-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fvdx5Vccs+eQRjHsj6YHOmWcZPtP7IYEGVSoM9eo0Pn+3NweQ36EsGXcjsZD4gK1 Bcrm7IHH95Gs70GosdjkZg== 0000950137-08-006600.txt : 20080502 0000950137-08-006600.hdr.sgml : 20080502 20080502164101 ACCESSION NUMBER: 0000950137-08-006600 CONFORMED SUBMISSION TYPE: N-CSRS/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080229 FILED AS OF DATE: 20080502 DATE AS OF CHANGE: 20080502 EFFECTIVENESS DATE: 20080502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST CENTRAL INDEX KEY: 0000792719 IRS NUMBER: 416290232 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSRS/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-04647 FILM NUMBER: 08799593 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP SPECIAL TAX-EXEMPT SERIES TRUST DATE OF NAME CHANGE: 19990628 FORMER COMPANY: FORMER CONFORMED NAME: IDS SPECIAL TAX EXEMPT SERIES TRUST DATE OF NAME CHANGE: 19920703 0000792719 S000003349 RiverSource Massachusetts Tax-Exempt Fund C000009155 RiverSource Massachusetts Tax-Exempt Fund Class C C000009156 RiverSource Massachusetts Tax-Exempt Fund Class A IDMAX C000009157 RiverSource Massachusetts Tax-Exempt Fund Class B AXMBX 0000792719 S000003350 RiverSource Michigan Tax-Exempt Fund C000009158 RiverSource Michigan Tax-Exempt Fund Class B C000009159 RiverSource Michigan Tax-Exempt Fund Class C C000009160 RiverSource Michigan Tax-Exempt Fund Class A INMIX 0000792719 S000003351 RiverSource Minnesota Tax-Exempt Fund C000009161 RiverSource Minnesota Tax-Exempt Fund Class C RMTCX C000009162 RiverSource Minnesota Tax-Exempt Fund Class A IMNTX C000009163 RiverSource Minnesota Tax-Exempt Fund Class B IDSMX 0000792719 S000003352 RiverSource New York Tax-Exempt Fund C000009164 RiverSource New York Tax-Exempt Fund Class B C000009165 RiverSource New York Tax-Exempt Fund Class C RNTCX C000009166 RiverSource New York Tax-Exempt Fund Class A INYKX 0000792719 S000003353 RiverSource Ohio Tax-Exempt Fund C000009167 RiverSource Ohio Tax-Exempt Fund Class B C000009168 RiverSource Ohio Tax-Exempt Fund Class C C000009169 RiverSource Ohio Tax-Exempt Fund Class A IOHIX N-CSRS/A 1 c25042anvcsrsza.txt AMENDMENT TO CERTIFIED SHAREHOLDER REPORT 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 811-4647 RIVERSOURCE SPECIAL TAX-EXEMPT SERIES 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: 2/29 Semiannual Report (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND RIVERSOURCE MICHIGAN TAX-EXEMPT FUND RIVERSOURCE OHIO TAX-EXEMPT FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED FEBRUARY 29, 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 OF CONTENTS Fund Snapshot RiverSource Massachusetts Tax-Exempt Fund ............... 2 RiverSource Michigan Tax-Exempt Fund........................... 2 RiverSource Ohio Tax-Exempt Fund........................... 3 Fund Expenses Examples.............. 4 Portfolio of Investments RiverSource Massachusetts Tax-Exempt Fund ............... 8 RiverSource Michigan Tax-Exempt Fund........................... 14 RiverSource Ohio Tax-Exempt Fund........................... 21 Financial Statements................ 28 Notes to Financial Statements....... 34 Proxy Voting........................ 55 Results of Meeting of Shareholders..................... 55
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 1 FUND SNAPSHOT AT FEB. 29, 2008 (UNAUDITED) RiverSource Massachusetts Tax-Exempt Fund QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA Bonds 45.4% AA Bonds 29.0% A Bonds 14.9% BBB Bonds 9.4% Non-Investment Grade Bonds 1.3%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.3% of the bond portfolio assets were determined through internal analysis. RiverSource Michigan Tax-Exempt Fund QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA Bonds 66.6% AA Bonds 14.9% A Bonds 9.5% BBB Bonds 8.4% Non-Investment Grade Bonds 0.6%
Bond ratings apply to 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 0.6% of the bond portfolio assets were determined through internal analysis. - -------------------------------------------------------------------------------- 2 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT FUND SNAPSHOT AT FEB. 29, 2008 (UNAUDITED) RiverSource Ohio Tax-Exempt Fund QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA Bonds 38.9% AA Bonds 41.4% A Bonds 16.4% BBB Bonds 2.1% Non-Investment Grade Bonds 1.2%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.2% of the bond portfolio assets were determined through internal analysis. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 3 FUND EXPENSES EXAMPLES (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds expense ratio as of the most recent shareholder report. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Feb. 29, 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. - -------------------------------------------------------------------------------- 4 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2007 FEB. 29, 2008 THE PERIOD(A) EXPENSE RATIO(B) Class A Actual(c) $1,000 $ 979.90 $4.09 .83% Hypothetical (5% return before expenses) $1,000 $1,020.74 $4.17 .83% Class B Actual(c) $1,000 $ 976.20 $7.76 1.58% Hypothetical (5% return before expenses) $1,000 $1,017.01 $7.92 1.58% Class C Actual(c) $1,000 $ 976.20 $7.76 1.58% Hypothetical (5% return before expenses) $1,000 $1,017.01 $7.92 1.58%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/366 (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 Feb. 29, 2008: -2.01% for Class A, -2.38% for Class B and -2.38% for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 5 RiverSource Michigan Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2007 FEB. 29, 2008 THE PERIOD(A) EXPENSE RATIO(B) Class A Actual(c) $1,000 $ 986.70 $4.00 .81% Hypothetical $1,000 $1,020.84 $4.07 .81% (5% return before expenses) Class B Actual(c) $1,000 $ 983.00 $7.74 1.57% Hypothetical (5% return before expenses) $1,000 $1,017.06 $7.87 1.57% Class C Actual(c) $1,000 $ 983.00 $7.69 1.56% Hypothetical (5% return before expenses) $1,000 $1,017.11 $7.82 1.56%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). (b) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.55% for Class B and 1.54% for Class C. (c) Based on the actual return for the six months ended Feb. 29, 2008: -1.33% for Class A, -1.70% for Class B and -1.70% for Class C. - -------------------------------------------------------------------------------- 6 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Ohio Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2007 FEB. 29, 2008 THE PERIOD(A) EXPENSE RATIO(B) Class A Actual(c) $1,000 $ 975.80 $3.98 .81% Hypothetical (5% return before expenses) $1,000 $1,020.83 $4.07 .81% Class B Actual(c) $1,000 $ 972.20 $7.65 1.56% Hypothetical (5% return before expenses) $1,000 $1,017.11 $7.82 1.56% Class C Actual(c) $1,000 $ 972.20 $7.65 1.56% Hypothetical (5% return before expenses) $1,000 $1,017.11 $7.82 1.56%
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/366 (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 Feb. 29, 2008: -2.42% for Class A, -2.78% for Class B and -2.78% for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 7 PORTFOLIO OF INVESTMENTS RiverSource Massachusetts Tax-Exempt Fund FEB. 29, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (96.9%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) ADVANCED REFUNDED (2.2%) Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002C 11-01-30 5.25% $710,000 $760,971 University of Massachusetts Building Authority Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 45,000 48,105 --------------- Total 809,076 - ---------------------------------------------------------------------------------- COLLEGE (16.5%) Massachusetts Development Finance Agency Refunding Revenue Bonds Simons Rock College of Bard Series 2007 08-01-36 4.70 500,000 425,420 Massachusetts Development Finance Agency Revenue Bonds Boston University Series 1999P 05-15-59 6.00 325,000 322,407 Massachusetts Development Finance Agency Revenue Bonds Wheelock College Series 2007C 10-01-37 5.25 500,000 431,720 Massachusetts Health & Educational Facilities Authority Revenue Bonds Boston College Series 2003N 06-01-21 5.25 1,000,000 1,022,960 Massachusetts Health & Educational Facilities Authority Revenue Bonds Fisher College Series 2007A 04-01-37 5.13 500,000 407,325
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) COLLEGE (CONT.) Massachusetts Health & Educational Facilities Authority Revenue Bonds Harvard University Series 2002FF 07-15-37 5.13% $1,000,000 $975,480 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2004M 07-01-25 5.25 500,000 514,935 Massachusetts Health & Educational Facilities Authority Revenue Bonds Williams College Series 2003H 07-01-33 5.00 1,000,000 959,710 University of Massachusetts Building Authority Prerefunded Revenue Bonds Series 2003-1 (AMBAC) 11-01-21 5.25 1,000,000 1,093,039 --------------- Total 6,152,996 - ---------------------------------------------------------------------------------- ELECTRIC (5.5%) Massachusetts Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,018,500 Massachusetts Municipal Wholesale Electric Company Revenue Bonds Nuclear Project #5 Series 2001A (MBIA) 07-01-10 5.00 1,000,000 1,038,950 --------------- Total 2,057,450 - ----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 8 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) HEALTH CARE - HOSPITAL (9.4%) Massachusetts Health & Educational Facilities Authority Revenue Bonds Catholic Health East Series 2007C 11-15-32 2.87% $500,000(g) $388,250 Massachusetts Health & Educational Facilities Authority Revenue Bonds Covenant Health Systems Series 2007 07-01-30 5.00 500,000 445,920 Massachusetts Health & Educational Facilities Authority Revenue Bonds Lahey Clinic Medical Center Series 2007D 08-15-28 5.25 750,000 718,245 Massachusetts Health & Educational Facilities Authority Revenue Bonds Milford Regional Medical Series 2007E 07-15-27 5.00 250,000 212,413 07-15-32 5.00 250,000 203,375 07-15-37 5.00 500,000 397,285 Massachusetts Health & Educational Facilities Authority Revenue Bonds Partners Healthcare Systems Series 2007G-5 07-01-18 5.00 250,000 252,868 07-01-47 5.00 1,000,000 889,579 --------------- Total 3,507,935 - ---------------------------------------------------------------------------------- HEALTH CARE - LIFE CARE CENTER (2.3%) Massachusetts Development Finance Agency Prerefunded Revenue Bonds Briarwood Series 2001B 12-01-30 8.25 750,000 856,448 - ---------------------------------------------------------------------------------- HEALTH CARE - OTHER (1.4%) Massachusetts Health & Educational Facilities Authority Revenue Bonds Emmanuel College Series 2007 (MBIA) 07-01-25 5.00 550,000 535,046 - ----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) HOUSING - MULTI-FAMILY (1.7%) Massachusetts Housing Finance Agency Revenue Bonds Series 2007D A.M.T. 06-01-40 4.85% $750,000 $634,080 - ---------------------------------------------------------------------------------- HOUSING - SINGLE FAMILY (1.8%) Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2006-122 A.M.T. 12-01-31 4.85 750,000 657,803 - ---------------------------------------------------------------------------------- LEASE (2.8%) Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriated Series 2004A 08-01-27 5.75 1,000,000(b,e) 1,039,890 - ---------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (6.0%) Commonwealth of Massachusetts Refunding Revenue Bonds Series 2005 (FGIC) 01-01-27 5.50 500,000 495,330 01-01-28 5.50 500,000 494,605 Massachusetts Development Finance Agency Revenue Bonds Linden Ponds Incorporated Facility Series 2007A 11-15-09 5.00 500,000 492,255 Massachusetts Port Authority Revenue Bonds Bosfuel Project Series 2007 (FGIC) A.M.T. 07-01-17 5.00 750,000 760,853 --------------- Total 2,243,043 - ---------------------------------------------------------------------------------- PORT DISTRICT (2.1%) Massachusetts Port Authority Refunding Revenue Bonds Series 2007C (FSA) A.M.T. 07-01-14 5.00 750,000 787,305 - ----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 9 RiverSource Massachusetts Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) RESOURCE RECOVERY (1.4%) Massachusetts Development Finance Agency Revenue Bonds Waste Management Incorporated Project Series 2003 A.M.T. 06-01-14 5.45% $500,000 $509,230 - ---------------------------------------------------------------------------------- SALES OR USE TAX (2.7%) Massachusetts Bay Transportation Authority Prerefunded Revenue Bonds Series 2005A 07-01-25 5.00 250,000 270,040 07-01-26 5.00 250,000 270,040 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (AMBAC) 07-01-30 5.25 250,000(b) 236,773 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 250,000(b) 235,895 --------------- Total 1,012,748 - ---------------------------------------------------------------------------------- SCHOOL (3.9%) Massachusetts Development Finance Agency Revenue Bonds May Institute Series 1999 (Radian Group Financial Guaranty) 09-01-29 5.75 1,000,000 1,000,310 Massachusetts School Building Authority Revenue Bonds Series 2007A (AMBAC) 08-15-32 4.75 500,000 460,605 --------------- Total 1,460,915 - ---------------------------------------------------------------------------------- SPECIAL DISTRICT - SPECIAL TAX (3.8%) Massachusetts Bay Transportation Authority Revenue Bonds Series 2005A 07-01-30 5.00 450,000 443,421 07-01-31 5.00 500,000 492,520
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) SPECIAL DISTRICT - SPECIAL TAX (CONT.) Puerto Rico Infrastructure Financing Authority Refunding Special Tax Bonds Series 2005C (AMBAC) 07-01-23 5.50% $500,000(b) $496,890 --------------- Total 1,432,831 - ---------------------------------------------------------------------------------- STATE (11.1%) Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 2004B 08-01-22 5.25 500,000 515,310 08-01-28 5.25 500,000 507,515 Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002C Escrowed to Maturity (FSA) 11-01-15 5.50 1,025,000 1,143,356 Commonwealth of Massachusetts Unlimited General Obligation Refunding Bonds Series 2004A (FSA) 08-01-20 5.25 500,000 525,830 Commonwealth of Massachusetts Unrefunded Limited General Obligation Bonds Consolidated Loan Series 2002C (FSA) 11-01-15 5.50 475,000 527,274 Commonwealth of Puerto Rico Prerefunded Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 160,000(b) 175,003 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001 (FSA) 07-01-16 5.50 500,000(b) 546,405 Commonwealth of Puerto Rico Unrefunded Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 215,000(b) 198,989 --------------- Total 4,139,682 - ----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 10 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) TOLL ROAD (5.4%) Massachusetts Bay Transportation Authority Refunding Revenue Bonds Series 1992B 03-01-16 6.20% $1,500,000 $1,687,980 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 300,000(b) 330,024 --------------- Total 2,018,004 - ---------------------------------------------------------------------------------- WATER & SEWER (16.9%) City of Boston Revenue Bonds Series 2004A 11-01-22 5.00 1,000,000 1,006,130 Massachusetts State Water Pollution Abatement Prerefunded Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 855,000 923,828 Massachusetts State Water Pollution Abatement Unrefunded Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 145,000 139,845 Massachusetts Water Resources Authority Refunding Revenue Bonds Series 2005A (MBIA) 08-01-17 5.25 500,000 540,125 08-01-22 5.00 500,000 501,470
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(C,D) RATE AMOUNT VALUE(A) WATER & SEWER (CONT.) Massachusetts Water Resources Authority Revenue Bonds Series 1992A Escrowed to Maturity (FGIC) 07-15-19 6.50% $2,000,000 $2,318,859 Massachusetts Water Resources Authority Revenue Bonds Series 2004D (MBIA) 08-01-27 4.75 1,000,000 944,180 --------------- Total 6,374,437 - ---------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $37,486,120) $36,228,919 - ----------------------------------------------------------------------------------
MUNICIPAL NOTES (2.4%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(C,D,F) YIELD MATURITY VALUE(A) Massachusetts Health & Educational Facilities Authority Revenue Bonds Capital Assets Program V.R.D.N. Series 1985E (Fleet National Bank) 01-01-35 3.90% $900,000 $900,000 - ---------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $900,000) $900,000 - ---------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $38,386,120)(h) $37,128,919 ==================================================================================
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT FEB. 29, 2008
NUMBER OF CONTRACTS NOTIONAL EXPIRATION UNREALIZED CONTRACT DESCRIPTION LONG/(SHORT) MARKET VALUE DATE (DEPRECIATION) - -------------------------------------------------------------------------------------------------- U.S. Treasury Note, 5-year (10) $(1,148,281) March 2008 $(13,303) U.S. Treasury Note, 5-year (12) (1,371,000) June 2008 (19,236) - -------------------------------------------------------------------------------------------------- Total $(32,539) - --------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 11 RiverSource Massachusetts Tax-Exempt Fund INTEREST RATE SWAP CONTRACTS OUTSTANDING AT FEB. 29, 2008
FUND NOTIONAL FLOATING PAY/RECEIVE FIXED EXPIRATION PRINCIPAL UNREALIZED UNREALIZED COUNTERPARTY RATE INDEX FLOATING RATE RATE DATE AMOUNT APPRECIATION DEPRECIATION - ------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11% April 2, 2008 $500,000 $-- $(5,288) Markets Data Index as determined on April 2, 2008 - ------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11 April 3, 2008 500,000 -- (5,288) Markets Data Index as determined on April 3, 2008 - ------------------------------------------------------------------------------------------------------------------------- Goldman Sachs 30-year Municipal Market Receive 4.25 April 24, 260,000 38,353 -- Group Data Index as determined 2008 on April 24, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 20, 2008 480,000 -- (10,735) Data Index as determined on May 20, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 21, 2008 480,000 -- (10,735) Data Index as determined on May 21, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 22, 2008 480,000 -- (10,735) Data Index as determined on May 22, 2008 - ------------------------------------------------------------------------------------------------------------------------- Lehman Brother 2-year Municipal Market Pay 3.00 June 12, 2008 510,000 3,461 -- Special Data Index AAA Municipal Financing Yields as determined on June 12, 2008 - ------------------------------------------------------------------------------------------------------------------------- Lehman Brother 2-year Municipal Market Pay 2.95 June 13, 2008 510,000 2,721 -- Special Data Index AAA Municipal Financing Yields as determined on June 13, 2008 - ------------------------------------------------------------------------------------------------------------------------- Total $44,535 $(42,781) - -------------------------------------------------------------------------------------------------------------------------
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 8.7% of net assets at Feb. 29, 2008. (c) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance
- -------------------------------------------------------------------------------- 12 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 29, 2008, the value of securities subject to alternative minimum tax represented 9.0% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(e) At Feb. 29, 2008, investments in securities included securities valued at $86,311 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (f) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (g) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (h) At Feb. 29, 2008, the cost of securities for federal income tax purposes was approximately $38,386,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $684,000 Unrealized depreciation (1,941,000) - ------------------------------------------------------------------------------ Net unrealized depreciation $(1,257,000) - ------------------------------------------------------------------------------
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 SEMIANNUAL REPORT 13 PORTFOLIO OF INVESTMENTS RiverSource Michigan Tax-Exempt Fund FEB. 29, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (95.5%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) AIRPORT (1.3%) Wayne County Airport Authority Revenue Bonds Detroit Metropolitan Series 2005 (MBIA) A.M.T. 12-01-19 4.75% $500,000 $477,900 - ---------------------------------------------------------------------------------- CERTIFICATE OF PARTICIPATION (0.7%) State of Michigan Certificate of Participation Series 2004A (MBIA) 09-01-31 4.25 250,000 255,473 - ---------------------------------------------------------------------------------- CITY (4.9%) Detroit Unlimited General Obligation Bonds Series 2001A-1 (MBIA) 04-01-15 5.38 1,000,000 1,033,850 Jackson Limited General Obligation Bonds Capital Appreciation Downtown Development Zero Coupon Series 2001 (FSA) 06-01-21 5.58 1,450,000(b) 715,517 --------------- Total 1,749,367 - ---------------------------------------------------------------------------------- COLLEGE (4.8%) Lansing Community College Limited General Obligation Bonds Series 2002 (FGIC) 05-01-12 5.00 1,000,000 1,062,780 Michigan Higher Education Facilities Authority Refunding Revenue Bonds Kalamazoo College Project Series 2007 12-01-33 5.00 250,000 222,793
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) COLLEGE (CONT.) Michigan State University Revenue Bonds Series 2007B (AMBAC) 02-15-37 2.68% $500,000(g) $412,625 --------------- Total 1,698,198 - ---------------------------------------------------------------------------------- ELECTRIC (1.5%) Michigan Public Power Agency Refunding Revenue Bonds Belle River Project Series 2002A (MBIA) 01-01-14 5.25 500,000 542,250 - ---------------------------------------------------------------------------------- HEALTH CARE - HOSPITAL (6.0%) Garden City Hospital Finance Authority Refunding Revenue Bonds Series 2007A 08-15-27 4.88 250,000 193,003 Michigan State Hospital Finance Authority Refunding Revenue Bonds Henry Ford Health System Series 2006A 11-15-26 5.00 500,000 461,085 Michigan State Hospital Finance Authority Revenue Bonds MidMichigan Obligation Group Series 2006A 04-15-36 5.00 500,000 440,420 Michigan State Hospital Finance Authority Revenue Bonds Oakwood Obligated Group Series 2003 11-01-18 5.50 1,000,000 1,029,330 --------------- Total 2,123,838 - ----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 14 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) HOUSING - SINGLE FAMILY (1.4%) Michigan State Housing Development Authority Revenue Bonds Series 2007A A.M.T. 12-01-28 5.50% $490,000 $503,651 - ---------------------------------------------------------------------------------- INDUSTRIAL-POLLUTION - IDR (1.7%) Michigan Strategic Fund Revenue Bonds Republic Services Series 2001 A.M.T. 08-01-31 4.25 635,000 591,566 - ---------------------------------------------------------------------------------- INDUSTRIAL-POLLUTION - PCR (2.8%) Michigan Strategic Fund Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA) 07-15-08 7.00 1,000,000 1,014,080 - ---------------------------------------------------------------------------------- LEASE (4.5%) Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA) 07-01-13 5.50 1,000,000(c) 1,086,930 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriated Series 2004A 08-01-27 5.75 500,000(c) 519,945 --------------- Total 1,606,875 - ---------------------------------------------------------------------------------- MISCELLANEOUS (12.3%) Grand Rapids Building Authority Prerefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 505,000 548,238 Grand Rapids Building Authority Unrefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 765,000 817,502
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) MISCELLANEOUS (CONT.) Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2002 10-01-20 5.38% $1,000,000 $1,046,100 10-01-21 5.38 1,000,000 1,041,630 Michigan Tobacco Settlement Finance Authority Revenue Bonds Series 2007A 06-01-34 6.00 1,000,000 937,300 --------------- Total 4,390,770 - ---------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (2.2%) Michigan Municipal Bond Authority Revenue Bonds Local Government Loan Program Series 2003C 05-01-13 5.00 250,000 266,335 Michigan Municipal Bond Authority Revenue Bonds School District City of Detroit Series 2005 (FSA) 06-01-19 5.00 500,000 508,540 --------------- Total 774,875 - ---------------------------------------------------------------------------------- SALES OR USE TAX (1.3%) Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (AMBAC) 07-01-30 5.25 500,000(c) 473,545 - ---------------------------------------------------------------------------------- SCHOOL (33.0%) Anchor Bay School District Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-29 5.00 1,000,000 965,720 Goodrich Area School District Prerefunded Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 505,000 545,339
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 15 RiverSource Michigan Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) SCHOOL (CONT.) Goodrich Area School District Unrefunded Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00% $495,000 $482,457 Grand Traverse Academy Refunding Revenue Bonds Series 2007 11-01-17 5.00 390,000 366,019 Howell Public Schools Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-29 5.00 1,000,000 965,720 Lawton Community Schools Unrefunded Unlimited General Obligation Bonds Series 2001 (Qualified School Bond Loan Fund) 05-01-31 5.00 200,000 191,006 Manchester Community Schools Prerefunded Unlimited General Obligation Bonds Building & Site Series 2001 (Qualified School Bond Loan Fund) 05-01-26 5.00 1,000,000(h) 1,053,130 Marysville Public School District Unlimited General Obligation Bonds School Building & Site Series 2007 (FSA) (Qualified School Bond Loan Fund) 05-01-37 4.70 475,000 428,977 Oakland Schools Intermediate School District Limited General Obligation Bonds School Building & Site Series 2007 (FSA) 05-01-36 5.00 500,000 476,040 Pinconning Area Schools Unlimited General Obligation Bonds School Building & Site Series 2007 (FSA) (Qualified School Bond Loan Fund) 05-01-37 4.75 250,000 228,298
