UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-4646
RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST
(Exact name of registrant as specified in charter)
50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474
(Address of principal executive offices) (Zip code)
Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474
(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-1947
Date of fiscal year end: 8/31
Date of reporting period: 8/31
Annual Report
and Prospectus
(RIVERSOURCE INVESTMENTS LOGO)
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
ANNUAL REPORT FOR
THE PERIOD ENDED
AUGUST 31, 2008
EACH FUND SEEKS TO PROVIDE SHAREHOLDERS WITH A HIGH
LEVEL OF INCOME GENERALLY EXEMPT FROM FEDERAL INCOME
TAX AS WELL AS FROM THE RESPECTIVE STATE AND LOCAL
INCOME TAX.
<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 Fund's Long-term Performance
RiverSource California Tax-Exempt Fund..... 18
RiverSource Minnesota Tax-Exempt Fund...... 20
RiverSource New York Tax-Exempt Fund....... 22
Fund Expenses Examples....................... 24
Portfolio of Investments..................... 28
RiverSource California Tax-Exempt Fund..... 28
RiverSource Minnesota Tax-Exempt Fund...... 36
RiverSource New York Tax-Exempt Fund....... 46
Financial Statements......................... 53
Notes to Financial Statements................ 59
Report of Independent Registered Public
Accounting Firm............................ 84
Federal Income Tax Information............... 86
Board Members and Officers................... 88
Approval of Investment Management Services
Agreement.................................. 91
Proxy Voting................................. 94
</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."
(DALBAR LOGO)
The RiverSource mutual fund shareholder reports have
been awarded the Communications Seal from Dalbar Inc.,
an independent financial services research firm. The
Seal recognizes communications demonstrating a level
of excellence in the industry.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 1
YOUR FUND AT A GLANCE ----------------------------------------------------------
RiverSource California Tax-Exempt Fund
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource California Tax-Exempt Fund Class A shares rose 2.13% (excluding
sales charge) for the 12 months ended Aug. 31, 2008. The Fund underperformed
the Lehman Brothers California 2 Plus Year Municipal Bond Index, which
advanced 3.88%. The Fund outperformed the Lipper California Municipal Debt
Funds Index, representing the Fund's peer group, which gained 1.65% for the
same period.
> A broad barometer applicable to each of the Funds, the Lehman Brothers
Municipal Bond Index, was up 4.48% for the same 12-month period.
ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------
RiverSource California Tax-Exempt
Fund
Class A (excluding sales
charge) +2.13% +2.04% +3.75% +3.85%
- ---------------------------------------------------------------------
Lehman Brothers California 2 Plus
Year Municipal Bond Index
(unmanaged) +3.88% +3.08% +4.79% +4.96%
- ---------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index (unmanaged) +4.48% +3.27% +4.43% +4.87%
- ---------------------------------------------------------------------
Lipper California Municipal Debt
Funds Index +1.65% +1.97% +3.87% +4.05%
- ---------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
2 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 16.3 years
- --------------------------------------
Effective duration(2) 8.3 years
- --------------------------------------
Weighted average bond
rating(3) AA
- --------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Total Net Expenses(a)
- ----------------------------------------
Class A 0.87% 0.80%
- ----------------------------------------
Class B 1.62% 1.55%
- ----------------------------------------
Class C 1.62% 1.55%
- ----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until Aug. 31, 2009, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding 0.01 of interest and fee expenses related to the Fund's
participation in certain inverse floater programs) will not exceed 0.79% for
Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial
Statements for more information regarding inverse floater program
transactions.
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Funds
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is more pronounced for longer-term securities. Non-investment grade securities,
commonly called "high-yield" or "junk" bonds, have more volatile prices and
carry more risk to principal and income than investment grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distributions.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 3
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
RiverSource California Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT AUG. 31, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) +2.13% +2.04% +3.75% +3.85% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +1.37% +1.34% +3.01% +3.07% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +1.38% +1.34% +3.01% N/A +3.71%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) -2.71% +0.42% +2.74% +3.32% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -3.50% +0.12% +2.67% +3.07% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +0.40% +1.34% +3.01% N/A +3.71%
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
AT SEPT. 30, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) -4.58% +0.41% +2.06% +3.14% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -5.50% -0.36% +1.29% +2.35% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -5.48% -0.35% +1.29% N/A +2.95%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) -9.05% -1.20% +1.08% +2.61% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -10.04% -1.56% +0.95% +2.35% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -6.39% -0.35% +1.29% N/A +2.95%
- ---------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
4 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
YOUR FUND AT A GLANCE ----------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource Minnesota Tax-Exempt Fund Class A shares gained 3.50% (excluding
sales charge) for the 12 months ended Aug. 31, 2008. The Fund underperformed
the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, which
rose 5.55%, but outperformed the Lipper Minnesota Municipal Debt Funds Index,
representing the Fund's peer group, which was up 3.27%, for the same period.
> A broad barometer applicable to each of the Funds, the Lehman Brothers
Municipal Bond Index, was up 4.48% for the same 12-month period.
ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt
Fund
Class A (excluding sales
charge) +3.50% +2.40% +3.49% +3.83%
- --------------------------------------------------------------------
Lehman Brothers Minnesota 3 Plus
Year Enhanced Municipal Bond
Index (unmanaged) +5.55% +3.57% +4.55% +4.93%
- --------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index (unmanaged) +4.48% +3.27% +4.43% +4.87%
- --------------------------------------------------------------------
Lipper Minnesota Municipal Debt
Funds Index +3.27% +2.47% +3.74% +4.02%
- --------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 5
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 13.3 years
- --------------------------------------
Effective duration(2) 6.9 years
- --------------------------------------
Weighted average bond
rating(3) AA
- --------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Total Net Expenses(a)
- ----------------------------------------
Class A 0.99% 0.95%
- ----------------------------------------
Class B 1.75% 1.70%
- ----------------------------------------
Class C 1.75% 1.70%
- ----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until Aug. 31, 2009, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding 0.16% of interest and fee expenses related to the Fund's
participation in certain inverse floater programs) will not exceed 0.79% for
Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial
Statements for more information regarding inverse floater program
transactions.
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Funds
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is more pronounced for longer-term securities. Non-investment grade securities,
commonly called "high-yield" or "junk" bonds, have more volatile prices and
carry more risk to principal and income than investment grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distributions.
- --------------------------------------------------------------------------------
6 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT AUG. 31, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) +3.50% +2.40% +3.49% +3.83% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +2.72% +1.70% +2.75% +3.07% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +2.72% +1.70% +2.75% N/A +3.77%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) -1.48% +0.73% +2.48% +3.30% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -2.25% +0.45% +2.39% +3.07% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +1.73% +1.70% +2.75% N/A +3.77%
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
AT SEPT. 30, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) -2.64% +1.11% +1.96% +3.24% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -3.38% +0.35% +1.19% +2.47% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -3.38% +0.34% +1.19% N/A +3.12%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) -7.27% -0.50% +0.95% +2.71% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -8.05% -0.89% +0.84% +2.47% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -4.31% +0.34% +1.19% N/A +3.12%
- ---------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 7
YOUR FUND AT A GLANCE ----------------------------------------------------------
RiverSource New York Tax-Exempt Fund
FUND SUMMARY
- --------------------------------------------------------------------------------
> RiverSource New York Tax-Exempt Fund Class A shares advanced 2.59% (excluding
sales charge) for the 12 months ended Aug. 31, 2008. The Fund underperformed
the Lehman Brothers New York 4 Plus Year Municipal Bond Index, which rose
4.92%. However, the Fund closely tracked the Lipper New York Municipal Debt
Funds Index, representing the Fund's peer group, which gained 2.61% for the
same period.
> A broad barometer applicable to each of the Funds, the Lehman Brothers
Municipal Bond Index, was up 4.48% for the same 12-month period.
ANNUALIZED TOTAL RETURNS (for period ended Aug. 31, 2008)
- --------------------------------------------------------------------------------
<Table>
<Caption>
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------
RiverSource New York Tax-Exempt
Fund
Class A (excluding sales
charge) +2.59% +2.19% +3.41% +3.77%
- --------------------------------------------------------------------
Lehman Brothers New York 4 Plus
Year Municipal Bond Index
(unmanaged) +4.92% +3.41% +4.75% +5.13%
- --------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index (unmanaged) +4.48% +3.27% +4.43% +4.87%
- --------------------------------------------------------------------
Lipper New York Municipal Debt
Funds Index +2.61% +2.31% +3.68% +3.97%
- --------------------------------------------------------------------
</Table>
(See "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the table above. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses. See the Average Annual Total Returns table for performance of other
share classes of the Fund.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
8 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
STYLE MATRIX
- --------------------------------------------------------------------------------
<Table>
<Caption>
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
</Table>
Shading within the style matrix indicates areas in which the Fund is designed to
generally invest.
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and may serve as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, are not federally or
FDIC-insured, are not deposits or obligations of, or guaranteed by any financial
institution, and involve investment risks including possible loss of principal
and fluctuation in value.
PORTFOLIO STATISTICS
- --------------------------------------------------------------------------------
<Table>
Weighted average life(1) 15.9 years
- --------------------------------------
Effective duration(2) 6.7 years
- --------------------------------------
Weighted average bond
rating(3) AA
- --------------------------------------
</Table>
ANNUAL OPERATING EXPENSE RATIO
(as of the current prospectus)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Total Net Expenses(a)
- ----------------------------------------
Class A 1.12% 0.93%
- ----------------------------------------
Class B 1.87% 1.68%
- ----------------------------------------
Class C 1.87% 1.68%
- ----------------------------------------
</Table>
(a) The Investment Manager and its affiliates have contractually agreed to waive
certain fees and to absorb certain expenses until Aug. 31, 2009, unless
sooner terminated at the discretion of the Fund's Board. Any amounts waived
will not be reimbursed by the Fund. Under this agreement, net fund expenses
(excluding 0.14% of interest and fee expenses related to the Fund's
participation in certain inverse floater programs) will not exceed 0.79% for
Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial
Statements for more information regarding inverse floater program
transactions.
(1) WEIGHTED AVERAGE LIFE measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels of
interest rates from two years out to 30 years). Positive duration means that
as rates rise, the price decreases, and negative duration means that as
rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Funds
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is more pronounced for longer-term securities. Non-investment grade securities,
commonly called "high-yield" or "junk" bonds, have more volatile prices and
carry more risk to principal and income than investment grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distributions.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 9
YOUR FUND AT A GLANCE (continued) ----------------------------------------------
RiverSource New York Tax-Exempt Fund
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<Table>
<Caption>
AT AUG. 31, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) +2.59% +2.19% +3.41% +3.77% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) +1.83% +1.42% +2.63% +2.99% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +2.04% +1.42% +2.63% N/A +3.73%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) -2.36% +0.53% +2.40% +3.24% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -3.09% +0.19% +2.29% +2.99% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) +1.05% +1.42% +2.63% N/A +3.73%
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
AT SEPT. 30, 2008
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
Class A (inception
8/18/86) -4.25% +0.60% +1.65% +3.08% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -4.97% -0.16% +0.88% +2.31% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -4.97% -0.16% +0.89% N/A +2.98%
- ---------------------------------------------------------------------------
With sales charge
Class A (inception
8/18/86) -8.62% -0.99% +0.68% +2.56% N/A
- ---------------------------------------------------------------------------
Class B (inception
3/20/95) -9.56% -1.37% +0.55% +2.31% N/A
- ---------------------------------------------------------------------------
Class C (inception
6/26/00) -5.88% -0.16% +0.89% N/A +2.98%
- ---------------------------------------------------------------------------
</Table>
Class A share performance reflects the maximum sales charge of 4.75%. Class B
share performance reflects a contingent deferred sales charge (CDSC) applied as
follows: first year 5%; second and third years 4%; fourth year 3%; fifth year
2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to
a 1% CDSC if shares are sold within one year after purchase.
* For classes with less than 10 years performance.
- --------------------------------------------------------------------------------
10 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
MANAGER COMMENTARY -------------------------------------------------------------
Dear Shareholders,
Each RiverSource State Tax-Exempt Fund underperformed its respective Lehman
benchmark index, but outperformed or closely tracked its respective Lipper peer
group for the 12 months ended Aug. 31, 2008. All Fund returns reported are for
Class A shares, excluding sales charge, for the 12 months ended Aug. 31, 2008.
All Lipper categories represent the respective fund's peer group.
> RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND rose 2.13%. The Fund underperformed
the Lehman Brothers California 2 Plus Year Municipal Bond Index, which
advanced 3.88%. The Fund outperformed the Lipper California Municipal Debt
Funds Index, which gained 1.65% for the same period.
> RIVERSOURCE MINNESOTA TAX-EXEMPT FUND gained 3.50%. The Fund underperformed
the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index,
which rose 5.55%, but outperformed the Lipper Minnesota Municipal Debt Funds
Index, which was up 3.27% for the same period.
> RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 2.59%. The Fund underperformed
the Lehman Brothers New York 4 Plus Year Municipal Bond Index, which rose
4.92%. However, the Fund closely tracked the Lipper New York Municipal Debt
Funds Index, which gained 2.61% for the same period.
A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal
Bond Index, was up 4.48% for the same 12-month period.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 11
MANAGER COMMENTARY (continued) -------------------------------------------------
RiverSource California Tax-Exempt Fund
QUALITY BREAKDOWN (at Aug. 31, 2008; % of bond portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 25.2%
- ------------------------------------------------
AA bonds 36.0%
- ------------------------------------------------
A bonds 28.3%
- ------------------------------------------------
BBB bonds 7.6%
- ------------------------------------------------
Non-investment grade bonds 2.9%
- ------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating. Ratings
for 5.8% of the bond portfolio assets were determined through internal analysis.
RiverSource Minnesota Tax-Exempt Fund
QUALITY BREAKDOWN (at Aug. 31, 2008; % of bond portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 38.3%
- ------------------------------------------------
AA bonds 30.6%
- ------------------------------------------------
A bonds 17.5%
- ------------------------------------------------
BBB bonds 8.3%
- ------------------------------------------------
Non-investment grade bonds 5.3%
- ------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating. Ratings
for 7.4% of the bond portfolio assets were determined through internal analysis.
RiverSource New York Tax-Exempt Fund
QUALITY BREAKDOWN (at Aug. 31, 2008; % of bond portfolio assets)
- ---------------------------------------------------------------------
<Table>
<Caption>
AAA bonds 30.8%
- ------------------------------------------------
AA bonds 47.0%
- ------------------------------------------------
A bonds 5.1%
- ------------------------------------------------
BBB bonds 8.4%
- ------------------------------------------------
Non-investment grade bonds 8.7%
- ------------------------------------------------
</Table>
Bond ratings apply to the underlying holdings of the Fund and not the Fund
itself. Whenever possible, the Standard and Poor's rating is used to determine
the credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
If Standard and Poor's doesn't rate a security, then Moody's rating is used.
RiverSource Investments, LLC, the Fund's investment manager, rates a security
using an internal rating system when Moody's doesn't provide a rating. Ratings
for 3.1% of the bond portfolio assets were determined through internal analysis.
- --------------------------------------------------------------------------------
12 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
SIGNIFICANT PERFORMANCE FACTORS
The tax-exempt fixed income market produced positive returns but underperformed
the taxable fixed income market for the annual period, as credit market turmoil,
subprime mortgage market concerns and fears regarding liquidity spilled over
into the municipal market. Through February 2008, a flight to quality into
Treasuries ensued as investors grew increasingly risk averse. Investors also
grew concerned that the main bond insurance companies might be challenged to
maintain their AAA ratings. Further, liquidity evaporated, as hedge funds and
other leveraged municipal participants were forced to sell assets in an already
distressed market to obtain cash for margin calls. Plus, balance sheet pressure
for several Wall Street firms caused a lack of support and failure of the
auction rate securities market during the period. February 2008 was the worst
month in the history of municipal bond market performance, with the ratio of
municipal bond yields to Treasury yields across the yield curve, or spectrum of
maturities, reaching record high levels.
Then, as new, nontraditional buyers came into the market seeking to take
advantage of weakness, demand increased, which calmed unwarranted fears of
excess new issue supply. As a result, the ratio of municipal bond yields to
Treasury yields was driven back down toward historical averages. The tax-exempt
fixed income market rallied significantly from March through May, notably
outperforming Treasuries during these months. Indeed, March through May
generated the best relative performance for the tax-exempt fixed income market
since 1980.
In June, the ratio of municipal bond yields to Treasury yields rose amidst
several bond insurance company downgrades, investment bank balance sheet
deterioration and heightened inflation pressures. The tax-exempt bond market
rallied until mid July, when FSA, a bond insurance company, was put on "negative
watch" by Moody's. As the market weakened, more nontraditional buyers returned,
serving as the catalyst for positive performance in August. By the end of
August, the ratio of 5-year municipal bond yields to Treasury yields had been
driven back down to approximately 91%, having reached triple digits just months
earlier. Interestingly, only 8% of new municipal bonds issued in August 2008
were insured, compared with 53% in August 2007, indicating the dramatically
declining use of insurance within the tax-exempt bond market.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 13
MANAGER COMMENTARY (continued) -------------------------------------------------
For the annual period overall, short-term tax-exempt yields declined, as the
Federal Reserve (the Fed) sought to strengthen liquidity and calm market fears
by cutting the targeted federal funds rate seven times during the period by a
total of 3.25%. Demand from money market funds increased as well. Longer-dated
municipal bond yields rose. All told, the slope of the tax-exempt bond yield
curve grew steeper over the annual period.
As long-term municipal bond yields rose and short-term municipal bond yields
fell during the annual period, each of the RiverSource State Tax-Exempt Funds
benefited from our bias toward a steeper yield curve, which we implemented in
December 2007. Another contributing factor to each of the three Funds'
performance during the period was duration positioning. The Funds maintained a
longer duration than their respective Lehman benchmark indexes for most of the
annual period, which helped as short-term rates declined. Duration is a measure
of a fund's sensitivity to changes in interest rates. Further boosting the three
Funds' results relative to their respective peers was having only modest
exposure to high yield and non-investment grade municipal bonds, which
underperformed during the annual period.
A sizable allocation to pre-refunded* bonds, which are higher quality
securities, helped RiverSource California Tax-Exempt Fund. RiverSource Minnesota
Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund, however, had only
modest exposure to pre-refunded bonds, which detracted from returns.
Significant exposure to health care bonds, especially BBB-rated hospital
credits, detracted from each of the three RiverSource State Tax-Exempt Funds, as
these securities were under pressure during most of the annual period. Among
these pressures were potential budget cuts to Medicaid and the challenges of a
slowing economy. RiverSource California Tax-Exempt Fund and RiverSource New York
Tax-Exempt Fund were hurt by significant exposure to municipal bonds subject to
the Alternative Minimum Tax (AMT) and to non-enhanced municipal tobacco bonds
because both categories lagged.
- --------------------------------------------------------------------------------
14 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
Investments in non-rated special district land development
bonds, commonly known as "dirt deals," further detracted from
RiverSource California Tax-Exempt Fund's results, as these bonds
were impacted by the especially severe housing market slowdown
in that state. A sizable allocation to AA-rated prepaid natural
gas municipal bonds also hurt this Fund's performance. These
bonds, which carry the backing of major investment firms, were
impacted by concerns regarding these institutions and their
exposure to subprime mortgages. RiverSource New York Tax-Exempt
Fund and RiverSource Minnesota Tax-Exempt Fund were both hurt
during the annual period by their holdings in single-family
housing bonds.
A significant allocation to bonds rated A and BBB across a
variety of sectors detracted from all three RiverSource State
Tax-Exempt Funds' performance, as spreads, or the difference in
yields between these securities and Treasuries, widened over the
annual period.
