-----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, RvYP6dNUqF6dFkG2ZdZfu/BvVoMmOFuc0zcATIxYNeosxdxDisRv8StPdianLdmg sYTGHmNYAQBwCzjHQcOQCg== 0000820027-06-000381.txt : 20060307 0000820027-06-000381.hdr.sgml : 20060307 20060307102202 ACCESSION NUMBER: 0000820027-06-000381 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060307 DATE AS OF CHANGE: 20060307 EFFECTIVENESS DATE: 20060307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXP CALIFORNIA TAX-EXEMPT TRUST CENTRAL INDEX KEY: 0000792717 IRS NUMBER: 411560213 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04646 FILM NUMBER: 06668930 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: IDS CALIFORNIA TAX EXEMPT TRUST DATE OF NAME CHANGE: 19920703 0000792717 S000003336 RiverSource California Tax-Exempt Fund C000009057 RiverSource California Tax-Exempt Fund Class C C000009058 RiverSource California Tax-Exempt Fund Class A ICALX C000009059 RiverSource California Tax-Exempt Fund Class B ACABX N-CSRS 1 california-ncsrs.txt AXP CALIFORNIA TAX-EXEMPT TRUST UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-4646 ------------ AXP CALIFORNIA TAX-EXEMPT TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 AXP Financial Center, Minneapolis, Minnesota 55474 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 330-9283 ----------------- Date of fiscal year end: 6/30 -------------- Date of reporting period: 12/31 -------------- SEMIANNUAL REPORT [RIVERSOURCE(SM) INVESTMENTS LOGO] RIVERSOURCE(SM) CALIFORNIA TAX-EXEMPT FUND RIVERSOURCE(SM) MASSACHUSETTS TAX-EXEMPT FUND RIVERSOURCE(SM) MICHIGAN TAX-EXEMPT FUND RIVERSOURCE(SM) MINNESOTA TAX-EXEMPT FUND RIVERSOURCE(SM) NEW YORK TAX-EXEMPT FUND RIVERSOURCE(SM) OHIO TAX-EXEMPT FUND SEMIANNUAL REPORT FOR THE PERIOD ENDED DEC. 31, 2005 - - 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 3-9 AXP California Tax-Exempt Fund 3 AXP Massachusetts Tax-Exempt Fund 4 AXP Michigan Tax-Exempt Fund 5 AXP Minnesota Tax-Exempt Fund 6 AXP New York Tax-Exempt Fund 7 AXP Ohio Tax-Exempt Fund 8 Performance Summary 10-21 AXP California Tax-Exempt Fund 10 AXP Massachusetts Tax-Exempt Fund 12 AXP Michigan Tax-Exempt Fund 14 AXP Minnesota Tax-Exempt Fund 16 AXP New York Tax-Exempt Fund 18 AXP Ohio Tax-Exempt Fund 20 Questions & Answers with Portfolio Management 22 Investments in Securities 26-60 AXP California Tax-Exempt Fund 26 AXP Massachusetts Tax-Exempt Fund 33 AXP Michigan Tax-Exempt Fund 37 AXP Minnesota Tax-Exempt Fund 42 AXP New York Tax-Exempt Fund 50 AXP Ohio Tax-Exempt Fund 56 Financial Statements 61 Notes to Financial Statements 68 Fund Expenses Example 97 Approval of Investment Management Services Agreement 104 Proxy Voting 109 [DALBAR RATED FOR COMMUNICATION 2005 LOGO] American Express(R) Funds'* reports to shareholders 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. * As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the name of the American Express Funds. - -------------------------------------------------------------------------------- 2 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT FUND SNAPSHOT AT DEC. 31, 2005 RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND PORTFOLIO MANAGER
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY David Kerwin, CFA* 8/04 20
* The Fund is managed by a team of portfolio managers led by David Kerwin. 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. Inception dates by class A: 8/18/86 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: ICALX B: ACABX C: -- Total net assets $192.8 million Number of holdings 108 Effective maturity(1) 14.6 years Effective duration(2) 6.7 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. STYLE MATRIX
DURATION QUALITY SHORT INT. LONG HIGH X MEDIUM LOW
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY INVESTS. CREDIT QUALITY SUMMARY PERCENTAGE OF BOND PORTFOLIO ASSETS AAA bonds 60.2% AA bonds 9.7 A bonds 21.3 BBB bonds 6.6 Non-investment grade bonds 2.2
Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 3.4% of the portfolio rating above was determined through internal analysis. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. There are risks associated with an investment in a bond fund, including the impact of interest rates, credit and inflation. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Income from tax-exempt funds may be subject and local taxes and a portion of income may be subject to federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are subject to change. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 3 FUND SNAPSHOT AT DEC. 31, 2005 RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND PORTFOLIO MANAGER
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY David Kerwin, CFA* 8/04 20
* The Fund is managed by a team of portfolio managers led by David Kerwin. FUND OBJECTIVE For Massachusetts investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from respective state and local tax. Inception dates by class A: 7/2/87 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: IDMAX B: AXMBX C: -- Total net assets $68.3 million Number of holdings 52 Effective maturity(1) 11.7 years Effective duration(2) 6.7 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. STYLE MATRIX
DURATION QUALITY SHORT INT. LONG HIGH X MEDIUM LOW
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY INVESTS. CREDIT QUALITY SUMMARY PERCENTAGE OF BOND PORTFOLIO ASSETS AAA bonds 72.1% AA bonds 23.9 A bonds 1.6 BBB bonds 2.4 Non-investment grade bonds --
Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 1.4% of the portfolio rating above was determined through internal analysis. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. There are risks associated with an investment in a bond fund, including the impact of interest rates, credit and inflation. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Income from tax-exempt funds may be subject and local taxes and a portion of income may be subject to federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 4 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT FUND SNAPSHOT AT DEC. 31, 2005 RIVERSOURCE MICHIGAN TAX-EXEMPT FUND PORTFOLIO MANAGER
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY David Kerwin, CFA* 8/04 20
* The Fund is managed by a team of portfolio managers led by David Kerwin. FUND OBJECTIVE For Michigan investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local tax. Inception dates by class A: 7/2/87 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: INMIX B: -- C: -- Total net assets $56.0 million Number of holdings 57 Effective maturity(1) 11.6 years Effective duration(2) 6.2 years Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. STYLE MATRIX
DURATION QUALITY SHORT INT. LONG HIGH X MEDIUM LOW
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY INVESTS. CREDIT QUALITY SUMMARY PERCENTAGE OF BOND PORTFOLIO ASSETS AAA bonds 65.1% AA bonds 28.0 A bonds 5.9 BBB bonds 1.0 Non-investment grade bonds --
Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 1.0% of the portfolio above was determined through internal analysis. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. There are risks associated with an investment in a bond fund, including the impact of interest rates, credit and inflation. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Income from tax-exempt funds may be subject and local taxes and a portion of income may be subject to federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are subject to change. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 5 FUND SNAPSHOT AT DEC. 31, 2005 RIVERSOURCE MINNESOTA TAX-EXEMPT FUND PORTFOLIO MANAGER
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY David Kerwin, CFA* 8/04 20
* The Fund is managed by a team of portfolio managers led by David Kerwin. 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 tax. Inception dates by class A: 8/18/86 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: IMNTX B: IDSMX C: -- Total net assets $375.5 million Number of holdings 136 Effective maturity(1) 11.7 years Effective duration(2) 6.4 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. STYLE MATRIX
DURATION QUALITY SHORT INT. LONG HIGH X MEDIUM LOW
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY INVESTS. CREDIT QUALITY SUMMARY PERCENTAGE OF BOND PORTFOLIO ASSETS AAA bonds 65.2% AA bonds 16.5 A bonds 9.8 BBB bonds 3.8 Non-investment grade bonds 2.7 Non-rated bonds 2.0
Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. 2.2% of the portfolio rating above was determined through internal analysis. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. There are risks associated with an investment in a bond fund, including the impact of interest rates, credit and inflation. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Income from tax-exempt funds may be subject and local taxes and a portion of income may be subject to federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 6 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT FUND SNAPSHOT AT DEC. 31, 2005 RIVERSOURCE NEW YORK TAX-EXEMPT FUND PORTFOLIO MANAGER
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY David Kerwin, CFA* 8/04 20
* The Fund is managed by a team of portfolio managers led by David Kerwin. 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. Inception dates by class A: 8/18/86 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: INYKX B: -- C: -- Total net assets $78.8 million Number of holdings 78 Effective maturity(1) 13.8 years Effective duration(2) 7.0 years Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. STYLE MATRIX
DURATION QUALITY SHORT INT. LONG HIGH X MEDIUM LOW
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY INVESTS. CREDIT QUALITY SUMMARY PERCENTAGE OF BOND PORTFOLIO ASSETS AAA bonds 55.7% AA bonds 23.5 A bonds 12.1 BBB bonds 3.2 Non-investment grade bonds 4.1 Non-rated bonds 1.4
Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. There are risks associated with an investment in a bond fund, including the impact of interest rates, credit and inflation. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Income from tax-exempt funds may be subject and local taxes and a portion of income may be subject to federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are subject to change. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 7 FUND SNAPSHOT AT DEC. 31, 2005 RIVERSOURCE OHIO TAX-EXEMPT FUND PORTFOLIO MANAGER
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY David Kerwin, CFA* 8/04 20
* The Fund is managed by a team of portfolio managers led by David Kerwin. FUND OBJECTIVE For Ohio investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. Inception dates by class A: 7/2/87 B: 3/20/95 C: 6/26/00 Ticker symbols by class A: IOHIX B: -- C: -- Total net assets $56.6 million Number of holdings 58 Effective maturity(1) 12.8 years Effective duration(2) 6.7 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. STYLE MATRIX
DURATION QUALITY SHORT INT. LONG HIGH X MEDIUM LOW
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY INVESTS. CREDIT QUALITY SUMMARY PERCENTAGE OF BOND PORTFOLIO ASSETS AAA bonds 63.2% AA bonds 30.0 A bonds 4.2 BBB bonds 2.6 Non-investment grade bonds --