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) SCHOOL (CONT.) Plymouth-Canton Community School District Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-15 5.25% $600,000 $644,550 Roseville School District Unlimited General Obligation Refunding Bonds School Building & Site Series 2006 (FSA) (Qualified School Bond Loan Fund) 05-01-23 5.00 500,000 497,335 South Lyon Community Schools Prerefunded Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-28 5.00 1,000,000 1,065,550 Southfield Public Schools Prerefunded Unlimited General Obligation Bonds School Building & Site Series 2003A (Qualified School Bond Loan Fund) 05-01-22 5.25 1,025,000 1,113,180 Summit Academy North Prerefunded Certificate of Participation Series 2001 07-01-30 7.38 750,000 816,615 Summit Academy Prerefunded Certificate of Participation Full Term Series 1998 09-01-18 7.00 430,000 438,217 Williamston Community School District Unlimited General Obligation Bonds Series 1996 (MBIA) (Qualified School Bond Loan Fund) 05-01-25 5.50 1,000,000 1,059,130 Ypsilanti School District Unlimited General Obligation Bonds School Building & Site Series 2007 (MBIA) (Qualified School Bond Loan Fund) 05-01-32 4.50 500,000 439,005 --------------- Total 11,776,288 - ----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 16 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) STATE (1.3%) Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00% $500,000(c) $454,650 - ---------------------------------------------------------------------------------- STUDENT LOAN (2.3%) Michigan Higher Education Student Loan Authority Revenue Bonds Series 2006 XVII-Q (AMBAC) A.M.T. 03-01-26 4.95 200,000 180,786 03-01-31 5.00 725,000 650,144 --------------- Total 830,930 - ---------------------------------------------------------------------------------- WATER & SEWER (13.5%) Detroit Prerefunded Revenue Bonds 2nd Lien Series 2005A (MBIA) 07-01-30 5.00 230,000 247,367 Detroit Prerefunded Revenue Bonds Series 2003B (MBIA) 07-01-32 5.25 1,500,000 1,625,234 Detroit Revenue Bonds Senior Lien Series 2003A (MBIA) 07-01-34 5.00 1,375,000 1,301,768 Detroit Unrefunded Revenue Bonds 2nd Lien Series 2005A (MBIA) 07-01-30 5.00 270,000 256,735
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(D,E) RATE AMOUNT VALUE(A) WATER & SEWER (CONT.) Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2001 10-01-20 5.00% $1,000,000 $1,012,390 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2006 10-01-27 5.00 390,000 383,764 --------------- Total 4,827,258 - ---------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $34,689,842) $34,091,514 - ----------------------------------------------------------------------------------
MUNICIPAL NOTES (3.1%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(D,E,F) YIELD MATURITY VALUE(A) University of Michigan Refunding Revenue Bonds University of Michigan Hospitals V.R.D.N. Series 1992A 12-01-19 4.00% $1,100,000 $1,100,000 - ---------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $1,100,000) $1,100,000 - ---------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $35,789,842)(i) $35,191,514 ==================================================================================
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 17 RiverSource Michigan Tax-Exempt Fund INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT FEB. 29, 2008
NUMBER OF CONTRACTS NOTIONAL EXPIRATION UNREALIZED CONTRACT DESCRIPTION LONG/(SHORT) MARKET VALUE DATE (DEPRECIATION) - -------------------------------------------------------------------------------------------------- U.S. Treasury Note, 5-year (9) $(1,033,453) March 2008 $(11,973) U.S. Treasury Note, 5-year (11) (1,256,750) June 2008 (18,234) - -------------------------------------------------------------------------------------------------- Total $(30,207) - --------------------------------------------------------------------------------------------------
INTEREST RATE SWAP CONTRACTS OUTSTANDING AT FEB. 29, 2008
FUND NOTIONAL FLOATING PAY/RECEIVE FIXED EXPIRATION PRINCIPAL UNREALIZED UNREALIZED COUNTERPARTY RATE INDEX FLOATING RATE RATE DATE AMOUNT APPRECIATION DEPRECIATION - ------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11% April 2, 2008 $450,000 $-- $(4,758) Markets Data Index as determined on April 2, 2008 - ------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11 April 3, 2008 450,000 -- (4,759) Markets Data Index as determined on April 3, 2008 - ------------------------------------------------------------------------------------------------------------------------- Goldman Sachs 30-year Municipal Market Receive 4.25 April 24, 230,000 33,927 -- Group Data Index as determined 2008 on April 24, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 20, 2008 460,000 -- (10,288) Data Index as determined on May 20, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 21, 2008 460,000 -- (10,288) Data Index as determined on May 21, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 22, 2008 460,000 -- (10,288) Data Index as determined on May 22, 2008 - ------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Market Pay 3.00 June 12, 2008 460,000 3,121 -- Special Data Index AAA Municipal Financing Yields as determined on June 12, 2008 - ------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Market Pay 2.95 June 13, 2008 460,000 2,455 -- Special Data Index AAA Municipal Financing Yields as determined on June 13, 2008 - ------------------------------------------------------------------------------------------------------------------------- Total $39,503 $(40,381) - -------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 18 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (c) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 7.1% of net assets at Feb. 29, 2008. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 29, 2008, the value of securities subject to alternative minimum tax represented 6.7% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(f) Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (g) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (h) At Feb. 29, 2008, investments in securities included securities valued at $52,657 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (i) At Feb. 29, 2008, the cost of securities for federal income tax purposes was approximately $35,790,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $648,000 Unrealized depreciation (1,246,000) - ------------------------------------------------------------------------------ Net unrealized depreciation $(598,000) - ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 19 RiverSource Michigan Tax-Exempt Fund HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- 20 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT PORTFOLIO OF INVESTMENTS RiverSource Ohio Tax-Exempt Fund FEB. 29, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (97.9%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) CITY (4.1%) City of Cleveland Limited General Obligation Refunding Bonds Series 2005 (AMBAC) 10-01-23 5.50% $500,000 $523,500 City of Columbus Unlimited General Obligation Bonds Various Purpose Series 2006A 12-15-20 5.00 500,000 516,490 Township of Anderson Limited General Obligation Bonds Series 2007 12-01-18 5.00 500,000 526,575 --------------- Total 1,566,565 - ---------------------------------------------------------------------------------- COLLEGE (17.2%) Cleveland State University Revenue Bonds Series 2003A (FGIC) 06-01-15 5.00 1,000,000 1,039,800 Cleveland State University Revenue Bonds Series 2004 (FGIC) 06-01-24 5.25 500,000 498,875 Miami University Refunding Revenue Bonds Series 2005 (AMBAC) 09-01-23 4.75 500,000 471,520 Ohio State Higher Educational Facility Commission Unrefunded Revenue Bonds Oberlin Series 1999 10-01-29 5.00 85,000 81,424
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(b,c) rate amount Value(a) COLLEGE (CONT.) State of Ohio Revenue Bonds Case Western Reserve University Project Series 2006 (MBIA) 12-01-21 5.25% $250,000 $259,450 State of Ohio Revenue Bonds Mount Union College Project Series 2006 10-01-31 5.00 500,000 462,190 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2004B 02-01-12 5.00 250,000 265,860 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2005B 05-01-23 5.00 500,000 496,815 University of Akron Revenue Bonds Series 2003A (AMBAC) 01-01-22 5.00 1,000,000 996,970 University of Cincinnati Revenue Bonds Series 2001A (FGIC) 06-01-14 5.50 1,000,000 1,063,320 University of Cincinnati Revenue Bonds Series 2008C (FSA) 06-01-25 5.00 1,000,000 981,790 --------------- Total 6,618,014 - ----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 21 RiverSource Ohio Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(b,c) rate amount Value(a) COUNTY (6.2%) County of Cuyahoga Limited General Obligation Bonds Series 1993 05-15-13 5.60% $395,000 $415,805 Summit County Limited General Obligation Bonds Series 2003 12-01-18 5.25 1,490,000 1,567,465 Warren County Limited General Obligation Bonds Series 1992 12-01-12 6.10 380,000 405,623 --------------- Total 2,388,893 - ---------------------------------------------------------------------------------- ELECTRIC (2.4%) Ohio Municipal Electric Generation Agency Refunding Revenue Bonds Joint Venture 5 Series 2004 (AMBAC) 02-15-24 4.75 750,000 684,623 Puerto Rico Electric Power Authority Revenue Bonds Series 2007TT 07-01-32 5.00 250,000(d) 228,015 --------------- Total 912,638 - ---------------------------------------------------------------------------------- HEALTH CARE - HOSPITAL (12.6%) County of Cuyahoga Refunding Revenue Bonds Series 2003A 01-01-17 6.00 1,000,000(e) 1,105,090 County of Erie Revenue Bonds Firelands Regional Medical Center Series 2002A 08-15-32 5.63 245,000 236,633 County of Franklin Refunding Revenue Bonds OhioHealth Corporation Series 2003C 05-15-24 5.25 1,000,000 971,230
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(b,c) rate amount Value(a) HEALTH CARE - HOSPITAL (CONT.) County of Franklin Refunding Revenue Bonds Trinity Health Credit Series 2005A 06-01-20 5.00% $500,000 $488,590 County of Montgomery Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 750,000 689,633 05-01-32 5.00 500,000 458,630 Miami County Improvement Refunding Revenue Bonds Upper Valley Medical Center Series 2006 05-15-26 5.25 500,000 460,830 Tuscarawas County Revenue Bonds Twin City Hospital Project Series 2007 11-01-37 6.35 500,000 445,590 --------------- Total 4,856,226 - ---------------------------------------------------------------------------------- HOUSING - SINGLE FAMILY (3.6%) Ohio Housing Finance Agency Revenue Bonds Mortgage-backed Securities Program Series 2007G (GNMA/FNMA) A.M.T. 03-01-17 4.75 500,000 500,050 Ohio Housing Finance Agency Revenue Bonds Residential Mortgage-backed Securities Series 2006A (GNMA) A.M.T. 09-01-26 4.75 500,000 451,415 09-01-36 4.90 500,000 435,115 --------------- Total 1,386,580 - ----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 22 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Ohio Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(b,c) rate amount Value(a) LEASE (2.8%) Ohio State Building Authority Refunding Revenue Bonds State Facilities Adult Correctional Series 2001A (FSA) 10-01-14 5.50% $1,000,000 $1,068,960 - ---------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (3.2%) Franklin County Convention Facilities Authority Refunding Revenue Bonds Tax & Lease Anticipation Bond Series 2007 12-01-25 5.00 500,000 485,075 Ohio State Building Authority Revenue Bonds State Facilities Adult Correctional Series 2005A (FSA) 04-01-22 5.00 750,000 753,075 --------------- Total 1,238,150 - ---------------------------------------------------------------------------------- SALES OR USE TAX (2.5%) Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (AMBAC) 07-01-30 5.25 500,000(d) 473,545 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 500,000(d) 471,790 --------------- Total 945,335 - ---------------------------------------------------------------------------------- SCHOOL (17.8%) Brookville Local School District Prerefunded Unlimited General Obligation Bonds Series 2003 (FSA) 12-01-18 5.25 1,000,000 1,093,840 Cincinnati City School District Limited General Obligation Bonds School Improvement Series 2002 (FSA) 06-01-21 5.25 1,000,000 1,022,960
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(b,c) rate amount Value(a) SCHOOL (CONT.) Cincinnati City School District Unlimited General Obligation Refunding Bonds Classroom Construction & Improvement Series 2006 (FGIC) 12-01-25 5.25% $500,000 $503,990 Columbus City School District Prerefunded Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2004 (FSA) 12-01-29 5.25 500,000 547,330 Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003A (FGIC) 12-01-27 5.00 1,250,000 1,183,812 12-01-31 5.00 1,000,000 946,730 Kenston Local School District Unlimited General Obligation Bonds School Improvement Series 2003 (MBIA) 12-01-16 5.00 1,000,000 1,042,100 Port of Greater Cincinnati Development Authority Revenue Bonds Sisters of Mercy Series 2006 10-01-25 5.00 500,000 459,855 --------------- Total 6,800,617 - ---------------------------------------------------------------------------------- SPECIAL DISTRICT - OTHER (1.4%) Puerto Rico Highway & Transportation Authority Prerefunded Revenue Bonds Series 2004J 07-01-43 5.13 500,000(d) 543,440 - ---------------------------------------------------------------------------------- SPECIAL DISTRICT - SPECIAL TAX (1.0%) Puerto Rico Infrastructure Financing Authority Refunding Special Tax Bonds Series 2005C (AMBAC) 07-01-23 5.50 400,000(d) 397,512 - ----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 23 RiverSource Ohio Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(b,c) rate amount Value(a) STATE (13.4%) Commonwealth of Puerto Rico Prerefunded Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25% $110,000(d) $120,315 Commonwealth of Puerto Rico Unrefunded Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 140,000(d) 129,574 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001A 06-15-13 5.00 1,500,000 1,552,140 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001B 09-15-20 5.00 1,000,000 1,011,620 State of Ohio Unlimited General Obligation Bonds Conservation Projects Series 2005A 03-01-20 5.00 500,000 507,955 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2002A 08-01-18 5.38 500,000 526,750 State of Ohio Unlimited General Obligation Bonds Infrastructure Improvement Series 2005A 09-01-21 5.00 500,000 507,670 State of Ohio Unlimited General Obligation Bonds Series 2006D 09-15-16 5.00 750,000 804,825 --------------- Total 5,160,849 - ----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(b,c) rate amount Value(a) TOLL ROAD (0.7%) Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25% $250,000(d) $275,020 - ---------------------------------------------------------------------------------- WATER & SEWER (9.0%) City of Columbus Revenue Bond Series 2008A 06-01-31 4.75 2,380,000 2,185,149 Northeast Regional Sewer District Improvement Revenue Bonds Series 2007 (MBIA) 11-15-25 4.75 750,000 712,853 Ohio State Water Development Authority Refunding Revenue Bonds Series 2003 06-01-15 5.25 500,000 546,795 --------------- Total 3,444,797 - ---------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $39,254,205) $37,603,596 - ----------------------------------------------------------------------------------
MUNICIPAL NOTES (0.8%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(B,C,F) YIELD MATURITY VALUE(A) Ohio State Water Development Authority Refunding Revenue Bonds FirstEnergy Generation Corporation V.R.D.N. Series 2006A (Barclays Bank) 05-15-19 3.65% $300,000 $300,000 - ------------------------------------------------------------------------------------ TOTAL MUNICIPAL NOTES (Cost: $300,000) $300,000 - ------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $39,554,205)(g) $37,903,596 ====================================================================================
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 24 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Ohio Tax-Exempt Fund INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT FEB. 29, 2008
NUMBER OF CONTRACTS NOTIONAL EXPIRATION UNREALIZED CONTRACT DESCRIPTION LONG/(SHORT) MARKET VALUE DATE (DEPRECIATION) - --------------------------------------------------------------------------------------------------- U.S. Treasury Note, 5-year (10) $(1,148,281) March 2008 $(13,303) U.S. Treasury Note, 5-year (12) (1,371,000) June 2008 (19,236) - --------------------------------------------------------------------------------------------------- Total $(32,539) - ---------------------------------------------------------------------------------------------------
INTEREST RATE SWAP CONTRACTS OUTSTANDING AT FEB. 29, 2008
FUND NOTIONAL FLOATING PAY/RECEIVE FIXED EXPIRATION PRINCIPAL UNREALIZED UNREALIZED COUNTERPARTY RATE INDEX FLOATING RATE RATE DATE AMOUNT APPRECIATION DEPRECIATION - ------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11% April 2, 2008 $500,000 $-- $(5,288) Markets Data Index as determined on April 2, 2008 - ------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11 April 3, 2008 500,000 -- (5,288) Markets Data Index as determined on April 3, 2008 - ------------------------------------------------------------------------------------------------------------------------- Goldman Sachs 30-year Municipal Market Receive 4.25 April 24, 260,000 38,353 -- Group Data Index as determined 2008 on April 24, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 20, 2008 500,000 -- (11,183) Data Index as determined on May 20, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 21, 2008 500,000 -- (11,182) Data Index as determined on May 21, 2008 - ------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 22, 2008 500,000 -- (11,182) Data Index as determined on May 22, 2008 - ------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Market Pay 3.00 June 12, 2008 500,000 3,393 -- Special Data Index AAA Municipal Financing Yields as determined on June 12, 2008 - ------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Market Pay 2.95 June 13, 2008 500,000 2,668 -- Special Data Index AAA Municipal Financing Yields as determined on June 13, 2008 - ------------------------------------------------------------------------------------------------------------------------- Total $44,414 $(44,123) - -------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 25 RiverSource Ohio Tax-Exempt Fund NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation. BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 29, 2008, the value of securities subject to alternative minimum tax represented 3.6% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(d) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 6.9% of net assets at Feb. 29, 2008. (e) At Feb. 29, 2008, investments in securities included securities valued at $44,204 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (f) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (g) At Feb. 29, 2008, the cost of securities for federal income tax purposes was approximately $39,554,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $266,000 Unrealized depreciation (1,916,000) - -------------------------------------------------------------------------------- Net unrealized depreciation $(1,650,000) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 26 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Ohio Tax-Exempt Fund HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii)The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 27 FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES FEB. 29, 2008 (UNAUDITED)
RIVERSOURCE RIVERSOURCE RIVERSOURCE MASSACHUSETTS MICHIGAN OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND ASSETS Investments in securities, at value (identified cost $38,386,120, $35,789,842 and $39,554,205) $37,128,919 $35,191,514 $37,903,596 Cash 28,992 62,838 60,443 Capital shares receivable 3,606 1,030 7,938 Accrued interest receivable 404,546 520,576 517,701 Receivable for investment securities sold 2,027 1,014 2,027 Unrealized appreciation on swap transactions, at value 44,535 39,503 44,414 - --------------------------------------------------------------------------------------------- Total assets 37,612,625 35,816,475 38,536,119 - --------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 7,768 7,451 7,170 Capital shares payable 101,599 1,273 8,840 Payable for investment securities purchased 2,004 1,002 2,004 Variation margin payable 23,000 27,545 23,000 Unrealized depreciation on swap contracts 42,781 40,381 44,123 Accrued investment management services fee 424 403 434 Accrued distribution fee 8,305 7,713 8,397 Accrued transfer agency fee 40 46 72 Accrued administrative services fee 72 69 74 Other accrued expenses 32,054 39,980 38,527 - --------------------------------------------------------------------------------------------- Total liabilities 218,047 125,863 132,641 - --------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $37,394,578 $35,690,612 $38,403,478 =============================================================================================
- -------------------------------------------------------------------------------- 28 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) FEB. 29, 2008 (UNAUDITED)
RIVERSOURCE RIVERSOURCE RIVERSOURCE MASSACHUSETTS MICHIGAN OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND REPRESENTED BY Shares of beneficial interest -- $.01 par value $ 74,684 $ 71,395 $ 77,740 Additional paid-in capital 38,532,141 36,327,890 40,145,326 Undistributed (excess of distributions over) net investment income 2,107 1,041 (1) Accumulated net realized gain (loss) 73,632 (80,301) (136,730) Unrealized appreciation (depreciation) on investments (1,287,986) (629,413) (1,682,857) - --------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $37,394,578 $35,690,612 $38,403,478 ============================================================================================= Net assets applicable to outstanding shares: Class A $32,164,118 $33,858,098 $34,637,717 Class B $ 4,714,863 $ 1,076,072 $ 2,851,358 Class C $ 515,597 $ 756,442 $ 914,403 Outstanding shares of beneficial interest: Class A shares 6,423,714 6,773,085 7,011,914 Class B shares 941,640 215,158 577,035 Class C shares 103,025 151,303 185,029 Net asset value per share: Class A(1) $ 5.01 $ 5.00 $ 4.94 Class B $ 5.01 $ 5.00 $ 4.94 Class C $ 5.00 $ 5.00 $ 4.94 - ---------------------------------------------------------------------------------------------
(1) The maximum offering price per share for Class A for RiverSource RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund is $5.26, $5.25 and $5.19, 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 this statement. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 29 STATEMENT OF OPERATIONS SIX MONTHS ENDED FEB. 29, 2008
RIVERSOURCE RIVERSOURCE RIVERSOURCE MASSACHUSETTS MICHIGAN OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND INVESTMENT INCOME Income: Interest $ 1,000,731 $ 869,005 $ 890,051 - ------------------------------------------------------------------------------------------ Expenses: Investment management services fee 89,321 78,159 84,760 Distribution fee Class A 46,950 45,074 46,605 Class B 27,336 5,973 15,531 Class C 2,720 4,364 4,783 Transfer agency fee Class A 14,127 10,961 12,129 Class B 2,194 403 1,081 Class C 216 281 329 Administrative services fees 15,250 13,344 14,471 Interest and fee expense 8,141 4,071 4,071 Compensation of board members 413 367 398 Custodian fees 6,370 6,188 6,006 Printing and postage 8,530 6,760 8,213 Registration fees 18,200 19,720 27,492 Professional fees 11,163 11,117 11,143 Other 729 646 918 - ------------------------------------------------------------------------------------------ Total expenses 251,660 207,428 237,930 Expenses waived/reimbursed by the Investment Manager and its affiliates (49,238) (45,248) (55,633) - ------------------------------------------------------------------------------------------ 202,422 162,180 182,297 Earnings and bank fee credits on cash balances (2,751) (2,532) (1,699) - ------------------------------------------------------------------------------------------ Total net expenses 199,671 159,648 180,598 - ------------------------------------------------------------------------------------------ Investment income (loss) -- net 801,060 709,357 709,453 - ------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions 363,752 47,480 (5,196) Futures contracts (183,443) (169,664) (180,127) Swap transactions 112,315 94,671 94,844 - ------------------------------------------------------------------------------------------ Net realized gain (loss) on investments 292,624 (27,513) (90,479) Net change in unrealized appreciation (depreciation) on investments (1,670,121) (1,113,985) (1,516,035) - ------------------------------------------------------------------------------------------ Net gain (loss) on investments (1,377,497) (1,141,498) (1,606,514) - ------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $ (576,437) $ (432,141) $ (897,061) ==========================================================================================