CHANGES TO THE FUNDS' PORTFOLIOS
Overall, we sought to upgrade quality in the Funds' portfolios
during the annual period. In implementing this strategy, we
increased all three Funds' positions in investment grade
essential service revenue bonds, such as public power, water and
sewer issues. In RiverSource California Tax-Exempt Fund and
RiverSource New York Tax-Exempt Fund, we also increased exposure
to higher quality school district general obligation bonds. We
feel that both the utilities and education sectors may enable
the Funds to potentially pick up incremental yield without
taking on significant risk, as they tend to be less economically
sensitive.
We intend to use any near-term weakness in the tax-exempt bond market as a
buying opportunity, focusing on high quality issues like education and
essential service revenue sector bonds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 15
MANAGER COMMENTARY (continued) -------------------------------------------------
In RiverSource California Tax-Exempt Fund and RiverSource New York Tax-Exempt
Fund, we correspondingly reduced exposure to the following: non-enhanced
municipal tobacco bonds, transportation municipal bonds, Commonwealth of Puerto
Rico municipal bonds and tender option bond programs.** We also reduced
RiverSource California Tax-Exempt Fund's allocations to prepaid natural gas
municipal bonds and to state general obligation bonds given our view that
spreads on these bonds would widen further over the near term. In RiverSource
New York Tax-Exempt Fund, we reduced exposure to New York City general
obligation bonds due primarily to the ongoing concerns Wall Street faces.
We reduced each of the Funds' duration slightly during the annual period but
kept duration longer than each Funds' respective Lehman benchmark index.
OUR FUTURE STRATEGY
At the end of August 2008, we viewed the longer-term prospects for the tax-
exempt bond market as attractive. However, for the near term, we believe the
tax-exempt bond market may be under pressure, as still-elevated levels of new
issue supply, the unwinding of tender option bond programs, the dysfunction of
the auction rate securities markets and headlines about bond insurance companies
remain ongoing concerns. We intend to use any near-term weakness in the tax-
exempt bond market as a buying opportunity, focusing on high quality issues like
education and essential service revenue sector bonds.
We expect to maintain a duration that is modestly longer than its respective
Lehman benchmark index. We also believe that the tax-exempt yield curve may grow
a bit steeper but will basically remain within its current range.
Longer term, we remain quite constructive on the tax-exempt bond market for
several reasons. First, we believe federal income taxes will go up regardless of
the outcome of the November 2008 presidential election. As a result, we expect
the appeal of municipal bond funds to increase. Second, with less reliance on
bond insurance companies, we anticipate an enhanced focus on the fundamentals of
individual municipal bonds. It remains our ongoing policy to focus on the
underlying credit quality and fundamentals of all municipal securities held in
the RiverSource State Tax-Exempt Funds, including those covered by bond
insurance, as we make investment decisions.
- --------------------------------------------------------------------------------
16 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
Each Fund's emphasis continues to be on generating a high level of income
generally exempt from federal income tax as well as from respective state and
local taxes.
Catherine Stienstra
Portfolio Manager
*Pre-refunding bonds, also known as advance refunding, is a procedure in which
a bond issuer floats a second bond at a lower interest rate, and the proceeds
from the sale of the second bond are invested, usually in Treasury securities,
which in turn, are held in escrow collateralizing the first bond. Advance
refunded bonds no longer represent the credit risk profile of the original
borrower, and given the high credit quality of the escrow account they often
increase in value -- sometimes significantly.
**Tender option bond programs are programs in which investors effectively earn
the fixed rates on long term bonds whose purchase is financed by paying
something close to the Securities Industry and Financial Markets Municipal
Swap Index rate. This leveraged trade, where investors borrow at low short
rates to earn significantly higher returns further out on the yield curve, is
referred to as a "carry trade."
Any specific securities mentioned are for illustrative purposes only and are not
a complete list of securities that have increased or decreased in value. The
views expressed in this statement reflect those of the portfolio manager(s) only
through the end of the period of the report as stated on the cover and do not
necessarily represent the views of RiverSource Investments, LLC (RiverSource) or
any subadviser to the Fund or any other person in the RiverSource or subadviser
organizations. Any such views are subject to change at any time based upon
market or other conditions and RiverSource disclaims any responsibility to
update such views. These views may not be relied on as investment advice and,
because investment decisions for a RiverSource fund are based on numerous
factors, may not be relied on as an indication of trading intent on behalf of
any RiverSource fund.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 17
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
RiverSource California Tax-Exempt Fund
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource California Tax-Exempt Fund Class A shares (from 9/1/98
to 8/31/08) as compared to the performance of three widely cited performance
indices, the Lehman Brothers California 2 Plus Year Municipal Bond Index, the
Lehman Brothers Municipal Bond Index and the Lipper California Municipal Debt
Funds Index. In comparing the Fund's Class A shares to these indices, you should
take into account the fact that the Fund's performance reflects the maximum
sales charge of 4.75%, while such charges are not reflected in the performance
of the indices. Returns for the Fund include the reinvestment of any
distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Aug. 31, 2008
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,729 $10,127 $11,447 $13,899
- ------------------------------------------------------------------------------------------
Average annual total return -2.71% +0.42% +2.74% +3.32%
- ------------------------------------------------------------------------------------------
LEHMAN BROTHERS CALIFORNIA 2 PLUS YEAR MUNICIPAL BOND INDEX(1)
Cumulative value of $10,000 $10,388 $10,953 $12,636 $16,223
- ------------------------------------------------------------------------------------------
Average annual total return +3.88% +3.08% +4.79% +4.96%
- ------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
Cumulative value of $10,000 $10,448 $11,013 $12,420 $16,093
- ------------------------------------------------------------------------------------------
Average annual total return +4.48% +3.27% +4.43% +4.87%
- ------------------------------------------------------------------------------------------
LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS INDEX(3)
Cumulative value of $10,000 $10,165 $10,603 $12,091 $14,879
- ------------------------------------------------------------------------------------------
Average annual total return +1.65% +1.97% +3.87% +4.05%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 4.
- --------------------------------------------------------------------------------
18 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE CALIFORNIA TAX-EXEMPT
FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE CALIFORNIA LEHMAN BROTHERS
TAX-EXEMPT FUND CALIFORNIA 2
CLASS A PLUS YEAR LEHMAN BROTHERS LIPPER CALIFORNIA
(INCLUDES SALES MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL DEBT
CHARGE) INDEX(1) INDEX(2) FUNDS INDEX(3)
---------------------- ------------------ ------------------ -----------------
'98 $ 9,525 $10,000 $10,000 $10,000
'99 9,423 10,028 10,050 9,911
'00 10,084 10,832 10,730 10,603
'01 10,875 11,910 11,824 11,602
'02 11,449 12,584 12,562 12,117
'03 11,564 12,837 12,956 12,308
'04 12,362 13,906 13,877 13,215
'05 13,083 14,809 14,614 14,033
'06 13,428 15,307 15,057 14,482
'07 13,609 15,617 15,403 14,637
'08 13,899 16,223 16,093 14,879
</Table>
(1) The Lehman Brothers California 2 Plus Year Municipal Bond Index, an
unmanaged index, is a market value-weighted index of California investment-
grade fixed-rate municipal bonds with maturities of two years or more.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged Index, is made up of
a representative list of general obligation, revenue, insured and pre-
refunded bonds. The index is frequently used as a general measure of tax-
exempt bond market performance. The Lehman Brothers indices reflect
reinvestment of all distributions and changes in market prices.
(3) The Lipper California Municipal Debt Funds Index includes the 30 largest
municipal debt funds in California tracked by Lipper Inc. The Lipper index's
returns include net reinvested dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 19
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Minnesota Tax-Exempt Fund Class A shares (from 9/1/98
to 8/31/08) as compared to the performance of three widely cited performance
indices, the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond
Index, the Lehman Brothers Municipal Bond Index and the Lipper Minnesota
Municipal Debt Funds Index. In comparing the Fund's Class A shares to these
indices, you should take into account the fact that the Fund's performance
reflects the maximum sales charge of 4.75%, while such charges are not reflected
in the performance of the indices. Returns for the Fund include the reinvestment
of any distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Aug. 31, 2008
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,852 $10,221 $11,303 $13,868
- ------------------------------------------------------------------------------------------
Average annual total return -1.48% +0.73% +2.48% +3.30%
- ------------------------------------------------------------------------------------------
LEHMAN BROTHERS MINNESOTA 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1)
Cumulative value of $10,000 $10,555 $11,110 $12,492 $16,184
- ------------------------------------------------------------------------------------------
Average annual total return +5.55% +3.57% +4.55% +4.93%
- ------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
Cumulative value of $10,000 $10,448 $11,013 $12,420 $16,093
- ------------------------------------------------------------------------------------------
Average annual total return +4.48% +3.27% +4.43% +4.87%
- ------------------------------------------------------------------------------------------
LIPPER MINNESOTA MUNICIPAL DEBT FUNDS INDEX(3)
Cumulative value of $10,000 $10,327 $10,759 $12,015 $14,836
- ------------------------------------------------------------------------------------------
Average annual total return +3.27% +2.47% +3.74% +4.02%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 7.
- --------------------------------------------------------------------------------
20 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MINNESOTA TAX-EXEMPT
FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE MINNESOTA LEHMAN BROTHERS
TAX-EXEMPT FUND MINNESOTA 3
CLASS A PLUS YEAR LEHMAN BROTHERS LIPPER MINNESOTA
(INCLUSDES SALES ENHANCED MUNICIPALL MUNICIPAL BOND MUNICIPAL DEBT
CHARGE) BOND INDEX(1) INDEX(2) FUNDS INDEX(3)
--------------------- ------------------- ----------------- ----------------
'98 $ 9,525 $10,000 $10,000 $10,000
'99 9,518 10,022 10,050 9,965
'00 9,944 10,678 10,730 10,419
'01 10,757 11,753 11,824 11,369
'02 11,410 12,473 12,562 11,973
'03 11,683 12,956 12,956 12,349
'04 12,425 13,848 13,877 13,127
'05 12,914 14,566 14,614 13,790
'06 13,232 15,007 15,057 14,165
'07 13,399 15,333 15,403 14,367
'08 13,868 16,184 16,093 14,836
</Table>
(1) The Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, an
unmanaged index, is a market value-weighted index of Minnesota investment-
grade fixed-rate municipal bonds with maturities of three years or more.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of
a representative list of general obligation, revenue, insured and pre-
refunded bonds. The index is frequently used as a general measure of tax-
exempt bond market performance. The Lehman Brothers indices reflect
reinvestment of all distributions and changes in market prices.
(3) The Lipper Minnesota Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Minnesota tracked by Lipper Inc. The Lipper index's
returns include net reinvested dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 21
THE FUND'S LONG-TERM PERFORMANCE -----------------------------------------------
RiverSource New York Tax-Exempt Fund
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource New York Tax-Exempt Fund Class A shares (from 9/1/98
to 8/31/08) as compared to the performance of three widely cited performance
indices, the Lehman Brothers New York 4 Plus Year Municipal Bond Index, the
Lehman Brothers Municipal Bond Index and the Lipper New York Municipal Debt
Funds Index. In comparing the Fund's Class A shares to these indices, you should
take into account the fact that the Fund's performance reflects the maximum
sales charge of 4.75%, while such charges are not reflected in the performance
of the indices. Returns for the Fund include the reinvestment of any
distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The table below and the chart on the facing page do
not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. The investment return and
principal value of your investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance information shown. You
may obtain performance information current to the most recent month-end by
contacting your financial institution or visiting riversource.com/funds. Also
see "Past Performance" in the Fund's current prospectus.
COMPARATIVE RESULTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
Results at Aug. 31, 2008
1 YEAR 3 YEARS 5 YEARS 10 YEARS
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
(INCLUDES SALES CHARGE)
Class A Cumulative value of $10,000 $9,764 $10,160 $11,259 $13,793
- ------------------------------------------------------------------------------------------
Average annual total return -2.36% +0.53% +2.40% +3.24%
- ------------------------------------------------------------------------------------------
LEHMAN BROTHERS NEW YORK 4 PLUS YEAR MUNICIPAL BOND INDEX(1)
Cumulative value of $10,000 $10,492 $11,058 $12,612 $16,488
- ------------------------------------------------------------------------------------------
Average annual total return +4.92% +3.41% +4.75% +5.13%
- ------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
Cumulative value of $10,000 $10,448 $11,013 $12,420 $16,093
- ------------------------------------------------------------------------------------------
Average annual total return +4.48% +3.27% +4.43% +4.87%
- ------------------------------------------------------------------------------------------
LIPPER NEW YORK MUNICIPAL DEBT FUNDS INDEX(3)
Cumulative value of $10,000 $10,261 $10,709 $11,980 $14,758
- ------------------------------------------------------------------------------------------
Average annual total return +2.61% +2.31% +3.68% +3.97%
- ------------------------------------------------------------------------------------------
</Table>
Results for other share classes can be found on page 10.
- --------------------------------------------------------------------------------
22 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
(VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE NEW YORK TAX-EXEMPT
FUND LINE GRAPH)
<Table>
<Caption>
RIVERSOURCE NEW LEHMAN BROTHERS
YORK TAX-EXEMPT NEW YORK LIPPER NEW
FUND CLASS 4 PLUS LEHMAN BROTHERS YORK MUNICIPAL
A (INCLUDES YEAR MUNICIPAL MUNICIPAL BOND DEBT FUNDS
SALES CHARGE) BOND INDEX(1) INDEX(2) INDEX(3)
--------------- --------------- ----------------- -----------------
'98 $ 9,525 $10,000 $10,000 $10,000
'99 9,444 10,005 10,050 9,840
'00 9,905 10,722 10,730 10,369
'01 10,802 11,919 11,824 11,463
'02 11,457 12,647 12,562 12,032
'03 11,665 13,076 12,956 12,317
'04 12,378 14,088 13,877 13,107
'05 12,927 14,908 14,614 13,783
'06 13,242 15,375 15,057 14,181
'07 13,445 15,714 15,403 14,383
'08 13,793 16,488 16,093 14,758
</Table>
(1) The Lehman Brothers New York 4 Plus Year Municipal Bond Index, an unmanaged
index, is a market value-weighted index of New York investment-grade fixed-
rate municipal bonds with maturities of four years or more.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of
a representative list of general obligation, revenue, insured and pre-
refunded bonds. The index is frequently used as a general measure of tax-
exempt bond market performance. The Lehman Brothers indices reflect
reinvestment of all distributions and changes in market prices.
(3) The Lipper New York Municipal Debt Funds Index includes the 30 largest
municipal debt funds in New York tracked by Lipper Inc. The Lipper index's
returns include net reinvested dividends.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 23
FUND EXPENSES EXAMPLES --------------------------------------------------------
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, which may include management fees; distribution and service (12b-1) fees;
and other Fund fees and expenses. These examples are intended to help you
understand your ongoing costs (in dollars) of investing in each Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the ongoing expenses which the Fund bears directly, the Fund's
shareholders indirectly bear the expenses of the funds in which it invests (also
referred to as "acquired funds"), including affiliated and non-affiliated pooled
investment vehicles (including mutual funds and exchange traded funds). The
Fund's indirect expense from investing in the acquired funds is based on the
Fund's pro rata portion of the cumulative expenses charged by the acquired funds
using the expense ratio of each of the acquired funds as of the acquired fund's
most recent shareholder report.
These examples are based on an investment of $1,000 invested at the beginning of
the period and held for the six months ended Aug. 31, 2008.
ACTUAL EXPENSES
The first line of each table provides information about actual account values
and actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of each table provides information about hypothetical account
values and hypothetical expenses based on each Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare each 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in each table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of each table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
24 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2008 AUG. 31, 2008 THE PERIOD(A) EXPENSE RATIO(B)
- ---------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,050.50 $4.14 .81%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.89 $4.08 .81%
- ---------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,046.50 $7.96 1.56%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.15 $7.85 1.56%
- ---------------------------------------------------------------------------------------------
Class C
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,046.40 $7.96 1.56%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,017.15 $7.85 1.56%
- ---------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Annualized expense ratios include interest and fee expense related to the
Fund's participation in certain inverse floater programs. Due to an equal
increase in interest income from fixed rate municipal bonds held in trust,
there is no impact on the Fund's net assets, net asset value per share,
total return or net investment income. The ratios excluding interest and fee
expense were 0.79% for Class A, 1.54% for Class B and 1.54% for Class C.
(c) Based on the actual return for the six months ended Aug. 31, 2008: +5.05%
for Class A, +4.65% for Class B and +4.64% for Class C.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 25
FUND EXPENSES EXAMPLES (continued) ---------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2008 AUG. 31, 2008 THE PERIOD(A) EXPENSE RATIO(B)
- ---------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,051.50 $4.71 .92%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.34 $4.63 .92%
- ---------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,049.60 $8.53 1.67%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.60 $8.40 1.67%
- ---------------------------------------------------------------------------------------------
Class C
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,049.60 $8.53 1.67%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.60 $8.40 1.67%
- ---------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Annualized expense ratios include interest and fee expense related to the
Fund's participation in certain inverse floater programs. Due to an equal
increase in interest income from fixed rate municipal bonds held in trust,
there is no impact on the Fund's net assets, net asset value per share,
total return or net investment income. The ratios excluding interest and fee
expense were 0.79% for Class A, 1.54% for Class B and 1.54% for Class C.
(c) Based on the actual return for the six months ended Aug. 31, 2008: +5.15%
for Class A, +4.96% for Class B and +4.96% for Class C.
- --------------------------------------------------------------------------------
26 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2008 AUG. 31, 2008 THE PERIOD(A) EXPENSE RATIO(B)
- ---------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,050.70 $4.45 .87%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,020.59 $4.38 .87%
- ---------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,046.80 $8.27 1.62%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.85 $8.15 1.62%
- ---------------------------------------------------------------------------------------------
Class C
- ---------------------------------------------------------------------------------------------
Actual(c) $1,000 $1,046.80 $8.27 1.62%
- ---------------------------------------------------------------------------------------------
Hypothetical
(5% return before expenses) $1,000 $1,016.85 $8.15 1.62%
- ---------------------------------------------------------------------------------------------
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Annualized expense ratios include interest and fee expense related to the
Fund's participation in certain inverse floater programs. Due to an equal
increase in interest income from fixed rate municipal bonds held in trust,
there is no impact on the Fund's net assets, net asset value per share,
total return or net investment income. The ratios excluding interest and fee
expense were 0.79% for Class A, 1.54% for Class B and 1.54% for Class C.
