Dividends.................................... 100%
</Table>
Tax-exempt distributions are exempt from federal income taxes and should not be
included in the shareholders' gross income. The income from this Fund is subject
to the alternative minimum tax (AMT). The AMT percentage for Aug. 31, 2009 was
11.76%.
The Fund 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 -- 2009 ANNUAL REPORT 97
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.
The RiverSource Family of Funds that each Board member oversees consists of 132
funds, which includes 100 RiverSource funds and 32 Seligman funds. Board members
serve until the next regular shareholders' meeting or until he or she reaches
the mandatory retirement age established by the Board.
INDEPENDENT BOARD MEMBERS
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
Kathleen Blatz Board member since Chief Justice, Minnesota Supreme Court, 1998-2006; None
901 S. Marquette Ave. 2006 Attorney
Minneapolis, MN 55402
Age 55
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Family of Funds, 1999-2006; former None
901 S. Marquette Ave. 1999 Governor of Minnesota
Minneapolis, MN 55402
Age 75
- ------------------------------------------------------------------------------------------------------------------------------
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 55
- ------------------------------------------------------------------------------------------------------------------------------
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 University
Age 58
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 74
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Chair of the Board President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. since 2007, College Inc. (manufactures
Minneapolis, MN 55402 Board member since irrigation systems)
Age 70 2002
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
98 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
INDEPENDENT BOARD MEMBERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
John F. Maher Board member since Retired President and Chief Executive Officer and None
901 S. Marquette Ave. 2008 former Director, Great Western Financial Corporation
Minneapolis, MN 55402 (financial services), 1986-1997
Age 66
- ------------------------------------------------------------------------------------------------------------------------------
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 57
- ------------------------------------------------------------------------------------------------------------------------------
Leroy C. Richie Board member since Counsel, Lewis & Munday, P.C. since 1987; Vice Digital Ally, Inc.
901 S. Marquette Ave. 2008 President and General Counsel, Automotive Legal (digital imaging);
Minneapolis, MN 55402 Affairs, Chrysler Corporation, 1990-1997 Infinity, Inc. (oil
Age 68 and gas exploration
and production); OGE
Energy Corp. (energy
and energy services)
- ------------------------------------------------------------------------------------------------------------------------------
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 Pharmaceuticals,
Minneapolis, MN 55402 Biotech Inc.
Age 65 (biotechnology);
Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 99
BOARD MEMBERS AND OFFICERS (continued) -----------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
William F. Truscott Board member since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. since 2005;
Financial Center Vice President since President, Chairman of the Board and Chief Investment
Minneapolis, MN 55474 2002 Officer, RiverSource Investments, LLC since 2001;
Age 49 Director, President and Chief Executive Officer,
Ameriprise Certificate Company since 2006; Chairman of
the Board and Chief Executive Officer, RiverSource
Distributors, Inc. since 2006 and of RiverSource Fund
Distributors, Inc. since 2008; Senior Vice
President -- Chief Investment Officer, Ameriprise
Financial, Inc., 2001-2005
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments or Ameriprise Financial.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling the RiverSource Family of
Funds at 1(800) 221-2450; contacting your financial intermediary; or visiting
riversource.com/funds.
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<Table>
<Caption>
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 and Director and Vice President -- Asset Management,
Minneapolis, MN 55474 Products and Marketing, RiverSource Distributors, Inc.
Age 43 since 2006 and of RiverSource Fund Distributors, Inc.
since 2008; Managing Director and Global Head of
Product, Morgan Stanley Investment Management, 2004-
2006; President, Touchstone Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
100 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
FUND OFFICERS (CONTINUED)
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------
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 45 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Chief Administrative Officer, RiverSource Investments,
5228 Ameriprise Financial 2006 LLC since 2009; Vice President -- Asset Management and
Center Minneapolis, MN Trust Company Services, RiverSource Investments, LLC,
55474 2006-2009; Vice President -- Operations and Compliance,
Age 44 RiverSource Investments, LLC, 2004-2006; Director of
Product 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 and of
Minneapolis, MN 55474 RiverSource Fund Distributors, Inc. since 2008
Age 54
- --------------------------------------------------------------------------------------------------------
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. and Chief Legal Officer
Minneapolis, MN 55474 and Assistant Secretary, RiverSource Investments, LLC
Age 50 since 2006; Chief Counsel, RiverSource Fund
Distributors, Inc. since 2008; Vice President, General
Counsel and Secretary, Ameriprise Certificate Company
since 2005; Vice President -- Asset Management
Compliance, Ameriprise Financial, Inc., 2004-2005;
Senior Vice President and Chief Compliance Officer,
USBancorp Asset Management, 2002-2004
- --------------------------------------------------------------------------------------------------------
Eleanor T.M. Hoagland Chief Compliance Chief Compliance Officer, RiverSource Investments, LLC,
100 Park Avenue Officer since 2009 Kenwood Capital Management LLC, Ameriprise Certificate
New York, NY 10010 Company and RiverSource Service Corporation since 2009;
Age 58 Chief Compliance Officer for each of the Seligman funds
since 2004; Anti-Money Laundering Prevention Officer
and Identity Theft Prevention Officer for each of the
Seligman funds since 2008; Managing Director, J. & W.