Individual security ratings are based on information from Standard & Poor's Corp. and Moody's Investors Service. If a rating is unavailable, the rating is determined through an internal analysis, if appropriate. Investment products, including shares of mutual funds, involve investment risks including possible loss of principal and fluctuation in value. There are risks associated with an investment in a bond fund, including the impact of interest rates, credit and inflation. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Income from tax-exempt funds may be subject and local taxes and a portion of income may be subject to federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are subject to change. - -------------------------------------------------------------------------------- 8 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT YIELD SNAPSHOT RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND SEC YIELDS At Dec. 30, 2005* by class A: 3.26% B: 2.66% C: 2.66% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 11 for additional performance information. *The last business day of the period. RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND SEC YIELDS At Dec. 30, 2005* by class A: 3.13% B: 2.54% C: 2.54% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 13 for additional performance information. *The last business day of the period. RIVERSOURCE MICHIGAN TAX-EXEMPT FUND SEC YIELDS At Dec. 30, 2005* by class A: 3.05% B: 2.44% C: 2.44% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 15 for additional performance information. *The last business day of the period. RIVERSOURCE MINNESOTA TAX-EXEMPT FUND SEC YIELDS At Dec. 30, 2005* by class A: 3.18% B: 2.58% C: 2.58% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 17 for additional performance information. *The last business day of the period. RIVERSOURCE NEW YORK TAX-EXEMPT FUND SEC YIELDS At Dec. 30, 2005* by class A: 3.36% B: 2.77% C: 2.77% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 19 for additional performance information. *The last business day of the period. RIVERSOURCE OHIO TAX-EXEMPT FUND SEC YIELDS At Dec. 30, 2005* by class A: 3.08% B: 2.48% C: 2.48% The Securities and Exchange Commission (SEC) yield is calculated by dividing anticipated net investment income during a 31-day period by the public offering price (POP) per share on the last day of the period, and converting the results to yearly figures. See Average Annual Total Returns on page 21 for additional performance information. *The last business day of the period. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 9 PERFORMANCE SUMMARY [CHART] RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND PERFORMANCE COMPARISON FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005 +0.68% RiverSource California Tax-Exempt Fund Class A (excluding sales charge) +0.85% Lehman Brothers California 2 Plus Year Municipal Bond Index(1) (unmanaged) +0.84% Lehman Brothers California Municipal Bond Index(2) (unmanaged) +0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged) +0.78% Lipper California Municipal Debt Funds Index(4)
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 CALLING (800) 862-7919 OR VISITING www.riversource.com/funds. (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 California Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of California. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (3) 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 indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (4) The Lipper California Municipal Debt Funds Index includes the 30 largest municipal debt funds in California tracked by Lipper Inc. The Lipper indexes' returns include net reinvested dividends. 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. - -------------------------------------------------------------------------------- 10 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT PERFORMANCE SUMMARY RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND AVERAGE ANNUAL TOTAL RETURNS
CLASS A CLASS B CLASS C (8/18/86) (3/20/95) (6/26/00) (INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT DEC. 31, 2005 6 months* +0.68% -4.11% +0.30% -4.59% +0.30% -0.68% 1 year +3.78% -1.16% +3.00% -1.94% +3.20% +2.21% 3 years +4.13% +2.45% +3.35% +2.12% +3.34% +3.34% 5 years +4.58% +3.57% +3.80% +3.46% +3.84% +3.84% 10 years +4.80% +4.29% +4.02% +4.02% N/A N/A Since inception +5.98% +5.71% +4.44% +4.44% +4.76% +4.76%
(1) EXCLUDING SALES CHARGE. (2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%. (3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS FOLLOWS: FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%; SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER. (4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE. * NOT ANNUALIZED. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 11 PERFORMANCE SUMMARY [CHART] RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE COMPARISON FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005 - -0.14% RiverSource Massachusetts Tax-Exempt Fund Class A (excluding sales charge) +0.36% Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index(1) (unmanaged) +0.32% Lehman Brothers Massachusetts Municipal Bond Index(2) (unmanaged) +0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged) +0.43% Lipper Massachusetts Municipal Debt Funds Index(4)
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 CALLING (800) 862-7919 OR VISITING www.riversource.com/funds. (1) The Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Massachusetts investment-grade fixed-rate municipal bonds with maturities of three years or more. (2) The Lehman Brothers Massachusetts Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Massachusetts. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (3) 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 indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (4) The Lipper Massachusetts Municipal Debt Funds Index includes the 10 largest municipal debt funds in Massachusetts tracked by Lipper Inc. The Lipper indexes' returns include net reinvested dividends. 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. - -------------------------------------------------------------------------------- 12 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT PERFORMANCE SUMMARY RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND AVERAGE ANNUAL TOTAL RETURNS
CLASS A CLASS B CLASS C (7/2/87) (3/20/95) (6/26/00) (INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT DEC. 31, 2005 6 months* -0.14% -4.89% -0.52% -5.40% -0.34% -1.32% 1 year +2.19% -2.66% +1.42% -3.49% +1.43% +0.44% 3 years +3.27% +1.61% +2.49% +1.24% +2.50% +2.50% 5 years +4.36% +3.35% +3.58% +3.23% +3.58% +3.58% 10 years +4.41% +3.91% +3.63% +3.63% N/A N/A Since inception +5.86% +5.58% +4.10% +4.10% +4.36% +4.36%
(1) EXCLUDING SALES CHARGE. (2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%. (3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS FOLLOWS: FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%; SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER. (4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE. * NOT ANNUALIZED. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 13 PERFORMANCE SUMMARY [CHART] RIVERSOURCE MICHIGAN TAX-EXEMPT FUND PERFORMANCE COMPARISON FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005 +0.42% RiverSource Michigan Tax-Exempt Fund Class A (excluding sales charge) +0.55% Lehman Brothers Michigan Municipal Bond Index(1) (unmanaged) +0.60% Lehman Brothers Municipal Bond Index(2) (unmanaged) +0.44% Lipper Michigan Municipal Debt Funds Index(3)
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 CALLING (800) 862-7919 OR VISITING www.riversource.com/funds. (1) The Lehman Brothers Michigan Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Michigan. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (3) The Lipper Michigan Municipal Debt Funds Index includes the 10 largest municipal debt funds in Michigan tracked by Lipper Inc. The Lipper indexes' returns include net reinvested dividends. 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. - -------------------------------------------------------------------------------- 14 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT PERFORMANCE SUMMARY RIVERSOURCE MICHIGAN TAX-EXEMPT FUND AVERAGE ANNUAL TOTAL RETURNS
CLASS A CLASS B CLASS C (7/2/87) (3/20/95) (6/26/00) (INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT DEC. 31, 2005 6 months* +0.42% -4.36% +0.04% -4.86% +0.04% -0.94% 1 year +2.71% -2.17% +1.93% -2.99% +1.93% +0.95% 3 years +3.63% +1.97% +2.85% +1.61% +2.85% +2.85% 5 years +4.80% +3.78% +4.01% +3.67% +4.01% +4.01% 10 years +4.45% +3.94% +3.66% +3.66% N/A N/A Since inception +6.03% +5.75% +4.18% +4.18% +4.66% +4.66%
(1) EXCLUDING SALES CHARGE. (2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%. (3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS FOLLOWS: FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%; SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER. (4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE. * NOT ANNUALIZED. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 15 PERFORMANCE SUMMARY [CHART] RIVERSOURCE MINNESOTA TAX-EXEMPT FUND PERFORMANCE COMPARISON FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005 +0.24% RiverSource Minnesota Tax-Exempt Fund Class A (excluding sales charge) +0.67% Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index(1) (unmanaged) +0.59% Lehman Brothers Minnesota Municipal Bond Index(2) (unmanaged) +0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged) +0.62% Lipper Minnesota Municipal Debt Funds Index(4)
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 CALLING (800) 862-7919 OR VISITING www.riversource.com/funds. (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 Minnesota Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Minnesota. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (3) 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 indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (4) The Lipper Minnesota Municipal Debt Funds Index includes the 10 largest municipal debt funds in Minnesota tracked by Lipper Inc. The Lipper indexes' returns include net reinvested dividends. 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. - -------------------------------------------------------------------------------- 16 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT PERFORMANCE SUMMARY RIVERSOURCE MINNESOTA TAX-EXEMPT FUND AVERAGE ANNUAL TOTAL RETURNS
CLASS A CLASS B CLASS C (8/18/86) (3/20/95) (6/26/00) (INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT DEC. 31, 2005 6 months* +0.24% -4.53% +0.05% -4.88% +0.04% -0.94% 1 year +2.30% -2.56% +1.73% -3.21% +1.72% +0.74% 3 years +3.64% +1.97% +2.93% +1.66% +2.92% +2.92% 5 years +4.71% +3.69% +3.96% +3.62% +3.96% +3.96% 10 years +4.73% +4.22% +3.96% +3.96% N/A N/A Since inception +6.04% +5.77% +4.40% +4.40% +4.65% +4.65%
(1) EXCLUDING SALES CHARGE. (2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%. (3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS FOLLOWS: FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%; SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER. (4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE. * NOT ANNUALIZED. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 17 PERFORMANCE SUMMARY [CHART] RIVERSOURCE NEW YORK TAX-EXEMPT FUND PERFORMANCE COMPARISON FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005 +0.10% RiverSource New York Tax-Exempt Fund Class A (excluding sales charge) +0.56% Lehman Brothers New York 4 Plus Year Municipal Bond Index(1) (unmanaged) +0.56% Lehman Brothers New York Municipal Bond Index(2) (unmanaged) +0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged) +0.42% Lipper New York Municipal Debt Funds Index(4)
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 CALLING (800) 862-7919 OR VISITING www.riversource.com/funds. (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 New York Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of New York. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (3) 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 indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (4) The Lipper New York Municipal Debt Funds Index includes the 30 largest municipal debt funds in New York tracked by Lipper Inc. The Lipper indexes' returns include net reinvested dividends. 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. - -------------------------------------------------------------------------------- 18 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT PERFORMANCE SUMMARY RIVERSOURCE NEW YORK TAX-EXEMPT FUND AVERAGE ANNUAL TOTAL RETURNS
CLASS A CLASS B CLASS C (8/18/86) (3/20/95) (6/26/00) (INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT DEC. 31, 2005 6 months* +0.10% -4.65% -0.27% -5.14% -0.27% -1.24% 1 year +2.66% -2.21% +1.89% -3.01% +1.90% +0.92% 3 years +3.38% +1.71% +2.60% +1.38% +2.60% +2.60% 5 years +4.59% +3.58% +3.81% +3.47% +3.81% +3.81% 10 years +4.66% +4.15% +3.87% +3.87% N/A N/A Since inception +5.81% +5.54% +4.23% +4.23% +4.66% +4.66%
(1) EXCLUDING SALES CHARGE. (2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%. (3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS FOLLOWS: FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%; SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER. (4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE. * NOT ANNUALIZED. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 19 PERFORMANCE SUMMARY [CHART] RIVERSOURCE OHIO TAX-EXEMPT FUND PERFORMANCE COMPARISON FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005 - -0.20% RiverSource Ohio Tax-Exempt Fund Class A (excluding sales charge) +0.52% Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index(1) (unmanaged) +0.52% Lehman Brothers Ohio Municipal Bond Index(2) (unmanaged) +0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged) +0.33% Lipper Ohio Municipal Debt Funds Index(4)