(c) Based on the actual return for the six months ended Aug. 31, 2008: +5.07%
for Class A, +4.68% for Class B and +4.68% for Class C.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 27
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
RiverSource California Tax-Exempt Fund
AUG. 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
MUNICIPAL BONDS (93.3%)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
ADVANCED REFUNDED (0.6%)
Los Angeles Harbor Department
Revenue Bonds
Series 1988 Escrowed to Maturity
10-01-18 7.60% $830,000 $1,008,002
- ---------------------------------------------------------------------
CERTIFICATE OF PARTICIPATION (0.9%)
County of Riverside
Certificate of Participation
Series 1998 (MBIA)
12-01-21 5.00 1,530,000 1,550,640
- ---------------------------------------------------------------------
COLLEGE (9.4%)
California Educational Facilities Authority
Prerefunded Revenue Bonds
University of Southern California
Series 2003A
10-01-33 5.00 2,000,000 2,200,860
California Educational Facilities Authority
Revenue Bonds
University of Southern California
Series 2007A
10-01-37 4.75 2,000,000 1,947,620
California Municipal Finance Authority
Revenue Bonds
Biola University
Series 2008
10-01-28 5.80 4,000,000 3,995,040
California Municipal Finance Authority
Revenue Bonds
Loma Linda University
Series 2007
04-01-32 4.75 2,300,000 2,172,097
Chabot-Las Positas Community College District
Unlimited General Obligation Bonds
Capital Appreciation Election of 2004B
Zero Coupon
Series 2006 (AMBAC)
08-01-19 4.75 1,000,000(g) 597,190
Foothill-De Anza Community College District
Unlimited General Obligation Bonds
Series 2007A (AMBAC)
08-01-27 5.00 2,500,000 2,568,725
Merced Community College District
Refunding Revenue Bonds
School Facilities Financing Authority
Series 2006 (MBIA)
08-01-21 5.00 700,000 737,499
San Mateo County Community College District
Unlimited General Obligation Bonds
Election of 2001
Series 2002A (FGIC)
09-01-18 5.38 1,000,000 1,065,280
University of California Regents Medical Center
Revenue Bonds
Series 2008D
05-15-27 5.00 1,500,000 1,531,755
-----------
Total 16,816,066
- ---------------------------------------------------------------------
COMBINED UTILITY (1.3%)
California Pollution Control Financing Authority
Refunding Revenue Bonds
Pacific Gas
Series 2004D (FGIC) A.M.T.
12-01-23 4.75 1,000,000 863,510
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
28 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
COMBINED UTILITY (CONT.)
California Pollution Control Financing Authority
Revenue Bonds
Waste Management Incorporated Project
Series 2005C A.M.T.
11-01-23 5.13% $1,500,000 $1,290,435
Roseville Natural Gas Finance Authority
Revenue Bonds
Series 2007
02-15-23 5.00 225,000 205,682
-----------
Total 2,359,627
- ---------------------------------------------------------------------
COUNTY (0.5%)
California Statewide Communities Development Authority
Revenue Bonds
Thomas Jefferson School of Law
Series 2008A
10-01-38 7.25 1,000,000 969,050
- ---------------------------------------------------------------------
ELECTRIC (3.6%)
California State Department of Water Resources
Revenue Bonds
Power Supply
Series 2008H
05-01-22 5.00 2,000,000 2,087,180
Southern California Public Power Authority
Revenue Bonds
Project #1
Series 2007A
11-01-33 5.00 1,000,000 924,530
Walnut Energy Center Authority
Revenue Bonds
Series 2004A (AMBAC)
01-01-29 5.00 2,500,000 2,499,825
01-01-34 5.00 1,000,000 984,400
-----------
Total 6,495,935
- ---------------------------------------------------------------------
HEALTH CARE -- HOSPITAL (14.4%)
Abag Finance Authority for Nonprofit Corporations
Refunding Revenue Bonds
Children's Hospital & Research Center
Series 2007A
12-01-37 5.00 1,000,000 920,790
Abag Finance Authority for Nonprofit Corporations
Revenue Bonds
San Diego Hospital Association
Series 2001A
08-15-20 6.13 2,500,000 2,569,150
California Health Facilities Financing Authority
Refunding Revenue Bonds
Cedars-Sinai Medical Center
Series 2005
11-15-18 5.00 1,500,000 1,540,065
11-15-34 5.00 1,525,000 1,452,181
California Health Facilities Financing Authority
Revenue Bonds
Catholic Healthcare West
Series 2004G
07-01-23 5.25 3,500,000 3,487,260
California Health Facilities Financing Authority
Revenue Bonds
Scripps Health
Series 2008A
10-01-22 5.00 3,250,000 3,234,595
California Health Facilities Financing Authority
Revenue Bonds
Sutter Health
Series 2008A
08-15-30 5.00 2,500,000 2,431,750
California Statewide Communities Development Authority
Revenue Bonds
Catholic Healthcare West
Series 2008B
07-01-30 5.50 1,975,000 1,962,419
California Statewide Communities Development Authority
Revenue Bonds
Kaiser Permanente
Series 2006B
03-01-45 5.25 1,000,000 968,450
Sierra View Local Healthcare District
Revenue Bonds
Series 2007
07-01-37 5.25 2,000,000 1,838,800
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 29
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
HEALTH CARE -- HOSPITAL (CONT.)
Tulare Local Healthcare District
Refunding Revenue Bonds
Series 2007
11-01-32 5.20% $2,180,000 $1,944,015
Turlock
Certificate of Participation
Emanuel Medical Center
Series 2007A
10-15-31 5.13 3,930,000 3,432,580
-----------
Total 25,782,055
- ---------------------------------------------------------------------
HOUSING -- OTHER (0.8%)
California Statewide Communities Development Authority
Revenue Bonds
CHF- Irvine LLC -- UCI East Campus
Series 2008
05-15-32 5.75 1,500,000 1,478,850
- ---------------------------------------------------------------------
HOUSING -- SINGLE FAMILY (3.7%)
California Housing Finance Agency
Revenue Bonds
Home Mortgage
Series 2006H (FGIC) A.M.T.
08-01-30 5.75 1,820,000 1,848,137
California Housing Finance Agency
Revenue Bonds
Home Mortgage
Series 2006K A.M.T.
02-01-42 5.50 935,000 949,988
California Housing Finance Agency
Revenue Bonds
Home Mortgage
Series 2007D (FGIC) A.M.T.
02-01-17 4.35 1,555,000 1,483,579
08-01-17 4.35 2,470,000 2,347,784
Stockton
Revenue Bonds
Mortgage-backed Securities Program
Series 1990A (GNMA/FNMA/FHLMC) A.M.T.
02-01-23 7.50 25,000 25,452
-----------
Total 6,654,940
- ---------------------------------------------------------------------
LEASE (5.1%)
Eastern Municipal Water District
Certificate of Participation
Series 2008H
07-01-33 5.00 1,000,000 992,900
Golden State Tobacco Securitization Corporation
Enhanced Asset-backed Revenue Bonds
Series 2005A
06-01-45 5.00 2,000,000 1,793,760
Golden State Tobacco Securitization Corporation
Revenue Bonds
Series 2003A-1
06-01-33 6.25 2,325,000 2,533,599
Los Angeles Municipal Improvement
Revenue Bonds
Series 2008B
09-01-38 5.00 4,000,000 3,879,120
-----------
Total 9,199,379
- ---------------------------------------------------------------------
MISCELLANEOUS REVENUE (5.2%)
California County Tobacco Securitization Agency
Asset-backed Revenue Bonds
Alameda County
Series 2002
06-01-29 5.75 785,000 727,342
06-01-42 6.00 240,000 214,258
California Infrastructure & Economic Development Bank
Revenue Bonds
Series 2008W
02-01-33 5.25 2,000,000 1,997,179
Golden State Tobacco Securitization Corporation
Prerefunded Enhanced Asset-backed Revenue Bonds
Series 2003B (FSA)
06-01-43 5.00 110,000 118,715
Golden State Tobacco Securitization Corporation
Prerefunded Revenue Bonds
Series 2003A-1
06-01-39 6.75 1,510,000 1,745,364
06-01-40 6.63 750,000 862,793
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
30 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
MISCELLANEOUS REVENUE (CONT.)
Los Angeles County Public Works Financing Authority
Refunding Revenue Bonds
Master Project
Series 2005A (MBIA)
12-01-26 5.00% $2,000,000 $1,983,299
Oakley Redevelopment Agency
Revenue Bonds
Oakley Redevelopment Project Area
Series 2008A (AMBAC)
09-01-38 5.00 1,750,000 1,671,548
-----------
Total 9,320,498
- ---------------------------------------------------------------------
PORT DISTRICT (0.6%)
Port of Oakland
Revenue Bonds
Series 2000K (FGIC) A.M.T.
11-01-18 5.63 1,000,000 1,005,660
- ---------------------------------------------------------------------
SCHOOL (18.0%)
Alhambra City Elementary School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999A (FSA)
09-01-22 5.95 1,055,000(g) 534,822
Anaheim Union High School District
Prerefunded Unlimited General Obligation Bonds
Series 2002A (FSA)
08-01-16 5.38 1,550,000 1,717,803
Centinela Valley Union High School District
Unlimited General Obligation Bonds
Series 2002A (MBIA)
08-01-31 5.25 2,000,000 1,978,880
Encinitas Union School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1996 (MBIA)
08-01-15 5.85 2,500,000(g) 1,879,375
Fontana Unified School District
Unlimited General Obligation Bonds
Convertible Capital Appreciation
Series 1997D (FGIC)
05-01-22 5.75 2,000,000 2,072,700
Fremont Union High School District/Santa Clara County
Unlimited General Obligation Bonds
Election of 2008
Series 2008
08-01-30 4.75 5,000,000 5,007,649
Grant Joint Union High School District
Unlimited General Obligation Bonds
Election of 2006
Series 2008 (FSA)
08-01-25 5.00 1,000,000 1,039,630
Lammersville School District Community Facilities
Special Tax Bonds
Mountain House
Series 2006
09-01-35 5.13 1,000,000 854,150
Los Angeles Unified School District
Unlimited General Obligation Bonds
Election of 2002
Series 2007B (AMBAC)
07-01-22 5.00 1,395,000 1,455,669
Menifee Union School District
Unlimited General Obligation Bonds
Election of 2008
Series 2008A
08-01-33 5.50 3,125,000 3,155,781
Oxnard School District
Unlimited General Obligation Refunding Bonds
Series 2001A (MBIA)
08-01-30 5.75 2,575,000 2,720,797
San Juan Unified School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999 (FSA)
08-01-21 5.68 820,000(g) 440,332
08-01-24 5.70 1,810,000(g) 813,034
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 31
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
SCHOOL (CONT.)
Santa Maria Joint Union High School District
Prerefunded Unlimited General Obligation Bonds
Election of 2000
Series 2003B (FSA)
08-01-27 5.00% $3,000,000 $3,357,930
Simi Valley School Financing Authority
Refunding Revenue Bonds
University School District
Series 2007 (FSA)
08-01-23 5.00 1,500,000 1,582,665
Western Placer Unified School District
Certificate of Participation
Series 2008 (Assured Guaranty)
08-01-32 4.75 1,000,000 940,070
Whittier Union High School District
Prerefunded Unlimited General Obligation Bonds
Election of 1999
Series 2003D (FSA)
08-01-28 5.00 2,615,000 2,868,341
-----------
Total 32,419,628
- ---------------------------------------------------------------------
SPECIAL DISTRICT -- ASSESSMENT (0.5%)
City of Azusa
Special Tax Bonds Escrow
Community Facilities
Series 2007
09-01-27 5.00 1,110,000 938,361
- ---------------------------------------------------------------------
SPECIAL DISTRICT -- OTHER (1.6%)
Puerto Rico Highway & Transportation Authority
Prerefunded Revenue Bonds
Series 2004J
07-01-43 5.13 2,500,000(b) 2,795,275
- ---------------------------------------------------------------------
SPECIAL DISTRICT -- SPECIAL TAX (4.7%)
Anaheim Community Facilities District
Special Tax Bonds
Stadium Lofts
Series 2007
09-01-37 5.00 1,000,000 816,430
Beaumont Financing Authority
Prerefunded Revenue Bonds
Series 2000A
09-01-32 7.38 1,955,000 2,188,857
Orange Unified School District Community Facilities
Special Tax Bonds
Del Rio School Facilities
Series 2007-2
09-01-37 5.00 1,000,000 856,040
Pittsburg Redevelopment Agency
Tax Allocation Bonds
Los Medanos Community Development Project
Zero Coupon
Series 1999 (AMBAC)
08-01-24 6.05 2,100,000(g) 878,346
Rancho Cucamonga Redevelopment Agency
Tax Allocation Bonds
Housing Set Aside
Series 2007A (MBIA)
09-01-34 5.00 2,200,000 2,140,710
San Francisco Bay Area Transit Financing Authority
Prerefunded Revenue Bonds
Series 2001 (AMBAC)
07-01-36 5.13 1,475,000 1,592,631
-----------
Total 8,473,014
- ---------------------------------------------------------------------
SPECIAL DISTRICT -- TAX ALLOCATION (0.6%)
Inglewood Redevelopment Agency
Refunding Tax Allocation Bonds
Merged Redevelopment Project
Series 1998A (AMBAC)
05-01-23 5.25 1,100,000 1,164,911
- ---------------------------------------------------------------------
STATE (14.6%)
State of California
Prerefunded Unlimited General Obligation Bonds
Series 2000
05-01-19 5.63 250,000 267,488
State of California
Prerefunded Unlimited General Obligation Bonds
Series 2004
04-01-29 5.30 1,998,000 2,247,550
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
32 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
STATE (CONT.)
State of California
Prerefunded Unlimited General Obligation Bonds
Series 2004 (FGIC)
02-01-33 5.00% $2,500,000 $2,756,450
State of California
Unlimited General Obligation Bonds
Series 2002
02-01-15 6.00 1,000,000 1,141,600
State of California
Unlimited General Obligation Bonds
Series 2003
02-01-21 5.25 2,500,000 2,584,100
02-01-29 5.25 2,500,000 2,529,350
State of California
Unlimited General Obligation Bonds
Series 2008B
07-01-23 5.00 1,000,000 1,068,640
State of California
Unlimited General Obligation Bonds
Various Purpose
Series 2003
11-01-22 5.00 2,000,000 2,036,320
11-01-23 5.13 2,500,000 2,549,275
11-01-24 5.13 2,000,000 2,034,820
11-01-29 5.25 500,000 506,735
State of California
Unlimited General Obligation Bonds
Veterans
Series 2000BJ A.M.T.
12-01-12 4.95 2,250,000 2,333,745
12-01-13 5.05 1,435,000 1,484,134
12-01-14 5.15 2,535,000 2,611,456
State of California
Unrefunded Unlimited General Obligation Bonds
Series 2004
04-01-29 5.30 2,000 2,035
-----------
Total 26,153,698
- ---------------------------------------------------------------------
WATER & SEWER (7.2%)
Anaheim Public Financing Authority
Revenue Bonds
Series 2007 (MBIA)
02-01-33 4.75 3,500,000 3,401,300
California State Department of Water Resources
Revenue Bonds
Central Valley Project
Series 2008AE
12-01-29 5.00 2,500,000 2,587,675
Eastern Municipal Water District
Special Tax Bonds
District #2004-27 Cottonwood
Series 2006
09-01-27 5.00 200,000 178,336
09-01-36 5.00 500,000 420,150
Fresno
Revenue Bonds
Series 2008A (Assured Guaranty)
09-01-33 5.00 2,500,000 2,519,575
Semitropic Improvement District
Revenue Bonds
Series 2004A (XLCA)
12-01-28 5.00 2,000,000 1,974,760
Turlock Public Financing Authority
Revenue Bonds
Series 2008
05-01-32 4.75 2,000,000 1,925,560
-----------
Total 13,007,356
- ---------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $167,442,341) $167,592,945
- ---------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 33
RiverSource California Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS HELD IN TRUST
(2.5%)(f)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
WATER & SEWER
Austin Trust Various States
Certificate of Participation
Series 2008 (FSA)
05-01-33 5.00% $4,500,000 $4,558,275
- ---------------------------------------------------------------------
TOTAL MUNICIPAL BONDS HELD IN TRUST
(Cost: $4,585,869) $4,558,275
- ---------------------------------------------------------------------
<Caption>
MUNICIPAL NOTES (1.2%)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(c,d,e) YIELD MATURITY VALUE(a)
California State Department of Water Resources
Revenue Bonds
V.R.D.N. Series 2002B-3 (Bank of New York)
05-01-22 2.10% $1,100,000 $1,100,000
Irvine
Revenue Bonds
Assessment District No 97-16 V.R.D.N.
Series 1997 (State Street B&T)
09-02-22 2.25 530,000 530,000
Irvine
Special Assessment Bonds
Assessment District No 94-13 V.R.D.N.
Series 1997 (State Street B&T)
09-02-22 2.25 500,000 500,000
- ---------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $2,130,000) $2,130,000
- ---------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $174,158,210)(h) $174,281,220
=====================================================================
</Table>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
1.6% of net assets at Aug. 31, 2008.
(c) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
<Table>
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
CIFG -- IXIS Financial Guaranty
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
</Table>
- --------------------------------------------------------------------------------
34 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource California Tax-Exempt Fund
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(d) The following abbreviations may be used in the portfolio descriptions:
<Table>
A.M.T. -- Alternative Minimum Tax - At Aug. 31, 2008, the
value of securities subject to alternative
minimum tax represented 9.0% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
</Table>
(e) The Fund is entitled to receive principal and interest from the party, if
indicated in parentheses, after a day or a week's notice or upon maturity.
The maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on Aug. 31, 2008.
(f) Municipal Bonds Held in Trust -- See Note 1 to the financial statements.
(g) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(h) At Aug. 31, 2008, the cost of securities for federal income tax purposes
was $ 174,916,647 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $3,464,538
Unrealized depreciation (4,099,965)
-----------------------------------------------------------
Net unrealized depreciation $(635,427)
-----------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 35
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
AUG. 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
MUNICIPAL BONDS (94.2%)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
AIRPORT (3.1%)
Minneapolis-St. Paul Metropolitan Airports Commission
Prerefunded Revenue Bonds
Sub Series 2001C (FGIC)
01-01-18 5.50% $2,000,000 $2,147,700
01-01-32 5.25 7,000,000 7,477,260
-----------
Total 9,624,960
- ---------------------------------------------------------------------
CITY (1.0%)
City of Minneapolis
Prerefunded Unlimited General Obligation Bonds
Various Purpose
Series 2001 Escrowed to Maturity
12-01-11 5.00 145,000 156,087
City of Minneapolis
Unrefunded Unlimited General Obligation Bonds
Various Purpose
Series 2001
12-01-11 5.00 2,890,000 3,115,651
-----------
Total 3,271,738
- ---------------------------------------------------------------------
COLLEGE (3.2%)
Minnesota Higher Education Facilities Authority
Revenue Bonds
Macalester College
6th Series 2004B
03-01-17 5.00 2,395,000 2,549,286
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Benedict College
Series 2008V
03-01-18 5.00 500,000 523,890
03-01-23 4.75 800,000 788,456
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. John's University
6th Series 2005G
10-01-22 5.00 3,000,000 3,075,420
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. John's University
6th Series 2008U
10-01-28 4.75 1,000,000 983,430
10-01-33 4.75 825,000 782,562
Minnesota Higher Education Facilities Authority
Revenue Bonds
University of St. Thomas
6th Series 2006I
04-01-13 5.00 1,115,000 1,187,497
-----------
Total 9,890,541
- ---------------------------------------------------------------------
COUNTY (4.7%)
Anoka County Housing & Redevelopment Authority
Unlimited General Obligation Bonds
Housing Development
Series 2004 (AMBAC)
02-01-34 5.00 1,355,000 1,354,946
County of Ramsey
Unlimited General Obligation Bonds
Capital Improvement Plan
Series 2007A
02-01-20 5.00 1,000,000 1,079,060
02-01-21 5.00 1,035,000 1,107,978
02-01-22 5.00 1,080,000 1,149,498
02-01-23 5.00 1,125,000 1,192,219
02-01-24 5.00 1,170,000 1,235,450
02-01-25 5.00 1,215,000 1,278,350
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
36 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
COUNTY (CONT.)