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 30 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND SIX MONTHS ENDED YEAR ENDED FEB. 29, 2008 AUG. 31, 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 801,060 $ 1,864,854 Net realized gain (loss) on investments 292,624 4,020 Net change in unrealized appreciation (depreciation) on investments (1,670,121) (1,139,757) - --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (576,437) 729,117 - --------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (710,554) (1,625,610) Class B (82,320) (221,146) Class C (8,253) (18,068) Net realized gain Class A -- (802) Class B -- (142) Class C -- (12) - --------------------------------------------------------------------------------------------- Total distributions (801,127) (1,865,780) - --------------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 892,816 4,762,764 Class B shares 82,730 259,730 Class C shares 31,459 38,525 Reinvestment of distributions at net asset value Class A shares 589,965 1,298,193 Class B shares 65,637 165,683 Class C shares 8,359 16,834 Payments for redemptions Class A shares (8,850,577) (13,148,164) Class B shares (1,076,771) (3,522,293) Class C shares (48,259) (296,656) - --------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (8,304,641) (10,425,384) - --------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (9,682,205) (11,562,047) Net assets at beginning of period 47,076,783 58,638,830 - --------------------------------------------------------------------------------------------- Net assets at end of period $37,394,578 $ 47,076,783 ============================================================================================= Undistributed net investment income $ 2,107 $ 2,174 - ---------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 31 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND SIX MONTHS ENDED YEAR ENDED FEB. 29, 2008 AUG. 31, 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 709,357 $ 1,604,380 Net realized gain (loss) on investments (27,513) 99,094 Net change in unrealized appreciation (depreciation) on investments (1,113,985) (824,281) - ------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (432,141) 879,193 - ------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (677,207) (1,507,576) Class B (17,929) (61,512) Class C (13,170) (35,143) Net realized gain Class A (44,960) (993) Class B (1,521) (55) Class C (1,016) (31) - ------------------------------------------------------------------------------------------- Total distributions (755,803) (1,605,310) - ------------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 1,903,917 4,036,211 Class B shares 9,287 40,927 Class C shares 20,553 146,517 Reinvestment of distributions at net asset value Class A shares 592,361 1,198,092 Class B shares 14,513 46,495 Class C shares 12,464 30,151 Payments for redemptions Class A shares (5,100,383) (12,675,720) Class B shares (141,428) (1,475,958) Class C shares (289,444) (537,047) - ------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (2,978,160) (9,190,332) - ------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (4,166,104) (9,916,449) Net assets at beginning of period 39,856,716 49,773,165 - ------------------------------------------------------------------------------------------- Net assets at end of period $35,690,612 $ 39,856,716 =========================================================================================== Undistributed (excess of distributions over) net investment income $ 1,041 $ (10) - -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 32 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE OHIO TAX-EXEMPT FUND SIX MONTHS ENDED YEAR ENDED FEB. 29, 2008 AUG. 31, 2007 OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 709,453 $ 1,537,451 Net realized gain (loss) on investments (90,479) 110,272 Net change in unrealized appreciation (depreciation) on investments (1,516,035) (976,243) - ----------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (897,061) 671,480 - ----------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (653,418) (1,383,231) Class B (42,829) (120,853) Class C (13,194) (33,380) Net realized gain Class A (58,417) -- Class B (4,938) -- Class C (1,507) -- - ----------------------------------------------------------------------------------------- Total distributions (774,303) (1,537,464) - ----------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 1,907,052 3,545,203 Class B shares 33,312 169,312 Class C shares 39,392 74,398 Reinvestment of distributions at net asset value Class A shares 565,661 1,046,890 Class B shares 37,066 95,840 Class C shares 13,958 30,637 Payments for redemptions Class A shares (4,258,163) (8,138,846) Class B shares (274,188) (1,992,929) Class C shares (45,400) (633,047) - ----------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (1,981,310) (5,802,542) - ----------------------------------------------------------------------------------------- Total increase (decrease) in net assets (3,652,674) (6,668,526) Net assets at beginning of period 42,056,152 48,724,678 - ----------------------------------------------------------------------------------------- Net assets at end of period $38,403,478 $42,056,152 ========================================================================================= Excess of distributions over net investment income $ (1) $ (13) - -----------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 33 NOTES TO FINANCIAL STATEMENTS (Unaudited as to Feb. 29, 2008) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource Special Tax-Exempt Series Trust was organized as a Massachusetts business trust. RiverSource Special Tax-Exempt Series Trust is a "series fund" that is currently composed of individual state tax-exempt funds, including RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund (the Fund or 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. 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 - -------------------------------------------------------------------------------- 34 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT the last quoted sale price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. The procedures adopted by the Board of Trustees (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. 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 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. During the six months ended Feb. 29, 2008, the Funds had no outstanding options contracts. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 35 FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. INTEREST RATE SWAP TRANSACTIONS The Funds may enter into interest rate swap agreements to produce incremental earnings or to gain exposure to or protect themselves from market changes. Interest rate swaps are agreements between two parties that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future, based on a predetermined, specified notional amount. Certain interest rate swaps are considered forward-starting; whereby the accrual for the exchange of cash flows does not begin until a specified date in the future (the "effective date"). The net cash flow for a standard interest rate swap transaction is generally the difference between a floating market interest rate versus a fixed interest rate. The Funds may employ interest rate swaps to synthetically add or subtract principal exposure to the municipal market. Interest rate swaps are valued daily and unrealized appreciation (depreciation) is recorded. Certain interest rate swaps may accrue periodic interest on a daily basis as a component of unrealized appreciation (depreciation); the Funds will realize a gain or loss upon the payment or receipt of accrued interest. The Funds will realize a gain or a loss when the interest rate swap is terminated. Risks of entering into an interest rate swap include a lack of correlation between swaps and the portfolio of municipal bonds the swaps are designed to hedge or replicate. A lack of correlation may cause the interest rate swap to experience adverse changes in value relative to expectations. In addition, interest rate swaps are subject to the risk of default of a counterparty, and the risk of adverse movements in market interest rates relative to the interest rate swap positions entered. INVERSE FLOATER PROGRAM TRANSACTIONS Each Fund may enter into transactions in which it transfers to trusts fixed rate municipal bonds in exchange for cash and residual interests in the trusts' assets - -------------------------------------------------------------------------------- 36 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 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 "Statement of Assets and Liabilities." The notes issued by the trusts have interest rates that are multi-modal, which means that they can be reset to a new or different mode at the reset date (e.g., mode can be daily, weekly, monthly, or a fixed specific date) at the discretion of the holder of the inverse floating rate security. The floating rate note holders have the option to tender their notes to the trusts for redemption at par at each reset date. The bonds are held by the trusts serve as collateral for the short-term floating rate notes outstanding. Contractual maturities and interest rates of the municipal bonds held in trust at Feb. 29, 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 Feb. 29, 2008, there were no short-term floating rate notes outstanding. 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. The Funds have adopted Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," which is effective for fiscal periods beginning after Dec. 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 37 position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. 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 deferred losses on certain futures contracts and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Funds. RECENT ACCOUNTING PRONOUNCEMENT 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 Statement 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 the Fund's financial statements. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of each Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES Under an Investment Management Services Agreement, RiverSource Investments, LLC (the Investment Manager) determines which securities will be purchased, held or sold. The management fee is a percentage of each Fund's average daily net assets that declines from 0.41% to 0.25% annually as each Fund's assets increase. For the six months ended Feb. 29, 2008, the management fee for each of the Funds was 0.41% of each Fund's average daily net assets. - -------------------------------------------------------------------------------- 38 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 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. For the six months ended Feb. 29, 2008, the fee for each of the Funds was 0.07% of each Fund's average daily net assets. Other expenses are for, among other things, certain expenses of the Funds or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Funds and the Board. For the six months ended Feb. 29, 2008, other expenses paid to this company are as follows:
FUND OTHER EXPENSES - --------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund................ $118 RiverSource Michigan Tax-Exempt Fund..................... 107 RiverSource Ohio Tax-Exempt Fund......................... 154
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. Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. Each Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: - - Class A $20.50 - - Class B $21.50 - - Class C $21.00 The Transfer Agent charges an annual fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the Statements of Operations. Each Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise 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 - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 39 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. Sales charges received by the Distributor for distributing the Funds' shares for the six months ended Feb. 29, 2008 are as follows:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund..... $17,795 $3,661 $27 RiverSource Michigan Tax-Exempt Fund.......... 9,410 110 37 RiverSource Ohio Tax-Exempt Fund.............. 9,293 456 55
For the six months ended Feb. 29, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that the Fund's net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs) are as follows:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund..... 0.79% 1.54% 1.54% RiverSource Michigan Tax-Exempt Fund.......... 0.79 1.55 1.54 RiverSource Ohio Tax-Exempt Fund.............. 0.79 1.54 1.54
Of these waived/reimbursed fees and expenses, the transfer agency fees waived (noted by share class) and management fees waived (noted by Fund level) for the six months ended Feb. 29, 2008 are as follows:
FUND AMOUNT - ---------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund Class A.................................................. $4,844 Class B.................................................. 881 Class C.................................................. 85 The management fees waived at the Fund level were $43,428. RiverSource Michigan Tax-Exempt Fund Class A.................................................. 5,646 Class B.................................................. 187 Class C.................................................. 159 The management fees waived at the Fund level were $39,256. RiverSource Ohio Tax-Exempt Fund Class A.................................................. 2,911 Class B.................................................. 335 Class C.................................................. 99 The management fees waived at the Fund level were $52,288.
In addition, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Aug. 31, 2008, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain floater programs), will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C of the Fund's average daily net assets for Massachusetts Tax-Exempt - -------------------------------------------------------------------------------- 40 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT Fund and Ohio Tax-Exempt Fund, and will not exceed 0.79% for Class A, 1.55% for Class B and 1.54% for Class C of the Fund's average daily net assets for Michigan Tax-Exempt Fund, unless sooner terminated at the discretion of the Board. During the six months ended Feb. 29, 2008, the Funds' custodian and transfer agency fees were reduced as a result of earnings and bank fee credits from overnight cash balances as follows:
FUND AMOUNT - ---------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund................... $2,751 RiverSource Michigan Tax-Exempt Fund........................ 2,532 RiverSource Ohio Tax-Exempt Fund............................ 1,699
3. SECURITIES TRANSACTIONS For the six months ended Feb. 29, 2008, cost of purchases and proceeds from sales (other than short-term obligations) aggregated for each Fund are as follows:
FUND PURCHASES PROCEEDS - ------------------------------------------------------------------------------ RiverSource Massachusetts Tax-Exempt Fund.......... $2,261,185 $10,897,175 RiverSource Michigan Tax-Exempt Fund............... 987,878 5,147,257 RiverSource Ohio Tax-Exempt Fund................... 5,501,469 6,520,570
Realized gains and losses are determined on an identified cost basis. 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the periods indicated are as follows:
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 29, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - --------------------------------------------------------------------------------------------- Class A 169,601 112,067 (1,678,073) (1,396,405) Class B 15,645 12,467 (203,350) (175,238) Class C 5,960 1,589 (9,108) (1,559) - ---------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - --------------------------------------------------------------------------------------------- Class A 899,808 244,790 (2,478,702) (1,334,104) Class B 48,663 31,222 (666,073) (586,188) Class C 7,253 3,176 (55,756) (45,327) - ---------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 41
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 29, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - -------------------------------------------------------------------------------------------------- Class A 362,336 113,698 (978,061) (502,027) Class B 1,784 2,784 (26,800) (22,232) Class C 3,923 2,392 (55,610) (49,295) - --------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - -------------------------------------------------------------------------------------------------- Class A 769,243 228,856 (2,421,079) (1,422,980) Class B 7,809 8,860 (283,448) (266,779) Class C 27,882 5,756 (102,424) (68,786) - --------------------------------------------------------------------------------------------------
RIVERSOURCE OHIO TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 29, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - -------------------------------------------------------------------------------------------------- Class A 366,901 108,852 (817,120) (341,367) Class B 6,339 7,132 (52,580) (39,109) Class C 7,561 2,685 (8,706) 1,540 - --------------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - -------------------------------------------------------------------------------------------------- Class A 678,716 199,794 (1,553,012) (674,502) Class B 32,090 18,264 (382,685) (332,331) Class C 14,188 5,838 (120,483) (100,457) - --------------------------------------------------------------------------------------------------
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 the Funds' and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million, collectively. 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 - -------------------------------------------------------------------------------- 42 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 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 six months ended Feb. 29, 2008. 6. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, RiverSource Massachusetts Tax-Exempt Fund had a capital loss carry-over of $32,687 at Aug. 31, 2007, that if not offset by capital gains will expire in 2014. Because the measurement periods for a regulated investment company's income are different for excise tax purposes verses income tax purposes special rules are in place to protect the amount of earnings and profits needed to support excise tax distributions. As a result, RiverSource Massachusetts Tax-Exempt Fund is permitted to treat net capital losses realized between Nov. 1, 2006, and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At Aug. 31, 2007, RiverSource Massachusetts Tax-Exempt Fund had a post-October loss of $88,364 that is treated as occurring on Sept. 1, 2007. It is unlikely the Board will authorize a distribution of any net realized capital gains for RiverSource Massachusetts Tax-Exempt Fund until the respective capital loss carry-over has been offset or expires. 7. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to defendants' motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Defendants moved for summary judgment in April 2007. Summary judgment was granted in the defendants' favor on July 9, 2007. The plaintiffs filed a notice of appeal with the Eighth Circuit Court of Appeals on August 8, 2007. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 43 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 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. - -------------------------------------------------------------------------------- 44 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 8. SUBSEQUENT EVENT At a shareholder meeting on Jan. 29, 2008, shareholders approved the mergers of RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund into RiverSource Tax-Exempt High Income Fund. As of the close of business on March 14, 2008, the Funds were merged into RiverSource Tax-Exempt High Income Fund. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 45 9. FINANCIAL HIGHLIGHTS RiverSource Massachusetts Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED YEAR PERIOD FEB. 29, ENDED ENDED 2008 AUG. 31, AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2007 2006(B) 2006 2005 2004 Net asset value, beginning of period $5.21 $5.33 $5.22 $5.45 $5.26 $5.51 - ---------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(c) .19(c) .03 .18 .17 .18 Net gains (losses) (both realized and unrealized) (.20) (.12) .11 (.20) .22 (.19) - ---------------------------------------------------------------------------------------------------------------- Total from investment operations (.10) .07 .14 (.02) .39 (.01) - ---------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.19) (.03) (.18) (.17) (.18) Distributions from realized gains -- -- -- (.03) (.03) (.06) - ---------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.19) (.03) (.21) (.20) (.24) - ---------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.01 $5.21 $5.33 $5.22 $5.45 $5.26 - ---------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $32 $41 $49 $48 $56 $59 - ---------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.06%(f) 1.06% 1.08%(f) .97% .94% .93% - ---------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) .83%(f) .83% .82%(f) .87% .92% .90% - ---------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense(d) 1.02%(f) 1.02% 1.05%(f) 1.03% .98% .95% - ---------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) .79%(f) .79% .79%(f) .81% .88% .88% - ---------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.79%(f) 3.59% 3.52%(f) 3.38% 3.17% 3.35% - ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 5% 24% 5% 17% 9% 14% - ---------------------------------------------------------------------------------------------------------------- Total return(i) (2.01%)(j) 1.33% 2.72%(j) (.29%) 7.42% (.24%) - ----------------------------------------------------------------------------------------------------------------
(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 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 46 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED YEAR PERIOD FEB. 29, ENDED ENDED 2008 AUG. 31, AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2007 2006(B) 2006 2005 2004 Net asset value, beginning of period $5.21 $5.33 $5.22 $5.45 $5.26 $5.51 - -------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(c) .15(c) .03 .14 .13 .14 Net gains (losses) (both realized and unrealized) (.20) (.12) .10 (.20) .22 (.19) - -------------------------------------------------------------------------------------------------------------- Total from investment operations (.12) .03 .13 (.06) .35 (.05) - -------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.15) (.02) (.14) (.13) (.14) Distributions from realized gains -- -- -- (.03) (.03) (.06) - -------------------------------------------------------------------------------------------------------------- Total distributions (.08) (.15) (.02) (.17) (.16) (.20) - -------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.01 $5.21 $5.33 $5.22 $5.45 $5.26 - -------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $5 $6 $9 $12 $18 $21 - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.81%(f) 1.81% 1.82%(f) 1.78% 1.73% 1.71% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.58%(f) 1.58% 1.58%(f) 1.64% 1.68% 1.66% - -------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense(d) 1.77%(f) 1.77% 1.79%(f) 1.72% 1.69% 1.69% - -------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54%(f) 1.54% 1.55%(f) 1.58% 1.64% 1.64% - -------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.04%(f) 2.83% 2.72%(f) 2.61% 2.41% 2.59% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 5% 24% 5% 17% 9% 14% - -------------------------------------------------------------------------------------------------------------- Total return(i) (2.38%)(j) .57% 2.58%(j) (1.05%) 6.61% (.99%) - --------------------------------------------------------------------------------------------------------------
(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 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 47 RiverSource Massachusetts Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 (UNAUDITED) 2004 Net asset value, beginning of period $5.20 $5.32 $5.21 $5.44 $5.26 $5.51 - ------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(c) .15(c) .03 .14 .13 .14 Net gains (losses) (both realized and unrealized) (.20) (.12) .11 (.20) .21 (.19) - ------------------------------------------------------------------------------------------------------------ Total from investment operations (.12) .03 .14 (.06) .34 (.05) - ------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.15) (.03) (.14) (.13) (.14) Distributions from realized gains -- -- -- (.03) (.03) (.06) - ------------------------------------------------------------------------------------------------------------ Total distributions (.08) (.15) (.03) (.17) (.16) (.20) - ------------------------------------------------------------------------------------------------------------ Net asset value, end of period $5.00 $5.20 $5.32 $5.21 $5.44 $5.26 - ------------------------------------------------------------------------------------------------------------ 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) 1.81%(f) 1.81% 1.84%(f) 1.79% 1.74% 1.71% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.58%(f) 1.58% 1.58%(f) 1.64% 1.68% 1.66% - ------------------------------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense(d) 1.77%(f) 1.78% 1.81%(f) 1.73% 1.70% 1.69% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54%(f) 1.54% 1.55%(f) 1.58% 1.64% 1.64% - ------------------------------------------------------------------------------------------------------------ Net investment income (loss) 3.00%(f) 2.83% 2.76%(f) 2.62% 2.41% 2.58% - ------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 5% 24% 5% 17% 9% 14% - ------------------------------------------------------------------------------------------------------------ Total return(i) (2.38%)(j) .56% 2.59%(j) (1.05%) 6.41% (.97%) - ------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share 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 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 48 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 (UNAUDITED) 2004 Net asset value, beginning of period $5.17 $5.25 $5.15 $5.35 $5.21 $5.47 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10(c) .19(c) .03 .18 .18 .19 Net gains (losses) (both realized and unrealized) (.16) (.08) .10 (.16) .17 (.18) - ------------------------------------------------------------------------------------------------------------- Total from investment operations (.06) .11 .13 .02 .35 .01 - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.19) (.03) (.18) (.18) (.19) Distributions from realized gains (.01) -- -- (.04) (.03) (.08) - ------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.19) (.03) (.22) (.21) (.27) - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.00 $5.17 $5.25 $5.15 $5.35 $5.21 - ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $34 $38 $46 $45 $53 $56 - ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.05%(f) 1.08% 1.11%(f) .98% .96% .95% - ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) .81%(f) .81% .81%(f) .81% .88% .89% - ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.03%(f) 1.06% 1.09%(f) .98% .96% .94% - ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) .79%(f) .79% .79%(f) .81% .88% .88% - ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.77%(f) 3.58% 3.44%(f) 3.38% 3.45% 3.55% - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 3% 20% 6% 16% 9% 32% - ------------------------------------------------------------------------------------------------------------- Total return(i) (1.33%)(j) 2.07% 2.54%(j) .40% 6.80% .19% - -------------------------------------------------------------------------------------------------------------
(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 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 49 RiverSource Michigan Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 (UNAUDITED) 2004 Net asset value, beginning of period $5.17 $5.26 $5.16 $5.35 $5.21 $5.47 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(c) .15(c) .02 .14 .14 .15 Net gains (losses) (both realized and unrealized) (.16) (.09) .10 (.15) .17 (.18) - ------------------------------------------------------------------------------------------------------------- Total from investment operations (.08) .06 .12 (.01) .31 (.03) - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.15) (.02) (.14) (.14) (.15) Distributions from realized gains (.01) -- -- (.04) (.03) (.08) - ------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.15) (.02) (.18) (.17) (.23) - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.00 $5.17 $5.26 $5.16 $5.35 $5.21 - ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $3 $3 $5 $7 - ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.81%(f) 1.81% 1.85%(f) 1.74% 1.71% 1.71% - ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.57%(f) 1.57% 1.57%(f) 1.58% 1.64% 1.64% - ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.79%(f) 1.79% 1.83%(f) 1.74% 1.71% 1.70% - ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.55%(f) 1.55% 1.55%(f) 1.58% 1.64% 1.63% - ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.03%(f) 2.80% 2.65%(f) 2.61% 2.69% 2.79% - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 3% 20% 6% 16% 9% 32% - ------------------------------------------------------------------------------------------------------------- Total return(i) (1.70%)(j) 1.10% 2.39%(j) (.17%) 5.99% (.56%) - -------------------------------------------------------------------------------------------------------------