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 CALLING (800) 862-7919 OR VISITING www.riversource.com/funds. (1) The Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Ohio investment-grade fixed-rate municipal bonds with maturities of four years or more. (2) The Lehman Brothers Ohio Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Ohio. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (3) 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 indexes reflect reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (4) The Lipper Ohio Municipal Debt Funds Index includes the 10 largest municipal debt funds in Ohio tracked by Lipper Inc. The Lipper indexes' returns include net reinvested dividends. 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. - -------------------------------------------------------------------------------- 20 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT PERFORMANCE SUMMARY RIVERSOURCE OHIO TAX-EXEMPT FUND AVERAGE ANNUAL TOTAL RETURNS
CLASS A CLASS B CLASS C (7/2/87) (3/20/95) (6/26/00) (INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT DEC. 31, 2005 6 months* -0.20% -4.94% -0.58% -5.49% -0.39% -1.37% 1 year +2.07% -2.78% +1.29% -3.65% +1.49% +0.50% 3 years +3.11% +1.45% +2.33% +1.06% +2.32% +2.32% 5 years +4.20% +3.19% +3.41% +3.06% +3.45% +3.45% 10 years +4.37% +3.86% +3.59% +3.59% N/A N/A Since inception +5.83% +5.55% +4.00% +4.00% +4.11% +4.11%
(1) EXCLUDING SALES CHARGE. (2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%. (3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS FOLLOWS: FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%; SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER. (4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE. * NOT ANNUALIZED. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 21 QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT BELOW, PORTFOLIO MANAGER DAVID KERWIN DISCUSSES THE FUNDS' POSITIONING AND RESULTS FOR THE FIRST HALF OF THE FISCAL YEAR. 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 Dec. 31, 2005. Recently, the Fund's investment manager recommended to the Board of Trustees that the Funds change their comparative indexes from the Lehman Brothers California Municipal Bond Index, Lehman Brothers Massachusetts Municipal Bond Index, Lehman Brothers Minnesota Municipal Bond Index, Lehman Brothers New York Municipal Bond Index and Lehman Brothers Ohio Municipal Bond Index to the Lehman Brothers California 2 Plus Year Municipal Bond Index, Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, Lehman Brothers New York 4 Plus Year Municipal Bond Index and Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, respectively. The investment manager made these recommendations because the new indexes more closely represent the Funds' holdings. Both indexes are shown in this transition year. In the future, however, only the Lehman Brothers California 2 Plus Year Municipal Bond Index, Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, Lehman Brothers New York 4 Plus Year Municipal Bond Index and Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index will be included. All Lipper categories represent the respective Fund's peer group. - RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND gained 0.68%. The Fund underperformed the Lehman Brothers California 2 Plus Year Municipal Bond Index, which returned 0.85%, and the Lehman Brothers California Municipal Bond Index, which returned 0.84%. The Lipper California Municipal Debt Funds Index rose 0.78% for the same period. - RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND fell 0.14%. The Fund underperformed the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, which rose 0.36%, and the Lehman Brothers Massachusetts Municipal Bond Index, which gained 0.32%. The Lipper Massachusetts Municipal Debt Funds Index rose 0.43% for the same period. - RIVERSOURCE MICHIGAN TAX-EXEMPT FUND gained 0.42%. The Fund underperformed the Lehman Brothers Michigan Municipal Bond Index, which advanced 0.55%. The Lipper Michigan Municipal Debt Funds Index produced a total return of 0.44% for the same period. - RIVERSOURCE MINNESOTA TAX-EXEMPT FUND increased 0.24%. The Fund underperformed the Lehman Brothers Minnesota 3 Plus Year Municipal Bond Index, which rose 0.67%, and the Lehman Brothers Minnesota Municipal - -------------------------------------------------------------------------------- 22 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT QUESTIONS & ANSWERS - - EACH OF THE FUNDS UNDERPERFORMED DUE PRIMARILY TO YIELD CURVE POSITIONING, THAT IS, THE WAY THE FUNDS WERE POSITIONED TO RESPOND TO CHANGES IN SHORT-TERM VS. LONG-TERM INTEREST RATES. Bond Index, which gained 0.59%. The Lipper Minnesota Municipal Debt Funds Index rose 0.62% for the same period. - RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 0.10%. The Fund underperformed the Lehman Brothers New York 4 Plus Year Municipal Bond Index, which rose 0.56%, and the Lehman Brothers New York Municipal Bond Index, which gained 0.56% as well. The Lipper New York Municipal Debt Funds Index increased 0.42% for the same period. - RIVERSOURCE OHIO TAX-EXEMPT FUND declined 0.20%. The Fund underperformed the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, which gained 0.52%, and the Lehman Brothers Ohio Municipal Bond Index, which returned 0.52% as well. The Lipper Ohio Municipal Debt Funds Index gained 0.33% for the same period. A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, gained 0.60% for the same six-month period. Q: What factors most significantly affected performance during the semiannual period? A: The tax-exempt bond market overall had a relatively strong period, despite four additional interest rate hikes by the Federal Reserve Board (the Fed) during the six months, bringing the targeted federal funds rate to 4.25% by the end of December. The Funds benefited modestly during the period from their duration positioning, a measure of the Funds' sensitivity to changes in interest rates. In each Fund, we maintained a duration shorter than that of their respective Lehman benchmark index in anticipation of rising rates. Indeed, rates did rise across the municipal yield curve. The Funds also benefited from their positions in health care municipal bonds, a sector that performed well and is a large sector within the Lehman Brothers Municipal Bond Index. Significant positions in bonds rated BBB contributed positively to the returns of RiverSource Massachusetts Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund, as these bonds overall outperformed higher quality bonds during the semiannual period. However, a comparatively lower exposure to bonds rated BBB than their respective Lehman benchmarks detracted from the performance of the other four RiverSource state tax-exempt funds. Similarly, positions in select non-investment grade or non-rated bonds produced mixed results. These positions helped the RiverSource state tax-exempt funds of California, - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 23 QUESTIONS & ANSWERS - - WE INTEND TO POSITION THE FUNDS FOR ONGOING U.S. ECONOMIC RECOVERY AND STILL HIGHER INTEREST RATES, AS THESE THEMES ARE LIKELY TO CONTINUE TO WEIGH ON THE FIXED INCOME MARKETS THROUGH EARLY 2006. Massachusetts, Michigan and Minnesota. These bonds had a rather neutral effect on RiverSource Ohio Tax-Exempt Fund and detracted from RiverSource New York Tax-Exempt Fund. Detracting from the RiverSource state tax-exempt funds of California, Michigan and New York was exposure to municipal bonds from Puerto Rico. Puerto Rico has been experiencing significant fiscal distress, and the fundamentals of its municipal bond market deteriorated somewhat during the period. Each of the Funds underperformed due primarily to yield curve positioning, that is, the way the Funds were positioned to respond to changes in short-term vs. long-term interest rates. Specifically, the Funds began the period with a significant exposure to the intermediate segment of the municipal yield curve and a modest position in long-term bonds. As in the taxable bond market, the municipal yield curve flattened, as the difference in yields between short- and long-term securities narrowed. This flattening of the yield curve had a greater positive price impact on longer-term bonds than on intermediate bonds. During the period, the longer the maturity of the municipal bond, the better the performance. Q: What changes did you make to the Funds and how are they currently positioned? A: We made several strategic moves within the Funds during the semiannual period. We reduced the Funds' exposure to bonds with maturities of ten years and shorter and increased their allocation to bonds with maturities of 15 years and longer. In our ongoing effort to upgrade the quality of what we call the Funds' "credit baskets," we reduced the Funds' positions in below investment grade securities and non-rated securities. We also moved the Funds toward neutral positions in bonds rated BBB, as valuations of these bonds appeared fair to us, and redeployed assets into bonds rated A. In the RiverSource state tax-exempt funds of Massachusetts, Minnesota and Ohio, we increased exposure to Puerto Rico municipal bonds, adding to positions on market weakness. We focused on further diversifying the portfolios by bond holding, maturity, coupon and call dates. We believe this disciplined approach to portfolio diversification -- across multiple parameters -- should help reduce the volatility and risks associated with interest rate movements and produce more consistent returns for the Funds over the - -------------------------------------------------------------------------------- 24 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT QUESTIONS & ANSWERS long term. At the same time, we sought opportunities to carry out tactical strategies wherever and whenever possible. Q: How do you intend to manage the Funds in the coming months? A: We intend to position the Funds for ongoing U.S. economic recovery and still higher interest rates, as these themes are likely to continue to weigh on the fixed income markets through early 2006. We believe the Fed will ultimately continue its gradualist approach, raising the targeted federal rate from its current 4.25% to a 4.75% or 5.00% rate. Typically, rising rates are negative for the bond market. However, municipal bonds have historically weathered this environment better than taxable bonds. Given this view, we intend to maintain the Funds' durations moderately shorter than that of their respective benchmark indices for the near term. At the same time, we intend to further reduce the Funds' exposure to the intermediate segment of the yield curve (i.e., 10-year municipal bonds) and redeploy assets into bonds with 15- to 20-year maturities. We intend to monitor opportunities to enhance the Funds' holdings in uninsured essential service revenue bonds, such as public power and water and sewer issues. We feel these two sectors may enable the Funds to potentially pick up incremental yield without taking on significant risk. We are also watching closely for opportunities to increase the Funds' allocation to Puerto Rico municipal bonds. Puerto Rico's government is currently working on the introduction of a local sales tax to raise revenues. Should this potential fiscal remedy be enacted, Puerto Rico municipal bonds may be increasingly attractive to investors, given the triple-tax-exemption (i.e., federal, state and local) they offer. We intend to maintain our focus on seeking higher-quality securities with good structure and on further diversifying the portfolios. Each Fund's emphasis continues to be on generating a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 25 INVESTMENTS IN SECURITIES RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND DEC. 31, 2005 (UNAUDITED) (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS) MUNICIPAL BONDS (95.6%)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Abag Finance Authority for Nonprofit Corporations Certificate of Participation National Center for International Schools Project Series 1996 05-01-26 7.38% $2,200,000 $2,252,184 Abag Finance Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 2,500,000 2,723,725 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) 489,826 Anaheim Union High School District Prerefunded Unlimited General Obligation Bonds Series 2002A (FSA) 08-01-16 5.38 1,550,000 1,719,276 Beaumont Financing Authority Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,090,990 Beverly Hills Public Financing Authority Revenue Bonds Capital Improvements Project Series 1998A 06-01-23 5.00 3,000,000 3,088,350 California Educational Facilities Authority Revenue Bonds Stanford University Series 1997N 12-01-27 5.20 1,000,000 1,037,580 California Educational Facilities Authority Revenue Bonds University of Southern California Series 2003A 10-01-33 5.00 2,000,000 2,086,160 California Health Facilities Financing Authority Revenue Bonds Catholic Healthcare West Series 2004G 07-01-23 5.25% $3,500,000 $3,653,369 California Health Facilities Financing Authority Revenue Bonds Sutter Health Series 1999A (MBIA) 08-15-28 5.35 2,500,000 2,656,325 California Infrastructure & Economic Development Bank Revenue Bonds Bay Area Toll Bridges 1st Lien Series 2003A (AMBAC) 07-01-36 5.00 200,000 208,816 California Rural Home Mortgage Finance Authority Revenue Bonds Mortgage-backed Securities Program Series 1997A-2 (GNMA/FNMA/FHLMC) A.M.T. 09-01-29 7.00 75,000 75,917 California Rural Home Mortgage Finance Authority Revenue Bonds Mortgage-backed Securities Program Series 1998B-5 (GNMA/FNMA/FHLMC) A.M.T. 12-01-29 6.35 65,000 65,417 California State Department of Water Resources Revenue Bonds Series 2002A (MBIA) 05-01-09 5.25 3,200,000 3,388,479 05-01-10 5.25 3,000,000 3,216,210 05-01-15 6.00 2,000,000 2,296,100 California State Public Works Board Revenue Bonds Department of General Services Capital East End Series 2002A 12-01-06 5.00 1,000,000 1,013,580