County of Ramsey
Unlimited General Obligation Refunding Bonds
Capital Improvement Plan
Series 2002B
02-01-14 5.25% $3,840,000 $4,069,593
Hennepin County
Unlimited General Obligation Bonds
Series 2003
12-01-23 4.75 2,000,000 2,031,200
-----------
Total 14,498,294
- ---------------------------------------------------------------------
ELECTRIC (16.4%)
City of Chaska
Refunding Revenue Bonds
Generating Facilities
Series 2005A
10-01-20 5.25 1,165,000 1,216,190
10-01-30 5.00 3,800,000 3,749,802
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2004A
10-01-29 5.13 3,500,000 3,504,375
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2005
10-01-30 5.00 2,000,000 1,963,180
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2007
10-01-32 4.75 3,000,000 2,776,830
Northern Municipal Power Agency
Refunding Revenue Bonds
Series 1998B (AMBAC)
01-01-20 4.75 5,000,000 5,024,150
Northern Municipal Power Agency
Revenue Bonds
Series 2007A (AMBAC)
01-01-26 5.00 2,500,000 2,512,800
Northern Municipal Power Agency
Revenue Bonds
Series 2008A
01-01-21 5.00 2,500,000 2,607,875
Puerto Rico Electric Power Authority
Prerefunded Revenue Bonds
Series 2003NN (MBIA)
07-01-32 5.00 2,820,000(b) 3,102,846
Southern Minnesota Municipal Power Agency
Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1994A (MBIA)
01-01-19 6.67 17,000,000(f) 10,817,950
Southern Minnesota Municipal Power Agency
Revenue Bonds
Series 2002A (AMBAC)
01-01-17 5.25 6,000,000 6,535,920
Western Minnesota Municipal Power Agency
Revenue Bonds
Series 2003A (MBIA)
01-01-26 5.00 7,250,000 7,316,990
-----------
Total 51,128,908
- ---------------------------------------------------------------------
HEALTH CARE -- HOSPITAL (17.8%)
City of Breckenridge
Revenue Bonds
Catholic Health Initiatives
Series 2004A
05-01-30 5.00 2,000,000 1,950,760
City of Maple Grove
Revenue Bonds
Maple Grove Hospital Corporation
Series 2007
05-01-20 5.00 1,000,000 987,750
05-01-21 5.00 1,500,000 1,469,580
05-01-37 5.25 4,715,000 4,391,551
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 37
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
HEALTH CARE -- HOSPITAL (CONT.)
City of Minneapolis
Revenue Bonds
Fairview Health Services
Series 2002B (MBIA)
05-15-14 5.50% $2,050,000 $2,193,459
05-15-15 5.50 2,160,000 2,299,082
05-15-16 5.50 2,200,000 2,330,680
City of Winona
Refunding Revenue Bonds
Winona Health Obligation Group
Series 2007
07-01-31 5.15 2,000,000 1,811,820
County of Chippewa
Revenue Bonds
Montevideo Hospital Project
Series 2007
03-01-20 5.38 1,940,000 1,888,920
03-01-21 5.38 1,045,000 1,008,582
County of Meeker
Revenue Bonds
Memorial Hospital Project
Series 2007
11-01-27 5.75 1,000,000 963,390
11-01-37 5.75 2,250,000 2,071,485
Minnesota Agricultural & Economic Development Board
Prerefunded Revenue Bonds
Benedictine Health System
Series 1999A (MBIA)
02-15-16 4.75 245,000 256,831
Minnesota Agricultural & Economic Development Board
Prerefunded Revenue Bonds
Health Care System
Series 2000A
11-15-22 6.38 4,845,000 5,315,789
11-15-29 6.38 2,910,000 3,192,765
Minnesota Agricultural & Economic Development Board
Unrefunded Revenue Bonds
Benedictine Health System
Series 1999A (MBIA)
02-15-16 4.75 755,000 766,770
Northfield
Revenue Bonds
Series 2006
11-01-31 5.38 1,500,000 1,373,175
Shakopee
Revenue Bonds
St. Francis Regional Medical Center
Series 2004
09-01-25 5.10 3,300,000 3,105,696
St. Louis Park
Revenue Bonds
Park Nicollet Health Services
Series 2008C
07-01-26 5.63 6,145,000 6,179,043
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Allina Health Systems
Series 2007A (MBIA)
11-15-22 5.00 3,000,000 3,037,350
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Healtheast Project
Series 2005
11-15-25 6.00 1,250,000 1,236,650
St. Paul Housing & Redevelopment Authority
Revenue Bonds
HealthPartners Obligation Group Project
Series 2006
05-15-23 5.25 1,000,000 962,820
05-15-26 5.25 1,000,000 946,190
05-15-36 5.25 3,500,000 3,112,725
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
38 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
HEALTH CARE -- HOSPITAL (CONT.)
Todd Morrison Cass & Wadena Counties
United Hospital District
Unlimited General Obligation Bonds
Health Care Facilities-Lakewood
Series 2004
12-01-34 5.00% $2,500,000 $2,394,125
-----------
Total 55,246,988
- ---------------------------------------------------------------------
HEALTH CARE -- LIFE CARE CENTER (0.5%)
City of Stillwater
Revenue Bonds
Health System Obligation Group
Series 2005
06-01-25 5.00 1,750,000 1,683,010
- ---------------------------------------------------------------------
HEALTH CARE -- NURSING HOME (3.5%)
Annandale Economic Development Authority
Revenue Bonds
Annandale Care Center Project
Series 2007A
11-01-37 5.90 3,385,000 3,071,549
City of North Oaks
Revenue Bonds
Presbyterian Homes
Series 2007
10-01-27 6.00 1,250,000 1,186,038
10-01-33 6.00 1,500,000 1,397,205
City of Stillwater
Revenue Bonds
Health System Obligation Group
Series 2005
06-01-19 5.00 2,505,000 2,500,691
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Lyngblomsten Care Center Housing Project
Series 1993
11-01-17 7.13 1,335,000 1,296,018
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Rental -- Lyngblomsten Housing Project
Series 1993
11-01-24 7.00 1,595,000 1,529,382
-----------
Total 10,980,883
- ---------------------------------------------------------------------
HEALTH CARE -- OTHER (1.2%)
Minneapolis & St. Paul
Housing & Redevelopment Authority
Revenue Bonds
HealthPartners Obligation Group Project
Series 2003
12-01-12 5.25 1,000,000 1,035,730
12-01-15 5.13 1,500,000 1,518,120
12-01-16 5.25 1,250,000 1,260,163
-----------
Total 3,814,013
- ---------------------------------------------------------------------
HOUSING -- MULTI-FAMILY (2.6%)
Austin Housing & Redevelopment Authority
Revenue Bonds
Courtyard Residence Project
Series 2000A
01-01-32 7.25 2,000,000 2,028,260
City of Rochester
Refunding Revenue Bonds
Madonna Towers Incorporated Project
Series 2007A
11-01-28 5.88 1,000,000 939,810
Duluth Housing & Redevelopment Authority
Revenue Bonds
Benedictine Health Center Project
Series 2007
11-01-33 5.88 750,000 684,885
Plymouth Housing & Redevelopment Authority
Unlimited General Obligation Bonds
Governmental Housing Project
Series 2005
02-01-35 5.00 2,135,000 2,125,606
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 39
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
HOUSING -- MULTI-FAMILY (CONT.)
Steele County
Revenue Bonds
Elderly Housing Project
Series 2000
06-01-30 6.88% $2,205,000 $2,364,289
-----------
Total 8,142,850
- ---------------------------------------------------------------------
HOUSING -- SINGLE FAMILY (6.2%)
Minneapolis/St. Paul Housing Finance Board
Revenue Bonds
Mortgage-backed City Living
Series 2006A-5 (GNMA/FNMA/FHLMC)
04-01-27 5.45 2,151,184 2,238,264
Minneapolis/St. Paul Housing Finance Board
Revenue Bonds
Single Family Housing
Series 2005A-4 (GNMA/FNMA/FHLMC) A.M.T.
12-01-37 4.70 91,737 81,195
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2006B A.M.T.
07-01-26 4.75 1,905,000 1,694,078
07-01-31 4.85 2,570,000 2,210,586
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2006I A.M.T.
07-01-26 5.05 3,520,000 3,254,486
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2006M A.M.T.
01-01-37 5.75 2,920,000 2,987,131
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2007D A.M.T.
01-01-38 5.50 3,935,000 3,990,365
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2007I A.M.T.
07-01-22 4.65 2,330,000 2,119,461
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1996J A.M.T.
07-01-21 5.60 50,000 50,020
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1997K A.M.T.
01-01-26 5.75 765,000 765,306
-----------
Total 19,390,892
- ---------------------------------------------------------------------
LEASE (3.4%)
St. Paul Port Authority
Revenue Bonds
Office Building at Cedar Street
Series 2003
12-01-23 5.00 5,000,000 5,194,900
12-01-27 5.13 5,350,000 5,451,918
-----------
Total 10,646,818
- ---------------------------------------------------------------------
MISCELLANEOUS REVENUE (3.2%)
City of Minneapolis
Limited Tax Revenue Bonds
Common Bond Fund
Series 2007-2A A.M.T.
06-01-22 5.13 1,035,000 986,283
06-01-28 5.00 1,500,000 1,343,580
Minneapolis Community Development Agency
Limited Tax Revenue Bonds
Common Bond Fund
Series 1996-1
06-01-11 6.00 855,000 861,413
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
40 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
MISCELLANEOUS REVENUE (CONT.)
Minneapolis Community Development Agency
Prerefunded Limited Tax Revenue Bonds
Common Bond Fund
Series 2001-2A A.M.T.
06-01-19 5.88% $1,000,000 $1,075,440
St. Cloud Housing & Redevelopment Authority
Revenue Bonds
State University Foundation Project
Series 2002
05-01-18 5.13 3,000,000 3,129,659
St. Paul Port Authority
Tax Allocation River Bend Project Lot 1
Series 2007-5
02-01-32 6.38 2,685,000 2,488,565
-----------
Total 9,884,940
- ---------------------------------------------------------------------
SALES OR USE TAX (2.9%)
Hennepin County
Revenue Bonds
2nd Lien Ballpark Project
Series 2008B
12-15-27 4.75 4,205,000 4,226,697
12-15-29 5.00 1,825,000 1,872,633
Hennepin County
Revenue Bonds
Sales Tax
Series 2007
12-15-33 4.75 3,000,000 2,982,300
-----------
Total 9,081,630
- ---------------------------------------------------------------------
SCHOOL (15.7%)
Anoka-Hennepin Independent School District #11
Unlimited General Obligation Bonds
Series 2001A
(School District Credit Enhancement Program)
02-01-13 5.00 4,175,000 4,442,993
02-01-15 5.00 1,990,000 2,117,738
02-01-16 5.00 2,000,000 2,128,380
Bloomington Independent School District #271
Unlimited General Obligation Bonds
Series 2001A (FSA)
(School District Credit Enhancement Program)
02-01-24 5.13 4,000,000 4,271,160
City of Maple Grove
Revenue Bonds
North Memorial Health Care
Series 2005
09-01-35 5.00 2,500,000 2,279,475
Duluth Independent School District #709 Certificate of Participation
Series 2008B
(School District Credit Enhancement Program)
02-01-26 4.75 4,000,000 4,032,600
Edina Independent School District #273
Unlimited General Obligation Bonds
Series 2004
02-01-23 4.50 3,000,000 3,026,250
02-01-24 4.50 3,400,000 3,420,196
Elk River Independent School District #728
Unlimited General Obligation Bonds
Series 2002A (FSA)
(School District Credit Enhancement Program)
02-01-16 5.00 3,000,000 3,225,180
Farmington Independent School District #192
Unlimited General Obligation Bonds
School Building
Series 2005B (FSA)
(School District Credit Enhancement Program)
02-01-21 5.00 3,615,000 3,774,928
Lake Superior Independent School District #381
Prerefunded Unlimited General Obligation Bonds
Building
Series 2002A (FSA)
(School District Credit Enhancement Program)
04-01-13 5.00 65,000 71,087
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 41
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
SCHOOL (CONT.)
Lake Superior Independent School District #381
Unrefunded Unlimited General Obligation Bonds
Building
Series 2002A (FSA)
(School District Credit Enhancement Program)
04-01-13 5.00% $1,730,000 $1,890,838
Marshall Independent School District #413
Unlimited General Obligation Bonds
Series 2003A (FSA)
(School District Credit Enhancement Program)
02-01-19 4.13 1,560,000 1,579,781
Osseo Independent School District #279
Unlimited General Obligation Bonds
School Building
Series 2000A
(School District Credit Enhancement Program)
02-01-14 5.75 1,100,000 1,168,365
Osseo Independent School District #279
Unlimited General Obligation Bonds
Series 2002A (FSA)
(School District Credit Enhancement Program)
02-01-15 5.25 3,585,000 3,824,944
St. Paul Housing & Redevelopment Authority
Prerefunded Revenue Bonds
Community of Peace Academy Project
Series 2001A
12-01-30 7.88 2,390,000 2,714,801
St. Paul Housing & Redevelopment Authority
Refunding Revenue Bonds
St. Paul Academy & Summit School
Series 2007
10-01-24 5.00 2,000,000 2,011,520
White Bear Lake Independent School District #624
Unlimited General Obligation Refunding Bonds
Series 2002B (FGIC)
(School District Credit Enhancement Program)
02-01-13 5.00 1,405,000 1,499,065
02-01-14 5.00 1,480,000 1,561,977
-----------
Total 49,041,278
- ---------------------------------------------------------------------
SPECIAL DISTRICT -- SPECIAL TAX (0.1%)
Lakeville
Revenue Bonds
Series 2007
02-01-22 5.00 175,000 165,492
02-01-27 5.00 225,000 203,340
-----------
Total 368,832
- ---------------------------------------------------------------------
SPECIAL PURPOSE CERTIFICATES -- GENERAL OBLIGATIONS (0.1%)
Minneapolis Community Development Agency
Limited Tax Revenue Bonds
Common Bond Fund
Series 1997-7A
06-01-12 5.50 210,000 211,132
- ---------------------------------------------------------------------
STATE (3.9%)
Commonwealth of Puerto Rico
Prerefunded Unlimited General Obligation Public
Improvement Bonds
Series 2006A
07-01-27 5.25 860,000(b) 976,865
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement Bonds
Series 2001 (FSA)
07-01-16 5.50 1,500,000(b) 1,650,030
State of Minnesota
Unlimited General Obligation Bonds
Series 2002
11-01-15 5.25 3,575,000 3,886,633
State of Minnesota
Unlimited General Obligation Bonds
Series 2008A
06-01-18 5.00 5,000,000 5,549,150
-----------
Total 12,062,678
- ---------------------------------------------------------------------
TOLL ROAD (0.6%)
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25 1,650,000(b) 1,808,334
- ---------------------------------------------------------------------
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
42 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource Minnesota Tax-Exempt Fund
<Table>
<Caption>
MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
WATER & SEWER (4.1%)
Minnesota Public Facilities Authority
Revenue Bonds
Series 2002B
03-01-13 5.25% $2,500,000 $2,759,125
03-01-14 5.25 2,500,000 2,784,450
Minnesota Public Facilities Authority
Revenue Bonds
Series 2005C
03-01-25 5.00 7,000,000 7,259,420
-----------
Total 12,802,995
- ---------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $291,618,223) $293,581,714
- ---------------------------------------------------------------------
<Caption>
MUNICIPAL BONDS HELD IN TRUST
(8.7%)(g)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(c,d) RATE AMOUNT VALUE(a)
COLLEGE (3.1%)
University of Minnesota
Revenue Bonds
Series 2002
07-01-21 5.50% $8,500,000 $9,585,531
- ---------------------------------------------------------------------
HOUSING -- SINGLE FAMILY (0.9%)
Minnesota Housing Finance Agency
Revenue Bonds
Series 2002 A.M.T.
07-01-33 5.65 2,795,000 2,656,150
- ---------------------------------------------------------------------
SCHOOL (4.7%)
Elk River Independent School District #728
Unlimited General Obligation Bonds
Series 2002 (FSA)
(School District Credit Enhancement Program)
02-01-18 5.25 3,600,000 3,907,080
02-01-19 5.25 3,450,000 3,744,285
02-01-20 5.25 2,850,000 3,093,105
02-01-21 5.25 3,865,000 4,193,832
-----------
Total 14,938,302
- ---------------------------------------------------------------------
TOTAL MUNICIPAL BONDS HELD IN TRUST
(Cost: $25,775,720) $27,179,983
- ---------------------------------------------------------------------
<Caption>
MUNICIPAL NOTES (1.3%)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(c,d,e) YIELD MATURITY VALUE(a)
Arden Hills
Revenue Bonds
Presbyterian Homes
V.R.D.N. Series 1999B (U.S. Bank)
09-01-29 2.48% $222,000 $222,000
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Olaf College
V.R.D.N. 5th Series 2002M1 (Harris)
10-01-32 2.45 3,500,000 3,500,000
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Olaf College
V.R.D.N. 5th Series 2002M2 (Harris)
10-01-20 2.45 400,000 400,000
- ---------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $4,122,000) $4,122,000
- ---------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $321,515,943)(h) $324,883,697
=====================================================================
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 43
RiverSource Minnesota Tax-Exempt Fund
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
2.4% of net assets at Aug. 31, 2008.
(c) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
<Table>
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
CIFG -- IXIS Financial Guaranty
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
</Table>
(d) The following abbreviations may be used in the portfolio descriptions:
<Table>
A.M.T. -- Alternative Minimum Tax - At Aug. 31, 2008, the value of
securities subject to alternative
minimum tax represented 7.4% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
</Table>
(e) The Fund is entitled to receive principal and interest from the party, if
indicated in parentheses, after a day or a week's notice or upon maturity.
The maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on Aug. 31, 2008.
(f) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(g) Municipal Bonds Held in Trust -- See Note 1 to the financial statements.
(h) At Aug. 31, 2008, the cost of securities for federal income tax purposes
was $322,675,283 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $8,261,457
Unrealized depreciation (6,053,043)
- ----------------------------------------------------------
Net unrealized appreciation $2,208,414
- ----------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
44 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 45
PORTFOLIO OF INVESTMENTS -------------------------------------------------------
RiverSource New York Tax-Exempt Fund
AUG. 31, 2008
(Percentages represent value of investments compared to net assets)
INVESTMENTS IN SECURITIES
<Table>
<Caption>
MUNICIPAL BONDS (96.4%)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(b,c) RATE AMOUNT VALUE(a)
ADVANCED REFUNDED (2.7%)
Metropolitan Transportation Authority
Prerefunded Revenue Bonds
Series 1998A (FGIC)
04-01-28 4.75% $1,000,000 $1,100,920
New York State Dormitory Authority
Prerefunded Revenue Bonds
Series 1990B
05-15-11 7.50 415,000 441,133
-----------
Total 1,542,053
- --------------------------------------------------------------------
CITY (7.6%)
City of New York
Prerefunded Unlimited General Obligation Bonds
Series 2002E
08-01-16 5.75 100,000 112,156
City of New York
Unlimited General Obligation Bonds
Series 2002C (XLCA)
03-15-12 5.00 500,000 534,475
City of New York
Unlimited General Obligation Bonds
Series 2004D
11-01-34 5.00 1,000,000 1,001,670
City of New York
Unrefunded Unlimited General Obligation Bonds
Series 2002E
08-01-16 5.75 1,000,000 1,094,810
City of New York
Unrefunded Unlimited General Obligation Bonds
Series 2003J
06-01-18 5.50 1,425,000 1,553,535
-----------
Total 4,296,646
- --------------------------------------------------------------------
COLLEGE (11.6%)
Dutchess County Industrial Development Agency
Refunding Revenue Bonds
Bard College Civic Facilities
Series 2007-A1
08-01-22 5.00 500,000 509,715
New York State Dormitory Authority
Revenue Bonds
Brooklyn Law School
Series 2003B (XLCA)
07-01-30 5.13 1,000,000 1,001,840
New York State Dormitory Authority
Revenue Bonds
Columbia University
Series 2007C
07-01-29 5.00 1,250,000 1,291,400
New York State Dormitory Authority
Revenue Bonds
Cornell University
Series 2006A
07-01-26 5.00 1,000,000 1,038,010
New York State Dormitory Authority
Revenue Bonds
Education
Series 2006D
03-15-31 5.00 500,000 510,275
New York State Dormitory Authority
Revenue Bonds
Pratt Institute
Series 1999 (Radian Group Financial Guaranty)
07-01-20 6.00 1,500,000 1,549,979
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
46 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
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.)