(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 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 50 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 (UNAUDITED) 2004 Net asset value, beginning of period $5.17 $5.26 $5.15 $5.35 $5.21 $5.47 - ------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08(c) .15(c) .02 .14 .14 .15 Net gains (losses) (both realized and unrealized) (.16) (.09) .11 (.16) .17 (.18) - ------------------------------------------------------------------------------------------------------------- Total from investment operations (.08) .06 .13 (.02) .31 (.03) - ------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.15) (.02) (.14) (.14) (.15) Distributions from realized gains (.01) -- -- (.04) (.03) (.08) - ------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.15) (.02) (.18) (.17) (.23) - ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.00 $5.17 $5.26 $5.15 $5.35 $5.21 - ------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 $1 $2 $2 - ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.80%(f) 1.83% 1.86%(f) 1.74% 1.72% 1.71% - ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.56%(f) 1.57% 1.57%(f) 1.57% 1.64% 1.65% - ------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) 1.78%(f) 1.81% 1.84%(f) 1.74% 1.72% 1.70% - ------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54%(f) 1.55% 1.55%(f) 1.57% 1.64% 1.64% - ------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.03%(f) 2.82% 2.67%(f) 2.61% 2.70% 2.80% - ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 3% 20% 6% 16% 9% 32% - ------------------------------------------------------------------------------------------------------------- Total return(i) (1.70%)(j) 1.11% 2.59%(j) (.36%) 5.99% (.57%) - -------------------------------------------------------------------------------------------------------------
(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 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 51 RiverSource Ohio Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 (UNAUDITED) 2004 Net asset value, beginning of period $5.16 $5.26 $5.15 $5.35 $5.16 $5.43 - ------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09(c) .18(c) .03 .17 .16 .17 Net gains (losses) (both realized and unrealized) (.21) (.10) .11 (.19) .19 (.20) - ------------------------------------------------------------------------------------------------------------ Total from investment operations (.12) .08 .14 (.02) .35 (.03) - ------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.18) (.03) (.18) (.16) (.17) Distributions from realized gains (.01) -- -- -- -- (.07) - ------------------------------------------------------------------------------------------------------------ Total distributions (.10) (.18) (.03) (.18) (.16) (.24) - ------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.94 $5.16 $5.26 $5.15 $5.35 $5.16 - ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $35 $38 $42 $42 $51 $56 - ------------------------------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.08%(f) 1.07% 1.12%(f) .99% .96% .97% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) .81%(f) .81% .81%(f) .81% .89% .90% - ------------------------------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense(d) 1.06%(f) 1.05% 1.10%(f) .99% .95% .95% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) .79%(f) .79% .79%(f) .81% .88% .88% - ------------------------------------------------------------------------------------------------------------ Net investment income (loss) 3.51%(f) 3.46% 3.45%(f) 3.31% 3.07% 3.13% - ------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 14% 27% 7% 18% 33% 17% - ------------------------------------------------------------------------------------------------------------ Total return(i) (2.42%)(j) 1.55% 2.73%(j) (.41%) 6.90% (.67%) - ------------------------------------------------------------------------------------------------------------
(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 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 52 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Ohio Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 (UNAUDITED) 2004 Net asset value, beginning of period $5.16 $5.26 $5.15 $5.35 $5.16 $5.43 - ------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(c) .14(c) .02 .13 .12 .13 Net gains (losses) (both realized and unrealized) (.21) (.10) .11 (.19) .19 (.20) - ------------------------------------------------------------------------------------------------------------ Total from investment operations (.14) .04 .13 (.06) .31 (.07) - ------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.14) (.02) (.14) (.12) (.13) Distributions from realized gains (.01) -- -- -- -- (.07) - ------------------------------------------------------------------------------------------------------------ Total distributions (.08) (.14) (.02) (.14) (.12) (.20) - ------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.94 $5.16 $5.26 $5.15 $5.35 $5.16 - ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $3 $3 $5 $5 $8 $10 - ------------------------------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.83%(f) 1.81% 1.87%(f) 1.74% 1.71% 1.73% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.56%(f) 1.57% 1.57%(f) 1.58% 1.65% 1.65% - ------------------------------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense(d) 1.81%(f) 1.79% 1.85%(f) 1.74% 1.70% 1.71% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54%(f) 1.55% 1.55%(f) 1.58% 1.64% 1.63% - ------------------------------------------------------------------------------------------------------------ Net investment income (loss) 2.77%(f) 2.69% 2.67%(f) 2.54% 2.31% 2.38% - ------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 14% 27% 7% 18% 33% 17% - ------------------------------------------------------------------------------------------------------------ Total return(i) (2.78%)(j) .78% 2.60%(j) (1.17%) 6.10% (1.43%) - ------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share 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 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 53 RiverSource Ohio Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 (UNAUDITED) 2004 Net asset value, beginning of period $5.16 $5.26 $5.16 $5.35 $5.16 $5.43 - ------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07(c) .14(c) .02 .13 .12 .13 Net gains (losses) (both realized and unrealized) (.21) (.10) .10 (.18) .19 (.20) - ------------------------------------------------------------------------------------------------------------ Total from investment operations (.14) .04 .12 (.05) .31 (.07) - ------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.14) (.02) (.14) (.12) (.13) Distributions from realized gains (.01) -- -- -- -- (.07) - ------------------------------------------------------------------------------------------------------------ Total distributions (.08) (.14) (.02) (.14) (.12) (.20) - ------------------------------------------------------------------------------------------------------------ Net asset value, end of period $4.94 $5.16 $5.26 $5.16 $5.35 $5.16 - ------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $1 $1 $1 $2 $2 $2 - ------------------------------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.83%(f) 1.82% 1.88%(f) 1.75% 1.72% 1.73% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) 1.56%(f) 1.57% 1.57%(f) 1.58% 1.65% 1.65% - ------------------------------------------------------------------------------------------------------------ Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense(d) 1.81%(f) 1.79% 1.86%(f) 1.75% 1.71% 1.71% - ------------------------------------------------------------------------------------------------------------ Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) 1.54%(f) 1.55% 1.55%(f) 1.58% 1.64% 1.63% - ------------------------------------------------------------------------------------------------------------ Net investment income (loss) 2.76%(f) 2.69% 2.69%(f) 2.55% 2.31% 2.38% - ------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 14% 27% 7% 18% 33% 17% - ------------------------------------------------------------------------------------------------------------ Total return(i) (2.78%)(j) .77% 2.40%(j) (.98%) 6.10% (1.44%) - ------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 54 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT PROXY VOTING The policy of the Board is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31 for the most recent 12-month period ending June 30 of that year, and is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND RIVERSOURCE MICHIGAN TAX-EXEMPT FUND RIVERSOURCE OHIO TAX-EXEMPT FUND JOINT SPECIAL MEETING OF SHAREHOLDERS HELD ON JAN. 29, 2008 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a Fund. To approve an Agreement and Plan of Reorganization between the Fund and RiverSource Tax-Exempt High Income Fund.
DOLLARS VOTED DOLLARS VOTED BROKER FUND "FOR" "AGAINST" ABSTENTIONS NON-VOTES - -------------------------------------------------------------------------------------- Massachusetts Tax-Exempt Fund ..................... 23,599,377.540 1,395,270.414 1,358,315.377 0.000 Michigan Tax-Exempt Fund.. 20,362,059.341 1,517,392.277 1,288,272.984 0.000 Ohio Tax-Exempt Fund...... 22,567,460.081 2,713,490.029 1,287,647.380 0.000 - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 55 Semiannual Report (RIVERSOURCE INVESTMENTS LOGO) RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND RIVERSOURCE MINNESOTA TAX-EXEMPT FUND RIVERSOURCE NEW YORK TAX-EXEMPT FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED FEBRUARY 29, 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. (SINGLE STRATEGY FUNDS ICON) TABLE OF CONTENTS Fund Snapshots...................... 2 RiverSource California Tax-Exempt Fund........................... 2 RiverSource Minnesota Tax-Exempt Fund .......................... 4 RiverSource New York Tax-Exempt Fund........................... 6 Performance Summary................. 8 RiverSource California Tax-Exempt Fund........................... 8 RiverSource Minnesota Tax-Exempt Fund .......................... 10 RiverSource New York Tax-Exempt Fund........................... 12 Questions & Answers with Portfolio Management........ 14 Fund Expenses Examples.............. 20 Portfolio of Investments............ 24 RiverSource California Tax-Exempt Fund........................... 24 RiverSource Minnesota Tax-Exempt Fund .......................... 33 RiverSource New York Tax-Exempt Fund........................... 43 Financial Statements................ 51 Notes to Financial Statements....... 57 Proxy Voting........................ 78 Results of Meeting of Shareholders..................... 79
(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 SEMIANNUAL REPORT 1 FUND SNAPSHOT AT FEB. 29, 2008 (UNAUDITED) RiverSource California Tax-Exempt Fund FUND OBJECTIVE For California investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA bonds 40.6% AA bonds 13.4% A bonds 30.9% BBB bonds 10.4% Non-investment grade bonds 2.5% Non-rated bonds 2.2%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 6.3% of the bond portfolio assets were determined through internal analysis. - -------------------------------------------------------------------------------- 2 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT FUND SNAPSHOT AT FEB. 29, 2008 (UNAUDITED) RiverSource California Tax-Exempt Fund STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 20
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A ICALX 08/18/86 Class B ACABX 03/20/95 Class C RCTCX 06/26/00 Total net assets $165.2 million Number of holdings 101 Effective maturity(1) 14 years Effective duration(2) 7.6 years Weighted average bond rating(3) AA-
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the 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 usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 3 FUND SNAPSHOT AT FEB. 29, 2008 (UNAUDITED) RiverSource Minnesota Tax-Exempt Fund FUND OBJECTIVE For Minnesota investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA bonds 50.9% AA bonds 20.3% A bonds 14.8% BBB bonds 8.9% Non-investment grade bonds 5.1%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 7.4% of the bond portfolio assets were determined through internal analysis. - -------------------------------------------------------------------------------- 4 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT FUND SNAPSHOT AT FEB. 29, 2008 (UNAUDITED) RiverSource Minnesota Tax-Exempt Fund STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 20
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A IMNTX 08/18/86 Class B IDSMX 03/20/95 Class C RMTCX 06/26/00 Total net assets $290.0 million Number of holdings 126 Effective maturity(1) 11.6 years Effective duration(2) 7.3 years Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the 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 usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 5 FUND SNAPSHOT AT FEB. 29, 2008 (UNAUDITED) RiverSource New York Tax-Exempt Fund FUND OBJECTIVE For New York investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets (PIE CHART) AAA bonds 42.3% AA bonds 33.9% A bonds 6.4% BBB bonds 11.1% Non-investment grade bonds 6.3%
Bond ratings apply to the number of underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.5% of the bond portfolio assets were determined through internal analysis. - -------------------------------------------------------------------------------- 6 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT FUND SNAPSHOT AT FEB. 29, 2008 (UNAUDITED) RiverSource New York Tax-Exempt Fund STYLE MATRIX
DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW
Shading within the style matrix indicates areas in which the Fund generally invests. The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Catherine Stienstra* 20
* The Fund is managed by a team of portfolio managers led by Catherine Stienstra. FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A INYKX 08/18/86 Class B -- 03/20/95 Class C RNTCX 06/26/00 Total net assets $56.1 million Number of holdings 73 Effective maturity(1) 14.5 years Effective duration(2) 8.0 years Weighted average bond rating(3) AA-
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the 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 usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 7 PERFORMANCE SUMMARY RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 29, 2008 (BAR CHART) RiverSource California Tax-Exempt Fund Class A (excluding sales charges) -2.78% Lehman Brothers California 2 Plus Year Municipal Bond Index(1) (unmanaged) -1.54% Lehman Brothers Municipal Bond Index(2) (unmanaged) -0.60% Lipper California Municipal Debt Funds Index(3) -3.09%
The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (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. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 0.88% 0.80% Class B 1.63% 1.55% Class C 1.63% 1.55%
(a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.01 of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. - -------------------------------------------------------------------------------- 8 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT PERFORMANCE SUMMARY RiverSource California Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT FEB. 29, 2008 SINCE WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) -2.78% -4.25% +1.40% +2.57% +3.68% +5.42% Class B (inception 3/20/95) -3.13% -4.97% +0.64% +1.81% +2.90% +3.65% Class C (inception 6/26/00) -3.12% -4.95% +0.64% +1.81% N/A +3.35% WITH SALES CHARGE Class A (inception 8/18/86) -7.38% -8.80% -0.23% +1.56% +3.15% +5.17% Class B (inception 3/20/95) -7.86% -9.54% -0.58% +1.47% +2.90% +3.65% Class C (inception 6/26/00) -4.07% -5.86% +0.64% +1.81% N/A +3.35%
AT MARCH 31, 2008 SINCE WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) -1.06% -1.04% +2.64% +3.21% +3.99% +5.55% Class B (inception 3/20/95) -1.63% -1.79% +1.87% +2.39% +3.18% +3.85% Class C (inception 6/26/00) -1.62% -1.78% +1.87% +2.39% N/A +3.68% WITH SALES CHARGE Class A (inception 8/18/86) -5.70% -5.77% +0.98% +2.22% +3.45% +5.30% Class B (inception 3/20/95) -6.43% -6.51% +0.64% +2.05% +3.18% +3.85% Class C (inception 6/26/00) -2.58% -2.73% +1.87% +2.39% N/A +3.68%
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. * Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 9 PERFORMANCE SUMMARY RIVERSOURCE MINNESOTA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 29, 2008 (BAR CHART) RiverSource Minnesota Tax-Exempt Fund Class A (excluding sales charges) -1.57% Lehman Brothers Municipal Bond Index (1) (unmanaged) +0.24% Lehman Brothers Municipal Bond Index (2) (unmanaged) -0.60% Lipper Minnesota Municipal Debt Funds Index (3) -1.04%
The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (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. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.06% 1.00% Class B 1.81% 1.75% Class C 1.82% 1.75%
(a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.20% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. - -------------------------------------------------------------------------------- 10 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT PERFORMANCE SUMMARY RiverSource Minnesota Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT FEB. 29, 2008 SINCE WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) -1.57% -2.71% +1.46% +2.37% +3.67% +5.53% Class B (inception 3/20/95) -2.13% -3.44% +0.70% +1.60% +2.89% +3.68% Class C (inception 6/26/00) -2.13% -3.45% +0.70% +1.60% N/A +3.37% WITH SALES CHARGE Class A (inception 8/18/86) -6.31% -7.26% -0.14% +1.39% +3.14% +5.28% Class B (inception 3/20/95) -6.94% -8.12% -0.54% +1.25% +2.89% +3.68% Class C (inception 6/26/00) -3.09% -4.38% +0.70% +1.60% N/A +3.37%
AT MARCH 31, 2008 SINCE WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +0.09% +0.64% +2.75% +3.05% +3.97% +5.66% Class B (inception 3/20/95) -0.29% -0.12% +1.97% +2.28% +3.19% +3.90% Class C (inception 6/26/00) -0.30% -0.12% +1.97% +2.28% N/A +3.74% WITH SALES CHARGE Class A (inception 8/18/86) -4.68% -4.09% +1.11% +2.07% +3.44% +5.41% Class B (inception 3/20/95) -5.20% -4.96% +0.72% +1.93% +3.19% +3.90% Class C (inception 6/26/00) -1.28% -1.09% +1.97% +2.28% N/A +3.74%
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. * Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 11 PERFORMANCE SUMMARY RIVERSOURCE NEW YORK TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 29, 2008 (BAR CHART) RiverSource New York Tax-Exempt Fund Class A (excluding sales charges) -2.36% Lehman Brothers New York 4 Plus Year Municipal Bond Index(1) (unmanaged) -0.98% Lehman Brothers Municipal Bond Index(2) (unmanaged) -0.60% Lipper New York Municipal Debt Funds Index(3) -2.01%
The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (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. ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS)
TOTAL NET EXPENSES(A) Class A 1.18% 1.00% Class B 1.93% 1.75% Class C 1.93% 1.75%
(a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2008, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net fund expenses (excluding 0.21% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions. - -------------------------------------------------------------------------------- 12 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT PERFORMANCE SUMMARY RiverSource New York Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS
AT FEB. 29, 2008 SINCE WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) -2.36% -3.37% +1.32% +2.19% +3.59% +5.30% Class B (inception 3/20/95) -2.72% -4.10% +0.56% +1.42% +2.82% +3.53% Class C (inception 6/26/00) -2.53% -4.10% +0.56% +1.42% N/A +3.36% WITH SALES CHARGE Class A (inception 8/18/86) -7.07% -7.91% -0.33% +1.22% +3.07% +5.05% Class B (inception 3/20/95) -7.50% -8.74% -0.67% +1.08% +2.82% +3.53% Class C (inception 6/26/00) -3.48% -5.03% +0.56% +1.42% N/A +3.36%
AT MARCH 31, 2008 SINCE WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION WITHOUT SALES CHARGE 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) -0.43% +0.33% +2.66% +2.96% +3.93% +5.44% Class B (inception 3/20/95) -0.81% -0.43% +1.89% +2.18% +3.14% +3.76% Class C (inception 6/26/00) -0.80% -0.43% +1.89% +2.18% N/A +3.75% WITH SALES CHARGE Class A (inception 8/18/86) -5.19% -4.42% +1.04% +1.97% +3.39% +5.19% Class B (inception 3/20/95) -5.67% -5.24% +0.65% +1.84% +3.14% +3.76% Class C (inception 6/26/00) -1.78% -1.39% +1.89% +2.18% N/A +3.75%
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. * Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 13 QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, Catherine Stienstra, portfolio manager of the RiverSource State Tax- Exempt Funds, discusses the Funds' positioning and results for the six months ended Feb. 29, 2008. Q: How did the RiverSource State Tax-Exempt Funds perform for the first half of the fiscal year? A: All Fund returns are for Class A shares, excluding sales charge. All returns are for the six months ended Feb. 29, 2008. All Lipper categories represent the respective Fund's peer group. - RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND declined 2.78%. The Fund underperformed the Lehman Brothers California 2 Plus Year Municipal Bond Index, which decreased 1.54%. The Fund outperformed the Lipper California Municipal Debt Funds Index, which dropped 3.09% for the same period. - RIVERSOURCE MINNESOTA TAX-EXEMPT FUND declined 1.57%. The Fund underperformed the Lehman Brothers Minnesota 3 Plus Year Municipal Bond Index, which rose 0.24%, as well as the Lipper Minnesota Municipal Debt Funds Index, which declined 1.04%, for the same period. - RIVERSOURCE NEW YORK TAX-EXEMPT FUND declined 2.36%. The Fund underperformed the Lehman Brother New York 4 Plus Year Municipal Bond Index, which decreased 0.98%, as well as the Lipper New York Municipal Debt Funds Index, which dropped 2.01% for the same period. A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, declined 0.60% for the same six-month period. Q: What factors most significantly affected performance during the semiannual period? A: The tax-exempt fixed income market significantly underperformed the taxable fixed income market for the semiannual period, as fallout from the subprime mortgage market and fears regarding liquidity spilled over into the municipal market. February 2008 was the worst performing month in the history of the municipal bond market. The fallout manifested itself in several ways during the period. Investors grew increasingly risk averse overall and an ongoing flight-to-quality toward U.S. Treasuries resulted, driving Treasury yields materially lower. In fact, at the end of February, the ratio of municipal bond yields to Treasury yields - -------------------------------------------------------------------------------- 14 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT QUESTIONS & ANSWERS across the yield curve, or spectrum of maturities, had reached record high levels. Municipal bond insurers' exposure to certain plagued securities also became a factor during the period. Since late June 2007, when the well- publicized collapse of certain Bear Stearns hedge funds occurred, fixed income investors in general became singularly focused on those financial institutions with exposure to residential mortgage-backed securities (RMBS), subprime mortgages and collateralized debt obligations (CDOs). By October, investors had grown increasingly concerned that the monoline insurers, which currently insure approximately 50% of the municipal bond market, might be challenged to maintain their AAA-ratings. While several of the monoline insurers have retained their AAA status to date, some were placed on "negative watch" by the rating agencies during the period, while others were downgraded by one or more of the rating agencies. Short-term tax-exempt yields rose as the Federal Reserve Board (the Fed) sought to strengthen liquidity and calm market fears by cutting the targeted federal funds rate five times during the period by a total of 2.25%. Longer- dated municipal bond yields rose even more for two major reasons. First, liquidity evaporated. Leveraged municipal participants, such as hedge funds, were forced to sell longer positions into an already distressed market to meet margin calls. The auction rate securities market, which had typically supported supply/demand imbalances within the municipal bond market, failed to do so during these months, as Wall Street firms simply stepped away from municipal bonds based on their own balance sheet pressures. Second, concerns heightened regarding new issue supply building in March 2008 and beyond following a notable decline in new issue municipal supply year-over-year ending February 2008. All told, the slope of the tax-exempt bond yield curve steepened significantly over the semiannual period. AS LONG-TERM MUNICIPAL BOND YIELDS ROSE MORE THAN SHORT-TERM MUNICIPAL BOND YIELDS DURING THE SEMIANNUAL PERIOD, EACH OF THE RIVERSOURCE STATE TAX-EXEMPT FUNDS BENEFITED FROM HAVING ONLY A MODEST ALLOCATION TO BONDS WITH 30-YEAR MATURITIES. As long-term municipal bond yields rose more than short-term municipal bond yields during the semiannual period, each of the RiverSource State Tax-Exempt - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 15 QUESTIONS & ANSWERS Funds benefited from having only a modest allocation to bonds with 30-year maturities. With yields at the long-term end of the yield curve rising most, the prices of these bonds fell the most. On the other hand, the Funds were hurt by their modest position in bonds with 5-year maturities, as bonds at this portion of the yield curve performed best during the period. Another positive contributing factor to each of the three Funds' performance during this period was modest exposure to Commonwealth of Puerto Rico municipal bonds. Spreads, or the difference in yields between these securities and Treasuries, widened during the period, with particular focus on continued budgetary troubles there. In RiverSource California Tax-Exempt Fund and RiverSource New York Tax- Exempt Fund, significant allocations to non-enhanced municipal tobacco bonds helped results relative to their respective Lehman benchmark index. RiverSource New York Tax-Exempt Fund was further helped by having only a moderate exposure to New York City general obligation debt. RiverSource Minnesota Tax-Exempt Fund's results were boosted by having only a modest position in pollution control revenue and industrial development bonds. Conversely, duration positioning detracted from the results of each of the three RiverSource State Tax-Exempt Funds. The Funds maintained a longer duration than their respective Lehman benchmark index for most of the semiannual period, which hurt as rates rose during these months. We began to shorten the Funds' duration at the end of January, which helped, but it was not enough to offset the impact of the comparatively longer duration stance maintained to that point. Duration is a measure of a fund's sensitivity to changes in interest rates. Sizable positions in BBB-rated hospital municipal bonds further detracted from the results of each of the three Funds, as this sector remained under pressure for most of the period. Indeed, a significant allocation to BBB-rated bonds across a variety of sectors and only a modest exposure to AAA-rated bonds detracted from the Funds' results, as BBB-rated credits materially underperformed higher quality tax-exempt bonds for the semiannual period. Similarly, having exposure to bonds subject to the Alternative Minimum Tax (AMT) across a variety of sectors, including transportation, housing and private activity, hurt each of the three Fund's results. - -------------------------------------------------------------------------------- 16 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT QUESTIONS & ANSWERS Positioning 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 prepaid natural gas municipal bonds, which is an AA-rated sector, also hurt this Fund's performance. These bonds, which carry the backing of major investment firms, were impacted more during the period by concern regarding these institutions and their exposure to subprime mortgages than by worries about the underlying fundamentals of the credits themselves. Q: What changes did you make to the Funds during the period? A: As mentioned above, we reduced each of the Fund's duration from late January through February. At the end of the period, RiverSource California Tax-Exempt Fund had a duration slightly shorter than the Lehman Brothers California 2 Plus Year Municipal Bond Index. RiverSource Minnesota Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund had durations nearly neutral to their respective Lehman benchmark index at the end of the period. We carried out this strategy in each of the Funds primarily by selling bonds with maturities at the longer end of the tax-exempt yield curve and redeploying the proceeds into 7-day auction rate securities, which were opportunistically offering especially attractive interest rates. We reduced exposure to state general obligation bonds in RiverSource California Tax-Exempt Fund given our view that spreads on these bonds would widen further over the near term as the state's economy as a whole, and its real estate market in particular, remain under pressure. When opportunities arose, we also sold both special district land development bonds and pre-paid natural gas municipal bonds out of RiverSource California Tax-Exempt Fund. In RiverSource Minnesota Tax-Exempt Fund, we modestly reduced exposure to hospital and other health-care related municipal bonds. We reduced exposure in RiverSource New York Tax-Exempt Fund to New York City general obligation bonds due primarily to the ongoing concerns Wall Street faces. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 17 QUESTIONS & ANSWERS GIVEN THIS VIEW, WE INTEND TO MAINTAIN THE FUNDS' FOCUS ON HIGHER QUALITY MUNICIPAL BONDS WITH MATURITIES UP TO 20 YEARS, SEEKING BUYING OPPORTUNITIES IN WHAT WAS, WE BELIEVE, PROBABLY OVERDONE WEAKNESS IN THE TAX-EXEMPT BOND MARKET DURING THE SEMIANNUAL PERIOD. Q: What is the Funds' tactical view and strategy for the months ahead? A: At the end of February, we viewed the near-term prospects for the tax-exempt bond market as attractive, potentially poised to perform well going forward given its underperformance of Treasuries over the last several months. Given this view, we intend to maintain the Funds' focus on higher quality municipal bonds with maturities up to 20 years, seeking buying opportunities in what was, we believe, probably overdone weakness in the tax-exempt bond market during the semiannual period. We expect further steepening of the tax- exempt yield curve over the near term, due to likely further Fed easing impacting the shorter end of the yield curve and heightened pressures on the longer end of the yield curve from the unwinding of tender option bond programs* and from new issue supply anticipated to come to market beginning in March. This pent-up supply had been temporarily sidelined both by headlines about the monoline insurers and the dysfunction of the auction rate securities market. After March, we may look to lengthen the Funds' duration. We intend to reduce the Funds' position in BBB-rated hospital credits, as Medicaid may face budget cuts in a slowing economy. We further intend to continue to have only modest exposure in the Funds to the high yield sector of the tax-exempt bond market, as we believe high yield municipal bond spreads will continue to widen over the months ahead. Rather, we expect to emphasize investment-grade essential service revenue bonds, such as public power and water and sewer issues. We feel these 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 expect to see some consolidation among the municipal bond insurers over the coming months. It remains our ongoing policy to focus on the underlying credit quality of all municipal securities held in the Funds, including those - -------------------------------------------------------------------------------- 18 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT QUESTIONS & ANSWERS wrapped with any bond insurance, with an emphasis on fundamentals and little reliance on the insurers themselves as we make investment decisions. Each Fund's emphasis continues to be on generating a high level of income generally exempt from federal income tax, as well as from the respective state and local taxes. * Tender option bond programs are programs in which investors effectively earn the fixed rates on long term bonds whose purchase is financed by paying something close to the Bond Market Association Municipal Swap Index rate. This leveraged trade, where investors borrow at low short rates to earn significantly higher returns further out on the yield curve, is referred to as a "carry trade." 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 Investment, 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 SEMIANNUAL REPORT 19 FUND EXPENSE EXAMPLES (Unaudited) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees; and other Fund fees and expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds expense ratio as of the most recent shareholder report. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Feb. 29, 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. - -------------------------------------------------------------------------------- 20 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource California Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2007 FEB. 29, 2008 THE PERIOD(A) EXPENSE RATIO Class A Actual(b) $1,000 $ 972.20 $3.87 .79% Hypothetical (5% return before expenses) $1,000 $1,020.93 $3.97 .79% Class B Actual(b) $1,000 $ 968.70 $7.54 1.54% Hypothetical (5% return before expenses) $1,000 $1,017.21 $7.72 1.54% Class C Actual(b) $1,000 $ 968.80 $7.54 1.54% Hypothetical (5% return before expenses) $1,000 $1,017.21 $7.72 1.54%
(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 182/366 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 29, 2008: -2.78% for Class A, -3.13% for Class B and -3.12% for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 21 RiverSource Minnesota Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2007 FEB. 29, 2008 THE PERIOD(A) EXPENSE RATIO(B) Class A Actual(c) $1,000 $ 984.30 $ 4.83 .98% Hypothetical (5% return before expenses) $1,000 $1,019.99 $ 4.92 .98% Class B Actual(c) $1,000 $ 978.70 $ 8.51 1.73% Hypothetical (5% return before expenses) $1,000 $1,016.26 $ 8.67 1.73% Class C Actual(c) $1,000 $ 978.70 $ 8.51 1.73% Hypothetical (5% return before expenses) $1,000 $1,016.26 $ 8.67 1.73%
(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 182/366 (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 Feb. 29, 2008: -1.57% for Class A, -2.13% for Class B and -2.13% for Class C. - -------------------------------------------------------------------------------- 22 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource New York Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2007 FEB. 29, 2008 THE PERIOD(A) EXPENSE RATIO(B) Class A Actual(c) $1,000 $ 976.40 $4.86 .99% Hypothetical (5% return before expenses) $1,000 $1,019.94 $4.97 .99% Class B Actual(c) $1,000 $ 972.80 $8.53 1.74% Hypothetical (5% return before expenses) $1,000 $1,016.21 $8.72 1.74% Class C Actual(c) $1,000 $ 974.70 $8.54 1.74% Hypothetical (5% return before expenses) $1,000 $1,016.21 $8.72 1.74%
(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 182/366 (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 Feb. 29, 2008: -2.36% for Class A, -2.72% for Class B and -2.53% for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 23 PORTFOLIO OF INVESTMENTS RiverSource California Tax-Exempt Fund FEB. 29, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (92.8%) 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 $991,941 - ---------------------------------------------------------------------------------- AIRPORT (2.6%) Los Angeles Harbor Department Refunding Revenue Bonds Series 2006A (MBIA) A.M.T. 08-01-13 5.00 2,000,000 2,102,240 San Francisco City & County Airports Commission Refunding Revenue Bonds 2nd Series 2001-27B (FGIC) 05-01-16 5.25 2,170,000 2,249,748 --------------- Total 4,351,988 - ---------------------------------------------------------------------------------- CERTIFICATE OF PARTICIPATION (0.9%) County of Riverside Certificate of Participation Series 1998 (MBIA) 12-01-21 5.00 1,530,000 1,532,219 - ---------------------------------------------------------------------------------- COLLEGE (6.5%) California Educational Facilities Authority Prerefunded Revenue Bonds University of Southern California Series 2003A 10-01-33 5.00 2,000,000 2,146,880 California Educational Facilities Authority Revenue Bonds University of Southern California Series 2007A 10-01-37 4.75 2,000,000 1,808,920
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) COLLEGE (CONT.) California Municipal Finance Authority Revenue Bonds Loma Linda University Series 2007 04-01-32 4.75% $2,300,000 $2,007,394 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(f) 540,180 Foothill-De Anza Community College District Unlimited General Obligation Bonds Series 2007A (AMBAC) 08-01-27 5.00 2,500,000(g) 2,421,400 Merced Community College District Refunding Revenue Bonds School Facilities Financing Authority Series 2006 (MBIA) 08-01-21 5.00 700,000 696,185 San Mateo County Community College District Unlimited General Obligation Bonds Election of 2001 Series 2002A (FGIC) 09-01-18 5.38 1,000,000 1,056,180 --------------- Total 10,677,139 - ---------------------------------------------------------------------------------- COMBINED UTILITY (2.2%) California Pollution Control Financing Authority Refunding Revenue Bonds Pacific Gas Series 2004D (FGIC) A.M.T. 12-01-23 4.75 1,000,000 869,970
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 24 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT
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 $1,334,160 Roseville Natural Gas Finance Authority Revenue Bonds Series 2007 02-15-23 5.00 225,000 200,122 02-15-26 5.00 1,500,000 1,297,830 --------------- Total 3,702,082 - ---------------------------------------------------------------------------------- ELECTRIC (4.2%) Puerto Rico Electric Power Authority Revenue Bonds Series 2007TT 07-01-32 5.00 1,000,000(b) 912,060 Southern California Public Power Authority Revenue Bonds Project #1 Series 2007A 11-01-33 5.00 3,000,000 2,630,640 Walnut Energy Center Authority Revenue Bonds Series 2004A (AMBAC) 01-01-29 5.00 2,500,000 2,375,650 01-01-34 5.00 1,000,000 949,890 --------------- Total 6,868,240 - ---------------------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (12.3%) Abag Finance Authority for Nonprofit Corporations Refunding Revenue Bonds Children's Hospital & Research Center Series 2007A 12-01-37 5.00 1,000,000 868,140 Abag Finance Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 2,500,000 2,549,075
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HEALTH CARE -- HOSPITAL (CONT.) California Health Facilities Financing Authority Refunding Revenue Bonds Cedars-Sinai Medical Center Series 2005 11-15-18 5.00% $1,500,000 $1,499,880 11-15-34 5.00 1,525,000 1,400,819 California Health Facilities Financing Authority Revenue Bonds Catholic Healthcare West Series 2004G 07-01-23 5.25 3,500,000 3,409,840 California Health Facilities Financing Authority Revenue Bonds Kaiser Permanente Series 2006A 04-01-39 5.25 3,000,000 2,731,440 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2006B 03-01-45 5.25 1,000,000 910,970 Sierra View Local Healthcare District Revenue Bonds Series 2007 07-01-37 5.25 2,000,000 1,776,400 Tulare Local Healthcare District Refunding Revenue Bonds Series 2007 11-01-32 5.20 2,180,000 1,850,275 Turlock Certificate of Participation Emanuel Medical Center Series 2007A 10-15-31 5.13 3,930,000 3,340,382 --------------- Total 20,337,221 - ---------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (4.6%) California Housing Finance Agency Revenue Bonds Home Mortgage Series 2006H (FGIC) A.M.T. 08-01-30 5.75 1,825,000 1,889,112
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 25
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HOUSING -- SINGLE FAMILY (CONT.) California Housing Finance Agency Revenue Bonds Home Mortgage Series 2006K A.M.T. 08-01-41 4.80% $1,000,000 $837,690 02-01-42 5.50 975,000(g) 1,003,080 California Housing Finance Agency Revenue Bonds Home Mortgage Series 2007D (FGIC) A.M.T. 02-01-17 4.35 1,555,000 1,508,817 08-01-17 4.35 2,470,000 2,391,553 Stockton Revenue Bonds Mortgage-backed Securities Program Series 1990A (GNMA/FNMA/FHLMC) A.M.T. 02-01-23 7.50 25,000 25,426 --------------- Total 7,655,678 - ---------------------------------------------------------------------------------- LEASE (2.7%) Golden State Tobacco Securitization Corporation Enhanced Asset-backed Revenue Bonds Series 2005A 06-01-45 5.00 2,000,000 1,748,560 Golden State Tobacco Securitization Corporation Revenue Bonds Series 2003A-1 06-01-33 6.25 2,490,000 2,723,736 --------------- Total 4,472,296 - ---------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (7.7%) California County Tobacco Securitization Agency Asset-backed Revenue Bonds Alameda County Series 2002 06-01-29 5.75 785,000 733,151 06-01-42 6.00 240,000 225,758 California County Tobacco Securitization Agency Revenue Bonds Golden Gate Series 2007A 06-01-21 4.50 3,720,000 3,372,850
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) MISCELLANEOUS REVENUE (CONT.) Golden State Tobacco Securitization Corporation Asset-backed Revenue Bonds Series 2007A-1 06-01-47 5.13% $2,000,000 $1,604,020 06-01-47 5.75 2,500,000 2,225,050 Golden State Tobacco Securitization Corporation Prerefunded Enhanced Asset-backed Revenue Bonds Series 2003B (FSA) 06-01-43 5.00 110,000 115,987 Golden State Tobacco Securitization Corporation Prerefunded Revenue Bonds Series 2003A-1 06-01-39 6.75 1,510,000 1,716,825 06-01-40 6.63 750,000 848,310 Los Angeles County Public Works Financing Authority Refunding Revenue Bonds Master Project Series 2005A (MBIA) 12-01-26 5.00 2,000,000 1,897,180 --------------- Total 12,739,131 - ---------------------------------------------------------------------------------- PORT DISTRICT (0.6%) Port of Oakland Revenue Bonds Series 2000K (FGIC) A.M.T. 11-01-18 5.63 1,000,000 1,009,630 - ---------------------------------------------------------------------------------- SALES OR USE TAX (0.3%) Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 500,000(b) 471,790 - ---------------------------------------------------------------------------------- SCHOOL (13.0%) Alhambra City Elementary School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999A (FSA) 09-01-22 5.95 1,055,000(f) 481,586 Anaheim Union High School District Prerefunded Unlimited General Obligation Bonds Series 2002A (FSA) 08-01-16 5.38 1,550,000 1,684,478
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 26 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) SCHOOL (CONT.) Centinela Valley Union High School District Unlimited General Obligation Bonds Series 2002A (MBIA) 08-01-31 5.25% $2,000,000 $1,931,960 Encinitas Union School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1996 (MBIA) 08-01-15 5.85 2,500,000(f) 1,792,075 Fontana Unified School District Unlimited General Obligation Bonds Convertible Capital Appreciation Series 1997D (FGIC) 05-01-22 5.75 2,000,000 2,070,540 Lammersville School District Community Facilities Special Tax Bonds Mountain House Series 2006 09-01-35 5.13 1,000,000 809,670 Los Angeles Unified School District Unlimited General Obligation Bonds Election of 2002 Series 2007B (AMBAC) 07-01-22 5.00 1,395,000 1,399,032 Oxnard School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA) 08-01-30 5.75 2,575,000 2,649,057 San Juan Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999 (FSA) 08-01-21 5.68 820,000(f) 401,062 08-01-24 5.70 1,810,000(f) 726,100 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 3,240,509
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) SCHOOL (CONT.) Simi Valley School Financing Authority Refunding Revenue Bonds University School District Series 2007 (FSA) 08-01-23 5.00% $1,500,000 $1,506,420 Whittier Union High School District Prerefunded Unlimited General Obligation Bonds Election of 1999 Series 2003D (FSA) 08-01-28 5.00 2,615,000 2,820,644 --------------- Total 21,513,133 - ---------------------------------------------------------------------------------- SPECIAL DISTRICT -- ASSESSMENT (0.5%) City of Azusa Special Tax Bonds Escrow Community Facilities Series 2007 09-01-27 5.00 1,110,000 881,706 - ---------------------------------------------------------------------------------- SPECIAL DISTRICT -- OTHER (1.6%) Puerto Rico Highway & Transportation Authority Prerefunded Revenue Bonds Series 2004J 07-01-43 5.13 2,500,000(b) 2,717,200 - ---------------------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (5.0%) Anaheim Community Facilities District Special Tax Bonds Stadium Lofts Series 2007 09-01-37 5.00 1,000,000 772,090 Beaumont Financing Authority Prerefunded Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,192,044 Orange Unified School District Community Facilities Special Tax Bonds Del Rio School Facilities Series 2007-2 09-01-37 5.00 1,000,000 809,730
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 27
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) SPECIAL DISTRICT -- SPECIAL TAX (CONT.) Pittsburg Redevelopment Agency Tax Allocation Bonds Los Medanos Community Development Project Zero Coupon Series 1999 (AMBAC) 08-01-24 6.05% $2,100,000(f) $781,578 Rancho Cucamonga Redevelopment Agency Tax Allocation Bonds Housing Set Aside Series 2007A (MBIA) 09-01-34 5.00 2,200,000 2,059,090 San Francisco Bay Area Transit Financing Authority Prerefunded Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 1,475,000 1,568,500 --------------- Total 8,183,032 - ---------------------------------------------------------------------------------- SPECIAL DISTRICT -- TAX ALLOCATION (0.7%) Inglewood Redevelopment Agency Refunding Tax Allocation Bonds Merged Redevelopment Project Series 1998A (AMBAC) 05-01-23 5.25 1,100,000 1,114,971 - ---------------------------------------------------------------------------------- STATE (21.7%) Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00 1,000,000(b) 909,300 State of California Prerefunded Unlimited General Obligation Bonds Series 2000 05-01-19 5.63 250,000 267,313 State of California Prerefunded Unlimited General Obligation Bonds Series 2001 03-01-31 5.13 2,335,000 2,472,041 State of California Prerefunded Unlimited General Obligation Bonds Series 2004 04-01-29 5.30 1,998,000 2,179,878
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 $2,683,324 State of California Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000 1,109,840 State of California Unlimited General Obligation Bonds Series 2003 02-01-21 5.25 2,500,000 2,530,325 02-01-29 5.25 2,500,000 2,413,725 02-01-32 5.00 2,000,000 1,875,320 State of California Unlimited General Obligation Bonds Series 2006 09-01-32 5.00 1,000,000 936,970 State of California Unlimited General Obligation Bonds Series 2008B 07-01-23 5.00 1,000,000 1,054,580 State of California Unlimited General Obligation Bonds Various Purpose Series 2003 11-01-22 5.00 2,000,000 1,973,280 11-01-23 5.13 2,500,000 2,471,975 11-01-24 5.13 2,000,000 1,959,260 11-01-29 5.25 500,000(g) 482,405 State of California Unlimited General Obligation Bonds Various Purpose Series 2005 06-01-28 5.00 2,000,000 1,902,040 State of California Unlimited General Obligation Bonds Various Purpose Series 2007 06-01-32 5.00 2,000,000 1,874,400
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 28 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) STATE (CONT.) State of California Unlimited General Obligation Bonds Veterans Series 2000BJ A.M.T. 12-01-12 4.95% $2,250,000 $2,327,288 12-01-13 5.05 1,435,000 1,479,083 12-01-14 5.15 2,535,000 2,594,370 State of California Unrefunded Unlimited General Obligation Bonds Series 2001 03-01-31 5.13 165,000 156,154 State of California Unrefunded Unlimited General Obligation Bonds Series 2004 04-01-29 5.30 2,000 1,946 --------------- Total 35,654,817 - ---------------------------------------------------------------------------------- WATER & SEWER (5.1%) Anaheim Public Financing Authority Revenue Bonds Series 2007 (MBIA) 02-01-33 4.75 3,500,000 3,203,620 California Municipal Finance Authority Revenue Bonds Waste Management Incorporated Project Series 2004 A.M.T. 09-01-14 4.10 2,740,000 2,734,739 Eastern Municipal Water District Special Tax Bonds District #2004-27 Cottonwood Series 2006 09-01-27 5.00 200,000 171,238 09-01-36 5.00 500,000 408,780 Semitropic Improvement District Revenue Bonds Series 2004A (XLCA) 12-01-28 5.00 2,000,000 1,883,820 --------------- Total 8,402,197 - ---------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $158,824,487) $153,276,411 - ----------------------------------------------------------------------------------
MUNICIPAL NOTES (5.0%) Amount Effective payable at ISSUE(c,d,e) yield maturity Value(a) Bay Area Toll Authority Revenue Bonds San Francisco Bay Area V.R.D.N. Series 2003C AMBAC 04-01-37 8.00% $4,000,000 $4,000,000 California Pollution Control Financing Authority Refunding Revenue Bonds Exxon Mobil Project V.R.D.N. Series 2000 04-01-17 3.55 1,175,000 1,175,000 California State Department of Water Resources Revenue Bonds V.R.D.N. Series 2002B-3 (Bank of New York) 05-01-22 2.90 1,800,000 1,800,000 Irvine Revenue Bonds Assessment District No 97-16 V.R.D.N. Series 1997 (State Street B&T) 09-02-22 2.89 1,230,000 1,230,000 - ----------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $8,205,000) $8,205,000 - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $167,029,487)(h) $161,481,411 ===================================================================================
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 29 INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT FEB. 29, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - --------------------------------------------------------------------------------------------------- U.S. Treasury Note, 5-year (41) $(4,707,953) March 2008 $(54,541) U.S. Treasury Note, 5-year (49) (5,598,250) June 2008 (79,401) - --------------------------------------------------------------------------------------------------- Total $(133,942) - ---------------------------------------------------------------------------------------------------
INTEREST RATE SWAP CONTRACTS OUTSTANDING AT FEB. 29, 2008
FUND NOTIONAL FLOATING PAY/RECEIVE FIXED EXPIRATION PRINCIPAL UNREALIZED UNREALIZED COUNTERPARTY RATE INDEX FLOATING RATE RATE DATE AMOUNT APPRECIATION DEPRECIATION - ----------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11% April 2, 2008 $2,050,000 $-- $(21,679) Markets Data Index as determined on April 2, 2008 - ----------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11 April 3, 2008 2,050,000 -- (21,679) Markets Data Index as determined on April 3, 2008 - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs 30-year Municipal Market Receive 4.25 April 24, 1,060,000 156,361 -- Group Data Index as determined 2008 on April 24, 2008 - ----------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 20, 2008 2,110,000 -- (47,190) Data Index as determined on May 20, 2008 - ----------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 21, 2008 2,110,000 -- (47,190) Data Index as determined on May 21, 2008 - ----------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 22, 2008 2,110,000 -- (47,190) Data Index as determined on May 22, 2008 - ----------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Market Pay 3.00 June 12, 2008 2,080,000 14,115 -- Special Financing Data Index AAA Municipal Yields as determined on June 12, 2008 - ----------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Market Pay 2.95 June 13, 2008 2,080,000 11,099 -- Special Financing Data Index AAA Municipal Yields as determined on June 13, 2008 - ----------------------------------------------------------------------------------------------------------------------------- Total $181,575 $(184,928) - -----------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 30 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 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 3.0% of net assets at Feb. 29, 2008. (c) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 29, 2008, the value of securities subject to alternative minimum tax represented 13.4% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(e) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (g) At Feb. 29, 2008, investments in securities included securities valued at $192,770 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (h) At Feb. 29, 2008, the cost of securities for federal income tax purposes was approximately $167,029,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,817,000 Unrealized depreciation (8,365,000) - ------------------------------------------------------------------------------ Net unrealized depreciation $(5,548,000) - ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 31 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. - -------------------------------------------------------------------------------- 32 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT PORTFOLIO OF INVESTMENTS RiverSource Minnesota Tax-Exempt Fund FEB. 29, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (90.3%) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) AIRPORT (3.3%) Minneapolis-St. Paul Metropolitan Airports Commission Prerefunded Revenue Bonds Sub Series 2001C (FGIC) 01-01-18 5.50% $2,000,000 $2,130,520 01-01-32 5.25 7,000,000 7,409,570 --------------- Total 9,540,090 - ----------------------------------------------------------------------------------- CITY (1.1%) City of Minneapolis Unlimited General Obligation Refunding Bonds Various Purpose Series 2001 12-01-11 5.00 3,035,000 3,244,476 - ----------------------------------------------------------------------------------- COLLEGE (2.3%) Minnesota Higher Education Facilities Authority Revenue Bonds Macalester College 6th Series 2004B 03-01-17 5.00 2,395,000 2,488,285 Minnesota Higher Education Facilities Authority Revenue Bonds St. John's University 6th Series 2005G 10-01-22 5.00 3,000,000 2,900,341 Minnesota Higher Education Facilities Authority Revenue Bonds University of St. Thomas 6th Series 2006I 04-01-13 5.00 1,115,000 1,165,052 --------------- Total 6,553,678 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) COUNTY (4.8%) Anoka County Housing & Redevelopment Authority Unlimited General Obligation Bonds Housing Development Series 2004 (AMBAC) 02-01-34 5.00% $1,355,000 $1,281,600 County of Ramsey Unlimited General Obligation Bonds Capital Improvement Plan Series 2007A 02-01-20 5.00 1,000,000 1,036,390 02-01-21 5.00 1,035,000 1,062,262 02-01-22 5.00 1,080,000 1,096,999 02-01-23 5.00 1,125,000 1,135,058 02-01-24 5.00 1,170,000 1,174,317 02-01-25 5.00 1,215,000 1,215,851 County of Ramsey Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2002B 02-01-14 5.25 3,840,000(g) 4,041,061 Hennepin County Unlimited General Obligation Bonds Series 2003 12-01-23 4.75 2,000,000 1,950,040 --------------- Total 13,993,578 - ----------------------------------------------------------------------------------- ELECTRIC (15.9%) City of Chaska Refunding Revenue Bonds Generating Facilities Series 2005A 10-01-20 5.25 1,165,000 1,170,149 10-01-30 5.00 3,800,000 3,450,818