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 26 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) California Statewide Communities Development Authority Prerefunded Revenue Bonds Thomas Jefferson School of Law Project Series 2001 10-01-31 7.75% $2,500,000 $3,002,600 California Statewide Communities Development Authority Revenue Bonds Daughters of Charity Health Series 2005G 07-01-13 5.25 200,000 212,844 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2004E 04-01-32 3.88 750,000 745,763 City of Chula Vista Revenue Bonds San Diego Gas Series 2005B A.M.T. 12-01-27 5.00 2,000,000 2,034,040 City of Los Angeles Revenue Bonds Series 2003A (FSA) 02-01-13 5.00 2,000,000 2,172,100 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 1,000,000(c) 1,019,390 Contra Costa County Revenue Bonds Cypress Meadows Project Series 1998E A.M.T. 09-01-28 7.00 236,638(b),(g) 70,992 Contra Costa Water District Refunding Revenue Bonds Series 2003M (FSA) 10-01-16 5.00 1,500,000 1,619,625 Coronado Community Development Agency Tax Allocation Bonds Coronado Community Development Project Series 2005 (AMBAC) 09-01-35 5.00 2,000,000 2,077,820 County of Riverside Certificate of Participation Series 1998 (MBIA) 12-01-21 5.00% $1,530,000 $1,591,996 County of San Diego Certificate of Participation Series 1993 Inverse Floater (AMBAC) 09-01-07 8.13 3,200,000(h) 3,440,447 Desert Sands Unified School District Refunding Certificate of Participation Series 2003 (MBIA) 03-01-17 5.25 1,135,000 1,240,930 Encinitas Union School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1996 (MBIA) 08-01-15 5.85 2,500,000(f) 1,674,650 Fontana Unified School District Unlimited General Obligation Bonds Convertible Capital Appreciation Series 1997D (FGIC) 05-01-22 5.75 2,000,000 2,174,860 Golden State Tobacco Securitization Corporation Enhanced Asset-backed Revenue Bonds Series 2005A 06-01-19 5.00 1,500,000 1,551,120 06-01-45 5.00 1,200,000 1,207,404 Golden State Tobacco Securitization Corporation Prerefunded Enhanced Asset-backed Revenue Bonds Series 2003B (FSA) 06-01-43 5.00 110,000 118,594 Golden State Tobacco Securitization Corporation Revenue Bonds Series 2003A-1 06-01-33 6.25 2,490,000 2,707,925 06-01-39 6.75 1,250,000 1,397,950 06-01-40 6.63 750,000 830,528 Grossmont-Cuyamaca Community College District Unlimited General Obligation Bonds Election of 2002 Series 2005B (FGIC) 08-01-26 5.00 3,000,000 3,170,520
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 27 RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Inglewood Redevelopment Agency Refunding Tax Allocation Bonds Merged Redevelopment Project Series 1998A (AMBAC) 05-01-23 5.25% $1,100,000 $1,228,832 Lake Elsinore Public Financing Authority Revenue Bonds Series 1997F 09-01-20 7.10 800,000 851,352 Lancaster Redevelopment Agency Refunding Tax Allocation Bonds Combined Redevelopment Project Areas Series 2003 (MBIA) 08-01-17 5.13 1,840,000 2,030,201 Los Angeles County Sanitation Districts Financing Authority Revenue Bonds Capital Project Series 2003A (FSA) 10-01-13 5.00 2,000,000 2,179,080 Los Angeles Department of Water & Power Revenue Bonds Power System Series 2003B (FSA) 07-01-16 5.13 1,460,000 1,585,049 07-01-17 5.13 2,315,000 2,505,432 Los Angeles Harbor Department Revenue Bonds Series 1988 Escrowed to Maturity 10-01-18 7.60 925,000 1,144,780 Los Angeles Unified School District Certificate of Participation Multiple Properties Project Series 2002B (FSA) 10-01-08 5.00 1,000,000 1,044,650 Menlo Park Unlimited General Obligation Bonds Series 2002 08-01-32 5.30 1,900,000 2,034,482 Metropolitan Water District of Southern California Prerefunded Revenue Bonds Series 1997A 07-01-26 5.00 645,000 673,509 07-01-26 5.00 1,090,000 1,138,178 Oxnard School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA) 08-01-30 5.75% $2,575,000 $3,033,968 Palomar Pomerado Health Unlimited General Obligation Bonds Election of 2004 Series 2005A (AMBAC) 08-01-29 4.50 2,500,000 2,478,400 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) 870,219 Port of Oakland Revenue Bonds Series 1997G (MBIA) A.M.T. 11-01-25 5.38 3,080,000 3,221,957 Port of Oakland Revenue Bonds Series 2000K (FGIC) A.M.T. 11-01-18 5.63 1,000,000 1,061,410 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(c) 1,081,880 Sacramento Municipal Utility District Refunding Revenue Bonds Series 2003S (FSA) 11-15-10 5.00 2,500,000 2,678,900 Sacramento Municipal Utility District Revenue Bonds Series 2001N (MBIA) 08-15-28 5.00 350,000 362,789 San Diego Public Water Facilities Financing Authority Revenue Bonds Series 2002 (MBIA) 08-01-26 5.00 2,500,000 2,603,550
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 28 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) San Diego Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999A (FGIC) 07-01-12 3.70% $3,420,000(f) $2,661,820 San Francisco Bay Area Transit Financing Authority Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 2,000,000 2,070,020 San Francisco City & County Airports Commission Refunding Revenue Bonds 2nd Series 2001B-27 (FGIC) 05-01-16 5.25 2,170,000 2,325,611 San Francisco City & County Public Utilities Commission Revenue Bonds Series 2002A (MBIA) 11-01-25 5.00 2,000,000 2,093,940 San Francisco State Building Authority Prerefunded Revenue Bonds San Francisco Civic Center Complex Series 1996A (AMBAC) 12-01-16 5.25 1,750,000 1,817,008 San Jose Redevelopment Agency Refunding Tax Allocation Bonds Merged Area Redevelopment Project Series 2004A (MBIA) 08-01-18 4.54 2,000,000 2,047,740 San Jose Redevelopment Agency Tax Allocation Bonds Merged Area Redevelopment Project Series 2003 (FGIC) 08-01-33 4.90 2,395,000 2,446,564 San Juan Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999 (FSA) 08-01-21 5.68 820,000(f) 402,645 08-01-24 5.70 1,810,000(f) 756,888 San Mateo County Community College District Unlimited General Obligation Bonds Election of 2001 Series 2002A (FGIC) 09-01-18 5.38 1,000,000 1,094,880 Santa Maria Joint Union High School District Unlimited General Obligation Bonds Election of 2000 Series 2003B (FSA) 08-01-27 5.00% $3,000,000 $3,163,260 Semitropic Improvement District Revenue Bonds Series 2004A (XLCA) 12-01-28 5.00 2,000,000 2,066,700 State of California Prerefunded Unlimited General Obligation Bonds Series 2000 10-01-25 5.38 2,060,000 2,234,688 State of California Revenue Bonds Series 2004A 01-01-11 5.25 3,000,000 3,227,039 07-01-14 5.25 1,000,000 1,099,040 State of California Unlimited General Obligation Bonds Series 2000 (MBIA) 09-01-13 5.25 1,500,000 1,625,205 State of California Unlimited General Obligation Bonds Series 2001 03-01-31 5.13 2,500,000 2,583,800 06-01-31 5.13 2,500,000 2,587,475 State of California Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000 1,148,420 State of California Unlimited General Obligation Bonds Series 2003 02-01-10 5.00 1,000,000 1,054,890 02-01-21 5.25 2,500,000 2,673,700 02-01-29 5.25 2,500,000 2,640,300 02-01-32 5.00 2,500,000 2,579,375 State of California Unlimited General Obligation Bonds Series 2003 (FGIC) 11-01-20 5.25 1,000,000 1,083,890
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 29 RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) State of California Unlimited General Obligation Bonds Series 2004 03-01-14 5.25% $2,000,000 $2,195,760 02-01-33 5.00 1,000,000 1,032,810 State of California Unlimited General Obligation Bonds Series 2004 (FGIC) 02-01-33 5.00 2,500,000 2,600,900 State of California Unlimited General Obligation Bonds Series 2004A (FGIC) 07-01-17 5.00 2,000,000 2,138,320 State of California Unlimited General Obligation Bonds Various Purpose Series 2003 11-01-22 5.00 2,000,000 2,089,340 11-01-23 5.13 2,500,000 2,635,625 11-01-24 5.13 2,000,000 2,104,420 State of California Unlimited General Obligation Bonds Veterans Series 2000B A.M.T. 12-01-12 4.95 2,250,000 2,321,303 12-01-13 5.05 1,435,000 1,480,332 12-01-14 5.15 2,535,000 2,612,191 State of California Unlimited General Obligation Refunding Bonds Series 2000 05-01-19 5.63 3,000,000 3,259,169 State of California Unrefunded Unlimited General Obligation Bonds Series 2000 10-01-25 5.38 440,000 467,808 Stockton Revenue Bonds Mortgage-backed Securities Program Series 1990A (GNMA/FNMA/FHLMC) A.M.T. 02-01-23 7.50 30,000 30,597 Tobacco Securitization Authority of Northern California Prerefunded Asset-backed Revenue Bonds Series 2001A 06-01-41 5.38 255,000 277,437 Tobacco Securitization Authority of Southern California Asset-backed Revenue Bonds Series 2002A 06-01-43 5.63% $1,000,000 $1,023,790 University of California Revenue Bonds Multiple Purpose Projects Series 2003Q (FSA) 09-01-18 5.00 2,000,000 2,126,660 University of California Revenue Bonds Multiple Purpose Series 2000K (FGIC) 09-01-20 5.00 1,010,000 1,055,955 Walnut Energy Center Authority Revenue Bonds Series 2004A (AMBAC) 01-01-29 5.00 2,500,000 2,596,700 01-01-34 5.00 1,000,000 1,036,630 Western Hills Water District Special Tax Bonds Diablo Grande Community Facilities #1 Series 2001 09-01-31 6.88 1,000,000 1,051,080 Whittier Union High School District Prerefunded Unlimited General Obligation Bonds Election of 1999 Series 2003D (FSA) 08-01-28 5.00 2,615,000 2,866,249 - ------------------------------------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS (Cost: $177,899,679) $184,420,994 - ------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 30 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND MUNICIPAL NOTES (3.1%)
AMOUNT EFFECTIVE PAYABLE AT ISSUE(d),(e),(i) YIELD MATURITY VALUE(a) California Housing Finance Agency Revenue Bonds Home Mortgage V.R.D.N. Series 2001J FSA A.M.T. 02-01-32 3.78% $ 300,000 $ 300,000 California Housing Finance Agency Revenue Bonds Home Mortgage V.R.D.N. Series 2002J (Lloyds TSB Bank) MBIA A.M.T. 02-01-33 3.78 2,400,000 2,400,000 California Housing Finance Agency Revenue Bonds Home Mortgage V.R.D.N. Series 2003U FSA A.M.T. 02-01-31 3.78 200,000 200,000 Irvine Special Assessment Bonds V.R.D.N. Series 2004A (Bank of New York) 09-02-29 3.62% $ 900,000 $ 900,000 Regional Airports Improvement Corporation Revenue Bonds Los Angeles International Airport V.R.D.N. Series 1989 A.M.T. 12-01-25 3.84 2,200,000 2,200,000 - ----------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $6,000,000) $ 6,000,000 - ----------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $183,899,679)(j) $190,420,994 =====================================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (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 1.1% of net assets at Dec. 31, 2005. (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 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 - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 31 RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax-- At Dec. 31, 2005, the value of securities subject to alternative minimum tax represented 9.4% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (g) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities may be valued at fair value according to methods selected in good faith by the Fund's Board of Directors. Information concerning such security holdings at Dec. 31, 2005, is as follows:
SECURITY ACQUISITION DATE COST ------------------------------------------------------------------------- Contra Costa County Revenue Bonds Cypress Meadows Project Series 1998E A.M.T. 7.00% 2028 09-21-98 $236,638