Seneca County Industrial Development Agency
Revenue Bonds
New York Chiropractic College
Series 2007
10-01-27 5.00% $750,000 $693,713
-----------
Total 6,594,932
- --------------------------------------------------------------------
COUNTY (2.6%)
County of Monroe
Unlimited General Obligation Refunding & Public
Improvement Bonds
Series 1996 (MBIA)
03-01-15 6.00 1,250,000 1,448,288
- --------------------------------------------------------------------
HEALTH CARE - HOSPITAL (10.8%)
Albany Industrial Development Agency
Revenue Bonds
St. Peters Hospital Project
Series 2008A
11-15-27 5.25 1,000,000 955,760
New York State Dormitory Authority
Revenue Bonds
Mental Health Services Facilities Improvement
Series 2005E (FGIC)
02-15-22 5.00 750,000 773,775
New York State Dormitory Authority
Revenue Bonds
New York University Hospital Center
Series 2007B
07-01-24 5.25 750,000 726,435
New York State Dormitory Authority
Revenue Bonds
Orange Regional Medical Center
Series 2008
12-01-29 6.13 1,250,000 1,214,588
New York State Dormitory Authority
Revenue Bonds
Sloan-Kettering Memorial Center
Series 2003-1 (MBIA)
07-01-21 5.00 1,000,000 1,024,090
New York State Dormitory Authority
Revenue Bonds
Sloan-Kettering Memorial Center
Series 2006-1
07-01-35 5.00 500,000 503,515
Ulster County Industrial Development Agency
Revenue Bonds
Series 2007A
09-15-42 6.00 1,000,000 920,280
-----------
Total 6,118,443
- --------------------------------------------------------------------
HEALTH CARE - LIFE CARE CENTER (0.5%)
Suffolk County Industrial Development Agency
Prerefunded Revenue Bonds
1st Mortgage Jeffersons Ferry
Series 1999A
11-01-28 7.25 250,000 270,323
- --------------------------------------------------------------------
HOUSING - OTHER (1.8%)
New York State Dormitory Authority
Revenue Bonds
Consolidated City University System
5th General Resolution
Series 2008B
07-01-27 5.00 1,000,000 1,015,470
- --------------------------------------------------------------------
HOUSING - SINGLE FAMILY (1.9%)
New York Mortgage Agency
Revenue Bonds
Series 2007-140 A.M.T.
10-01-21 4.60 500,000 459,385
New York Mortgage Agency
Revenue Bonds
Series 2007-143 A.M.T.
10-01-27 4.85 675,000 602,242
-----------
Total 1,061,627
- --------------------------------------------------------------------
LEASE (12.2%)
Hudson Yards Infrastructure Corporation
Revenue Bonds
Series 2006A
02-15-47 5.00 500,000 482,060
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 47
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)
LEASE (CONT.)
New York City Industrial Development Agency
Revenue Bonds
Terminal One Group Association Project
Series 2005 A.M.T.
01-01-24 5.50% $500,000 $494,350
New York State Dormitory Authority
Revenue Bonds
Consolidated City University System
Series 1993A
07-01-13 5.75 3,000,000 3,228,359
New York State Dormitory Authority
Revenue Bonds
New York University Hospital Center
Series 2006A
07-01-20 5.00 500,000 477,165
New York State Dormitory Authority
Unrefunded Revenue Bonds
Series 1990B
05-15-11 7.50 645,000 720,742
New York State Urban Development Corporation
Refunding Revenue Bonds
Service Contract
Series 2005 (FSA)
01-01-17 5.00 1,000,000 1,068,520
Tobacco Settlement Financing Authority
Asset-backed Revenue Bonds
Series 2003A-1
06-01-16 5.50 500,000 513,760
-----------
Total 6,984,956
- --------------------------------------------------------------------
MISCELLANEOUS (3.0%)
New York City Trust for Cultural Resources
Revenue Bonds
Museum of American Folk Art
Series 2000 (ACA)
07-01-22 6.00 825,000 797,115
New York State Dormitory Authority
Revenue Bonds
Mt. Sinai School of Medicine University
Series 2007 (MBIA)
07-01-37 4.50 1,000,000 905,630
-----------
Total 1,702,745
- --------------------------------------------------------------------
MISCELLANEOUS REVENUE (12.5%)
Metropolitan Transportation Authority
Revenue Bonds
Series 2006A
11-15-22 5.00 750,000 765,645
New York City Industrial Development Agency
Revenue Bonds
Queens Baseball Stadium Pilot
Series 2006 (AMBAC)
01-01-23 5.00 500,000 501,320
01-01-24 5.00 500,000 499,435
New York City Trust for Cultural Resources
Refunding Revenue Bonds
Museum of Modern Art
Series 2008-1A
04-01-28 5.00 1,000,000 1,031,139
New York State Thruway Authority
Revenue Bonds
2nd General Resolution
Series 2003B (FSA)
04-01-21 4.75 835,000 851,859
New York State Thruway Authority
Revenue Bonds
Transportation
Series 2008A
03-15-28 5.00 1,000,000(g) 1,030,240
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
48 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
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)
MISCELLANEOUS REVENUE (CONT.)
New York State Urban Development Corporation
Refunding Revenue Bonds
Service Contract
Series 2008B
01-01-29 4.75% $755,000 $754,955
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 138th
Series 2004 (FGIC) A.M.T.
12-01-12 5.00 1,000,000 1,048,809
Seneca Nation Indians Capital Improvements Authority
Revenue Bonds
Series 2007A
12-01-16 5.25 500,000(d) 477,695
12-01-23 5.00 250,000(d) 215,548
-----------
Total 7,176,645
- --------------------------------------------------------------------
PORT DISTRICT (5.1%)
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 143rd
Series 2006 (FSA) A.M.T.
10-01-21 5.00 1,000,000 1,004,340
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 146th
Series 2006 (FSA) A.M.T.
12-01-23 4.50 1,500,000 1,390,245
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 147th
Series 2007 (FGIC) A.M.T.
10-15-26 5.00 500,000 490,625
-----------
Total 2,885,210
- --------------------------------------------------------------------
SALES OR USE TAX (1.8%)
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2004C
02-01-33 5.00 1,000,000 1,009,410
- --------------------------------------------------------------------
SPECIAL DISTRICT - SPECIAL TAX (4.9%)
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2003D
02-01-23 5.00 500,000 519,655
02-01-31 5.00 1,000,000 1,012,210
New York State Dormitory Authority
Revenue Bonds
Education
Series 2005F
03-15-23 5.00 250,000 259,740
New York State Dormitory Authority
Revenue Bonds
Education
Series 2006C
12-15-31 5.00 750,000 765,773
New York State Dormitory Authority
Revenue Bonds
Education
Series 2007A
03-15-37 5.00 250,000 252,940
-----------
Total 2,810,318
- --------------------------------------------------------------------
TOLL ROAD (5.8%)
Metropolitan Transportation Authority
Revenue Bonds
Series 2005F
11-15-12 5.00 560,000 599,138
11-15-35 5.00 500,000 491,205
New York State Thruway Authority
Revenue Bonds
Series 2007H (FGIC)
01-01-23 5.00 500,000 524,305
Triborough Bridge & Tunnel Authority
Refunding Revenue Bonds
Series 2002B
11-15-29 5.13 1,000,000 1,011,810
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 49
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)
TOLL ROAD (CONT.)
Triborough Bridge & Tunnel Authority
Revenue Bonds
Series 2008
11-15-15 5.00% $620,000 $685,441
-----------
Total 3,311,899
- --------------------------------------------------------------------
WATER & SEWER (11.5%)
Erie County Water Authority
4th Resolution Revenue Bonds
Series 2007 (MBIA)
12-01-34 4.75 500,000 484,785
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2002A
06-15-29 5.00 1,000,000 1,007,830
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2005A
06-15-39 5.00 1,000,000 1,006,320
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2008CC
06-15-34 5.00 1,500,000 1,519,605
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2008DD
06-15-38 4.50 500,000 465,840
New York State Environmental Facilities Corporation
Revenue Bonds
Revolving Funds
New York City Municipal Water Project
Series 2002B
06-15-31 5.00 1,000,000 1,010,590
New York State Environmental Facilities Corporation
Revenue Bonds
Revolving Funds
New York City Municipal Water Project
Series 2002K
06-15-28 5.00 1,000,000 1,015,100
-----------
Total 6,510,070
- --------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $54,567,973) $54,739,035
- --------------------------------------------------------------------
<Caption>
MUNICIPAL BONDS HELD IN TRUST
(2.0%)(f)
NAME OF ISSUER
AND TITLE OF COUPON PRINCIPAL
ISSUE(b,c) RATE AMOUNT VALUE(a)
HOUSING - SINGLE FAMILY
New York Mortgage Agency
Revenue Bonds
Series 2002 A.M.T.
04-01-32 5.40% $1,200,000 $1,112,532
- --------------------------------------------------------------------
TOTAL MUNICIPAL BONDS HELD IN TRUST
(Cost: $1,199,892) $1,112,532
- --------------------------------------------------------------------
<Caption>
MUNICIPAL NOTES (3.0%)
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(b,c,e) YIELD MATURITY VALUE(a)
City of New York
Unlimited General Obligation Bonds
V.R.D.N. Sub Series 2005E-2
(Bank of America)
08-01-34 2.30% $1,700,000 $1,700,000
- --------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $1,700,000) $1,700,000
- --------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $57,467,865)(h) $57,551,567
====================================================================
</Table>
See accompanying Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
50 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource New York Tax-Exempt Fund
NOTES TO PORTFOLIO OF INVESTMENTS
(a) Securities are valued by using procedures described in Note 1 to the
financial statements.
(b) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
<Table>
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
CIFG -- IXIS Financial Guaranty
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
</Table>
(c) The following abbreviations may be used in the portfolio descriptions:
<Table>
A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2008, the value
of securities subject to alternative minimum tax
represented 11.6% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
</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,
2008, the value of these securities amounted to $693,243 or 1.2% of net
assets.
(e) The Fund is entitled to receive principal and interest from the party, if
indicated in parentheses, after a day or a week's notice or upon maturity.
The maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on Aug. 31, 2008.
(f) Municipal Bonds Held in Trust -- See Note 1 to the financial statements.
(g) At Aug. 31, 2008, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$1,031,800. See Note 1 to the financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 51
RiverSource New York Tax-Exempt Fund
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
(h) At Aug. 31, 2008, the cost of securities for federal income tax purposes
was $57,697,404 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
<Table>
Unrealized appreciation $866,140
Unrealized depreciation (1,011,977)
- -----------------------------------------------------------
Net unrealized depreciation $(145,837)
- -----------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at riversource.com/funds.
- --------------------------------------------------------------------------------
52 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
FINANCIAL STATEMENTS -----------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE RIVERSOURCE
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
AUG. 31, 2008 FUND FUND FUND
ASSETS
Investments in securities, at value (identified cost
$174,158,210, $321,515,943 and $57,467,865) $174,281,220 $324,883,697 $57,551,567
Cash 127,376 59,897 94,161
Capital shares receivable 2,048,169 140,036 1,349
Accrued interest receivable 1,897,591 3,599,146 656,635
Receivable for investment securities sold 4,805,617 -- 435,350
- -----------------------------------------------------------------------------------------------------------
Total assets 183,159,973 328,682,776 58,739,062
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 40,071 59,694 12,124
Capital shares payable 41,272 79,970 40,411
Payable for investment securities purchased -- -- 1,031,800
Short-term floating rate notes outstanding 3,375,000 16,670,000 800,000
Accrued investment management services fees 1,988 3,449 636
Accrued distribution fees 36,665 63,929 11,677
Accrued transfer agency fees 176 45 59
Accrued administrative services fees 339 596 109
Other accrued expenses 70,393 74,417 49,165
- -----------------------------------------------------------------------------------------------------------
Total liabilities 3,565,904 16,952,100 1,945,981
- -----------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares $179,594,069 $311,730,676 $56,793,081
- -----------------------------------------------------------------------------------------------------------
REPRESENTED BY
Shares of beneficial interest -- $.01 par value $ 366,390 $ 609,488 $ 117,127
Additional paid-in capital 181,273,261 311,502,359 56,924,671
Undistributed net investment income 43,826 256,370 15,877
Accumulated net realized gain (loss) (2,212,418) (4,005,295) (348,296)
Unrealized appreciation (depreciation) on investments 123,010 3,367,754 83,702
- -----------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding
shares $179,594,069 $311,730,676 $56,793,081
- -----------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 53
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE RIVERSOURCE
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
AUG. 31, 2008 FUND FUND FUND
Net assets applicable to
outstanding shares: Class A $172,038,905 $289,301,362 $52,571,799
Class B $ 4,711,779 $ 13,968,961 $ 3,503,352
Class C $ 2,843,385 $ 8,460,353 $ 717,930
Outstanding shares of
beneficial interest: Class A shares 35,097,770 56,564,455 10,842,089
Class B shares 961,893 2,730,369 722,515
Class C shares 579,342 1,653,947 148,072
Net asset value per
share: Class A(1) $ 4.90 $ 5.11 $ 4.85
Class B $ 4.90 $ 5.12 $ 4.85
Class C $ 4.91 $ 5.12 $ 4.85
- ----------------------------------------------------------------------------------
</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 $5.14, $5.36 and $5.09, respectively. The offering
price is calculated by dividing the net asset value by 1.0 minus the maximum
sales charge of 4.75%.
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
54 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
STATEMENTS OF OPERATIONS
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE RIVERSOURCE
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
YEAR ENDED AUG. 31, 2008 FUND FUND FUND
INVESTMENT INCOME
Income:
Interest $ 8,385,488 $15,327,441 $2,930,103
- ----------------------------------------------------------------------------------------------------
Expenses:
Investment management services fees 715,946 1,246,083 242,807
Distribution fees
Class A 417,044 705,661 135,961
Class B 57,189 176,620 41,064
Class C 20,845 75,716 7,302
Transfer agency fees
Class A 63,090 149,336 33,006
Class B 2,370 10,088 2,682
Class C 841 4,196 474
Administrative services fees 122,235 215,249 41,455
Interest and fee expense 18,730 489,609 82,238
Compensation of board members 3,464 6,074 1,163
Custodian fees 29,340 28,392 14,964
Printing and postage 29,920 42,900 15,425
Registration fees 46,980 46,615 46,345
Professional fees 32,679 34,101 29,061
Other 8,312 11,028 3,897
- ----------------------------------------------------------------------------------------------------
Total expenses 1,568,985 3,241,668 697,844
Expenses waived/reimbursed by the Investment Manager and
its affiliates (113,521) (136,017) (111,966)
Earnings and bank fee credits on cash balances (11,405) (16,374) (5,337)
- ----------------------------------------------------------------------------------------------------
Total net expenses 1,444,059 3,089,277 580,541
- ----------------------------------------------------------------------------------------------------
Investment income (loss) -- net 6,941,429 12,238,164 2,349,562
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (1,780,399) (1,125,163) (217,470)
Swap transactions 548,135 972,099 206,669
Futures contracts (644,016) (1,148,629) (234,490)
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,876,280) (1,301,693) (245,291)
Net change in unrealized appreciation (depreciation) on
investments (1,439,312) (383,745) (522,090)
- ----------------------------------------------------------------------------------------------------
Net gain (loss) on investments (3,315,592) (1,685,438) (767,381)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ 3,625,837 $10,552,726 $1,582,181
- ----------------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 55
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
RIVERSOURCE
CALIFORNIA TAX-EXEMPT FUND
YEAR ENDED YEAR ENDED
AUG. 31, 2008 AUG. 31, 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 6,941,429 $ 6,724,239
Net realized gain (loss) on investments (1,876,280) 1,177,737
Net change in unrealized appreciation (depreciation) on
investments (1,439,312) (5,475,259)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 3,625,837 2,426,717
- -------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (6,676,981) (6,398,570)
Class B (186,183) (256,028)
Class C (67,785) (64,777)
Net realized gain
Class A (1,181,240) (20,710)
Class B (42,325) (1,083)
Class C (10,896) (266)
- -------------------------------------------------------------------------------------------
Total distributions (8,165,410) (6,741,434)
- -------------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Proceeds from sales
Class A shares 65,548,797 22,983,104
Class B shares 841,055 623,385
Class C shares 1,663,705 273,162
Reinvestment of distributions at net asset value
Class A shares 5,715,149 4,522,917
Class B shares 208,722 216,468
Class C shares 69,070 61,001
Payments for redemptions
Class A shares (59,067,436) (29,519,324)
Class B shares (2,298,575) (3,319,777)
Class C shares (741,437) (569,804)
- -------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions 11,939,050 (4,728,868)
- -------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 7,399,477 (9,043,585)
Net assets at beginning of year 172,194,592 181,238,177
- -------------------------------------------------------------------------------------------
Net assets at end of year $179,594,069 $172,194,592
- -------------------------------------------------------------------------------------------
Undistributed net investment income $ 43,826 $ 35,481
- -------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
56 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<Table>
<Caption>
RIVERSOURCE
MINNESOTA TAX-EXEMPT FUND
YEAR ENDED YEAR ENDED
AUG. 31, 2008 AUG. 31, 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 12,238,164 $ 12,119,582
Net realized gain (loss) on investments (1,301,693) (255,908)
Net change in unrealized appreciation (depreciation) on
investments (383,745) (7,598,634)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 10,552,726 4,265,040
- -------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (11,396,501) (11,270,181)
Class B (578,310) (791,703)
Class C (248,552) (230,272)
- -------------------------------------------------------------------------------------------
Total distributions (12,223,363) (12,292,156)
- -------------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Proceeds from sales
Class A shares 47,044,047 32,528,076
Class B shares 1,495,288 1,039,072
Class C shares 2,599,145 995,410
Reinvestment of distributions at net asset value
Class A shares 9,552,532 9,097,879
Class B shares 516,735 680,057
Class C shares 222,405 202,223
Payments for redemptions
Class A shares (53,551,129) (55,109,296)
Class B shares (7,639,629) (10,945,982)
Class C shares (1,341,812) (2,138,810)
- -------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions (1,102,418) (23,651,371)
- -------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (2,773,055) (31,678,487)
Net assets at beginning of year 314,503,731 346,182,218
- -------------------------------------------------------------------------------------------
Net assets at end of year $311,730,676 $314,503,731
- -------------------------------------------------------------------------------------------
Undistributed net investment income $ 256,370 $ 241,569
- -------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 57
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<Table>
<Caption>
RIVERSOURCE
NEW YORK TAX-EXEMPT FUND
YEAR ENDED YEAR ENDED
AUG. 31, 2008 AUG. 31, 2007
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 2,349,562 $ 2,546,399
Net realized gain (loss) on investments (245,291) 167,905
Net change in unrealized appreciation (depreciation) on
investments (522,090) (1,748,799)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 1,582,181 965,505
- -------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (2,189,003) (2,330,813)
Class B (134,397) (181,832)
Class C (23,906) (28,915)
Net realized gain
Class A (98,846) (70,294)
Class B (7,550) (7,231)
Class C (1,363) (1,128)
- -------------------------------------------------------------------------------------------
Total distributions (2,455,065) (2,620,213)
- -------------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Proceeds from sales
Class A shares 4,185,226 6,507,070
Class B shares 277,150 371,363
Class C shares 115,478 107,676
Reinvestment of distributions at net asset value
Class A shares 1,915,808 1,953,853
Class B shares 125,138 154,068
Class C shares 24,019 28,046
Payments for redemptions
Class A shares (11,068,956) (11,708,520)
Class B shares (1,394,638) (2,667,241)
Class C shares (204,109) (471,813)
- -------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions (6,024,884) (5,725,498)
- -------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (6,897,768) (7,380,206)
Net assets at beginning of year 63,690,849 71,071,055
- -------------------------------------------------------------------------------------------
Net assets at end of year $ 56,793,081 $ 63,690,849
- -------------------------------------------------------------------------------------------
Undistributed net investment income $ 15,877 $ 13,646
- -------------------------------------------------------------------------------------------
</Table>
The accompanying Notes to Financial Statements are an integral part of these
statements.