Seligman & Co. Incorporated and Vice-President for each
of the Seligman funds, 2004-2008
- --------------------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Vice President -- Compliance, Ameriprise Financial,
2934 Ameriprise Financial Prevention Officer Inc. since 2008; Anti-Money Laundering Officer,
Center since 2004 Ameriprise Financial, Inc. since 2004; Compliance
Minneapolis, MN 55474 Director, Ameriprise Financial, Inc., 2004-2008
Age 45
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 101
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 "Fund" and collectively, the "Funds"). Under an investment
management services agreement (the "IMS Agreement"), RiverSource Investments
provides investment advice and other services to the Funds and all funds in the
RiverSource Family of Funds (collectively, the "RiverSource Funds").
On an annual basis, the Funds' Board of Trustees (the "Board"), including the
independent Board members (the "Independent Directors"), considers renewal of
the IMS Agreement. RiverSource Investments prepared detailed reports for the
Board and its Contracts Committee in March and April 2009, 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 performance of the Funds. 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 7-8, 2009 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 Funds' operations, most notably, the large
investment made in the acquisition of J. & W. Seligman & Co. Incorporated,
including its portfolio management operations, personnel and infrastructure
(including the addition of two new offices in New York City and Palo Alto).
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 Funds.
- --------------------------------------------------------------------------------
102 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
- --------------------------------------------------------------------------------
The Board also reviewed the financial condition of RiverSource Investments (and
its affiliates) and each entity's ability to carry out its responsibilities
under the IMS Agreement. Further, the Board considered RiverSource Investments'
ability to retain key personnel and its expectations in this regard. 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 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 Fund. In this regard, the Board
considered: (i) detailed reports containing data prepared by an independent
organization showing, for various periods, the performance of each Fund, the
performance of each Fund's benchmark index, the percentage ranking of each Fund
among its comparison group and the net assets of each Fund; and (ii) a report
detailing each Fund's performance over various periods, recent inflows (and
outflows) for each Fund and a comparison of each Fund's net assets from December
2007 to December 2008. The Board observed that each Fund's investment
performance met expectations.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with each
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 Fund's expenses with median expenses paid by funds
in its peer group, as well as data showing each Fund's contribution to
RiverSource Investments' profitability. They also reviewed information in the
report comparing the fees charged to each Fund by RiverSource Investments to
fees charged to other client accounts (with similar investment strategies to
those of each Fund).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 103
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ----------------------------------------------------------
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 RiverSource 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 (excluding the effect of a performance
incentive adjustment, if applicable), 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 Fund's total expense ratio (after considering proposed expense
caps/waivers) was below its peer group's median expense ratio shown in the
reports.
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to each Fund. In this regard, the Board referred
to a detailed profitability report, discussing the profitability to RiverSource
Investments and Ameriprise Financial from managing and operating each Fund,
including data showing comparative profitability over the past two years. The
Board also considered the services acquired by the investment manager through
the use of commission dollars paid by the RiverSource Funds on portfolio
transactions. The Board noted that the fees paid by each Fund should permit the
investment manager to offer competitive compensation to its personnel, make
necessary investments in its business and earn an appropriate profit. The Board
concluded that profitability levels were reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as each Fund grows and
took note of the extent to which Fund shareholders might also benefit from such
growth. The Board considered that the IMS Agreement provides for lower fees as
assets increase at pre-established breakpoints and concluded that the IMS
Agreement satisfactorily provided for sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 8, 2009, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement for an additional annual period.
- --------------------------------------------------------------------------------
104 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling the RiverSource Family of Funds at 1(800) 221-2450; contacting your
financial intermediary; visiting riversource.com/funds (for RiverSource or
Threadneedle funds) or seligman.com (for Seligman 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 (for RiverSource or Threadneedle funds) or seligman.com
(for Seligman funds); or searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2009 ANNUAL REPORT 105
RIVERSOURCE STATE TAX-EXEMPT FUNDS
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus. RiverSource(R) mutual funds are
distributed by RiverSource Fund Distributors, Inc., Member
FINRA, and managed by RiverSource Investments, LLC.
RiverSource is part of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C)2009 RiverSource Investments, LLC. S-6328 AJ (10/09)
</Table>
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Pamela G. Carlton, Jeffrey Laikind, John F. Maher 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:
2009 - $26,431 2008 - $26,125
(b) Audit-Related Fees. The fees for the year ended Aug. 31, to Ernst & Young
LLP for additional audit-related services rendered for RiverSource
California Tax-Exempt Trust were as follows:
2009 - $375 2008 - $375
(c) Tax Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for tax
compliance related services rendered for RiverSource California Tax-Exempt
Trust were as follows:
2009 - $3,180 2008 - $3,180
(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:
2009 - $0 2008 - $0
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by Ernst & Young
LLP for the registrant and to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant must be
pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above during
2009 and 2008 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:
2009 - $826,041 2008 - $616,755
(h) 100% of the services performed in item (g) above during 2009 and 2008 were
pre-approved by the Ameriprise Financial Audit Committee and/or the
RiverSource Mutual Funds Audit Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. Investments.
(a) The complete schedule of investments is included in Item 1 of this
Form N-CSR.
(b) Not applicable.
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, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Patrick T. Bannigan
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Patrick T. Bannigan
President and Principal Executive
Officer
Date November 4, 2009
By /s/ Jeffrey P. Fox
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Jeffrey P. Fox
Treasurer and Principal Financial
Officer
Date November 4, 2009