(h) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate disclosed is the rate in effect on Dec. 31, 2005. At Dec. 31, 2005, the value of inverse floaters represented 1.8% of net assets. (i) The Fund is entitled to receive principal and interest from the party within 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 Dec. 31, 2005. (j) At Dec. 31, 2005, the cost of securities for federal income tax purposes was approximately $183,900,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $7,137,000 Unrealized depreciation (616,000) ------------------------------------------------------------------------- Net unrealized appreciation $6,521,000 -------------------------------------------------------------------------
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- 32 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT INVESTMENTS IN SECURITIES RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND DEC. 31, 2005 (UNAUDITED) (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS) MUNICIPAL BONDS (97.1%)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Boston Metropolitan District Unlimited General Obligation Refunding Bonds Series 2002A 12-01-11 5.13% $2,050,000 $2,209,265 City of Boston Revenue Bonds Series 2004A 11-01-22 5.00 1,000,000 1,060,680 City of Boston Unlimited General Obligation Bonds Series 2005A 01-01-14 5.00 1,000,000 1,087,040 City of Boston Unlimited General Obligation Refunding Bonds Series 2003A (MBIA) 02-01-23 5.00 1,000,000 1,047,860 City of Springfield Limited General Obligation Bonds State Qualified Series 2003 (MBIA) 01-15-20 5.25 1,405,000 1,521,489 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002C (FSA) 11-01-15 5.50 2,500,000 2,823,650 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002E 01-01-10 5.50 3,000,000 3,222,719 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 1997A (AMBAC) 08-01-10 5.75 2,185,000 2,392,925 Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002A (FGIC) 01-01-14 5.00 2,500,000 2,611,325 Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002C 11-01-30 5.25% $2,000,000 $2,167,740 Commonwealth of Massachusetts Prerefunded Unlimited General Obligation Bonds Consolidated Loan Series 2003D 10-01-22 5.25 1,000,000 1,094,270 Commonwealth of Massachusetts Revenue Bonds Grant Anticipation Notes Series 1998A (FSA) 06-15-09 5.25 1,500,000 1,587,945 Commonwealth of Massachusetts Special Obligation Refunding Bonds Federal Highway Grant Anticipation Notes Series 2003A (FSA) 12-15-14 5.00 1,000,000 1,079,230 Commonwealth of Massachusetts Unlimited General Obligation Bonds Consolidated Loan Series 2005B 08-01-14 5.00 750,000 811,305 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 500,000(c) 567,865 Freetown Lakeville Regional School District Unlimited General Obligation Bonds Series 2003 (MBIA) 01-01-13 5.00 1,865,000 2,022,667 Massachusetts Bay Transportation Authority Refunding Revenue Bonds Series 1992B 03-01-16 6.20 1,500,000 1,741,545
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 33 RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Massachusetts Bay Transportation Authority Special Assessment Bonds Series 2005A 07-01-25 5.00% $ 250,000 $ 264,115 07-01-26 5.00 250,000 263,715 07-01-31 5.00 500,000 523,460 Massachusetts Development Finance Agency Prerefunded Revenue Bonds Briarwood Series 2001B 12-01-30 8.25 750,000 909,165 Massachusetts Development Finance Agency Revenue Bonds 1st Mortgage Berkshire Retirement Series 1999 07-01-29 5.63 1,250,000 1,254,188 Massachusetts Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,074,360 Massachusetts Development Finance Agency Revenue Bonds May Institute Series 1999 (Radian Group Financial Guaranty) 09-01-29 5.75 1,000,000 1,058,630 Massachusetts Health & Educational Facilities Authority Revenue Bonds Boston College Series 2003N 06-01-21 5.25 1,000,000 1,081,400 Massachusetts Health & Educational Facilities Authority Revenue Bonds Harvard University Series 2002FF 07-15-37 5.13 3,000,000 3,134,309 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2003L 07-01-13 5.00 1,000,000 1,087,080 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2004M 07-01-25 5.25% $1,000,000 $1,144,570 Massachusetts Health & Educational Facilities Authority Revenue Bonds Williams College Series 2003H 07-01-33 5.00 1,750,000 1,819,755 Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2003-98 A.M.T. 06-01-23 4.88 985,000 978,676 Massachusetts Industrial Finance Agency Revenue Bonds Tufts University Series 1998H (MBIA) 02-15-28 4.75 1,000,000 1,010,900 Massachusetts Municipal Wholesale Electric Company Revenue Bonds Nuclear Project #5 Series 2001A (MBIA) 07-01-10 5.00 1,000,000 1,059,680 Massachusetts Port Authority Revenue Bonds Series 2003A (MBIA) 07-01-18 5.00 1,000,000 1,059,510 Massachusetts School Building Authority Revenue Bonds Series 2005A (FSA) 08-15-22 5.00 1,000,000 1,061,870 08-15-24 5.00 1,000,000 1,057,010 08-15-30 5.00 750,000 787,328 Massachusetts State Water Pollution Abatement Prerefunded Revenue Bonds Pool Program Series 2002-8 08-01-20 5.00 1,475,000 1,581,480 Massachusetts State Water Pollution Abatement Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 1,000,000 1,041,700
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 34 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Massachusetts State Water Pollution Abatement Unrefunded Revenue Bonds Pool Program Series 2002-8 08-01-20 5.00% $ 25,000 $ 26,447 Massachusetts Water Resources Authority Refunding Revenue Bonds Series 1998B (FSA) 08-01-11 5.50 1,930,000 2,118,696 Massachusetts Water Resources Authority Revenue Bonds Series 1992A (FGIC) 07-15-19 6.50 2,000,000 2,418,520 Massachusetts Water Resources Authority Revenue Bonds Series 2004D (MBIA) 08-01-27 4.75 1,000,000 1,025,540 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 1,000,000(c) 1,059,810 Puerto Rico Electric Power Authority Revenue Bonds Series 2002A Inverse Floater (MBIA) 07-01-17 5.79 1,500,000(b),(c) 1,923,120 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 300,000(c) 340,608 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 625,000(c) 670,000 University of Massachusetts Building Authority Refunding Revenue Bonds Series 2003-1 (AMBAC) 11-01-21 5.25 1,000,000 1,091,610 University of Massachusetts Building Authority Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 60,000 66,424 Westfield Limited General Obligation Refunding Bonds Series 2003 (MBIA) 09-01-17 5.00% $ 940,000 $ 1,004,465 Woods Hole Martha's Vineyard & Nantucket Steamship Authority Revenue Bonds Series 2004B 03-01-20 5.00 750,000 800,468 Worcester Limited General Obligation Bonds Series 2001A (FGIC) 08-15-12 5.50 1,400,000 1,531,026 - ---------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $64,993,453) $66,379,155 - ----------------------------------------------------------------------------------------------------------
MUNICIPAL NOTE (1.3%)
AMOUNT EFFECTIVE PAYABLE AT ISSUE(e),(f) YIELD MATURITY VALUE(a) Massachusetts Health & Educational Facilities Authority Revenue Bonds Capital Asset Program V.R.D.N. Series 1985E (Fleet National Bank) 01-01-35 3.75% $860,000 $ 860,000 - ---------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTE (Cost: $860,000) $ 860,000 - ---------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $65,853,453)(g) $67,239,155 ==========================================================================================================
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 35 RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on Dec. 31, 2005. At Dec. 31, 2005, the value of inverse floaters represented 2.8% of net assets. (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 6.7% of net assets at Dec. 31, 2005. (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 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 Dec. 31, 2005, the value of securities subject to alternative minimum tax represented 1.4% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) The Fund is entitled to receive principal and interest from the party within 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 Dec. 31, 2005. (g) At Dec. 31, 2005, the cost of securities for federal income tax purposes was approximately $65,853,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,633,000 Unrealized depreciation (247,000) ------------------------------------------------------------------------- Net unrealized appreciation $1,386,000 -------------------------------------------------------------------------
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- 36 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT INVESTMENTS IN SECURITIES RIVERSOURCE MICHIGAN TAX-EXEMPT FUND DEC. 31, 2005 (UNAUDITED) (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS) MUNICIPAL BONDS (94.3%)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d) RATE AMOUNT VALUE(a) Allen Park Public School District Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-12 5.00% $1,000,000 $1,073,220 05-01-18 5.00 1,000,000 1,060,270 Anchor Bay School District Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-29 5.00 1,000,000 1,041,300 Chippewa Valley Schools Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-21 5.00 745,000 785,550 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 500,000(c) 567,865 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 500,000(c) 509,695 Detroit City School District Unlimited General Obligation Bonds School Building & Site Improvement Series 2003B (FGIC) (Qualified School Bond Loan Fund) 05-01-11 5.25 1,000,000 1,084,760 Detroit Revenue Bonds Second Lien Series 2005A (MBIA) 07-01-30 5.00 500,000 521,490 Detroit Revenue Bonds Senior Lien Series 2003A (MBIA) 07-01-34 5.00% $1,375,000 $1,427,140 Detroit Revenue Bonds Series 2003B (MBIA) 07-01-32 5.25 1,500,000 1,589,430 Detroit Unlimited General Obligation Bonds Series 2001A-1 (MBIA) 04-01-15 5.38 1,000,000 1,087,450 Eastern Michigan University Refunding Revenue Bonds Series 2003A (FGIC) 06-01-28 5.00 1,000,000 1,038,810 Goodrich Area School District Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 1,000,000 1,044,670 Grand Rapids Building Authority Prerefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 505,000 561,934 Grand Rapids Building Authority Unrefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 765,000 839,718 Howell Public Schools Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-29 5.00 1,000,000 1,041,300
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 37 RIVERSOURCE MICHIGAN TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d) RATE AMOUNT VALUE(a) Jackson Limited General Obligation Bonds Capital Appreciation Downtown Development Zero Coupon Series 2001 (FSA) 06-01-21 5.58% $1,450,000(b) $720,679 L'Anse Creuse Public Schools Unlimited General Obligation Refunding Bonds Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-11 4.00 1,000,000 1,019,660 Lansing Community College Limited General Obligation Bonds Series 2002 (FGIC) 05-01-12 5.00 1,000,000 1,080,240 Lawton Community Schools Unlimited General Obligation Bonds Series 2001 (Qualified School Bond Loan Fund) 05-01-31 5.00 1,000,000 1,029,430 Manchester Community Schools Unlimited General Obligation Refunding Bonds Building & Site Series 2001 (Qualified School Bond Loan Fund) 05-01-26 5.00 1,400,000 1,453,522 Michigan Municipal Bond Authority Refunding Revenue Bonds Clean Water State Revolving Fund Series 2005 10-01-15 5.00 500,000 545,875 Michigan Municipal Bond Authority Revenue Bonds Clean Water Revolving Fund Series 2001 10-01-14 5.00 500,000 531,710 10-01-20 5.00 1,000,000 1,053,910 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2002 10-01-07 5.25% $1,000,000 $1,032,980 10-01-20 5.38 1,000,000 1,093,420 10-01-21 5.38 1,000,000 1,094,670 Michigan Municipal Bond Authority Revenue Bonds School District City of Detroit Series 2005 (FSA) 06-01-19 5.00 500,000 531,995 Michigan Public Power Agency Refunding Revenue Bonds Belle River Project Series 2002A (MBIA) 01-01-09 5.25 2,000,000 2,107,219 01-01-13 5.25 500,000 547,340 01-01-14 5.25 500,000 550,275 Michigan State Building Authority Refunding Revenue Bonds Facilities Program Series 2003 II (MBIA) 10-15-29 5.00 1,000,000 1,041,770 Michigan State Building Authority Revenue Bonds State Police Communications System Series 2002 Escrowed to Maturity 10-01-07 4.00 1,000,000 1,011,690 Michigan State Building Authority Revenue Bonds State Police Communications System Series 2004 (MBIA) 10-01-13 5.38 500,000 554,110 Michigan State Hospital Finance Authority Revenue Bonds McLaren Health Care Series 2005C 08-01-35 5.00 1,000,000 1,019,790 Michigan State Hospital Finance Authority Revenue Bonds Oakwood Obligated Group Series 2003 11-01-18 5.50 1,000,000 1,073,780