- --------------------------------------------------------------------------------
58 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS --------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource California Tax-Exempt Trust and RiverSource Special Tax-Exempt
Series Trust are organized as Massachusetts business trusts. RiverSource
California Tax-Exempt Trust includes only RiverSource California Tax-Exempt
Fund. RiverSource Special Tax-Exempt Series Trust is a "series fund" that is
currently composed of individual state tax-exempt funds, including RiverSource
Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund (together
with RiverSource California Tax-Exempt Fund, herein after referred to as the
Funds). The Funds are non-diversified, open-end management investment companies
as defined in the Investment Company Act of 1940 (as amended). Each Fund has
unlimited authorized shares of beneficial interest.
Each Fund's goal is to provide a high level of income generally exempt from
federal income tax as well as from the respective state and local income tax. A
portion of each Fund's assets may be invested in bonds whose interest is subject
to the alternative minimum tax computation. The Funds concentrate their
investments in a single state and therefore may have more credit risk related to
the economic conditions of the respective state than funds that have a broader
geographical diversification.
Each Fund offers Class A, Class B and Class C shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
- - Class C shares may be subject to a CDSC.
All classes of shares have identical voting, dividend and liquidation rights.
Class specific expenses (e.g. distribution fees, transfer agency fees) differ
among classes. Income, expenses (other than class specific expenses) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based upon its relative net assets.
Each Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 59
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sale price. Debt securities are generally traded in
the over-the counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
When market quotes are not readily available, the pricing service, in
determining fair values of debt securities, takes into consideration such
factors as current quotations by broker/dealers, coupon, maturity, quality, type
of issue, trading characteristics, and other yield and risk factors it deems
relevant in determining valuations. The procedures adopted by the Board of
Trustees (the Board) generally contemplate the use of fair valuation in the
event that price quotations or valuations are not readily available, price
quotations or valuations from other sources are not reflective of market value
and thus deemed unreliable, or a significant event has occurred in relation to a
security or class of securities that is not reflected in price quotations or
valuations from other sources. A fair value price is a good faith estimate of
the value of a security at a given point in time. Swap transactions are valued
through an authorized pricing service, broker, or an internal model.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS
Delivery and payment for securities that have been purchased by the Funds on a
forward-commitment basis, including when-issued securities and other forward-
commitments, can take place one month or more after the transaction date. During
this period, such securities are subject to market fluctuations, and they may
affect each Fund's net assets the same as owned securities. The Funds designate
cash or liquid securities at least equal to the amount of its forward-
commitments. At Aug. 31, 2008, RiverSource New York Tax-Exempt Fund has
outstanding when-issued securities of $1,031,800.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Funds may buy and sell put and call options
and write covered call options on portfolio securities as well as write cash-
secured put options. The Funds also may write over-the-counter options where
completing the obligation depends upon the credit standing of the other party.
Cash collateral may be collected by the Funds to secure certain over-the-counter
options trades. Cash collateral held by the Funds for such option trades must be
returned to the counterparty upon closure, exercise or expiration of the
contract. The risk in writing a call option is that the Funds give up the
opportunity for profit if the market price of the security increases. The risk
in writing a put
- --------------------------------------------------------------------------------
60 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
option is that the Funds may incur a loss if the market price of the security
decreases and the option is exercised. The risk in buying an option is that the
Funds pay a premium whether or not the option is exercised. The Funds also have
the additional risk of being unable to enter into a closing transaction if a
liquid secondary market does not exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Funds
will realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Funds will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of the
premium received or paid. At Aug. 31, 2008, and for the year then ended, the
Funds had no outstanding options contracts.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Funds may buy and
sell financial futures contracts. Risks of entering into futures contracts and
related options include the possibility of an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
Futures are valued daily based upon the last sale price at the close of market
on the principal exchange on which they are traded. Upon entering into a futures
contract, the Funds are required to deposit either cash or securities in an
amount (initial margin) equal to a certain percentage of the contract value.
Subsequent payments (variation margin) are made or received by the Funds each
day. The variation margin payments are equal to the daily changes in the
contract value and are recorded as unrealized gains and losses. The Funds
recognize a realized gain or loss when the contract is closed or expires. At
Aug. 31, 2008, the Funds had no outstanding futures contracts.
INTEREST RATE SWAP TRANSACTIONS
Each Fund may enter into interest rate swap agreements to produce incremental
earnings or to gain exposure to or protect themselves from market changes.
Interest rate swaps are agreements between two parties that involve the exchange
of one type of interest rate for another type of interest rate cash flow on
specified dates in the future, based on a predetermined, specified notional
amount. Certain interest rate swaps are considered forward-starting; whereby the
accrual for the exchange of cash flows does not begin until a specified date in
the future (the "effective date"). The net cash flow for a standard interest
rate swap transaction is generally the difference between a floating market
interest rate versus a fixed interest rate. The Funds may employ interest rate
swaps to synthetically add or subtract principal exposure to the municipal
market.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 61
Interest rate swaps are valued daily and unrealized appreciation (depreciation)
is recorded. Certain interest rate swaps may accrue periodic interest on a daily
basis as a component of unrealized appreciation (depreciation); the Funds will
realize a gain or loss upon the payment or receipt of accrued interest. The
Funds will realize a gain or a loss when the interest rate swap is terminated.
Risks of entering into an interest rate swap include a lack of correlation
between swaps and the portfolio of municipal bonds the swaps are designed to
hedge or replicate. A lack of correlation may cause the interest rate swap to
experience adverse changes in value relative to expectations. In addition,
interest rate swaps are subject to the risk of default of a counterparty, and
the risk of adverse movements in market interest rates relative to the interest
rate swap positions entered. At Aug. 31, 2008, the Funds had no outstanding
interest rate swap contracts.
INVERSE FLOATER PROGRAM TRANSACTIONS
Each Fund may enter into transactions in which it transfers to trusts fixed rate
municipal bonds in exchange for cash and residual interests in the trusts'
assets and cash flows, which are in the form of inverse floating rate
securities. The trusts fund the purchases of the municipal bonds by issuing
short-term floating rate notes to third parties. The residual interests held by
each Fund (inverse floating rate securities) include the right of each Fund (1)
to cause the holders of the short-term floating rate notes to tender their notes
at par, and (2) to transfer the municipal bonds from the trusts to each Fund,
thereby collapsing the trusts. The municipal bonds transferred to the trusts
remain in each Fund's investments in securities and the related short-term
floating rate notes are reflected as Fund liabilities under the caption "Short-
term floating rate notes outstanding" in the Statements of Assets and
Liabilities. The notes issued by the trusts have interest rates that are multi-
modal, which means that they can be reset to a new or different mode at the
reset date (e.g., mode can be daily, weekly, monthly, or a fixed specific date)
at the discretion of the holder of the inverse floating rate security. The
floating rate note holders have the option to tender their notes to the trusts
for redemption at par at each reset date. The income received by the inverse
floating rate security holder varies inversely with the short-term rate paid to
the floating rate note holders, and in most circumstances the inverse floating
rate security holder bears substantially all of the underlying bond's downside
investment risk and also benefits disproportionately from any potential
appreciation of the underlying bond's value. The inverse floating rate security
holder will be subject to greater interest rate risk than if they were to hold
the underlying bond because the interest rate is dependent on both the fixed
coupon rate of the underlying bond and the short-term interest paid on the
floating rate notes. The inverse floating rate security holder is also subject
to the credit risk, liquidity risk and market risk associated with the
underlying bond. The bonds held by the trusts serve as collateral for the short-
term floating rate notes outstanding. Contractual maturities and interest rates
of the municipal bonds held
- --------------------------------------------------------------------------------
62 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
in trust at Aug. 31, 2008, are presented in the Portfolio of Investments. The
inclusion of interest and fee expense related to the short-term floating rate
notes corresponds to an equal increase in interest income from the fixed rate
municipal bonds held in trust. At Aug. 31, 2008, the market value of municipal
bonds held in trust and short-term floating rate notes outstanding were as
follows:
<Table>
<Caption>
MARKET VALUE SHORT-TERM WEIGHTED AVERAGE
OF MUNICIPAL FLOATING RATE OF INTEREST RATES
BONDS HELD NOTES FOR SHORT-TERM
FUND IN TRUST OUTSTANDING FLOATING RATE NOTES
- ------------------------------------------------------------------------------
RiverSource California Tax-
Exempt Fund $ 4,558,275 $ 3,375,000 10.76%
RiverSource Minnesota Tax-
Exempt Fund 27,179,983 16,670,000 9.60
RiverSource New York Tax-
Exempt Fund 1,112,532 800,000 9.73
</Table>
GUARANTEES AND INDEMNIFICATIONS
Under each Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to each Fund. In addition, certain of each Fund's contracts with its
service providers contain general indemnification clauses. Each Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against each Fund cannot be determined and each Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
Each Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required. Each Fund is treated as a separate entity for federal
income tax purposes.
Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48),
"Accounting for Uncertainty in Income Taxes," clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB Statement 109,
"Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize
and measure a tax position taken or expected to be taken in a tax return. The
first step is to determine whether a tax position has met the more-likely-than-
not recognition threshold and the second step is to measure a tax position that
meets the threshold to determine the amount of benefit to recognize. Management
of the Funds has concluded that there are no significant uncertain tax positions
that would require recognition in the financial statements. Generally, the tax
authorities can examine all the tax returns filed for the last three years.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of futures contracts,
recognition of unrealized appreciation (depreciation) for certain derivative
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 63
investments, post-October losses, and market discount. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Funds.
On the Statements of Assets and Liabilities, as a result of permanent book-to-
tax differences, undistributed net investment income and accumulated net
realized gain (loss) have been increased (decreased), resulting in net
reclassification adjustments to additional paid-in capital by the following:
<Table>
<Caption>
RIVERSOURCE RIVERSOURCE RIVERSOURCE
CALIFORNIA MINNESOTA NEW YORK
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
FUND FUND FUND
- -------------------------------------------------------------------------
Undistributed net investment
income $(2,135) $-- $(25)
Accumulated net realized gain
(loss) 2,135 -- 25
- -------------------------------------------------------------------------
Additional paid-in capital
reduction (increase) $ -- $-- $ --
- -------------------------------------------------------------------------
</Table>
The tax character of distributions paid for the years indicated is as follows:
<Table>
<Caption>
YEAR ENDED AUG. 31, 2008 2007
- -----------------------------------------------------------------
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(a)........ $ 6,677,475 $ 6,417,368
Long-term capital gain............. 1,180,746 1,912
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(a)........ 186,201 257,011
Long-term capital gain............. 42,307 100
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(a)........ 67,790 65,019
Long-term capital gain............. 10,891 24
(a) Tax-exempt interest distributions were 99.93% and 98.95% for
the years ended Aug. 31, 2008 and 2007, respectively.
</Table>
- --------------------------------------------------------------------------------
64 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
<Table>
<Caption>
YEAR ENDED AUG. 31, 2008 2007
- -----------------------------------------------------------------
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(b)........ $11,396,501 $11,270,181
Long-term capital gain............. -- --
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(b)........ 578,310 791,703
Long-term capital gain............. -- --
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(b)........ 248,552 230,272
Long-term capital gain............. -- --
(b) Tax-exempt interest distributions were 98.75% and 99.25% for
the years ended Aug. 31, 2008 and 2007, respectively.
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(c)........ 2,189,026 2,346,136
Long-term capital gain............. 98,823 54,971
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(c)........ 134,399 183,409
Long-term capital gain............. 7,548 5,654
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt
interest distributions(c)........ 23,906 29,161
Long-term capital gain............. 1,363 882
</Table>
(c) Tax-exempt interest distributions were 100% and 98.57% for the years ended
Aug. 31, 2008 and 2007, respectively.
At Aug. 31, 2008, the components of distributable earnings on a tax basis are as
follows:
<Table>
<Caption>
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED
TAX-EXEMPT ACCUMULATED REALIZED APPRECIATION
FUND INCOME LONG-TERM GAIN LOSS (DEPRECIATION)
- --------------------------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund $ 47,346 $-- $(1,415,210) $ (637,647)
RiverSource Minnesota Tax-Exempt Fund 251,634 -- (2,765,793) 2,192,682
RiverSource New York Tax-Exempt Fund 12,801 -- (102,852) (146,542)
</Table>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued Statement of Financial Accounting Standards No.
161 (SFAS 161), "Disclosures about Derivative Instruments and Hedging
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 65
Activities -- an amendment of FASB Statement No. 133," which requires enhanced
disclosures about a fund's derivative and hedging activities. Funds are required
to provide enhanced disclosures about (a) how and why a fund uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect a fund's financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
Nov. 15, 2008. As of Aug. 31, 2008, management does not believe the adoption of
SFAS 161 will impact the financial statement amounts; however, additional
footnote disclosures may be required about the use of derivative instruments and
hedging items.
On Sept. 20, 2006, the FASB released Statement of Financial Accounting Standards
No. 157 "Fair Value Measurements" (SFAS 157). SFAS 157 establishes an
authoritative definition of fair value, sets out a hierarchy for measuring fair
value, and requires additional disclosures about the inputs used to develop the
measurements of fair value and the effect of certain measurements reported in
the Statements of Operations for a fiscal period. The application of SFAS 157
will be effective for the Fund's fiscal year beginning Sept. 1, 2008. The
adoption of SFAS 157 is not anticipated to have a material impact on each Fund's
financial statements; however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of certain
measurements reported in the Statements of Operations for a fiscal period.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and paid monthly, are
reinvested in additional shares of each Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
INVESTMENT MANAGEMENT SERVICES FEES
Under an Investment Management Services Agreement, RiverSource Investments, LLC
(the Investment Manager) determines which securities will be purchased, held or
sold. The management fee is a percentage of each Fund's average daily net assets
that declines from 0.41% to 0.25% annually as each Fund's assets increase. The
management fee for the year ended Aug. 31, 2008 was 0.41% of each Fund's average
daily net assets.
- --------------------------------------------------------------------------------
66 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
ADMINISTRATIVE SERVICES FEES
Under an Administrative Services Agreement, each Fund pays Ameriprise Financial,
Inc. (Ameriprise Financial), the parent company of the Investment Manager, a fee
for administration and accounting services at a percentage of each Fund's
average daily net assets that declines from 0.07% to 0.04% annually as each
Fund's assets increase. The fee for the year ended Aug. 31, 2008 was 0.07% of
each Fund's average daily net assets.
OTHER EXPENSES
Other expenses are for, among other things, certain expenses of the Funds or the
Board including: Fund boardroom and office expense, employee compensation,
employee health and retirement benefits, and certain other expenses. Payment of
these Fund and Board expenses is facilitated by a company providing limited
administrative services to the Funds and the Board. For the year ended Aug. 31,
2008, other expenses paid to this company are as follows:
<Table>
<Caption>
FUND AMOUNT
- ----------------------------------------------------------
RiverSource California Tax-Exempt Fund $504
RiverSource Minnesota Tax-Exempt Fund 909
RiverSource New York Tax-Exempt Fund 163
</Table>
COMPENSATION OF BOARD MEMBERS
Compensation of board members includes, for a former Board Chair, compensation
as well as retirement benefits. Certain other aspects of a former Board Chair's
compensation, including health benefits and payment of certain other expenses,
are included under other expenses.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of each Fund or other
RiverSource funds. Each Fund's liability for these amounts is adjusted for
market value changes and remains in each Fund until distributed in accordance
with the Plan.
TRANSFER AGENCY FEES
Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer
Agent) maintains shareholder accounts and records. Each Fund pays the Transfer
Agent an annual account-based fee at a rate equal to $20.50 for Class A, $21.50
for Class B and $21.00 for Class C for this service.
The Transfer Agent charges an annual fee of $5 per inactive account, charged on
a pro rata basis for 12 months from the date the account becomes inactive. These
fees are included in the transfer agency fees on the Statements of Operations.
DISTRIBUTION FEES
Each Fund has an agreement with RiverSource Distributors, Inc. (the Distributor)
for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 67
Financial Services, Inc. also served as a principal underwriter and distributor
to the Funds. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1,
each Fund pays a fee at an annual rate of up to 0.25% of each Fund's average
daily net assets attributable to Class A shares and a fee at an annual rate of
up to 1.00% of each Fund's average daily net assets attributable to Class B and
Class C shares. For Class B and Class C shares, up to 0.75% of the fee is
reimbursed for distribution expenses.
The amount of distribution expenses incurred by the Distributor and not yet
reimbursed ("unreimbursed expense") for each Fund was approximately as follows:
<Table>
<Caption>
FUND CLASS B CLASS C
- --------------------------------------------------------------
RiverSource California Tax-Exempt Fund $114,000 $21,000
RiverSource Minnesota Tax-Exempt Fund 295,000 61,000
RiverSource New York Tax-Exempt Fund 73,000 5,000
</Table>
These amounts are based on the most recent information available as of July 31,
2008, and may be recovered from future payments under the distribution plan or
CDSC. To the extent the unreimbursed expense has been fully recovered, the
distribution fee is reduced.
SALES CHARGES
Sales charges received by the Distributor for distributing the Funds' shares for
the year ended Aug. 31, 2008 are as follows:
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C
- -----------------------------------------------------------------
RiverSource California Tax-Exempt
Fund $ 87,133 $ 4,735 $ 60
RiverSource Minnesota Tax-Exempt Fund 450,973 11,963 511
RiverSource New York Tax-Exempt Fund 26,370 2,969 62
</Table>
EXPENSES WAIVED/REIMBURSED BY THE INVESTMENT MANAGER AND ITS AFFILIATES
For the year ended Aug. 31, 2008, the Investment Manager and its affiliates
waived/reimbursed certain fees and expenses such that the Funds' net expenses
(excluding interest and fee expenses related to the Funds' participation in
certain inverse floater programs) are as follows:
<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>
- --------------------------------------------------------------------------------
68 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
The waived/reimbursed fees and expenses for the transfer agency fees (noted by
share class) and management fees (noted by Fund level) for the year ended Aug.
31, 2008 are as follows:
<Table>
<Caption>
FUND AMOUNT
- -----------------------------------------------------------
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
Class A $30,133
Class B 1,282
Class C 440
The management fees waived at the Fund level were
$81,666.
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
Class A 65,392
Class B 4,969
Class C 1,991
The management fees waived at the Fund level were
$63,665.
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
Class A 11,404
Class B 1,082
Class C 189
The management fees waived at the Fund level were
$99,291.