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 33
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) ELECTRIC (CONT.) Minnesota State Municipal Power Agency Revenue Bonds Series 2004A 10-01-29 5.13% $3,500,000 $3,373,685 Minnesota State Municipal Power Agency Revenue Bonds Series 2005 10-01-30 5.00 2,000,000 1,888,740 Minnesota State Municipal Power Agency Revenue Bonds Series 2007 10-01-32 4.75 3,000,000 2,668,920 Northern Municipal Power Agency Refunding Revenue Bonds Series 1998B (AMBAC) 01-01-20 4.75 5,000,000 4,932,900 Northern Municipal Power Agency Revenue Bonds Series 2007A (AMBAC) 01-01-26 5.00 2,500,000 2,334,625 Puerto Rico Electric Power Authority Prerefunded Revenue Bonds Series 2003NN (MBIA) 07-01-32 5.00 2,820,000(b) 3,025,663 Southern Minnesota Municipal Power Agency Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA) 01-01-19 6.67 17,000,000(f) 9,724,849 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2002A (AMBAC) 01-01-17 5.25 6,000,000(g) 6,451,680 Western Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-26 5.00 7,250,000(g) 6,984,288 --------------- Total 46,006,317 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HEALTH CARE -- HOSPITAL (16.8%) Chippewa County Revenue Bonds Montevideo Hospital Project Series 2007 03-01-20 5.38% $1,940,000 $1,789,650 03-01-21 5.38 1,045,000 957,439 City of Breckenridge Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 2,000,000 1,841,380 City of Maple Grove Revenue Bonds Maple Grove Hospital Corporation Series 2007 05-01-20 5.00 1,000,000 972,390 05-01-21 5.00 1,500,000 1,445,220 05-01-73 5.25 4,265,000 3,902,987 City of Minneapolis Revenue Bonds Fairview Health Services Series 2002B (MBIA) 05-15-14 5.50 2,050,000 2,161,069 05-15-15 5.50 2,160,000 2,264,263 05-15-16 5.50 2,200,000 2,291,564 05-15-17 5.50 1,295,000 1,339,846 County of Meeker Revenue Bonds Memorial Hospital Project Series 2007 11-01-27 5.75 1,000,000 925,640 11-01-37 5.75 2,250,000 2,003,513 Minnesota Agricultural & Economic Development Board Prerefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 4,845,000 5,312,832 11-15-29 6.38 2,910,000 3,190,990 Minnesota Agricultural & Economic Development Board Revenue Bonds Health Care Benedictine Series 1999A (MBIA) 02-15-16 4.75 1,000,000 1,003,760
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 34 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HEALTH CARE -- HOSPITAL (CONT.) Minnesota Agricultural & Economic Development Board Unrefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38% $155,000 $160,110 11-15-29 6.38 90,000 92,390 Northfield Revenue Bonds Series 2006 11-01-31 5.38 1,500,000 1,321,980 Shakopee Revenue Bonds St. Francis Regional Medical Center Series 2004 09-01-25 5.10 3,300,000 3,024,318 St. Paul Housing & Redevelopment Authority Revenue Bonds Allina Health Systems Series 2007A (MBIA) 11-15-22 5.00 3,000,000 2,839,080 St. Paul Housing & Redevelopment Authority Revenue Bonds Healtheast Project Series 2005 11-15-25 6.00 1,250,000 1,206,300 St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2006 05-15-23 5.25 1,000,000 932,380 05-15-26 5.25 1,000,000 912,330 05-15-36 5.25 3,500,000 3,021,795 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 2,198,900
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HEALTH CARE -- HOSPITAL (CONT.) Winona Refunding Revenue Bonds Winona Health Obligation Group Series 2007 07-01-31 5.15% $2,000,000 $1,769,520 --------------- Total 48,881,646 - ----------------------------------------------------------------------------------- HEALTH CARE -- LIFE CARE CENTER (0.6%) City of Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-25 5.00 1,750,000 1,625,505 - ----------------------------------------------------------------------------------- HEALTH CARE -- NURSING HOME (3.7%) Annandale Economic Development Authority Revenue Bonds Annandale Care Center Project Series 2007A 11-01-37 5.90 3,385,000 3,068,164 City of North Oaks Revenue Bonds Presbyterian Homes Series 2007 10-01-27 6.00 1,250,000 1,179,900 10-01-33 6.00 1,500,000 1,385,940 City of Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-19 5.00 2,505,000 2,449,990 St. Paul Housing & Redevelopment Authority Revenue Bonds Lyngblomsten Care Center Housing Project Series 1993 11-01-17 7.13 1,335,000 1,264,005 St. Paul Housing & Redevelopment Authority Revenue Bonds Rental -- Lyngblomsten Housing Project Series 1993 11-01-24 7.00 1,595,000 1,482,441 --------------- Total 10,830,440 - -----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 35
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HEALTH CARE -- OTHER (1.3%) Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2003 12-01-12 5.25% $1,000,000 $1,032,580 12-01-15 5.13 1,500,000 1,506,930 12-01-16 5.25 1,250,000 1,252,975 --------------- Total 3,792,485 - ----------------------------------------------------------------------------------- HOUSING -- MULTI-FAMILY (3.1%) Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Project Series 2000A 01-01-32 7.25 2,000,000 2,032,620 City of Rochester Refunding Revenue Bonds Madonna Towers Incorporated Project Series 2007A 11-01-28 5.88 1,000,000 924,780 Dakota County Community Development Agency Refunding Revenue Bonds Commons on Marice Project Series 2007A 11-01-22 5.00 1,115,000 956,358 Duluth Housing & Redevelopment Authority Revenue Bonds Benedictine Health Center Project Series 2007 11-01-33 5.88 750,000 684,210 Plymouth Housing & Redevelopment Authority Unlimited General Obligation Bonds Governmental Housing Project Series 2005 02-01-35 5.00 2,135,000 1,997,207 Steele County Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,370,662 --------------- Total 8,965,837 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HOUSING -- SINGLE FAMILY (8.3%) Minneapolis/St. Paul Housing Finance Board Revenue Bonds Mortgage-backed City Living Series 2006A-5 (GNMA/FNMA/FHLMC) 04-01-27 5.45% $2,207,853 $2,276,230 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 79,790 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006B A.M.T. 07-01-26 4.75 1,905,000 1,720,729 07-01-31 4.85 2,570,000 2,256,717 07-01-37 4.90 5,000,000 4,347,900 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006I A.M.T. 07-01-26 5.05 3,520,000 3,299,578 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006M A.M.T. 01-01-37 5.75 2,930,000 3,032,931 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2007D A.M.T. 01-01-38 5.50 4,000,000 4,092,720 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2007I A.M.T. 07-01-22 4.65 2,330,000 2,146,023 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1996J A.M.T. 07-01-21 5.60 55,000 55,010
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 36 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HOUSING -- SINGLE FAMILY (CONT.) Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1997K A.M.T. 01-01-26 5.75% $800,000 $797,280 --------------- Total 24,104,908 - ----------------------------------------------------------------------------------- LEASE (3.5%) St. Paul Port Authority Revenue Bonds Office Building at Cedar Street Series 2003 12-01-23 5.00 5,000,000 5,007,050 12-01-27 5.13 5,350,000 5,223,580 --------------- Total 10,230,630 - ----------------------------------------------------------------------------------- MISCELLANEOUS REVENUE (3.4%) City of Minneapolis Limited Tax Revenue Bonds Common Bond Fund Series 2007-2A A.M.T. 06-01-22 5.13 1,035,000 975,425 06-01-28 5.00 1,500,000 1,318,950 Minneapolis Community Development Agency Limited Tax Revenue Bonds Common Bond Fund Series 1996-1 06-01-11 6.00 980,000 985,792 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 1,063,130 St. Cloud Housing & Redevelopment Authority Revenue Bonds State University Foundation Project Series 2002 05-01-18 5.13 3,000,000 3,080,400
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) MISCELLANEOUS REVENUE (CONT.) St. Paul Port Authority Tax Allocation River Bend Project Lot 1 Series 2007-5 02-01-32 6.38% $2,685,000 $2,446,545 --------------- Total 9,870,242 - ----------------------------------------------------------------------------------- SALES OR USE TAX (1.0%) Hennepin County Revenue Bonds Sales Tax Series 2007 12-15-33 4.75 3,000,000 2,793,120 - ----------------------------------------------------------------------------------- SCHOOL (15.2%) 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 4,355,318 02-01-15 5.00 1,990,000 2,075,948 02-01-16 5.00 2,000,000 2,086,380 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 4,231,680 City of Maple Grove Revenue Bonds North Memorial Health Care Series 2005 09-01-35 5.00 2,750,000 2,435,648 Edina Independent School District #273 Unlimited General Obligation Bonds Series 2004 02-01-23 4.50 3,000,000 2,807,460 02-01-24 4.50 3,400,000 3,154,724 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 3,183,660
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 37
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) SCHOOL (CONT.) 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 $3,659,139 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 69,774 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 1,859,975 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 1,502,732 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 1,166,165 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 3,805,800 St. Paul Housing & Redevelopment Authority Prerefunded Revenue Bonds Community of Peace Academy Project Series 2001A 12-01-30 7.88 2,390,000 2,728,687
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) SCHOOL (CONT.) St. Paul Housing & Redevelopment Authority Refunding Revenue Bonds St. Paul Academy & Summit School Series 2007 10-01-24 5.00% $2,000,000 $1,927,820 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 1,486,167 02-01-14 5.00 1,480,000 1,547,236 --------------- Total 44,084,313 - ----------------------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (0.1%) Lakeville Revenue Bonds Series 2007 02-01-22 5.00 175,000 159,248 02-01-27 5.00 225,000 204,235 --------------- Total 363,483 - ----------------------------------------------------------------------------------- SPECIAL PURPOSE CERTIFICATES -- GENERAL OBLIGATIONS (0.1%) Minneapolis Community Development Agency Limited Tax Revenue Bonds Common Bond Fund Series 1997-7A 06-01-12 5.50 230,000 230,899 - ----------------------------------------------------------------------------------- STATE (2.6%) Commonwealth of Puerto Rico Prerefunded Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 860,000(b) 940,642 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001 (FSA) 07-01-16 5.50 1,500,000(b) 1,639,215 Commonwealth of Puerto Rico Unrefunded Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 1,140,000(b) 1,055,104
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 38 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) STATE (CONT.) State of Minnesota Unlimited General Obligation Bonds Series 2002 11-01-15 5.25% $3,575,000 $3,839,944 --------------- Total 7,474,905 - ----------------------------------------------------------------------------------- TOLL ROAD (0.6%) Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 1,650,000(b) 1,815,132 - ----------------------------------------------------------------------------------- WATER & SEWER (2.6%) Minnesota Public Facilities Authority Revenue Bonds Series 2002B 03-01-13 5.25 2,500,000 2,713,975 03-01-14 5.25 2,500,000 2,726,625 Minnesota Public Facilities Authority Revenue Bonds Series 2005C 03-01-25 5.00 2,000,000 1,988,680 --------------- Total 7,429,280 - ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $268,410,376) $261,830,964 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (9.2%)(h) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) COLLEGE (3.2%) University of Minnesota Revenue Bonds Series 2002 07-01-21 5.50% $8,500,000 $9,157,805 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (CONTINUED) NAME OF ISSUER AND TITLE OF Coupon Principal ISSUE(c,d) rate amount Value(a) HOUSING -- SINGLE FAMILY (1.0%) Minnesota Housing Finance Agency Revenue Bonds Series 2002 A.M.T. 07-01-33 5.65% $2,950,000 $2,872,941 - ----------------------------------------------------------------------------------- SCHOOL (5.0%) 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 3,860,604 02-01-19 5.25 3,450,000 3,699,746 02-01-20 5.25 2,850,000 3,056,312 02-01-21 5.25 3,865,000 4,144,062 --------------- Total 14,760,724 - ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $25,963,362) $26,791,470 - -----------------------------------------------------------------------------------
MUNICIPAL NOTES (4.3%) Amount Effective payable at ISSUE(c,d,e) yield maturity Value(a) Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds Allina Health System V.R.D.N. Series 2007B-1 (Bank of New York) MBIA 11-15-34 4.75% $10,000,000 $10,000,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M1 (Harris) 10-01-32 3.75 2,300,000 2,300,000
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 39
MUNICIPAL NOTES (CONTINUED) Amount Effective payable at ISSUE(c,d,e) yield maturity Value(a) St. Paul Port Authority Revenue Bonds Amherst H Wilder Foundation V.R.D.N. Series 2006-3 (Bank of New York) 04-01-36 3.75% $200,000 $200,000 - ----------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $12,500,000) $12,500,000 - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $306,873,738)(i) $301,122,434 - -----------------------------------------------------------------------------------
INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT FEB. 29, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - --------------------------------------------------------------------------------------------------- U.S. Treasury Note, 5-year (71) $(8,152,797) March 2008 $(94,448) U.S. Treasury Note, 5-year (85) (9,711,250) June 2008 (137,845) - --------------------------------------------------------------------------------------------------- Total $(232,293) - ---------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 40 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT INTEREST RATE SWAP CONTRACTS OUTSTANDING AT FEB. 29, 2008
FUND NOTIONAL FLOATING PAY/RECEIVE FIXED EXPIRATION PRINCIPAL UNREALIZED UNREALIZED COUNTERPARTY RATE INDEX FLOATING RATE RATE DATE AMOUNT APPRECIATION DEPRECIATION - ---------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11% April 2, 2008 $3,750,000 $-- $(39,656) Markets Data Index as determined on April 2, 2008 - ---------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Market Pay 3.11 April 3, 2008 3,750,000 -- (39,656) Markets Data Index as determined on April 3, 2008 - ---------------------------------------------------------------------------------------------------------------------------- Goldman Sachs 30-year Municipal Market Receive 4.25 April 24, 1,910,000 281,744 -- Group Data Index as determined 2008 on April 24, 2008 - ---------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 20, 2008 3,720,000 -- (83,198) Data Index as determined on May 20, 2008 - ---------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 21, 2008 3,720,000 -- (83,198) Data Index as determined on May 21, 2008 - ---------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Market Pay 2.90 May 22, 2008 3,720,000 -- (83,198) Data Index as determined on May 22, 2008 - ---------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Market Pay 3.00 June 12, 2008 3,770,000 25,583 -- Special Financing Data Index AAA Municipal Yields as determined on June 12, 2008 - ---------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Market Pay 2.95 June 13, 2008 3,770,000 20,117 -- Special Financing Data Index AAA Municipal Yields as determined on June 13, 2008 - ---------------------------------------------------------------------------------------------------------------------------- Total $327,444 $(328,906) - ----------------------------------------------------------------------------------------------------------------------------
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 2.9% of net assets at Feb. 29, 2008. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 41 NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED) (c) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 29, 2008, the value of securities subject to alternative minimum tax represented 9.7% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(e) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (g) At Feb. 29, 2008, investments in securities included securities valued at $378,759 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (h) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (i) At Feb. 29, 2008, the cost of securities for federal income tax purposes was approximately $290,099,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 5,757,000 Unrealized depreciation (11,509,000) - ------------------------------------------------------------------------------ Net unrealized depreciation $ (5,752,000) - ------------------------------------------------------------------------------
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. - -------------------------------------------------------------------------------- 42 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT PORTFOLIO OF INVESTMENTS RiverSource New York Tax-Exempt Fund FEB. 29, 2008 (UNAUDITED) (Percentages represent value of investments compared to net assets) INVESTMENTS IN SECURITIES
MUNICIPAL BONDS (94.2%) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(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 $1,065,140 New York State Dormitory Authority Prerefunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 446,146 --------------- Total 1,511,286 - ----------------------------------------------------------------------------------- CITY (11.3%) City of New York Prerefunded Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 100,000 109,734 City of New York Prerefunded Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 1,725,000 1,879,766 City of New York Unlimited General Obligation Bonds Series 2002C (XLCA) 03-15-12 5.00 500,000 528,200 City of New York Unlimited General Obligation Bonds Series 2004D 11-01-34 5.00 1,000,000 942,790 City of New York Unrefunded Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 1,000,000 1,082,970 City of New York Unrefunded Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 275,000 275,058
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) CITY (CONT.) City of New York Unrefunded Unlimited General Obligation Bonds Series 2003J 06-01-18 5.50% $1,425,000 $1,500,212 --------------- Total 6,318,730 - ----------------------------------------------------------------------------------- COLLEGE (9.6%) Dutchess County Industrial Development Agency Refunding Revenue Bonds Bard College Civic Facilities Series 2007-A1 08-01-22 5.00 500,000 493,410 New York State Dormitory Authority Revenue Bonds Brooklyn Law School Series 2003B (XLCA) 07-01-30 5.13 1,000,000 933,170 New York State Dormitory Authority Revenue Bonds Columbia University Series 2007C 07-01-29 5.00 250,000 247,718 New York State Dormitory Authority Revenue Bonds Cornell University Series 2006A 07-01-26 5.00 1,000,000 990,460 New York State Dormitory Authority Revenue Bonds Education Series 2006D 03-15-31 5.00 500,000 484,690
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 43
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) COLLEGE (CONT.) New York State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00% $1,500,000 $1,526,040 Seneca County Industrial Development Agency Revenue Bonds New York Chiropractic College Series 2007 10-01-27 5.00 750,000 681,330 --------------- Total 5,356,818 - ----------------------------------------------------------------------------------- COUNTY (2.5%) County of Monroe Unlimited General Obligation Refunding & Public Improvement Bonds Series 1996 (MBIA) 03-01-15 6.00 1,250,000(f) 1,421,625 - ----------------------------------------------------------------------------------- HEALTH CARE -- HOSPITAL (8.4%) Albany Industrial Development Agency Revenue Bonds St. Peters Hospital Project Series 2008A 11-15-27 5.25 1,000,000 918,210 New York State Dormitory Authority Revenue Bonds Mental Health Services Facilities Improvement Series 2005E (FGIC) 02-15-22 5.00 750,000 749,235 New York State Dormitory Authority Revenue Bonds New York University Hospital Center Series 2007B 07-01-24 5.25 750,000 695,183 New York State Dormitory Authority Revenue Bonds Sloan-Kettering Memorial Center Series 2003-1 (MBIA) 07-01-21 5.00 1,000,000 1,003,180
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) HEALTH CARE -- HOSPITAL (CONT.) New York State Dormitory Authority Revenue Bonds Sloan-Kettering Memorial Center Series 2006-1 07-01-35 5.00% $500,000 $473,605 Ulster County Industrial Development Agency Revenue Bonds Series 2007A 09-15-42 6.00 1,000,000 869,210 --------------- Total 4,708,623 - ----------------------------------------------------------------------------------- HEALTH CARE -- LIFE CARE CENTER (0.5%) Suffolk County Industrial Development Agency Prerefunded Revenue Bonds 1st Mortgage Jeffersons Ferry Series 1999A 11-01-28 7.25 250,000 272,768 - ----------------------------------------------------------------------------------- HOUSING -- SINGLE FAMILY (1.9%) New York Mortgage Agency Revenue Bonds Series 2007-140 A.M.T. 10-01-21 4.60 500,000 462,630 New York Mortgage Agency Revenue Bonds Series 2007-143 A.M.T. 10-01-27 4.85 675,000 604,118 --------------- Total 1,066,748 - ----------------------------------------------------------------------------------- LEASE (14.1%) Hudson Yards Infrastructure Corporation Revenue Bonds Series 2006A 02-15-47 5.00 500,000 449,605 New York City Industrial Development Agency Revenue Bonds Terminal One Group Association Project Series 2005 A.M.T. 01-01-24 5.50 500,000 488,090 New York State Dormitory Authority Revenue Bonds Consolidated City University System Series 1993A 07-01-13 5.75 3,000,000 3,217,499
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 44 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) LEASE (CONT.) New York State Dormitory Authority Revenue Bonds New York University Hospital Center Series 2006A 07-01-20 5.00% $500,000 $467,985 New York State Dormitory Authority Unrefunded Revenue Bonds Series 1990B 05-15-11 7.50 845,000 923,078 New York State Urban Development Corporation Refunding Revenue Bonds Service Contract Series 2005 (FSA) 01-01-17 5.00 1,000,000 1,052,470 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriated Series 2004A 08-01-27 5.75 750,000(e) 779,918 Tobacco Settlement Financing Authority Asset-backed Revenue Bonds Series 2003A-1 06-01-16 5.50 500,000 513,165 --------------- Total 7,891,810 - ----------------------------------------------------------------------------------- MISCELLANEOUS (4.0%) Nassau County Tobacco Settlement Corporation Asset-backed Revenue Bonds Series 2006A-3 06-01-35 5.00 500,000 441,780 New York City Trust for Cultural Resources Revenue Bonds Museum of American Folk Art Series 2000 (ACA) 07-01-22 6.00 1,000,000 931,670 New York State Dormitory Authority Revenue Bonds Mt. Sinai School of Medicine University Series 2007 (MBIA) 07-01-37 4.50 1,000,000 866,860 --------------- Total 2,240,310 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) MISCELLANEOUS REVENUE (11.5%) Metropolitan Transportation Authority Revenue Bonds Series 2006A 11-15-22 5.00% $750,000 $731,865 New York City Industrial Development Agency Revenue Bonds Queens Baseball Stadium Pilot Series 2006 (AMBAC) 01-01-23 5.00 500,000 475,800 01-01-24 5.00 500,000 471,735 New York Counties Tobacco Trust II Revenue Bonds Tobacco Settlement Pass Thru Bonds Series 2001 06-01-35 5.63 500,000 488,040 New York State Thruway Authority Revenue Bonds Second Generation Resolution Series 2003B (FSA) 04-01-21 4.75 835,000 834,967 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 1,042,109 Seneca Nation Indians Capital Improvements Authority Revenue Bonds Series 2007A 12-01-16 5.25 500,000(d) 492,385 12-01-23 5.00 250,000(d) 214,445 TSASC Incorporated Revenue Bonds Series 2006-1 06-01-42 5.13 1,000,000 887,940 Westchester Tobacco Asset Securitization Revenue Bonds Series 2005 06-01-26 5.00 875,000 803,845 --------------- Total 6,443,131 - -----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 45
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) PORT DISTRICT (4.9%) 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 $976,170 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 1,322,910 Port Authority of New York & New Jersey Revenue Bonds Consolidated 147th Series 2007 (FGIC) A.M.T. 10-15-26 5.00 500,000 462,820 --------------- Total 2,761,900 - ----------------------------------------------------------------------------------- SALES OR USE TAX (5.0%) New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2004C 02-01-33 5.00 1,000,000 965,430 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (AMBAC) 07-01-30 5.25 500,000(e) 473,545 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 1,000,000(e) 943,580 TSASC Incorporated Revenue Bonds Series 2006-1 06-01-34 5.00 500,000 442,680 --------------- Total 2,825,235 - ----------------------------------------------------------------------------------- SPECIAL DISTRICT -- SPECIAL TAX (4.8%) New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2003D 02-01-23 5.00 500,000 500,630 02-01-31 5.00 1,000,000 969,450
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) SPECIAL DISTRICT -- SPECIAL TAX (CONT.) New York State Dormitory Authority Revenue Bonds Education Series 2005F 03-15-23 5.00% $250,000 $250,730 New York State Dormitory Authority Revenue Bonds Education Series 2006C 12-15-31 5.00 750,000 726,615 New York State Dormitory Authority Revenue Bonds Education Series 2007A 03-15-37 5.00 250,000 240,013 --------------- Total 2,687,438 - ----------------------------------------------------------------------------------- STATE (0.8%) Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00 500,000(e) 454,650 - ----------------------------------------------------------------------------------- TOLL ROAD (4.5%) Metropolitan Transportation Authority Revenue Bonds Series 2005F 11-15-12 5.00 560,000 593,986 11-15-35 5.00 500,000 472,755 New York State Thruway Authority Revenue Bonds Series 2007H (FGIC) 01-01-23 5.00 500,000 500,350 Triborough Bridge & Tunnel Authority Refunding Revenue Bonds Series 2002B 11-15-29 5.13 1,000,000 981,300 --------------- Total 2,548,391 - -----------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 46 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT
MUNICIPAL BONDS (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) WATER & SEWER (7.7%) Erie County Water Authority 4th Resolution Revenue Bonds Series 2007 (MBIA) 12-01-34 4.75% $500,000 $456,215 New York City Municipal Water Finance Authority Revenue Bonds Series 2002A 06-15-29 5.00 1,000,000 968,100 New York City Municipal Water Finance Authority Revenue Bonds Series 2004A 06-15-39 5.00 1,000,000 950,380 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds New York City Municipal Water Project Series 2002B 06-15-31 5.00 1,000,000 969,160 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds New York City Municipal Water Project Series 2002K 06-15-28 5.00 1,000,000 993,620 --------------- Total 4,337,475 - ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $54,631,012) $52,846,938 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (8.5%)(g) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) CITY (4.7%) City of New York Unlimited General Obligation Bonds Series 2000 (FGIC) 05-15-16 5.88% $2,494,000 $2,673,405 - -----------------------------------------------------------------------------------
MUNICIPAL BONDS HELD IN TRUST (CONTINUED) NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(B,C) RATE AMOUNT VALUE(A) HOUSING -- SINGLE FAMILY (2.0%) New York Mortgage Agency Revenue Bonds Series 2002 A.M.T. 04-01-32 5.40% $1,200,000 $1,129,164 - ----------------------------------------------------------------------------------- INDUSTRIAL-POLLUTION -- PCR (1.8%) New York State Energy Research & Development Authority Revenue Bonds Series 2000 (MBIA) 01-01-21 5.50 990,000 991,158 - ----------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $4,703,129) $4,793,727 - -----------------------------------------------------------------------------------
MUNICIPAL NOTES (1.2%) AMOUNT EFFECTIVE PAYABLE AT ISSUE(B,C,H) YIELD MATURITY VALUE(A) New York State Energy Research & Development Authority Revenue Bonds Brooklyn Union Gas V.R.D.N. Series 2000-379 MBIA 01-01-21 6.98% $660,000 $660,000 - ----------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $660,000) $660,000 - ----------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $59,994,141)(i) $58,300,665 ===================================================================================
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 47 INVESTMENTS IN DERIVATIVES FUTURES CONTRACTS OUTSTANDING AT FEB. 29, 2008
NUMBER OF UNREALIZED CONTRACTS NOTIONAL EXPIRATION APPRECIATION CONTRACT DESCRIPTION LONG (SHORT) MARKET VALUE DATE (DEPRECIATION) - --------------------------------------------------------------------------------------------------- U.S. Treasury Note, 5-year (14) (1,607,594) March 2008 (18,624) U.S. Treasury Note, 5-year (18) (2,056,500) June 2008 (29,577) - --------------------------------------------------------------------------------------------------- Total $(48,201) - ---------------------------------------------------------------------------------------------------
INTEREST RATE SWAP CONTRACTS OUTSTANDING AT FEB. 29, 2008
FUND NOTIONAL FLOATING PAY/RECEIVE FIXED EXPIRATION PRINCIPAL UNREALIZED UNREALIZED COUNTERPARTY RATE INDEX FLOATING RATE RATE DATE AMOUNT APPRECIATION DEPRECIATION - -------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Pay 3.11% April 2, 2008 $750,000 $-- $(7,931) Markets Market Data Index as determined on April 2, 2008 - -------------------------------------------------------------------------------------------------------------------------- Citigroup Global 5-year Municipal Pay 3.11 April 3, 2008 750,000 -- (7,931) Markets Market Data Index as determined on April 3, 2008 - -------------------------------------------------------------------------------------------------------------------------- Goldman Sachs 30-year Municipal Receive 4.25 April 24, 370,000 54,579 -- Group Market Data Index as 2008 determined on April 24, 2008 - -------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Pay 2.90 May 20, 2008 730,000 -- (16,327) Market Data Index as determined on May 20, 2008 - -------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Pay 2.90 May 21, 2008 730,000 -- (16,327) Market Data Index as determined on May 21, 2008 - -------------------------------------------------------------------------------------------------------------------------- Morgan Stanley 5-year Municipal Pay 2.90 May 22, 2008 730,000 -- (16,327) Market Data Index as determined on May 22, 2008 - -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Pay 3.00 June 12, 2008 730,000 4,954 -- Special Financing Market Data Index AAA Municipal Yields as determined on June 12, 2008 - -------------------------------------------------------------------------------------------------------------------------- Lehman Brothers 2-year Municipal Pay 2.95 June 13, 2008 730,000 3,895 -- Special Financing Market Data Index AAA Municipal Yields as determined on June 13, 2008 - -------------------------------------------------------------------------------------------------------------------------- Total $63,428 $(64,843) - --------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Portfolio of Investments. - -------------------------------------------------------------------------------- 48 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT NOTES TO PORTFOLIO OF INVESTMENTS (a) Securities are valued by using procedures described in Note 1 to the financial statements. (b) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance
(c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 29, 2008, the value of securities subject to alternative minimum tax represented 11.6% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note
(d) Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security may be determined to be liquid under guidelines established by the Fund's Board of Trustees. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At Feb. 29, 2008, the value of these securities amounted to $706,830 or 1.3% of net assets. (e) 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 4.7% of net assets at Feb. 29, 2008. (f) At Feb. 29, 2008, investments in securities included securities valued at $51,179 that were partially pledged as collateral to cover initial margin deposits on open interest rate futures contracts. (g) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (h) Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 29, 2008. (i) At Feb. 29, 2008, the cost of securities for federal income tax purposes was approximately $56,870,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,075,000 Unrealized depreciation (2,768,000) - ------------------------------------------------------------------------------ Net unrealized depreciation $(1,693,000) - ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 49 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. - -------------------------------------------------------------------------------- 50 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES FEB. 29, 2008 (UNAUDITED)
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MINNESOTA NEW YORK TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND ASSETS Investments in securities, at value (identified cost $167,029,487, $306,873,738 and $59,994,141) $161,481,411 $301,122,434 $58,300,665 Cash 1,403,340 47,460 359,043 Capital shares receivable 1,066,439 47,087 1,246 Accrued interest receivable 1,931,481 3,446,916 734,855 Receivable for investment securities sold 7,095 2,910,190 4,306 Unrealized appreciation on swap contracts 181,575 327,444 63,428 - ----------------------------------------------------------------------------------------- Total assets 166,071,341 307,901,531 59,463,543 - ----------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 44,597 66,097 12,584 Capital shares payable 500,577 399,539 94,950 Payable for investment securities purchased 7,015 12,026 4,283 Variation margin payable 94,125 164,188 33,500 Unrealized depreciation on swap contracts 184,928 328,906 64,843 Short-term floating rate notes outstanding -- 16,775,000 3,124,000 Accrued investment management services fee 1,859 3,250 635 Accrued distribution fee 35,324 62,932 12,262 Accrued transfer agency fee 180 444 70 Accrued administrative services fee 317 560 108 Other accrued expenses 51,870 88,184 30,051 - ----------------------------------------------------------------------------------------- Total liabilities 920,792 17,901,126 3,377,286 - ----------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $165,150,549 $290,000,405 $56,086,257 =========================================================================================
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 51 STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) FEB. 29, 2008 (UNAUDITED)
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MINNESOTA NEW YORK TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND REPRESENTED BY Shares of beneficial interest -- $.01 par value $ 346,622 $ 584,293 $ 119,084 Additional paid-in capital 171,616,746 298,602,198 57,860,730 Undistributed net investment income 42,250 251,593 14,772 Accumulated net realized gain (loss) (1,169,698) (3,452,620) (165,237) Unrealized appreciation (depreciation) on investments (5,685,371) (5,985,059) (1,743,092) - ----------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $165,150,549 $290,000,405 $56,086,257 =========================================================================================
Net assets applicable to outstanding shares: Class A $157,945,853 $265,695,199 $51,511,947 Class B $ 5,648,284 $ 17,244,708 $ 3,920,111 Class C $ 1,556,412 $ 7,060,498 $ 654,199 Outstanding shares of beneficial interest: Class A shares 33,149,564 53,533,371 10,937,192 Class B shares 1,186,373 3,473,534 832,309 Class C shares 326,310 1,422,389 138,915 Net asset value per share: Class A(1) $ 4.76 $ 4.96 $ 4.71 Class B $ 4.76 $ 4.96 $ 4.71 Class C $ 4.77 $ 4.96 $ 4.71 - ---------------------------------------------------------------------------------------------
(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 $5.00, $5.21 and $4.94, 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 this statement. The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 52 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT STATEMENTS OF OPERATIONS SIX MONTHS ENDED FEB. 29, 2008 (UNAUDITED)
RIVERSOURCE RIVERSOURCE RIVERSOURCE CALIFORNIA MINNESOTA NEW YORK TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND INVESTMENT INCOME Income: Interest $ 4,056,773 $ 7,680,926 $ 1,524,083 - ----------------------------------------------------------------------------------------- Expenses: Investment management services fee 351,394 628,557 125,599 Distribution fee Class A 204,821 355,533 70,246 Class B 29,500 93,721 21,544 Class C 8,274 35,888 3,812 Transfer agency fee Class A 32,125 75,467 17,025 Class B 1,261 5,356 1,404 Class C 352 1,998 247 Administrative services fees 59,994 108,622 21,444 Interest and fee expense -- 291,589 60,113 Compensation of board members 1,661 2,989 587 Custodian fees 17,130 13,468 6,916 Printing and postage 21,900 63,700 8,830 Registration fees 21,320 17,995 20,710 Professional fees 12,835 13,890 11,699 Other 3,114 3,960 834 - ----------------------------------------------------------------------------------------- Total expenses 765,681 1,712,733 371,010 Expenses waived/reimbursed by the Investment Manager and its affiliates (61,570) (100,506) (50,357) - ----------------------------------------------------------------------------------------- 704,111 1,612,227 320,653 Earnings and bank fee credits on cash balances (5,443) (14,282) (3,827) - ----------------------------------------------------------------------------------------- Total net expenses 698,668 1,597,945 316,826 - ----------------------------------------------------------------------------------------- Investment income (loss) -- net 3,358,105 6,082,981 1,207,257 - ----------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on: Security transactions (563,867) (261,164) 25,569 Swap transactions 389,834 685,426 150,915 Futures contracts (657,392) (1,173,280) (238,691) - ----------------------------------------------------------------------------------------- Net realized gain (loss) on investments (831,425) (749,018) (62,207) Net change in unrealized appreciation (depreciation) on investments (7,247,693) (9,736,558) (2,348,884) - ----------------------------------------------------------------------------------------- Net gain (loss) on investments (8,079,118) (10,485,576) (2,411,091) - ----------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $(4,721,013) $ (4,402,595) $(1,203,834) =========================================================================================
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 53 STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND SIX MONTHS ENDED YEAR ENDED FEB. 29, 2008 AUG. 31, 2007 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 3,358,105 $ 6,724,239 Net realized gain (loss) on investments (831,425) 1,177,737 Net change in unrealized appreciation (depreciation) on investments (7,247,693) (5,475,259) - ----------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (4,721,013) 2,426,717 - ----------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (3,229,859) (6,398,570) Class B (94,869) (256,028) Class C (26,608) (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 (4,585,797) (6,741,434) - ----------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 32,879,859 22,983,104 Class B shares 443,870 623,385 Class C shares 220,991 273,162 Reinvestment of distributions at net asset value Class A shares 3,315,356 4,522,917 Class B shares 128,108 216,468 Class C shares 34,908 61,001 Payments for redemptions Class A shares (33,539,880) (29,519,324) Class B shares (713,855) (3,319,777) Class C shares (506,590) (569,804) - ----------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions 2,262,767 (4,728,868) - ----------------------------------------------------------------------------------------- Total increase (decrease) in net assets (7,044,043) (9,043,585) Net assets at beginning of period 172,194,592 181,238,177 - ----------------------------------------------------------------------------------------- Net assets at end of period $165,150,549 $172,194,592 ========================================================================================= Undistributed net investment income $ 42,250 $ 35,481 - -----------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 54 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND SIX MONTHS ENDED YEAR ENDED FEB. 29, 2008 AUG. 31, 2007 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 6,082,981 $ 12,119,582 Net realized gain (loss) on investments (749,018) (255,908) Net change in unrealized appreciation (depreciation) on investments (9,736,558) (7,598,634) - ----------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (4,402,595) 4,265,040 - ----------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (5,655,243) (11,270,181) Class B (302,226) (791,703) Class C (115,488) (230,272) - ----------------------------------------------------------------------------------------- Total distributions (6,072,957) (12,292,156) - ----------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 16,435,204 32,528,076 Class B shares 349,259 1,039,072 Class C shares 840,969 995,410 Reinvestment of distributions at net asset value Class A shares 4,777,333 9,097,879 Class B shares 272,630 680,057 Class C shares 105,481 202,223 Payments for redemptions Class A shares (33,733,968) (55,109,296) Class B shares (2,419,441) (10,945,982) Class C shares (655,241) (2,138,810) - ----------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (14,027,774) (23,651,371) - ----------------------------------------------------------------------------------------- Total increase (decrease) in net assets (24,503,326) (31,678,487) Net assets at beginning of period 314,503,731 346,182,218 - ----------------------------------------------------------------------------------------- Net assets at end of period $290,000,405 $314,503,731 ========================================================================================= Undistributed net investment income $ 251,593 $ 241,569 - -----------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 55 STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
RIVERSOURCE NEW YORK TAX-EXEMPT FUND SIX MONTHS ENDED YEAR ENDED FEB. 29, 2008 AUG. 31, 2007 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 1,207,257 $ 2,546,399 Net realized gain (loss) on investments (62,207) 167,905 Net change in unrealized appreciation (depreciation) on investments (2,348,884) (1,748,799) - ----------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (1,203,834) 965,505 - ----------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (1,123,741) (2,330,813) Class B (70,009) (181,832) Class C (12,381) (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 (1,313,890) (2,620,213) - ----------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales Class A shares 1,425,503 6,507,070 Class B shares 60,747 371,363 Class C shares 38,512 107,676 Reinvestment of distributions at net asset value Class A shares 1,036,767 1,953,853 Class B shares 69,188 154,068 Class C shares 13,184 28,046 Payments for redemptions Class A shares (6,981,138) (11,708,520) Class B shares (588,453) (2,667,241) Class C shares (161,178) (471,813) - ----------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (5,086,868) (5,725,498) - ----------------------------------------------------------------------------------------- Total increase (decrease) in net assets (7,604,592) (7,380,206) Net assets at beginning of period 63,690,849 71,071,055 - ----------------------------------------------------------------------------------------- Net assets at end of period $56,086,257 $ 63,690,849 ========================================================================================= Undistributed net investment income $ 14,772 $ 13,646 - -----------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of this statement. - -------------------------------------------------------------------------------- 56 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS (Unaudited as to Feb. 29, 2008) 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 SEMIANNUAL REPORT 57 VALUATION OF SECURITIES All securities are valued at the close of each business day. Securities traded on national securities exchanges or included in national market systems are valued at the last quoted sale price. Debt securities are generally traded in the over-the-counter market and are valued at a price that reflects fair value as quoted by dealers in these securities or by an independent pricing service. The procedures adopted by the Board of Trustees (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. 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 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. During the six months ended Feb. 29, 2008, the Funds had no outstanding options contracts. - -------------------------------------------------------------------------------- 58 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Futures are valued daily based upon the last sale price at the close of market on the principal exchange on which they are traded. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. INTEREST RATE SWAP TRANSACTIONS The Funds may enter into interest rate swap agreements to produce incremental earnings or to gain exposure to or protect themselves from market changes. Interest rate swaps are agreements between two parties that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future, based on a predetermined, specified notional amount. Certain interest rate swaps are considered forward-starting; whereby the accrual for the exchange of cash flows does not begin until a specified date in the future (the "effective date"). The net cash flow for a standard interest rate swap transaction is generally the difference between a floating market interest rate versus a fixed interest rate. The Funds may employ interest rate swaps to synthetically add or subtract principal exposure to the municipal market. Interest rate swaps are valued daily and unrealized appreciation (depreciation) is recorded. Certain interest rate swaps may accrue periodic interest on a daily basis as a component of unrealized appreciation (depreciation); the Funds will realize a gain or loss upon the payment or receipt of accrued interest. The Funds will realize a gain or a loss when the interest rate swap is terminated. Risks of entering into an interest rate swap include a lack of correlation between swaps and the portfolio of municipal bonds the swaps are designed to hedge or replicate. A lack of correlation may cause the interest rate swap to experience adverse changes in value relative to expectations. In addition, interest rate swaps are subject to the risk of default of a counterparty, and the risk of adverse movements in market interest rates relative to the interest rate swap positions entered. INVERSE FLOATER PROGRAM TRANSACTIONS Each Fund may enter into transactions in which it transfers to trusts fixed rate municipal bonds in exchange for cash and residual interests in the trusts' assets - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 59 and cash flows, which are in the form of inverse floating rate securities. The trusts fund the purchases of the municipal bonds by issuing short-term floating rate notes to third parties. The residual interests held by each Fund (inverse floating rate securities) include the right of each Fund (1) to cause the holders of the short-term floating rate notes to tender their notes at par, and (2) to transfer the municipal bonds from the trusts to each Fund, thereby collapsing the trusts. The municipal bonds transferred to the trusts remain in each Fund's investments in securities and the related short-term floating rate notes are reflected as Fund liabilities under the caption "Short-term floating rate notes outstanding" in the "Statements of Assets and Liabilities." The notes issued by the trusts have interest rates that are multi-modal, which means that they can be reset to a new or different mode at the reset date (e.g., mode can be daily, weekly, monthly, or a fixed specific date) at the discretion of the holder of the inverse floating rate security. The floating rate note holders have the option to tender their notes to the trusts for redemption at par at each reset date. The bonds are held by the trusts serve as collateral for the short-term floating rate notes outstanding. Contractual maturities and interest rates of the municipal bonds held in trust at Feb. 29, 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 Feb. 29, 2008, the market value of municipal bonds held in trust and short-term floating rate notes outstanding were as follows:
MARKET VALUE SHORT-TERM WEIGHTED AVERAGE OF MUNICIPAL FLOATING RATE OF INTEREST RATES BONDS HELD NOTES FOR SHORT-TERM FUND IN TRUST OUTSTANDING FLOATING RATE NOTES - ------------------------------------------------------------------------------------ RiverSource Minnesota $26,791,470 $16,775,000 11.83% Tax-Exempt Fund RiverSource New York Tax-Exempt 4,793,727 3,124,000 9.14% Fund
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. - -------------------------------------------------------------------------------- 60 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT The Funds have adopted Financial Accounting Standards Board (FASB) Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," which is effective for fiscal periods beginning after Dec. 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Management of the Funds have 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 deferred losses on certain futures contracts and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Funds. RECENT ACCOUNTING PRONOUNCEMENT 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 Statement 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 the Fund's financial statements. 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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 61 2. EXPENSES AND SALES CHARGES Under an Investment Management Services Agreement, RiverSource Investments, LLC (the Investment Manager) determines which securities will be purchased, held or sold. The management fee is a percentage of each Fund's average daily net assets that declines from 0.41% to 0.25% annually as each Fund's assets increase. For the six months ended Feb. 29, 2008, the management fee for each of the Fund's was 0.41% of each Fund's average daily net assets. 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. For the six months ended Feb. 29, 2008, the fee for each of the Fund's was 0.07% of each Fund's average daily net assets. Other expenses are for, among other things, certain expenses of the Funds or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Funds and the Board. For the six months ended Feb. 29, 2008, other expenses paid to this company are as follows:
FUND AMOUNT - ---------------------------------------------------------------------- RiverSource California Tax-Exempt Fund $476 RiverSource Minnesota Tax-Exempt Fund 911 RiverSource New York Tax-Exempt Fund 158
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. 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. - -------------------------------------------------------------------------------- 62 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT Each Fund has an agreement with RiverSource Distributors, Inc. (the Distributor) for distribution and shareholder services. Prior to Oct. 1, 2007, Ameriprise 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. Sales charges received by the Distributor for distributing the Funds' shares for the six months ended Feb. 29, 2008 are as follows:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund $ 31,886 $3,672 $ 60 RiverSource Minnesota Tax-Exempt Fund 153,870 8,690 388 RiverSource New York Tax-Exempt Fund 11,349 1,951 62
For the six months ended Feb. 29, 2008, the Investment Manager and its affiliates waived/reimbursed certain fees and expenses such that the Fund's net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs) are as follows:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund 0.79% 1.54% 1.54% RiverSource Minnesota Tax-Exempt Fund 0.79 1.54 1.54 RiverSource New York Tax-Exempt Fund 0.79 1.54 1.54
Of these waived/reimbursed fees and expenses, the transfer agency fees (noted by share class) and management fees (noted by Fund level) for the six months ended Feb. 29, 2008 are as follows:
FUND AMOUNT - ----------------------------------------------------------------------- RiverSource California Tax-Exempt Fund Class A $16,146 Class B 727 Class C 202 The management fees waived at the Fund level were $44,495. RiverSource Minnesota Tax-Exempt Fund Class A 33,539 Class B 2,724 Class C 988 The management fees waived at the Fund level were $63,255. RiverSource New York Tax-Exempt Fund Class A 5,937 Class B 584 Class C 102 The management fees waived at the Fund level were $43,734.