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 38 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MICHIGAN TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d) RATE AMOUNT VALUE(a) Michigan Strategic Fund Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA) 07-15-08 7.00% $1,000,000 $ 1,086,730 Plymouth-Canton Community School District Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-15 5.25 600,000 655,926 Pontiac Tax Increment Finance Authority Refunding Revenue Bonds Tax Increment Development Area #2 Series 2002 (ACA) 06-01-22 5.63 1,000,000 1,048,950 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA) 07-01-13 5.50 1,000,000(c) 1,117,490 Saline Area Schools Unlimited General Obligation Bonds Series 2000A (Qualified School Bond Loan Fund) 05-01-09 4.75 1,000,000 1,041,070 South Lyon Community Schools Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-28 5.00 1,000,000 1,039,150 Southfield Public Schools Unlimited General Obligation Bonds School Building & Site Series 2003A (Qualified School Bond Loan Fund) 05-01-22 5.25 1,025,000 1,104,222 State of Michigan Certificate of Participation Series 2004A (MBIA) 09-01-31 4.25 750,000 765,465 State of Michigan Unlimited General Obligation Bonds Environmental Programs Series 2003A 05-01-10 5.00 1,000,000 1,061,700 Summit Academy North Prerefunded Certificate of Participation Series 2001 07-01-30 7.38% $ 750,000 $ 869,078 Summit Academy Prerefunded Certificate of Participation Full Term Series 1998 09-01-18 7.00 480,000 521,126 Warren Consolidated School District Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-13 5.00 875,000 949,673 Waverly Community School Prerefunded Unlimited General Obligation Bonds Series 2000 (FGIC) 05-01-17 5.25 1,000,000 1,074,150 Wayne State University Revenue Bonds Series 1999 (FGIC) 11-15-19 5.25 1,000,000 1,060,590 Western Michigan University Refunding Revenue Bonds Series 2003 (MBIA) 11-15-23 4.25 1,000,000 987,620 Western Township Utilities Authority Limited General Obligation Bonds Series 2002 (FGIC) 01-01-08 5.00 1,500,000 1,548,690 Williamston Community School District Unlimited General Obligation Bonds Series 1996 (MBIA) (Qualified School Bond Loan Fund) 05-01-25 5.50 1,000,000 1,143,740 Wyandotte City School District Unlimited General Obligation Refunding Bonds Building & Site Series 2002 (Qualified School Bond Loan Fund) 05-01-14 5.38 1,250,000 1,377,363 - ------------------------------------------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS (Cost: $51,601,168) $ 52,821,400 - ------------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 39 RIVERSOURCE MICHIGAN TAX-EXEMPT FUND MUNICIPAL NOTES (5.5%)
AMOUNT EFFECTIVE PAYABLE AT ISSUE(d),(e),(f) YIELD MATURITY VALUE(a) Detroit Revenue Bonds Senior Lien V.R.D.N. Series 2003B (Dexia Credit Local) FSA 07-01-33 3.70% $1,400,000 $ 1,400,000 Michigan State University Revenue Bonds V.R.D.N. Series 2002A (Depfa Bank) 08-15-32 3.70 1,500,000 1,500,000 University of Michigan Refunding Revenue Bonds University of Michigan Hospitals V.R.D.N. Series 1992A 12-01-19 3.75 200,000 200,000 - ------------------------------------------------------------------------------------------------------------ TOTAL MUNICIPAL NOTES (Cost: $3,100,000) $ 3,100,000 - ------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $54,701,168)(g) $55,921,400 ============================================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by 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 3.9% of net assets at Dec. 31, 2005. (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 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 - -------------------------------------------------------------------------------- 40 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MICHIGAN TAX-EXEMPT FUND NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) The Fund is entitled to receive principal and interest from the party within 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 Dec. 31, 2005. (g) At Dec. 31, 2005, the cost of securities for federal income tax purposes was approximately $54,701,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,309,000 Unrealized depreciation (89,000) ------------------------------------------------------------------------- Net unrealized appreciation $1,220,000 -------------------------------------------------------------------------
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 41 INVESTMENTS IN SECURITIES RIVERSOURCE MINNESOTA TAX-EXEMPT FUND DEC. 31, 2005 (UNAUDITED) (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS) MUNICIPAL BONDS (93.4%)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Anoka County Housing & Redevelopment Authority Unlimited General Obligation Bonds Housing Development Series 2004 (AMBAC) 02-01-34 5.00% $1,355,000 $1,404,105 Anoka-Hennepin Independent School District #11 Unlimited General Obligation Bonds Series 2001A (School District Credit Enhancement Program) 02-01-09 5.00 2,415,000 2,528,191 02-01-10 5.00 1,000,000 1,058,000 02-01-13 5.00 4,175,000 4,423,788 02-01-15 5.00 1,990,000 2,097,301 02-01-16 5.00 2,000,000 2,105,940 Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Project Series 2000A 01-01-32 7.25 2,000,000 2,115,040 Bloomington Independent School District #271 Unlimited General Obligation Bonds Building Series 1999B (School District Credit Enhancement Program) 02-01-15 5.00 1,500,000 1,573,050 Bloomington Independent School District #271 Unlimited General Obligation Bonds Series 2001A (FSA) (School District Credit Enhancement Program) 02-01-24 5.13 2,000,000 2,109,140 City of Breckenridge Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 5,000,000 5,192,750 City of Chaska Refunding Revenue Bonds Generating Facilities Series 2005A 10-01-20 5.25% $1,165,000 $1,248,391 10-01-30 5.00 3,800,000 3,890,972 City of Maple Grove Revenue Bonds North Memorial Health Care Series 2005 09-01-29 5.00 2,000,000 2,046,020 City of Minneapolis Revenue Bonds Fairview Health Services Series 2002B (MBIA) 05-15-14 5.50 2,050,000 2,268,674 05-15-15 5.50 2,160,000 2,382,653 05-15-16 5.50 2,200,000 2,425,478 05-15-17 5.50 1,295,000 1,423,101 City of Minneapolis Unlimited General Obligation Bonds Convention Center Series 2002 12-01-12 5.00 1,500,000 1,592,925 City of Minneapolis Unlimited General Obligation Bonds Various Purpose Series 2001 12-01-11 5.00 3,035,000 3,269,181 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 1,500,000(c) 1,703,595 County of Anoka Limited General Obligation Refunding Bonds Capital Improvement Series 2001C (MBIA) 02-01-09 4.60 2,960,000 3,072,362
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 42 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MINNESOTA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) County of Ramsey Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2002B 02-01-10 5.25% $2,150,000 $2,303,403 02-01-14 5.25 3,840,000 4,118,362 County of Washington Unlimited General Obligation Bonds Capital Improvement Plan Series 2000A 02-01-20 5.50 1,000,000 1,072,440 Edina Independent School District #273 Unlimited General Obligation Bonds Series 2004 02-01-12 4.00 3,700,000 3,784,064 02-01-22 4.25 3,000,000 2,975,760 02-01-23 4.50 3,000,000 3,054,480 02-01-24 4.50 3,400,000 3,476,364 Elk River Independent School District #728 Unlimited General Obligation Bonds Series 2002 II Inverse Floater (FSA) (School District Credit Enhancement Program) 02-01-18 6.12 1,200,000(h) 1,509,348 02-01-19 6.12 1,150,000(h) 1,437,558 02-01-20 6.12 950,000(h) 1,180,223 02-01-21 6.12 1,285,000(h) 1,587,322 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 3,211,740 Hennepin County Unlimited General Obligation Bonds Series 2003 12-01-06 4.00 2,000,000 2,014,300 12-01-23 4.75 2,000,000 2,062,200 Hopkins Independent School District #270 Unlimited General Obligation Refunding Bonds Series 2002B (School District Credit Enhancement Program) 02-01-09 4.00 2,925,000 2,977,445 Lake Superior Independent School District #381 Unlimited General Obligation Bonds Building Series 2002A (FSA) (School District Credit Enhancement Program) 04-01-13 5.00% $1,795,000 $1,941,903 Lakeville Independent School District #194 Unlimited General Obligation Bonds Series 1997A (School District Credit Enhancement Program) 02-01-22 5.13 2,400,000 2,481,624 Maplewood Revenue Bonds Care Institute Series 1994 01-01-24 7.75 3,775,000(b),(i) 2,265,000 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 1,549,829 Metropolitan Council Minneapolis-St. Paul Metropolitan Area Unlimited General Obligation Bonds Transportation Series 2002C 02-01-09 5.00 3,240,000 3,400,574 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2003 12-01-12 5.25 1,000,000 1,064,800 12-01-15 5.13 1,500,000 1,569,855 12-01-16 5.25 1,250,000 1,316,838 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthSpan Series 1993A (AMBAC) 11-15-18 4.75 10,500,000 10,511,759
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 43 RIVERSOURCE MINNESOTA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1996-1 06-01-11 6.00% $ 980,000 $989,918 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1997A-7 06-01-12 5.50 250,000 258,943 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 2001A-2 A.M.T. 06-01-19 5.88 1,000,000 1,069,730 Minneapolis Special School District #1 Refunding Certificate of Participation Series 2002B (FSA) (School District Credit Enhancement Program) 02-01-10 5.00 1,000,000 1,060,730 02-01-11 5.00 1,040,000 1,112,394 Minneapolis Special School District #1 Unlimited General Obligation Bonds Series 2001 (FSA) (School District Credit Enhancement Program) 02-01-09 5.00 1,325,000 1,390,667 Minneapolis-St. Paul Metropolitan Airports Commission Refunding Subordinated Revenue Bonds Series 2005C (FGIC) 01-01-25 5.00 4,000,000 4,200,840 01-01-26 5.00 4,000,000 4,194,760 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 1998A (AMBAC) 01-01-24 5.20 4,000,000 4,150,440 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 1999B (FGIC) A.M.T. 01-01-16 5.63 2,920,000 3,102,120 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001B (FGIC) A.M.T. 01-01-16 5.75 4,875,000 5,230,046 Minneapolis-St. Paul Metropolitan Airports Commission Subordinated Revenue Bonds Series 2001C (FGIC) 01-01-18 5.50% $2,000,000 $2,158,840 01-01-32 5.25 7,000,000 7,337,329 Minneapolis-St. Paul Metropolitan Airports Commission Subordinated Revenue Bonds Series 2005 (AMBAC) 01-01-29 5.00 1,900,000 1,982,441 Minnesota Agricultural & Economic Development Board Prerefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 4,845,000 5,498,736 11-15-29 6.38 2,910,000 3,302,646 Minnesota Agricultural & Economic Development Board Revenue Bonds Health Care System - Benedictine Health Series 1999A (MBIA) 02-15-16 4.75 1,000,000 1,038,540 Minnesota Agricultural & Economic Development Board Unrefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 155,000 172,822 11-15-29 6.38 90,000 100,306 Minnesota Higher Education Facilities Authority Revenue Bonds Macalester College 6th Series 2004B 03-01-17 5.00 2,395,000 2,554,986 Minnesota Higher Education Facilities Authority Revenue Bonds St. John's University 6th Series 2005G 10-01-22 5.00 2,000,000 2,090,860 Minnesota Higher Education Facilities Authority Revenue Bonds University of St. Thomas 5th Series 2004Y 10-01-34 5.25 2,800,000 2,937,760
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 44 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MINNESOTA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Minnesota Housing Finance Agency Revenue Bonds Series 2002R II Inverse Floater A.M.T. 07-01-33 6.96% $1,200,000(h) $ 1,284,960 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1996J A.M.T. 07-01-21 5.60 115,000 117,259 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1997K A.M.T. 01-01-26 5.75 1,130,000 1,150,306 Minnesota Public Facilities Authority Prerefunded Revenue Bonds Series 2001A 03-01-20 5.00 4,000,000 4,247,480 Minnesota Public Facilities Authority Revenue Bonds Series 1998A 03-01-11 5.00 2,500,000 2,585,525 Minnesota Public Facilities Authority Revenue Bonds Series 2002B 03-01-10 5.00 2,500,000 2,654,675 03-01-13 5.25 2,500,000 2,753,075 03-01-14 5.25 2,500,000 2,772,400 Minnesota Public Facilities Authority Revenue Bonds Series 2005C 03-01-25 5.00 2,000,000 2,117,340 Minnesota State Municipal Power Agency Revenue Bonds Series 2004A 10-01-29 5.13 3,500,000 3,625,650 Minnesota State Municipal Power Agency Revenue Bonds Series 2005 10-01-30 5.00 2,000,000 2,047,880 Monticello Big Lake Community Hospital District Revenue Bonds Health Care Facilities Series 1998A (Radian Group Financial Guaranty) 12-01-19 5.75% $1,600,000 $ 1,703,232 Northern Municipal Power Agency Refunding Revenue Bonds Capital Appreciation Zero Coupon Series 1989A (AMBAC) 01-01-10 3.80 2,000,000(g) 1,723,180 Northern Municipal Power Agency Refunding Revenue Bonds Series 1998B (AMBAC) 01-01-20 4.75 5,000,000 5,148,150 Osseo Independent School District #279 Unlimited General Obligation Bonds School Building Series 2000A (School District Credit Enhancement Program) 02-01-13 5.75 3,200,000 3,486,400 02-01-14 5.75 1,100,000 1,198,450 Osseo Independent School District #279 Unlimited General Obligation Bonds Series 2002A (FSA) (School District Credit Enhancement Program) 02-01-11 5.00 1,570,000 1,680,041 02-01-12 5.00 3,455,000 3,722,486 02-01-15 5.25 3,585,000 3,886,642 Osseo Independent School District #279 Unlimited General Obligation Refunding Bonds Series 2001B (School District Credit Enhancement Program) 02-01-09 5.00 2,860,000 2,994,048 Plymouth Housing & Redevelopment Authority Unlimited General Obligation Bonds Governmental Housing Project Series 2005 02-01-35 5.00 2,135,000 2,239,679 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 3,000,000(c) 3,179,430