</Table>
The Investment Manager and its affiliates have contractually agreed to waive
certain fees and expenses until Aug. 31, 2009, unless sooner terminated at the
discretion of the Board, such that net expenses (excluding interest and fee
expenses related to the Fund's participation in certain inverse floater
programs), will not exceed the following percentage of each Fund's average daily
net assets:
<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>
During the year ended Aug. 31, 2008, the Funds' custodian and transfer agency
fees were reduced as a result of earnings and bank fee credits from overnight
cash balances as follows:
<Table>
<Caption>
FUND AMOUNT
- -----------------------------------------------------------
RiverSource California Tax-Exempt Fund $11,405
RiverSource Minnesota Tax-Exempt Fund 16,374
RiverSource New York Tax-Exempt Fund 5,337
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 69
3. SECURITIES TRANSACTIONS
For the year ended Aug. 31, 2008, cost of purchases and proceeds from sales
(other than short-term obligations) aggregated for each Fund are as follows:
<Table>
<Caption>
FUND PURCHASES PROCEEDS
- -----------------------------------------------------------------
RiverSource California Tax-Exempt Fund $84,807,883 $77,577,885
RiverSource Minnesota Tax-Exempt Fund 70,073,639 67,925,331
RiverSource New York Tax-Exempt Fund 16,688,476 23,190,540
</Table>
Realized gains and losses are determined on an identified cost basis.
4. SHARE TRANSACTIONS
Transactions in shares for each Fund for the years indicated are as follows:
<Table>
<Caption>
RiverSource California Tax-Exempt Fund
YEAR ENDED AUG. 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ---------------------------------------------------------------------------------
Class A 13,173,910 1,151,547 (11,856,270) 2,469,187
Class B 170,107 42,038 (462,980) (250,835)
Class C 337,281 13,927 (147,407) 203,801
- ---------------------------------------------------------------------------------
<Caption>
YEAR ENDED AUG. 31, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- ---------------------------------------------------------------------------------
Class A 4,499,436 878,175 (5,728,727) (351,116)
Class B 120,531 42,022 (649,678) (487,125)
Class C 53,247 11,825 (110,765) (45,693)
- ---------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RiverSource Minnesota Tax-Exempt Fund
YEAR ENDED AUG. 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- --------------------------------------------------------------------------------
Class A 9,122,186 1,854,907 (10,357,016) 620,077
Class B 291,180 100,267 (1,480,144) (1,088,697)
Class C 503,745 43,204 (259,716) 287,233
- --------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
70 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
<Table>
<Caption>
YEAR ENDED AUG. 31, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- --------------------------------------------------------------------------------
Class A 6,206,727 1,733,826 (10,512,347) (2,571,794)
Class B 198,662 129,453 (2,098,131) (1,770,016)
Class C 189,325 38,520 (406,721) (178,876)
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RiverSource New York Tax-Exempt Fund
YEAR ENDED AUG. 31, 2008
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- --------------------------------------------------------------------------------
Class A 851,576 390,445 (2,246,691) (1,004,670)
Class B 56,763 25,495 (284,042) (201,784)
Class C 23,555 4,894 (41,259) (12,810)
- --------------------------------------------------------------------------------
<Caption>
YEAR ENDED AUG. 31, 2007
ISSUED FOR
REINVESTED NET
SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE)
- --------------------------------------------------------------------------------
Class A 1,294,149 388,622 (2,330,222) (647,451)
Class B 73,375 30,621 (532,071) (428,075)
Class C 21,359 5,574 (93,550) (66,617)
- --------------------------------------------------------------------------------
</Table>
5. BANK BORROWINGS
Each Fund has entered into a revolving credit facility with a syndicate of banks
headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby each Fund may borrow for
the temporary funding of shareholder redemptions or for other temporary or
emergency purposes. The credit facility became effective on Oct. 18, 2007,
replacing a prior credit facility. The credit facility agreement, which is a
collective agreement between each Fund and certain other RiverSource funds,
severally and not jointly, permits collective borrowings up to $500 million.
Interest is charged to each Fund based on its borrowings at a rate equal to the
federal funds effective rate plus 0.30%. Each borrowing under the credit
facility matures no later than 60 days after the date of borrowing. Each Fund
also pays a commitment fee equal to its pro rata share of the amount of the
credit facility at a rate of 0.06% per annum. Under the prior credit facility,
each fund paid interest on its outstanding borrowings at a rate equal to either
the higher of the federal funds effective rate plus 0.40% or the JPMCB Prime
Commercial Lending Rate. None of the Funds had borrowings during the year ended
Aug. 31, 2008.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 71
6. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS
For federal income tax purposes, capital loss carry-overs at Aug. 31, 2008 were
as follows:
<Table>
<Caption>
FUND 2013 2014 2015 2016
- ---------------------------------------------------------------------
RiverSource California Tax-
Exempt Fund $ -- $ -- $ -- $359,905
RiverSource Minnesota Tax-
Exempt Fund 1,199,755 913,006 3,601 --
RiverSource New York Tax-
Exempt Fund -- -- -- 3,668
</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, 2007, and its fiscal year end ("post-October
loss") as occurring on the first day of the following tax year. At Aug. 31,
2008, post-October losses that are treated as occurring on Sept. 1, 2008 were as
follows:
<Table>
<Caption>
FUND POST-OCTOBER LOSS
- ----------------------------------------------------------------
RiverSource California Tax-Exempt Fund $1,055,305
RiverSource Minnesota Tax-Exempt Fund 649,431
RiverSource New York Tax-Exempt Fund 99,184
</Table>
It is unlikely the Board will authorize distributions of any net realized
capital gains until the available capital loss carry-overs have been offset or
expire.
7. RISKS RELATING TO CERTAIN INVESTMENTS
DIVERSIFICATION RISK
Each Fund is non-diversified. A non-diversified fund may invest more of its
assets in fewer companies than if it were a diversified fund. The Fund may be
more exposed to the risks of loss and volatility than a fund that invests more
broadly.
GEOGRAPHIC CONCENTRATION RISK
Because state-specific tax-exempt funds invest primarily in the municipal
securities issued by the state and political sub-divisions of the state, each
Fund will be particularly affected by political and economic conditions and
developments in the state in which it invests. This vulnerability to factors
affecting the state fund's tax-exempt investments will be significantly greater
than that of a more geographically diversified fund, which may result in greater
losses and volatility. The value of municipal securities owned by a Fund also
may be adversely affected by future changes in federal or state income tax laws.
- --------------------------------------------------------------------------------
72 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In June 2004, an action captioned John E. Gallus et al. v. American Express
Financial Corp. and American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The plaintiffs allege
that they are investors in several American Express Company mutual funds and
they purport to bring the action derivatively on behalf of those funds under the
Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid
to the defendants by the funds for investment advisory and administrative
services are excessive. The plaintiffs seek remedies including restitution and
rescission of investment advisory and distribution agreements. The plaintiffs
voluntarily agreed to transfer this case to the United States District Court for
the District of Minnesota. In response to defendants' motion to dismiss the
complaint, the Court dismissed one of plaintiffs' four claims and granted
plaintiffs limited discovery. Defendants moved for summary judgment in April
2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The
plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on
August 8, 2007.
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), entered into settlement agreements with the Securities
and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC)
related to market timing activities. As a result, AEFC was censured and ordered
to cease and desist from committing or causing any violations of certain
provisions of the Investment Advisers Act of 1940, the Investment Company Act of
1940, and various Minnesota laws. AEFC agreed to pay disgorgement of $10 million
and civil money penalties of $7 million. AEFC also agreed to retain an
independent distribution consultant to assist in developing a plan for
distribution of all disgorgement and civil penalties ordered by the SEC in
accordance with various undertakings detailed at
http://www.sec.gov/litigation/admin/ia-2451.pdf. Ameriprise Financial and its
affiliates have cooperated with the SEC and the MDOC in these legal proceedings,
and have made regular reports to the RiverSource Funds' Boards of
Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 73
to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and
Exchange Commission on legal and regulatory matters that relate to Ameriprise
Financial and its affiliates. Copies of these filings may be obtained by
accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds. Further,
although we believe proceedings are not likely to have a material adverse effect
on the Funds or the ability of Ameriprise Financial or its affiliates to perform
under their contracts with the Funds, these proceedings are subject to
uncertainties and, as such, we are unable to estimate the possible loss or range
of loss that may result. An adverse outcome in one or more of these proceedings
could result in adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the consolidated financial
condition or results of operations of Ameriprise Financial.
- --------------------------------------------------------------------------------
74 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
9. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating
each Fund's results.
RiverSource California Tax-Exempt Fund
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $5.03 $5.16 $5.06 $5.27 $5.11 $5.37
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20(c) .20(c) .03 .19 .20 .21
Net gains (losses) (both realized and
unrealized) (.09) (.13) .10 (.15) .23 (.20)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .11 .07 .13 .04 .43 .01
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.20) (.03) (.19) (.20) (.21)
Distributions from realized gains (.04) -- -- (.06) (.07) (.06)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.20) (.03) (.25) (.27) (.27)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.90 $5.03 $5.16 $5.06 $5.27 $5.11
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $172 $164 $170 $171 $190 $194
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement
(including interest and fee expense)(d),(e) .87% .88% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement
(including interest and fee
expense)(e),(f),(g) .80% .80% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement
(excluding interest and fee expense)(d) .86% .87% .87%(h) .88% .86% .86%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement
(excluding interest and fee expense)(f),(g) .79% .79% .79%(h) .81% .86% .86%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.01% 3.89% 3.81%(h) 3.69% 3.71% 4.03%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 62% 7% 20% 28% 30%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 2.13% 1.35% 2.63%(j) .81% 8.53% .25%
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(h) Adjusted to an annual basis.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 75
RiverSource California Tax-Exempt Fund (continued)
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $5.03 $5.16 $5.06 $5.27 $5.11 $5.37
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .16(c) .16(c) .03 .15 .16 .17
Net gains (losses) (both realized and
unrealized) (.09) (.13) .10 (.15) .23 (.20)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .07 .03 .13 -- .39 (.03)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.16) (.03) (.15) (.16) (.17)
Distributions from realized gains (.04) -- -- (.06) (.07) (.06)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.16) (.03) (.21) (.23) (.23)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.90 $5.03 $5.16 $5.06 $5.27 $5.11
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $5 $6 $9 $11 $16 $21
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (including interest and
fee expense)(d),(e) 1.62% 1.63% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (including interest and
fee expense)(e),(f),(g) 1.55% 1.55% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (excluding interest and
fee expense)(d) 1.61% 1.62% 1.62%(h) 1.63% 1.61% 1.61%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (excluding interest and
fee expense)(f),(g) 1.54% 1.54% 1.55%(h) 1.57% 1.61% 1.61%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.27% 3.12% 3.01%(h) 2.92% 2.95% 3.28%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 62% 7% 20% 28% 30%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 1.37% .59% 2.50%(j) .05% 7.72% (.50%)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(h) Adjusted to an annual basis.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
76 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource California Tax-Exempt Fund (continued)
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $5.04 $5.17 $5.07 $5.28 $5.12 $5.38
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .16(c) .16(c) .03 .15 .16 .17
Net gains (losses) (both realized and
unrealized) (.09) (.13) .10 (.15) .23 (.20)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .07 .03 .13 -- .39 (.03)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.16) (.03) (.15) (.16) (.17)
Distributions from realized gains (.04) -- -- (.06) (.07) (.06)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.16) (.03) (.21) (.23) (.23)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.91 $5.04 $5.17 $5.07 $5.28 $5.12
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $3 $2 $2 $2 $3 $4
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (including interest and
fee expense)(d),(e) 1.62% 1.63% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (including interest and
fee expense)(e),(f),(g) 1.55% 1.55% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (excluding interest and
fee expense)(d) 1.61% 1.62% 1.63%(h) 1.64% 1.62% 1.62%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (excluding interest and
fee expense)(f),(g) 1.54% 1.54% 1.55%(h) 1.58% 1.62% 1.62%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.18% 3.13% 3.05%(h) 2.93% 2.94% 3.27%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 62% 7% 20% 28% 30%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 1.38% .60% 2.50%(j) .06% 7.71% (.50%)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(g) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(h) Adjusted to an annual basis.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 77
RiverSource Minnesota Tax-Exempt Fund
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $5.14 $5.27 $5.17 $5.35 $5.20 $5.37
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .21(c) .19(c) .03 .18 .18 .19
Net gains (losses) (both realized and
unrealized) (.03) (.13) .10 (.17) .17 (.17)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .18 .06 .13 .01 .35 .02
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.21) (.19) (.03) (.18) (.18) (.19)
Distributions from realized gains -- -- -- (.01) (.02) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.19) (.03) (.19) (.20) (.19)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.11 $5.14 $5.27 $5.17 $5.35 $5.20
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $289 $288 $309 $303 $341 $347
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (including interest and
fee expense)(d),(e) .99% 1.05% 1.06%(f) 1.01% .95% .90%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (including interest and
fee expense)(e),(g),(h) .95% .99% .98%(f) .96% .95% .90%
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (excluding interest and
fee expense)(d) .83% .85% .87%(f) .86% .85% .84%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (excluding interest and
fee expense)(g),(h) .79% .79% .79%(f) .81% .85% .84%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.05% 3.70% 3.60%(f) 3.52% 3.37% 3.60%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 23% 26% 3% 13% 15% 23%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 3.50% 1.26% 2.56%(j) .29% 6.73% .32%
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
78 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource Minnesota Tax-Exempt Fund (continued)
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $5.15 $5.27 $5.17 $5.35 $5.20 $5.37
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17(c) .15(c) .03 .14 .14 .15
Net gains (losses) (both realized and
unrealized) (.03) (.11) .10 (.17) .17 (.17)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .14 .04 .13 (.03) .31 (.02)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.17) (.16) (.03) (.14) (.14) (.15)
Distributions from realized gains -- -- -- (.01) (.02) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.16) (.03) (.15) (.16) (.15)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.12 $5.15 $5.27 $5.17 $5.35 $5.20
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $14 $20 $29 $34 $49 $59
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (including interest and
fee expense)(d),(e) 1.75% 1.80% 1.81%(f) 1.77% 1.70% 1.65%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (including interest and
fee expense)(e),(g),(h) 1.70% 1.75% 1.74%(f) 1.72% 1.70% 1.65%
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (excluding interest and
fee expense)(d) 1.59% 1.60% 1.62%(f) 1.62% 1.60% 1.59%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (excluding interest and
fee expense)(g),(h) 1.54% 1.55% 1.55%(f) 1.57% 1.60% 1.59%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.29% 2.93% 2.81%(f) 2.75% 2.62% 2.85%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 23% 26% 3% 13% 15% 23%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 2.72% .70% 2.42%(j) (.47%) 5.94% (.44%)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 79
RiverSource Minnesota Tax-Exempt Fund (continued)
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $5.15 $5.27 $5.17 $5.35 $5.20 $5.37
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17(c) .15(c) .03 .14 .14 .15
Net gains (losses) (both realized and
unrealized) (.03) (.11) .10 (.17) .17 (.17)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .14 .04 .13 (.03) .31 (.02)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.17) (.16) (.03) (.14) (.14) (.15)
Distributions from realized gains -- -- -- (.01) (.02) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.16) (.03) (.15) (.16) (.15)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.12 $5.15 $5.27 $5.17 $5.35 $5.20
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $8 $7 $8 $8 $9 $9
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (including interest and
fee expense)(d),(e) 1.75% 1.80% 1.82%(f) 1.77% 1.71% 1.66%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (including interest and
fee expense)(e),(g),(h) 1.70% 1.75% 1.74%(f) 1.72% 1.71% 1.66%
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (excluding interest and
fee expense)(d) 1.59% 1.60% 1.63%(f) 1.62% 1.61% 1.60%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (excluding interest and
fee expense)(g),(h) 1.54% 1.55% 1.55%(f) 1.57% 1.61% 1.60%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.29% 2.94% 2.84%(f) 2.76% 2.62% 2.84%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 23% 26% 3% 13% 15% 23%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 2.72% .70% 2.42%(j) (.47%) 5.94% (.44%)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
80 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource New York Tax-Exempt Fund
CLASS A
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $4.93 $5.05 $4.95 $5.18 $5.07 $5.36
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .20(c) .19(c) .03 .19 .18 .18
Net gains (losses) (both realized and
unrealized) (.07) (.11) .10 (.18) .17 (.18)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .08 .13 .01 .35 --
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.20) (.19) (.03) (.19) (.18) (.18)
Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.20) (.03) (.24) (.24) (.29)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.85 $4.93 $5.05 $4.95 $5.18 $5.07
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $53 $58 $63 $63 $73 $79
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (including interest and
fee expense)(d),(e) 1.12% 1.18% 1.20%(f) 1.13% 1.02% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (including interest and
fee expense)(e),(g),(h) .93% 1.00% .98%(f) .98% .98% .95%
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (excluding interest and
fee expense)(d) .98% .97% 1.01%(f) .96% .92% .93%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (excluding interest and
fee expense)(g),(h) .79% .79% .79%(f) .81% .88% .88%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 4.03% 3.81% 3.77%(f) 3.75% 3.47% 3.44%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 28% 7% 17% 30% 36%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 2.59% 1.53% 2.67%(j) .20% 7.04% (.02%)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 81
RiverSource New York Tax-Exempt Fund (continued)
CLASS B
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $4.93 $5.05 $4.95 $5.18 $5.07 $5.36
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .16(c) .15(c) .03 .15 .14 .14
Net gains (losses) (both realized and
unrealized) (.07) (.11) .10 (.18) .17 (.18)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .09 .04 .13 (.03) .31 (.04)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.15) (.03) (.15) (.14) (.14)
Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.16) (.03) (.20) (.20) (.25)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.85 $4.93 $5.05 $4.95 $5.18 $5.07
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $4 $5 $7 $8 $11 $15
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (including interest and
fee expense)(d),(e) 1.87% 1.93% 1.95%(f) 1.88% 1.77% 1.76%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (including interest and
fee expense)(e),(g),(h) 1.68% 1.76% 1.74%(f) 1.75% 1.74% 1.70%
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (excluding interest and
fee expense)(d) 1.73% 1.72% 1.76%(f) 1.71% 1.67% 1.69%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (excluding interest and
fee expense)(g),(h) 1.54% 1.55% 1.55%(f) 1.58% 1.64% 1.63%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.28% 3.05% 2.98%(f) 2.98% 2.70% 2.69%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 28% 7% 17% 30% 36%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 1.83% .76% 2.54%(j) (.55%) 6.23% (.78%)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
82 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource New York Tax-Exempt Fund (continued)
CLASS C
<Table>
<Caption>
PER SHARE INCOME AND CAPITAL CHANGES(a)
YEAR YEAR PERIOD
ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, YEAR ENDED JUNE 30,
2008 2007 2006(b) 2006 2005 2004
Net asset value, beginning of period $4.92 $5.05 $4.95 $5.18 $5.07 $5.36
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .16(c) .15(c) .03 .15 .14 .14
Net gains (losses) (both realized and
unrealized) (.06) (.12) .10 (.18) .17 (.18)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .10 .03 .13 (.03) .31 (.04)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.16) (.15) (.03) (.15) (.14) (.14)
Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.16) (.03) (.20) (.20) (.25)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.85 $4.92 $5.05 $4.95 $5.18 $5.07
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1 $1 $1 $1 $1 $2
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (including interest and
fee expense)(d),(e) 1.87% 1.93% 1.97%(f) 1.89% 1.78% 1.76%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (including interest and
fee expense)(e),(g),(h) 1.68% 1.76% 1.74%(f) 1.75% 1.74% 1.70%
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
waiver/reimbursement (excluding interest and
fee expense)(d) 1.73% 1.72% 1.78%(f) 1.72% 1.68% 1.69%
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
waiver/reimbursement (excluding interest and
fee expense)(g),(h) 1.54% 1.55% 1.55%(f) 1.58% 1.64% 1.63%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.28% 3.05% 3.01%(f) 2.99% 2.70% 2.68%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 31% 28% 7% 17% 30% 36%
- ---------------------------------------------------------------------------------------------------------------------------
Total return(i) 2.04% .56% 2.54%(j) (.55%) 6.23% (.78%)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Per share amounts have been calculated using the average shares outstanding
method.