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 63 In addition, the Investment Manager and its affiliates have contractually agreed to waive certain fees and expenses until Aug. 31, 2008, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs), will not exceed 0.79% for Class A, 1.54% for Class B and 1.54% for Class C of the average daily net assets for each Fund, unless sooner terminated at the discretion of the Board. During the six months ended Feb. 29, 2008, the Funds' custodian and transfer agency fees were reduced as a result of earnings and bank fee credits from overnight cash balances as follows:
FUND AMOUNT - ----------------------------------------------------------------------- RiverSource California Tax-Exempt Fund $ 5,443 RiverSource Minnesota Tax-Exempt Fund 14,282 RiverSource New York Tax-Exempt Fund 3,827
3. SECURITIES TRANSACTIONS For the six months ended Feb. 29, 2008, cost of purchases and proceeds from sales (other than short-term obligations) aggregated for each Fund are as follows:
FUND PURCHASES PROCEEDS - ---------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund $29,720,343 $36,912,762 RiverSource Minnesota Tax-Exempt Fund 26,928,348 48,946,189 RiverSource New York Tax-Exempt Fund 5,238,688 10,153,112
Realized gains and losses are determined on an identified cost basis. 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the periods indicated are as follows: RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
SIX MONTHS ENDED FEB. 29, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 6,519,991 660,796 (6,659,806) 520,981 Class B 89,313 25,554 (141,222) (26,355) Class C 43,522 6,954 (99,707) (49,231) - ----------------------------------------------------------------------------------------------
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) - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 64 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
SIX MONTHS ENDED FEB. 29, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 3,153,782 919,752 (6,484,541) (2,411,007) Class B 67,000 52,468 (465,000) (345,532) Class C 161,098 20,305 (125,728) 55,675 - ----------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 6,206,727 1,733,826 (10,512,347) (2,571,794) Class B 198,662 129,453 (2,098,131) (1,770,016) Class C 189,325 38,520 (406,721) (178,876) - ----------------------------------------------------------------------------------------------
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
SIX MONTHS ENDED FEB. 29, 2008 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - --------------------------------------------------------------------------------------------- Class A 286,095 209,207 (1,404,869) (909,567) Class B 12,250 13,961 (118,201) (91,990) Class C 7,783 2,660 (32,410) (21,967) - ---------------------------------------------------------------------------------------------
YEAR ENDED AUG. 31, 2007 ISSUED FOR REINVESTED NET SOLD DISTRIBUTIONS REDEEMED INCREASE (DECREASE) - ---------------------------------------------------------------------------------------------- Class A 1,294,149 388,622 (2,330,222) (647,451) Class B 73,375 30,621 (532,071) (428,075) Class C 21,359 5,574 (93,550) (66,617) - ----------------------------------------------------------------------------------------------
5. BANK BORROWINGS Each Fund has entered into a revolving credit facility with a syndicate of banks headed by JPMorgan Chase Bank, N.A. (JPMCB), whereby each Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility became effective on Oct. 18, 2007, replacing a prior credit facility. The credit facility agreement, which is a collective agreement between each Fund and certain other RiverSource funds, severally and not jointly, permits collective borrowings up to $500 million. Interest - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 65 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 six months ended Feb. 29, 2008. 6. CAPITAL LOSS CARRY-OVER AND POST-OCTOBER LOSS For federal income tax purposes, capital loss carry-overs at Aug. 31, 2007 are as follows:
FUND 2013 2014 - --------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund $993,611 $913,006
Because the measurement periods for a regulated investment company's income are different for excise tax purposes 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, RiverSource Minnesota Tax-Exempt Fund is permitted to treat net capital losses realized between November 1, 2006, and its fiscal year end ("post-October loss") as occurring on the first day of the following tax year. At Aug. 31, 2007, RiverSource Minnesota Tax-Exempt Fund had a post-October loss of $530,743 that is treated for income tax purposes as occurring on Sept. 1, 2007. It is unlikely the Board will authorize distributions of any net realized capital gains for RiverSource Minnesota Tax-Exempt Fund until the respective capital loss carry-over and post-October loss have been offset or expire. 7. CONCENTRATION OF RISK DIVERSIFICATION RISK The fund is non-diversified. A non-diversified fund may invest more of its assets in fewer companies than if it were a diversified fund. Because each investment has a greater effect on the Fund's performance, 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. - -------------------------------------------------------------------------------- 66 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT The value of municipal securities owned by a Fund also may be adversely affected by future changes in federal or state income tax laws. In addition, because of the relatively small number of issuers of tax-exempt securities, the Fund may invest a higher percentage of assets in a single issuer and, therefore, be more exposed to the risk of loss by investing in a few issuers than a fund that invests more broadly. At times, the Fund and other accounts managed by the investment manager may own all or most of the debt of a particular issuer. This concentration of ownership may make it more difficult to sell, or to determine the fair value of, these investments. 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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 67 Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. - -------------------------------------------------------------------------------- 68 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 9. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating each Fund's results. RiverSource California Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .10(c) .20(c) .03 .19 .20 .21 Net gains (losses) (both realized and unrealized) (.23) (.13) .10 (.15) .23 (.20) - ----------------------------------------------------------------------------------------------------------------------- Total from investment operations (.13) .07 .13 .04 .43 .01 - ----------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.20) (.03) (.19) (.20) (.21) Distributions from realized gains (.04) -- -- (.06) (.07) (.06) - ----------------------------------------------------------------------------------------------------------------------- Total distributions (.14) (.20) (.03) (.25) (.27) (.27) - ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.76 $5.03 $5.16 $5.06 $5.27 $5.11 - ----------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $158 $164 $170 $171 $190 $194 - ----------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (including interest and fee expense)(d),(e) N/A .88% N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (including interest and fee expense)(e),(g),(h) N/A .80% N/A N/A N/A N/A - ----------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (excluding interest and fee expense)(d) .86%(f) .87% .87%(f) .88% .86% .86% - ----------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) .79%(f) .79% .79%(f) .81% .86% .86% - ----------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.96%(f) 3.89% 3.81%(f) 3.69% 3.71% 4.03% - ----------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 18% 62% 7% 20% 28% 30% - ----------------------------------------------------------------------------------------------------------------------- Total return(i) (2.78%)(j) 1.35% 2.63%(j) .81% 8.53% .25% - -----------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 69 RiverSource California Tax-Exempt Fund (continued) CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .08(c) .16(c) .03 .15 .16 .17 Net gains (losses) (both realized and unrealized) (.23) (.13) .10 (.15) .23 (.20) - --------------------------------------------------------------------------------------------------------------------- Total from investment operations (.15) .03 .13 -- .39 (.03) - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.16) (.03) (.15) (.16) (.17) Distributions from realized gains (.04) -- -- (.06) (.07) (.06) - --------------------------------------------------------------------------------------------------------------------- Total distributions (.12) (.16) (.03) (.21) (.23) (.23) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.76 $5.03 $5.16 $5.06 $5.27 $5.11 - --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $6 $6 $9 $11 $16 $21 - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (including interest and fee expense)(d),(e) N/A 1.63% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/ reimbursement (including interest and fee expense)(e),(g),(h) N/A 1.55% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (excluding interest and fee expense)(d) 1.62%(f) 1.62% 1.62%(f) 1.63% 1.61% 1.61% - --------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/ reimbursement (excluding interest and fee expense)(g),(h) 1.54%(f) 1.54% 1.55%(f) 1.57% 1.61% 1.61% - --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.21%(f) 3.12% 3.01%(f) 2.92% 2.95% 3.28% - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 18% 62% 7% 20% 28% 30% - --------------------------------------------------------------------------------------------------------------------- Total return(i) (3.13%)(j) .59% 2.50%(j) .05% 7.72% (.50%) - ---------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 70 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource California Tax-Exempt Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .08(c) .16(c) .03 .15 .16 .17 Net gains (losses) (both realized and unrealized) (.23) (.13) .10 (.15) .23 (.20) - --------------------------------------------------------------------------------------------------------------------- Total from investment operations (.15) .03 .13 -- .39 (.03) - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.16) (.03) (.15) (.16) (.17) Distributions from realized gains (.04) -- -- (.06) (.07) (.06) - --------------------------------------------------------------------------------------------------------------------- Total distributions (.12) (.16) (.03) (.21) (.23) (.23) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.77 $5.04 $5.17 $5.07 $5.28 $5.12 - --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $2 $2 $2 $2 $3 $4 - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) N/A 1.63% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/ reimbursement (including interest and fee expense)(e),(g),(h) N/A 1.55% N/A N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (excluding interest and fee expense)(d) 1.62%(f) 1.62% 1.63%(f) 1.64% 1.62% 1.62% - --------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/ reimbursement (excluding interest and fee expense)(g),(h) 1.54%(f) 1.54% 1.55%(f) 1.58% 1.62% 1.62% - --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.18%(f) 3.13% 3.05%(f) 2.93% 2.94% 3.27% - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 18% 62% 7% 20% 28% 30% - --------------------------------------------------------------------------------------------------------------------- Total return(i) (3.12%)(j) .60% 2.50%(j) .06% 7.71% (.50%) - ---------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 71 RiverSource Minnesota Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .10(c) .19(c) .03 .18 .18 .19 Net gains (losses) (both realized and unrealized) (.17) (.13) .10 (.17) .17 (.17) - --------------------------------------------------------------------------------------------------------------------- Total from investment operations (.07) .06 .13 .01 .35 .02 - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.11) (.19) (.03) (.18) (.18) (.19) Distributions from realized gains -- -- -- (.01) (.02) -- - --------------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.19) (.03) (.19) (.20) (.19) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.96 $5.14 $5.27 $5.17 $5.35 $5.20 - --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in millions) $266 $288 $309 $303 $341 $347 - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (including interest and fee expense)(d),(e) 1.04%(f) 1.05% 1.06%(f) 1.01% .95% .90% - --------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/ reimbursement (including interest and fee expense)(e),(g),(h) .98%(f) .99% .98%(f) .96% .95% .90% - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (excluding interest and fee expense)(d) .85%(f) .85% .87%(f) .86% .85% .84% - --------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/ reimbursement (excluding interest and fee expense)(g),(h) .79%(f) .79% .79%(f) .81% .85% .84% - --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.99%(f) 3.70% 3.60%(f) 3.52% 3.37% 3.60% - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9% 26% 3% 13% 15% 23% - --------------------------------------------------------------------------------------------------------------------- Total return(i) (1.57%)(j) 1.26% 2.56.%(j) .29% 6.73% .32% - ---------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 72 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund (continued) CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .08(c) .15(c) .03 .14 .14 .15 Net gains (losses) (both realized and unrealized) (.18) (.11) .10 (.17) .17 (.17) - --------------------------------------------------------------------------------------------------------------------- Total from investment operations (.10) .04 .13 (.03) .31 (.02) - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.16) (.03) (.14) (.14) (.15) Distributions from realized gains -- -- -- (.01) (.02) -- - --------------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.16) (.03) (.15) (.16) (.15) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.96 $5.15 $5.27 $5.17 $5.35 $5.20 - --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in millions) $17 $20 $29 $34 $49 $59 - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (including interest and fee expense)(d),(e) 1.80%(f) 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) 1.73%(f) 1.75% 1.74%(f) 1.72% 1.70% 1.65% - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (excluding interest and fee expense)(d) 1.61%(f) 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%(f) 1.55% 1.55%(f) 1.57% 1.60% 1.59% - --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.24%(f) 2.93% 2.81%(f) 2.75% 2.62% 2.85% - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9% 26% 3% 13% 15% 23% - --------------------------------------------------------------------------------------------------------------------- Total return(i) (2.13%)(j) .70% 2.42%(j) (.47%) 5.94% (.44%) - ---------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 73 RiverSource Minnesota Tax-Exempt Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .08(c) .15(c) .03 .14 .14 .15 Net gains (losses) (both realized and unrealized) (.18) (.11) .10 (.17) .17 (.17) - --------------------------------------------------------------------------------------------------------------------- Total from investment operations (.10) .04 .13 (.03) .31 (.02) - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.16) (.03) (.14) (.14) (.15) Distributions from realized gains -- -- -- (.01) (.02) -- - --------------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.16) (.03) (.15) (.16) (.15) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.96 $5.15 $5.27 $5.17 $5.35 $5.20 - --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in millions) $7 $7 $8 $8 $9 $9 - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (including interest and fee expense)(d),(e) 1.80%(f) 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) 1.73%(f) 1.75% 1.74%(f) 1.72%(e) 1.71% 1.66% - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (excluding interest and fee expense)(d) 1.61%(f) 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%(f) 1.55% 1.55%(f) 1.57%(e) 1.61% 1.60% - --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.22%(f) 2.94% 2.84%(f) 2.76% 2.62% 2.84% - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9% 26% 3% 13% 15% 23% - --------------------------------------------------------------------------------------------------------------------- Total return(i) (2.13%)(j) .70% 2.42%(j) (.47%) 5.94% (.44%) - ---------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 74 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource New York Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .10(c) .19(c) .03 .19 .18 .18 Net gains (losses) (both realized and unrealized) (.21) (.11) .10 (.18) .17 (.18) - --------------------------------------------------------------------------------------------------------------------- Total from investment operations (.11) .08 .13 .01 .35 -- - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.19) (.03) (.19) (.18) (.18) Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11) - --------------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.20) (.03) (.24) (.24) (.29) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.71 $4.93 $5.05 $4.95 $5.18 $5.07 - --------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $52 $58 $63 $63 $73 $79 - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (including interest and fee expense)(d),(e) 1.15%(f) 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) .99%(f) 1.00% .98%(f) .98% .98% .95% - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/reimbursement (excluding interest and fee expense)(d) .95%(f) .97% 1.01%(f) .96% .92% .93% - --------------------------------------------------------------------------------------------------------------------- Net expenses after expense waiver/reimbursement (excluding interest and fee expense)(g),(h) .79%(f) .79% .79%(f) .81% .88% .88% - --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4.01%(f) 3.81% 3.77%(f) 3.75% 3.47% 3.44% - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9% 28% 7% 17% 30% 36% - --------------------------------------------------------------------------------------------------------------------- Total return(i) (2.36%)(j) 1.53% 2.67%(j) .20% 7.04% (.02%) - ---------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 75 RiverSource New York Tax-Exempt Fund (continued) CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .08(c) .15(c) .03 .15 .14 .14 Net gains (losses) (both realized and unrealized) (.21) (.11) .10 (.18) .17 (.18) - --------------------------------------------------------------------------------------------------------------------- Total from investment operations (.13) .04 .13 (.03) .31 (.04) - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.15) (.03) (.15) (.14) (.14) Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11) - --------------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.16) (.03) (.20) (.20) (.25) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.71 $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) 1.91%(f) 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) 1.74%(f) 1.76% 1.74%(f) 1.75% 1.74% 1.70% - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (excluding interest and fee expense)(d) 1.71%(f) 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%(f) 1.55% 1.55%(f) 1.58% 1.64% 1.63% - --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.25%(f) 3.05% 2.98%(f) 2.98% 2.70% 2.69% - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9% 28% 7% 17% 30% 36% - --------------------------------------------------------------------------------------------------------------------- Total return(i) (2.72%)(j) .76% 2.54%(j) (.55%) 6.23% (.78%) - ---------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- 76 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RiverSource New York Tax-Exempt Fund (continued) CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS YEAR PERIOD ENDED ENDED ENDED FEB. 29, AUG. 31, AUG. 31, YEAR ENDED JUNE 30, 2008 2007 2006(B) 2006 2005 2004 (UNAUDITED) 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) .08(c) .15(c) .03 .15 .14 .14 Net gains (losses) (both realized and unrealized) (.20) (.12) .10 (.18) .17 (.18) - --------------------------------------------------------------------------------------------------------------------- Total from investment operations (.12) .03 .13 (.03) .31 (.04) - --------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.15) (.03) (.15) (.14) (.14) Distributions from realized gains (.01) (.01) -- (.05) (.06) (.11) - --------------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.16) (.03) (.20) (.20) (.25) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $4.71 $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) 1.91%(f) 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) 1.74%(f) 1.76% 1.74%(f) 1.75% 1.74% 1.70% - --------------------------------------------------------------------------------------------------------------------- Gross expenses prior to expense waiver/ reimbursement (excluding interest and fee expense)(d) 1.71%(f) 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%(f) 1.55% 1.55%(f) 1.58% 1.64% 1.63% - --------------------------------------------------------------------------------------------------------------------- Net investment income (loss) 3.26%(f) 3.05% 3.01%(f) 2.99% 2.70% 2.68% - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 9% 28% 7% 17% 30% 36% - --------------------------------------------------------------------------------------------------------------------- Total return(i) (2.53%)(j) .56% 2.54%(j) (.55%) 6.23% (.78%) - ---------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Per share amounts have been calculated using the average shares outstanding method. (d) Expense ratio is before reduction for earnings and bank fee credits on cash balances. (e) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. (f) Adjusted to an annual basis. (g) The Investment Manager and its affiliates have agreed to waive 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 six months ended Feb. 29, 2008. (i) Total return does not reflect payment of a sales charge. (j) Not annualized. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 77 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. - -------------------------------------------------------------------------------- 78 RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE MINNESOTA TAX-EXEMPT FUND SPECIAL MEETING OF SHAREHOLDERS HELD ON JAN. 29, 2008 (UNAUDITED) A brief description of the proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to the proposal is set forth below. A vote is based on total dollar interest in the Fund. To approve a change in the classification of the Fund from a "diversified" fund to a "non-diversified" fund.
DOLLARS VOTED DOLLARS VOTED BROKER "FOR" "AGAINST" ABSTENTIONS NON-VOTES ----------------------------------------------------------------------------------------------- 180,548,815.538 12,394,812.133 10,963,265.036 0.000 - ------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2008 SEMIANNUAL REPORT 79 RIVERSOURCE STATE TAX-EXEMPT FUNDS 734 Ameriprise Financial Center Minneapolis, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R) mutual funds are distributed by RiverSource Distributors, Inc., Member FINRA, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. (RIVERSOURCE INVESTMENTS LOGO) (C) 2008 RiverSource Distributors, Inc. S-6329 Y (4/08)
Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource Special Tax-Exempt Series Trust By /s/ Patrick T. Bannigan ---------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date May 2, 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 May 2, 2008 By /s/ Jeffrey P. Fox ---------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date May 2, 2008 EX-99.CERT 2 c25042aexv99wcert.txt CERTIFICATION Exhibit 99. CERT Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Patrick T. Bannigan, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Special Tax-Exempt Series Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 18, 2008 /s/ Patrick T. Bannigan - ------------------------------------- Name: Patrick T. Bannigan Title: President and Principal Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey P. Fox, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource Special Tax-Exempt Series Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 18, 2008 /s/ Jeffrey P. Fox - ------------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Principal Financial Officer EX-99.906CERT 3 c25042aexv99w906cert.txt SECTION 906 CERTIFICATION Exhibit 99.906 CERT CERTIFICATION RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: April 18, 2008 /s/ Patrick T. Bannigan ---------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date: April 18, 2008 /s/ Jeffrey P. Fox ---------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----