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 45 RIVERSOURCE MINNESOTA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) Puerto Rico Electric Power Authority Revenue Bonds Series 2003NN (MBIA) 07-01-32 5.00% $2,820,000(c) $ 2,934,238 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 1,650,000(c) 1,873,344 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 2,250,000(c) 2,443,545 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 2,000,000(c) 2,163,760 Shakopee Revenue Bonds St. Francis Regional Medical Center Series 2004 09-01-25 5.10 3,300,000 3,397,515 Southern Minnesota Municipal Power Agency Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA) 01-01-19 6.67 17,000,000(g) 9,561,309 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2002A (AMBAC) 01-01-17 5.25 6,000,000 6,667,259 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-11 5.00 5,500,000 5,864,264 St. Cloud Housing & Redevelopment Authority Revenue Bonds State University Foundation Project Series 2002 05-01-18 5.13 3,000,000 3,188,430 St. Paul Housing & Redevelopment Authority Revenue Bonds Community of Peace Academy Project Series 2001A 12-01-30 7.88% $2,390,000 $ 2,569,513 St. Paul Housing & Redevelopment Authority Revenue Bonds Healtheast Project Series 2005 11-15-25 6.00 1,250,000 1,337,125 St. Paul Housing & Redevelopment Authority Revenue Bonds Lyngblomsten Care Center Housing Project Series 1993 11-01-06 7.13 265,000 268,729 11-01-17 7.13 1,480,000 1,494,756 St. Paul Housing & Redevelopment Authority Revenue Bonds Rental - Lyngblomsten Housing Project Series 1993 11-01-24 7.00 1,680,000 1,695,372 St. Paul Port Authority Revenue Bonds Office Building at Cedar Street Series 2003 12-01-23 5.00 5,000,000 5,242,500 12-01-27 5.13 5,350,000 5,635,637 State of Minnesota Unlimited General Obligation Bonds Series 2001 10-01-10 5.00 5,000,000 5,347,150 10-01-14 5.00 4,000,000 4,279,240 10-01-15 5.00 4,455,000 4,751,748 State of Minnesota Unlimited General Obligation Bonds Series 2002 08-01-10 5.00 4,075,000 4,350,633 11-01-15 5.25 3,575,000 3,924,278 State of Minnesota Unlimited General Obligation Bonds Series 2004 11-01-24 5.00 3,500,000 3,715,040
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 46 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MINNESOTA TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(d),(e) RATE AMOUNT VALUE(a) State of Minnesota Unlimited General Obligation Bonds Series 2005 10-01-19 5.00% $3,500,000 $ 3,785,670 Steele County Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,486,248 Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-19 5.00 2,505,000 2,607,880 06-01-25 5.00 1,750,000 1,797,495 06-01-35 5.00 3,145,000 3,182,520 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 2,541,225 University of Minnesota Revenue Bonds Residual Inverse Floater Series 2002 07-01-21 7.06 2,830,000(h) 4,092,718 Virginia Housing & Redevelopment Authority Revenue Bonds Series 2005 10-01-20 5.13 1,350,000 1,385,829 Western Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-26 5.00 7,250,000 7,602,567 01-01-30 5.00 5,000,000 5,209,350 White Bear Lake Independent School District #624 Unlimited General Obligation Refunding Bonds School Building Series 2002C (FSA) (School District Credit Enhancement Program) 02-01-09 5.00 1,375,000 1,443,145 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 $ 1,507,439 02-01-14 5.00 1,480,000 1,581,247 Willmar Unlimited General Obligation Bonds Rice Memorial Hospital Project Series 2002 (FSA) 02-01-11 5.00 1,025,000 1,091,451 02-01-12 5.00 1,120,000 1,199,766 02-01-13 5.00 1,200,000 1,291,620 - ------------------------------------------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS (Cost: $340,215,627) $350,563,545 - ------------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (4.9%)
AMOUNT EFFECTIVE PAYABLE AT ISSUE(e),(f) YIELD MATURITY VALUE(a) Center City Revenue Bonds Hazelden Foundation Project V.R.D.N. Series 2005 (Bank of New York) 11-01-35 3.75% $5,800,000 $ 5,800,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf Collage V.R.D.N. 5th Series 2002M2 (Harris Trust & Savings Bank) 10-01-20 3.75 1,700,000 1,700,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2000H (Harris Trust & Savings Bank) 10-01-30 3.75 850,000 850,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M1 (Harris Trust & Savings Bank) 10-01-32 3.75 400,000 400,000
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 47 RIVERSOURCE MINNESOTA TAX-EXEMPT FUND MUNICIPAL NOTES (CONTINUED)
AMOUNT EFFECTIVE PAYABLE AT ISSUE(e),(f) YIELD MATURITY VALUE(a) Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance V.R.D.N. Series 2005M A.M.T 01-01-36 3.45% $2,000,000 $ 2,000,000 Oak Park Heights Refunding Revenue Bonds Boutwells Landing V.R.D.N. Series 2005 Freddie Mac 11-01-35 3.55 1,700,000 1,700,000 Robbinsdale Revenue Bonds North Memorial Healthcare-Tranche II V.R.D.N Series 2003 AMBAC 05-15-33 3.20 1,950,000 1,950,000 St. Paul Housing & Redevelopment Authority Revenue Bonds Minnesota Public Radio Project V.R.D.N. Series 2005 (Allied Irish Bank) 10-01-25 3.75% $1,470,000 $ 1,470,000 St. Paul Port Authority Revenue Bonds Minnesota Public Radio Project V.R.D.N. 7th Series 2005 (Allied Irish Bank) 05-01-25 3.75 2,400,000 2,400,000 - ------------------------------------------------------------------------------------------------------------ TOTAL MUNICIPAL NOTES (Cost: $18,270,000) $ 18,270,000 - ------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $358,485,627)(j) $368,833,545 ============================================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) Non-income producing. For long-term debt securities, item identified is in default as to payment of interest and/or principal. (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 3.8% of net assets at Dec. 31, 2005. (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 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 - -------------------------------------------------------------------------------- 48 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MINNESOTA TAX-EXEMPT FUND NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax-- At Dec. 31, 2005, the value of securities subject to alternative minimum tax represented 3.7% 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) The Fund is entitled to receive principal and interest from the party within 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 Dec. 31, 2005. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (h) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on Dec. 31, 2005. At Dec. 31, 2005, the value of inverse floaters represented 3.0% of net assets. (i) Identifies issues considered to be illiquid as to their marketability (see Note 1 to the financial statements). These securities may be valued at fair value according to methods selected in good faith by the Fund's Board of Directors. Information concerning such security holdings at Dec. 31, 2005, is as follows:
SECURITY ACQUISITION DATE COST -------------------------------------------------------------------------- Maplewood Revenue Bonds Care Institute Series 1994 7.75% 2024 03-02-94 $3,677,432
(j) At Dec. 31, 2005, the cost of securities for federal income tax purposes was approximately $358,486,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $12,653,000 Unrealized depreciation (2,305,000) Net unrealized appreciation $10,348,000
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 49 INVESTMENTS IN SECURITIES RIVERSOURCE NEW YORK TAX-EXEMPT FUND DEC. 31, 2005 (UNAUDITED) (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS) MUNICIPAL BONDS (96.1%)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b),(c) RATE AMOUNT VALUE(a) City of New York Unlimited General Obligation Bonds Series 2000 Inverse Floater (FGIC) 05-15-16 7.78% $ 830,000(g) $ 1,106,100 City of New York Unlimited General Obligation Bonds Series 2002C (XLCA) 03-15-12 5.00 1,000,000 1,069,040 City of New York Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 2,000,000 2,204,099 City of New York Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 2,000,000 2,141,280 City of New York Unlimited General Obligation Bonds Series 2003J 06-01-18 5.50 2,000,000 2,177,199 06-01-20 5.50 2,000,000 2,173,199 City of New York Unlimited General Obligation Bonds Series 2004D 11-01-34 5.00 1,000,000 1,027,940 City of New York Unlimited General Obligation Bonds Series 2004E (FSA) 11-01-22 5.00 750,000 793,245 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 500,000(d) 509,695 County of Erie Prerefunded Unlimited General Obligation Bonds Series 1995B (FGIC) 06-15-25 5.50 700,000 710,416 County of Monroe Unlimited General Obligation Refunding Bonds Public Improvement Series 1996 (MBIA) 03-01-15 6.00% $1,250,000 $ 1,444,163 Long Island Power Authority Revenue Bonds Series 1998-8 (AMBAC) 04-01-09 5.25 1,000,000 1,057,810 Metropolitan Transportation Authority Prerefunded Revenue Bonds Series 1998A (FGIC) 04-01-28 4.75 1,000,000 1,079,210 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A 01-01-16 5.75 500,000 567,060 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A (AMBAC) 11-15-19 5.50 1,000,000 1,101,140 Metropolitan Transportation Authority Revenue Bonds Series 2002A (FSA) 11-15-26 5.50 750,000 820,650 Metropolitan Transportation Authority Revenue Bonds Series 2005F 11-15-12 5.00 560,000 599,878 11-15-35 5.00 500,000 517,290 New York City Housing Development Corporation Revenue Bonds Capital Funding Program New York City Housing Authority Program Series 2005A (FGIC) 07-01-25 5.00 1,500,000 1,571,565
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 50 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE NEW YORK TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b),(c) RATE AMOUNT VALUE(a) 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 $ 529,955 New York City Municipal Water Finance Authority Refunding Revenue Bonds Series 1996B (MBIA) 06-15-26 5.75 320,000 326,515 New York City Municipal Water Finance Authority Revenue Bonds Series 2002A 06-15-29 5.00 1,000,000 1,037,870 New York City Municipal Water Finance Authority Revenue Bonds Series 2004A 06-15-39 5.00 1,000,000 1,033,360 New York City Municipal Water Finance Authority Revenue Bonds Series 2005D (AMBAC) 06-15-39 5.00 750,000 780,330 New York City Transitional Finance Authority Prerefunded Revenue Bonds Future Tax Series 1999C 05-01-25 5.50 220,000 237,290 New York City Transitional Finance Authority Refunding Revenue Bonds Future Tax Secured Series 2005A-1 11-01-20 5.00 750,000 800,018 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2003D 02-01-23 5.00 500,000 524,240 02-01-31 5.00 1,000,000 1,034,250 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2004C 02-01-33 5.00 1,000,000 1,035,550 New York City Trust for Cultural Resources Revenue Bonds Museum of American Folk Art Series 2000 (ACA) 07-01-22 6.00% $1,000,000 $ 1,082,090 New York Counties Tobacco Trust II Revenue Bonds Tobacco Settlement Pass Thru Bonds Series 2001 06-01-35 5.63 500,000 511,895 New York Local Government Assistance Corporation Revenue Bonds Capital Appreciation Zero Coupon Series 1993C (MBIA) 04-01-14 3.65 1,000,000(f) 720,420 New York Mortgage Agency Revenue Bonds Series 2002B Inverse Floater A.M.T 04-01-32 6.43 1,000,000(g) 1,081,570 New York Power Authority Revenue Bonds Series 2000A 11-15-30 5.25 1,000,000 1,059,210 New York State Dormitory Authority Prerefunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 473,702 New York State Dormitory Authority Revenue Bonds Brooklyn Law School Series 2003B (XLCA) 07-01-30 5.13 1,000,000 1,055,620 New York State Dormitory Authority Revenue Bonds Consolidated City University System Series 1993A 07-01-13 5.75 3,000,000 3,299,339 New York State Dormitory Authority Revenue Bonds Education Series 2005F 03-15-23 5.00 250,000 263,353