(d) Expense ratio is before reduction for earnings and bank fee credits on cash
balances.
(e) Ratios include interest and fee expense related to the Fund's participation
in certain inverse floater programs. Due to an equal increase in interest
income from fixed rate municipal bonds held in trust, there is no impact on
the Fund's net assets, net asset value per share, total return or net
investment income.
(f) Adjusted to an annual basis.
(g) The Investment Manager and its affiliates have agreed to waive/reimburse
certain fees and expenses.
(h) Expense ratio is before reduction for earnings and bank fee credits on cash
balances. Earnings and bank fee credits lowered the expense ratio by 0.01%
for the year ended Aug. 31, 2008.
(i) Total return does not reflect payment of a sales charge.
(j) Not annualized.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 83
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST AND RIVERSOURCE SPECIAL TAX-EXEMPT
SERIES TRUST:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of RiverSource California Tax-Exempt Fund of the
RiverSource California Tax-Exempt Trust and of RiverSource Minnesota Tax-Exempt
Fund and RiverSource New York Tax-Exempt Fund (two of the portfolios
constituting the RiverSource Special Tax-Exempt Series Trust), (collectively,
the Funds) as of August 31, 2008, and the related statements of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights of the Funds for the periods presented through August 31, 2006, were
audited by other auditors whose reports dated February 21, 2007 (for RiverSource
Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund) and October
20, 2006, (for RiverSource California Tax-Exempt Fund, RiverSource Minnesota
Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund), expressed unqualified
opinions on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Funds' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Funds' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and
- --------------------------------------------------------------------------------
84 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
significant estimates made by management, and evaluating the overall financial
statement presentation. Our procedures included confirmation of securities owned
as of August 31, 2008, by correspondence with the custodian and brokers, or by
other appropriate auditing procedures where replies from brokers were not
received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights audited by us
as referred to above present fairly, in all material respects, the financial
position of each of the Funds listed above constituting portfolios within
RiverSource California Tax-Exempt Trust and RiverSource Special Tax-Exempt
Series Trust at August 31, 2008, the results of their operations for the year
then ended, and changes in their net assets and the financial highlights for
each of the two years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 21, 2008
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 85
FEDERAL INCOME TAX INFORMATION ------------------------------------------------
(UNAUDITED)
Each Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. Individual shareholders should refer to their Form 1099 or other tax
information, which will be mailed in January 2009, to determine the calendar
year amounts to be included on their 2008 tax returns. Tax-exempt distributions
may be subject to state and local taxes. Each shareholder should consult a tax
advisor about reporting this income for state and local tax purposes.
RiverSource California Tax-Exempt Fund
Fiscal year ended Aug. 31, 2008
<Table>
<Caption>
INCOME DISTRIBUTIONS -- the Fund designates the following tax attributes for
distributions:
Exempt-Interest Dividends.................................... 99.93%
Tax-exempt distributions are exempt from federal income taxes and should not
be included in shareholders' gross income. The income from this Fund is
subject to the alternative minimum tax (AMT). The AMT percentage for Aug.
31, 2008 was 12.53%.
<Caption>
CAPITAL GAIN DISTRIBUTION -- the Fund designates $1,233,944 to be taxed as
long-term capital gain.
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
</Table>
RiverSource Minnesota Tax-Exempt Fund
Fiscal year ended Aug. 31, 2008
<Table>
<Caption>
INCOME DISTRIBUTIONS -- the Fund designates the following tax attributes for
distributions:
Exempt-Interest Dividends.................................... 98.75%
Tax-exempt distributions are exempt from federal income taxes and should not
be included in shareholders' gross income. The income from this Fund is
subject to the alternative minimum tax (AMT). The AMT percentage for Aug.
31, 2008 was 9.74%.
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
</Table>
- --------------------------------------------------------------------------------
86 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RiverSource New York Tax-Exempt Fund
Fiscal year ended Aug. 31, 2008
<Table>
<Caption>
INCOME DISTRIBUTIONS -- the Fund designates the following tax attributes for
distributions:
Exempt-Interest Dividends.................................... 100%
Tax-exempt distributions are exempt from federal income taxes and should not
be included in shareholders' gross income. The income from this Fund is
subject to the alternative minimum tax (AMT). The AMT percentage for Aug.
31, 2008 was 10.45%.
<Caption>
CAPITAL GAIN DISTRIBUTION -- the Fund designates $107,734 to be taxed as
long-term capital gain.
The Fund also designates as distributions of long-term gains, to the extent
necessary to fully distribute such capital gains, earnings and profits
distributed to shareholders on the redemption of shares.
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 87
BOARD MEMBERS AND OFFICERS -----------------------------------------------------
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board members. Each member oversees 104
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
INDEPENDENT BOARD MEMBERS
<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 54
- ------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member since Chair, RiverSource Funds, 1999-2006; former Governor of None
901 S. Marquette Ave. 1999 Minnesota
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Pamela G. Carlton Board member since President, Springboard -- Partners in Cross Cultural None
901 S. Marquette Ave. 2007 Leadership (consulting company)
Minneapolis, MN 55402
Age 53
- ------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member since Trustee Professor of Economics and Management, Bentley None
901 S. Marquette Ave. 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley College
Age 57
- ------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member since Attorney and Consultant None
901 S. Marquette Ave. 1985
Minneapolis, MN 55402
Age 73
- ------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind, CFA Board member since Former Managing Director, Shikiar Asset Management American Progressive
901 S. Marquette Ave. 2005 Insurance
Minneapolis, MN 55402
Age 72
- ------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member since President Emeritus and Professor of Economics, Carleton Valmont Industries,
901 S. Marquette Ave. 2002 and Chair of College Inc. (manufactures
Minneapolis, MN 55402 the Board since 2007 irrigation systems)
Age 69
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
88 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 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
- ------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since Director, Enterprise Asset Management, Inc. (private None
901 S. Marquette Ave. 2004 real estate and asset management company)
Minneapolis, MN 55402
Age 55
- ------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since Chief Executive Officer and Director, RiboNovix, Inc. Idera
901 S. Marquette Ave. 2002 since 2003 (biotechnology); former President, Forester Pharmaceutical, Inc.
Minneapolis, MN 55402 Biotech (biotechnology);
Age 64 Healthways, Inc.
(health management
programs)
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
<Table>
<Caption>
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------------------------------------------------------------------------------------------------------
William F. Truscott Board member since President -- U.S. Asset Management and Chief Investment None
53600 Ameriprise 2001, Officer, Ameriprise Financial, Inc. and President,
Financial Center Vice President since Chairman of the Board and Chief Investment Officer,
Minneapolis, MN 55474 2002 RiverSource Investments, LLC since 2005; Director,
Age 47 President and Chief Executive Officer, Ameriprise
Certificate Company since 2006; Chairman of the Board,
Chief Executive Officer and President, RiverSource
Distributors, Inc. since 2006; Senior Vice
President -- Chief Investment Officer, Ameriprise
Financial, Inc. and Chairman of the Board and Chief
Investment Officer, RiverSource Investments, LLC, 2001-
2005
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments.
The SAI has additional information about the Fund's Board members and is
available, without charge, upon request by calling RiverSource Funds at (888)
791-3380; contacting your financial institution; or visiting
riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 89
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
<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 since 2006; Director and Vice President -- Asset
Minneapolis, MN 55474 Management, Products and Marketing, RiverSource
Age 42 Distributors, Inc. since 2006; Managing Director and
Global Head of Product, Morgan Stanley Investment
Management, 2004-2006; President, Touchstone
Investments, 2002-2004
- --------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President since Executive Vice President -- Equity and Fixed Income,
172 Ameriprise Financial 2004 Ameriprise Financial, Inc. and RiverSource Investments,
Center LLC since 2006; Vice President -- Investments,
Minneapolis, MN 55474 Ameriprise Certificate Company since 2003; Senior Vice
Age 44 President -- Fixed Income, Ameriprise Financial, Inc.,
2002-2006 and RiverSource Investments, LLC, 2004-2006
- --------------------------------------------------------------------------------------------------------
Amy K. Johnson Vice President since Vice President -- Asset Management and Trust Company
5228 Ameriprise Financial 2006 Services, RiverSource Investments, LLC since 2006; Vice
Center Minneapolis, MN President -- Operations and Compliance, RiverSource
55474 Investments, LLC, 2004-2006; Director of Product
Age 42 Development -- Mutual Funds, Ameriprise Financial,
Inc., 2001-2004
- --------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer since 2002 Vice President -- Investment Accounting, Ameriprise
105 Ameriprise Financial Financial, Inc. since 2002; Chief Financial Officer,
Center RiverSource Distributors, Inc. since 2006
Minneapolis, MN 55474
Age 53
- --------------------------------------------------------------------------------------------------------
Scott R. Plummer Vice President, Vice President and Chief Counsel -- Asset Management,
5228 Ameriprise Financial General Counsel and Ameriprise Financial, Inc. since 2005; Chief Counsel,
Center Secretary since 2006 RiverSource Distributors, Inc. since 2006; Vice
Minneapolis, MN 55474 President, General Counsel and Secretary, Ameriprise
Age 49 Certificate Company since 2005; Vice President -- Asset
Management Compliance, Ameriprise Financial, Inc.,
2004-2005; Senior Vice President and Chief Compliance
Officer, USBancorp Asset Management, 2002-2004
- --------------------------------------------------------------------------------------------------------
Jennifer D. Lammers Chief Compliance U.S. Asset Management Chief Compliance Officer,
172 Ameriprise Financial Officer since 2006 RiverSource Investments, LLC since 2006;
Center Director -- Mutual Funds, Voyageur Asset Management,
Minneapolis, MN 55474 2003-2006; Director of Finance, Voyageur Asset
Age 47 Management, 2000-2003
- --------------------------------------------------------------------------------------------------------
Neysa M. Alecu Money Laundering Compliance Director and Anti-Money Laundering Officer,
2934 Ameriprise Financial Prevention Officer Ameriprise Financial, Inc. since 2004; Manager Anti-
Center since 2004 Money Laundering, Ameriprise Financial, Inc., 2003-
Minneapolis, MN 55474 2004; Compliance Director and Bank Secrecy Act Officer,
Age 44 American Express Centurion Bank, 2000-2003
- --------------------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
90 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT ----------------------------------------------------------------------
RiverSource Investments, LLC ("RiverSource Investments" or the "investment
manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise
Financial"), serves as the investment manager to the RiverSource California Tax-
Exempt Fund, RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-
Exempt Fund (each a "State Tax-Exempt Fund" and collectively, the "State Tax-
Exempt Funds"). Under an investment management services agreement (the "IMS
Agreement") RiverSource Investments provides investment advice and other
services to the State Tax-Exempt Funds and all RiverSource funds (collectively,
the "Funds").
On an annual basis, the State Tax-Exempt Funds' Board of Trustees (the "Board"),
including the independent Board members (the "Independent Directors"), consider
renewal of the IMS Agreement. RiverSource Investments prepared detailed reports
for the Board and its Contracts Committee in March and April 2008, including
reports based on data provided by independent organizations to assist the Board
in making this determination. In addition, throughout the year, the Board (or
its committees) reviews information prepared by RiverSource Investments
addressing the services RiverSource Investments provides and each State Tax-
Exempt Fund's performance. The Board accords particular weight to the work,
deliberations and conclusions of the Contracts, Investment Review and Compliance
Committees in determining whether to continue the IMS Agreement. At the April 9-
10, 2008 in-person Board meeting, independent legal counsel to the Independent
Directors reviewed with the Independent Directors various factors relevant to
the Board's consideration of advisory agreements and the Board's legal
responsibilities related to such consideration. Following an analysis and
discussion of the factors identified below, the Board, including all of the
Independent Directors, approved renewal of the IMS Agreement.
Nature, Extent and Quality of Services Provided by RiverSource Investments: The
Board analyzed various reports and presentations it had received detailing the
services performed by RiverSource Investments, as well as its expertise,
resources and capabilities. The Board specifically considered many developments
during the past year concerning the services provided by RiverSource
Investments, including, in particular, the continued investment in, and
resources dedicated to, the State Tax-Exempt Funds' operations, particularly in
the areas of trading systems, new product initiatives, legal and compliance.
Further, in connection with the Board's evaluation of the overall package of
services provided by RiverSource Investments, the Board considered the quality
of the administrative and transfer agency services provided by RiverSource
Investments' affiliates to the State Tax-Exempt Funds. The Board also reviewed
the financial
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 91
APPROVAL OF INVESTMENT MANAGEMENT SERVICES
AGREEMENT (continued) ---------------------------------------------------------
condition of RiverSource Investments (and its affiliates) and each entity's
ability to carry out its responsibilities under the IMS Agreement. The Board
also discussed the acceptability of the terms of the IMS Agreement (including
the relatively broad scope of services required to be performed by RiverSource
Investments). The Board concluded that the services being performed under the
IMS Agreement were of a reasonably high quality, particularly in light of recent
market conditions.
Based on the foregoing, and based on other information received (both oral and
written, including the information on investment performance referenced below)
and other considerations, the Board concluded that RiverSource Investments and
its affiliates were in a position to continue to provide a high quality and
level of services to the State Tax-Exempt Funds.
Investment Performance: For purposes of evaluating the nature, extent and
quality of services provided under the IMS Agreement, the Board carefully
reviewed the investment performance of each of the State Tax-Exempt Funds. In
this regard, the Board considered: (i) detailed reports containing data prepared
by an independent organization showing, for various periods, the performance of
each State Tax-Exempt Fund, the performance of a benchmark index, the percentage
ranking of each State Tax-Exempt Fund among its comparison group and the net
assets of each State Tax-Exempt Fund; and (ii) a report detailing each State
Tax-Exempt Fund's performance over various periods (including since inception),
recent inflows (and outflows) of each State Tax-Exempt Fund and a comparison of
each State Tax-Exempt Fund's net assets from December 2006 to December 2007. The
Board observed that the investment performance of each State Tax-Exempt Fund was
appropriate in light of the particular management style and market conditions
involved.
Comparative Fees, Costs of Services Provided and the Profits Realized By
RiverSource Investments and its Affiliates from their Relationships with each
State Tax-Exempt Fund: The Board reviewed comparative fees and the costs of
services to be provided under the IMS Agreement. The Board members considered
detailed comparative information set forth in an annual report on fees and
expenses, including, among other things, data (prepared by an independent
organization) showing a comparison of each State Tax-Exempt Fund's expenses with
median expenses paid by funds in each State Tax-Exempt Fund's peer group, as
well as data showing each State Tax-Exempt Fund's contribution to RiverSource
Investments' profitability.
- --------------------------------------------------------------------------------
92 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
- --------------------------------------------------------------------------------
The Board accorded particular weight to the notion that the level of fees should
reflect a rational pricing model applied consistently across the various product
lines in the Funds' family, while assuring that the overall fees for each fund
are generally in line with the "pricing philosophy" (i.e., that the total
expense ratio of each fund, with few exceptions, is at or below the median
expense ratio of funds in the same comparison group). The Board took into
account that each of the State Tax-Exempt Fund's total expense ratio (after
considering proposed expense caps/waivers) was below its peer group's median
expense ratio shown in the reports. Based on its review, the Board concluded
that each State Tax-Exempt Fund's management fee was fair and reasonable in
light of the extent and quality of services that each State Tax-Exempt Fund
receives.
The Board also considered the expected profitability of RiverSource Investments
and its affiliates in connection with RiverSource Investments providing
investment management services to the State Tax-Exempt Funds. In this regard,
the Board referred to a detailed profitability report, discussing the
profitability to RiverSource Investments and Ameriprise Financial from managing
and operating the State Tax-Exempt Funds, including data showing comparative
profitability over the past two years. The Board also considered the services
acquired by the investment manager through the use of commission dollars paid by
the Funds on portfolio transactions. The Board noted that the fees paid by the
State Tax-Exempt Funds should permit the investment manager to offer competitive
compensation to its personnel, make necessary investments in its business and
earn an appropriate profit. The Board concluded that profitability levels were
reasonable.
Economies of Scale to be Realized: The Board also considered the economies of
scale that might be realized by RiverSource Investments as the State Tax-Exempt
Funds grow and took note of the extent to which the State Tax-Exempt Funds'
shareholders might also benefit from such growth. The Board considered that the
IMS Agreement provides for lower fees as assets increase at pre-established
breakpoints and concluded that the IMS Agreement satisfactorily provided for
sharing these economies of scale.
Based on the foregoing, the Board, including all of the Independent Directors,
concluded that the investment management service fees were fair and reasonable
in light of the extent and quality of services provided. In reaching this
conclusion, no single factor was determinative. On April 10, 2008, the Board,
including all of the Independent Directors, approved the renewal of the IMS
Agreement.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT 93
PROXY VOTING -------------------------------------------------------------------
The policy of the Board is to vote the proxies of the companies in which the
Fund holds investments consistent with the procedures as stated in the Statement
of Additional Information (SAI). You may obtain a copy of the SAI without charge
by calling RiverSource Funds at (888) 791-3380; contacting your financial
institution; visiting riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities is filed
with the SEC by August 31 for the most recent 12-month period ending June 30 of
that year, and is available without charge by visiting riversource.com/funds; or
searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
94 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 ANNUAL REPORT
RIVERSOURCE STATE TAX-EXEMPT FUNDS
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
<Table>
This report must be accompanied or preceded by the Fund's
current prospectus. RiverSource(R) mutual funds are
distributed by RiverSource Distributors, Inc., Member FINRA,
and managed by RiverSource Investments, LLC. These companies
are part of Ameriprise Financial, Inc.
(RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6328 AH (10/08)
</Table>
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Pamela G. Carlton, Jeffrey Laikind and Anne P. Jones, each
qualify as audit committee financial experts.
Item 4. Principal Accountant Fees and Services
Fund - Related Fees
(a) Audit Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for
professional services rendered for the audit of the annual financial
statements for RiverSource California Tax-Exempt Trust were as follows:
2008 - $26,125 2007 - $24,650
(b) Audit - Related Fees. The fees for the year ended Aug. 31, to Ernst & Young
LLP for additional professional services rendered in connection with the
registrant's semiannual financial statement review for RiverSource
California Tax-Exempt Trust were as follows:
2008 - $375 2007 - $350
(c) Tax Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP for tax
compliance related services for RiverSource California Tax-Exempt Trust
were as follows:
2008 - $3,180 2007 - $3,000
(d) All Other Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP
for additional professional services rendered for RiverSource California
Tax-Exempt Trust were as follows:
2008 - $0 2007 - $0
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by Ernst & Young
LLP for the registrant and to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant must be
pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above during
2008 and 2007 were pre-approved by the audit committee.
(f) Not applicable.
(g) Non-Audit Fees. The fees for the year ended Aug. 31, to Ernst & Young LLP
by the registrant for non-audit fees and by the registrant's investment
adviser, and any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant were as
follows:
2008 - $616,755 2007 - $511,430
(h) 100% of the services performed in item (g) above during 2008 and 2007 were
pre-approved by the Ameriprise Financial Audit Committee and/or the
RiverSource Mutual Funds Audit Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not
applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance that the
material information required to be disclosed by the registrant on this
report is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal executive
officer and principal financial officer, as required to be disclosed under
Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company
Act of 1940, are attached as EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is
attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource California Tax-Exempt Trust
By /s/ Patrick T. Bannigan
---------------------------------
Patrick T. Bannigan
President and Principal
Executive Officer
Date November 4, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ Patrick T. Bannigan
---------------------------------
Patrick T. Bannigan
President and Principal
Executive Officer
Date November 4, 2008
By /s/ Jeffrey P. Fox
---------------------------------
Jeffrey P. Fox
Treasurer and Principal
Financial Officer
Date November 4, 2008