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 51 RIVERSOURCE NEW YORK TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b),(c) RATE AMOUNT VALUE(a) New York State Dormitory Authority Revenue Bonds Hospital Series 2004A (FHA/FSA) 08-15-13 5.25% $ 500,000 $ 546,815 New York State Dormitory Authority Revenue Bonds Memorial Sloan-Kettering Center Series 2003-1 (MBIA) 07-01-21 5.00 1,000,000 1,052,260 New York State Dormitory Authority Revenue Bonds Mental Health Services Facilities Improvement Series 2005E (FGIC) 02-15-22 5.00 750,000 792,675 New York State Dormitory Authority Revenue Bonds Montefiore Hospital Series 2004 (FGIC/FHA) 08-01-19 5.00 735,000 785,245 New York State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00 1,500,000 1,640,415 New York State Dormitory Authority Revenue Bonds Series 2002B (AMBAC) 11-15-26 5.25 1,000,000 1,082,380 New York State Dormitory Authority Unrefunded Revenue Bonds Series 1990B 05-15-11 7.50 1,200,000 1,334,148 New York State Energy Research & Development Authority Revenue Bonds New York State Electric & Gas Series 1985B (MBIA) 10-15-15 4.00 1,000,000 999,950 New York State Energy Research & Development Authority Revenue Bonds Residual Certificates Series 2000 Inverse Floater (MBIA) 01-01-21 7.05 330,000(g) 351,879 New York State Environmental Facilities Corporation Revenue Bonds New York City Municipal Water Financing Project Series 2004 06-15-26 5.00% $1,000,000 $ 1,055,630 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds New York City Municipal Water Project Series 2002B 06-15-31 5.00 1,000,000 1,038,440 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds New York City Municipal Water Project Series 2002K 06-15-28 5.00 1,000,000 1,043,590 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds Series 2003 06-15-32 5.00 1,000,000 1,042,220 New York State Thruway Authority Revenue Bonds Second General Resolution Series 2003B (FSA) 04-01-21 4.75 835,000 864,417 New York State Thruway Authority Revenue Bonds Second General Resolution Series 2005B (AMBAC) 04-01-22 5.00 500,000 532,085 New York State Thruway Authority Revenue Bonds Series 2004A (AMBAC) 03-15-12 5.25 750,000 818,993 New York State Thruway Authority Revenue Bonds Series 2004A (MBIA) 04-01-19 5.00 1,000,000 1,065,210 New York State Thruway Authority Revenue Bonds Series 2005G (FSA) 01-01-24 5.00 1,000,000 1,058,860 01-01-28 5.00 750,000 794,145
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 52 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE NEW YORK TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b),(c) RATE AMOUNT VALUE(a) New York State Thruway Authority Revenue Bonds Transportation Series 2003A (MBIA) 03-15-22 5.00% $1,000,000 $ 1,049,800 New York State Urban Development Corporation Refunding Revenue Bonds Service Contract Series 2005 (FSA) 01-01-17 5.00 1,000,000 1,079,950 New York State Urban Development Corporation Revenue Bonds Series 2002A (XLCA) 01-01-11 5.25 1,000,000 1,077,100 Niagara Falls Public Water Authority Prerefunded Revenue Bonds Series 2003A (MBIA) 07-15-28 5.50 1,000,000 1,011,830 Port Authority of New York & New Jersey Revenue Bonds 5th Installment Special Project Series 1996-4 A.M.T 10-01-19 6.75 1,500,000 1,496,550 Port Authority of New York & New Jersey Revenue Bonds Consolidated 134th Series 2004 07-15-34 5.00 1,000,000 1,038,350 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 1,000,000(d) 1,086,020 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(d) 1,081,880 Sales Tax Asset Receivables Corporation Revenue Bonds Series 2004A (MBIA) 10-15-23 5.00 750,000 796,455 Suffolk County Industrial Development Agency Revenue Bonds 1st Mortgage Jeffersons Ferry Series 1999A 11-01-28 7.25% $1,500,000 $ 1,614,135 Tobacco Settlement Financing Authority Asset-backed Revenue Bonds Series 2003A-1 06-01-16 5.50 500,000 536,260 Tobacco Settlement Financing Authority Revenue Bonds Series 2003C-1 06-01-14 5.50 500,000 530,505 06-01-15 5.50 500,000 536,470 Triborough Bridge & Tunnel Authority Refunding Revenue Bonds Series 2002B 11-15-10 5.00 2,000,000 2,132,960 11-15-29 5.13 1,000,000 1,056,420 Triborough Bridge & Tunnel Authority Revenue Bonds Convention Center Project Series 1990E 01-01-11 6.00 1,145,000 1,266,164 Westchester Tobacco Asset Securitization Revenue Bonds Series 2005 06-01-26 5.00 875,000 845,609 - ----------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $73,291,476) $75,693,371 - -----------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 53 RIVERSOURCE NEW YORK TAX-EXEMPT FUND MUNICIPAL NOTES (2.7%)
AMOUNT EFFECTIVE PAYABLE AT ISSUE(b),(c),(e) YIELD MATURITY VALUE(a) City of New York Unlimited General Obligation Bonds V.R.D.N. Series 1994H-2 (Wachovia Bank) MBIA 08-01-13 3.75% $1,200,000 $ 1,200,000 City of New York Unlimited General Obligation Bonds V.R.D.N. Series 1994H-3 (State Street B&T) FSA 08-01-20 3.65 500,000 500,000 City of New York Unlimited General Obligation Bonds V.R.D.N. Series 2005E-2 (Bank of America) 08-01-34 3.70 300,000 300,000 New York City Municipal Water Finance Authority Revenue Bonds V.R.D.N. Series 2002C-3 (Bank of New York) 06-15-18 3.65% $ 100,000 $ 100,000 - ----------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $2,100,000) $ 2,100,000 - ----------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $75,391,476)(h) $77,793,371 ===========================================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by 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 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 Dec. 31, 2005, the value of securities subject to alternative minimum tax represented 3.9% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note - -------------------------------------------------------------------------------- 54 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE NEW YORK TAX-EXEMPT FUND NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (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 3.4% of net assets at Dec. 31, 2005. (e) The Fund is entitled to receive principal and interest from the party within 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 Dec. 31, 2005. (f) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. (g) Inverse floaters represent securities that pay interest at a rate that increases (decreases) in the same magnitude as, or in a multiple of, a decline (increase) in market short-term rates. Interest rate disclosed is the rate in effect on Dec. 31, 2005. At Dec. 31, 2005, the value of inverse floaters represented 3.2% of net assets. (h) At Dec. 31, 2005, the cost of securities for federal income tax purposes was approximately $75,391,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $2,566,000 Unrealized depreciation (164,000) ------------------------------------------------------------------- Net unrealized appreciation $2,402,000 -------------------------------------------------------------------
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 55 INVESTMENTS IN SECURITIES RIVERSOURCE OHIO TAX-EXEMPT FUND DEC. 31, 2005 (UNAUDITED) (PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS) MUNICIPAL BONDS (95.2%)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b) RATE AMOUNT VALUE(a) Bowling Green State University Revenue Bonds Series 2003 (AMBAC) 06-01-12 5.00% $1,145,000 $ 1,234,573 Brookville Local School District Unlimited General Obligation Bonds Series 2003 (FSA) 12-01-18 5.25 1,000,000 1,088,210 Canal Winchester Local School District Unlimited General Obligation Bonds Series 2005 (MBIA) 12-01-25 5.00 500,000 528,010 Cincinnati City School District Limited General Obligation Bonds School Improvement Series 2002 (FSA) 06-01-21 5.25 1,000,000 1,077,240 Cincinnati City School District Unlimited General Obligation Bonds Classroom Facilities Construction & Improvement Series 2003 (FSA) 12-01-31 5.00 500,000 521,185 City of Cincinnati Unlimited General Obligation Bonds Series 2000 12-01-16 5.25 1,000,000 1,076,820 City of Cleveland Revenue Bonds Series 2002K (FGIC) 01-01-10 5.00 2,000,000 2,118,419 City of Columbus Prerefunded Unlimited General Obligation Bonds Series 1999-2 06-15-15 5.75 1,000,000 1,103,890 City of Hamilton Refunding Revenue Bonds Series 2002A (FSA) 10-15-25 4.70 1,500,000 1,520,235 Cleveland State University Revenue Bonds Series 2003A (FGIC) 06-01-15 5.00% $1,000,000 $ 1,072,120 Cleveland State University Revenue Bonds Series 2004 (FGIC) 06-01-24 5.25 500,000 536,105 Columbus City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003 (FGIC) 12-01-11 5.00 1,000,000 1,077,160 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 500,000(d) 567,865 County of Cuyahoga Limited General Obligation Bonds Series 1993 05-15-13 5.60 500,000 533,935 County of Cuyahoga Refunding Revenue Bonds Series 2003A 01-01-17 6.00 1,000,000 1,133,860 01-01-32 6.00 1,000,000 1,101,810 County of Cuyahoga Revenue Bonds Canton Incorporated Project Series 2000 01-01-30 7.50 1,000,000 1,114,240 County of Montgomery Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 750,000 775,215 05-01-32 5.00 500,000 516,110
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 56 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE OHIO TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b) RATE AMOUNT VALUE(a) Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003A (FGIC) 12-01-27 5.00% $1,250,000 $ 1,304,138 12-01-31 5.00 1,000,000 1,038,810 Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003D (FGIC) 12-01-17 5.00 1,000,000 1,064,170 Franklin County Refunding Revenue Bonds OhioHealth Corporation Series 2003C 05-15-24 5.25 1,000,000 1,060,640 Franklin County Refunding Revenue Bonds Trinity Health Credit Series 2005A 06-01-20 5.00 500,000 525,240 Hamilton County Convention Facilities Authority Revenue Bonds First Lien Series 2004 (FGIC) 12-01-33 5.00 1,000,000 1,038,180 Jackson Prerefunded Revenue Bonds Consolidated Health System - Jackson Hospital Series 1999 (Radian Group Financial Guaranty) 10-01-20 6.13 1,000,000 1,105,530 Kenston Local School District Unlimited General Obligation Bonds School Improvement Series 2003 (MBIA) 12-01-16 5.00 1,000,000 1,067,480 Lakewood Limited General Obligation Bonds Series 2003 12-01-19 5.00 1,515,000 1,598,825 Licking Heights Local School District Unlimited General Obligation Bonds Series 2004 (FGIC) 12-01-28 5.00 1,000,000 1,045,310 Miami University Refunding Revenue Bonds Series 2005 (AMBAC) 09-01-23 4.75% $ 500,000 $ 519,605 Ohio Air Quality Development Authority Refunding Revenue Bonds Pollution Control - Dayton Power Series 2005B (FGIC) 01-01-34 4.80 500,000 506,465 Ohio Municipal Electric Generation Agency Refunding Revenue Bonds Joint Venture 5 Series 2004 (AMBAC) 02-15-24 4.75 750,000 770,805 Ohio State Building Authority Refunding Revenue Bonds State Facilities Adult Correction Series 2001A (FSA) 10-01-14 5.50 1,000,000 1,091,700 Ohio State Building Authority Revenue Bonds State Facilities Adult Correction Series 2005A (FSA) 04-01-22 5.00 750,000 794,325 Ohio State Higher Educational Facility Commission Refunding Revenue Bonds Oberlin College Series 1999 10-01-29 5.00 1,000,000 1,033,990 Ohio State University Revenue Bonds Series 2005A 06-01-30 4.75 500,000 510,250 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 1,000,000(d) 1,059,810 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 250,000(d) 283,840 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 750,000(d) 814,515
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 57 RIVERSOURCE OHIO TAX-EXEMPT FUND MUNICIPAL BONDS (CONTINUED)
NAME OF ISSUER AND TITLE OF COUPON PRINCIPAL ISSUE(b) RATE AMOUNT VALUE(a) Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00% $ 500,000(d) $ 536,000 State of Ohio Revenue Bonds Case Western Reserve University Project Series 2004A (AMBAC) 12-01-27 5.00 1,000,000 1,045,770 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001A 06-15-13 5.00 1,500,000 1,590,570 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001B 09-15-20 5.00 1,000,000 1,058,250 State of Ohio Unlimited General Obligation Bonds Common Schools Series 2003C 03-15-10 5.00 1,000,000 1,060,800 State of Ohio Unlimited General Obligation Bonds Conservation Projects Series 2005A 03-01-20 5.00 500,000 529,225 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2003A 05-01-11 5.00 1,000,000 1,071,210 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2005B 05-01-23 5.00 500,000 530,565 State of Ohio Unlimited General Obligation Bonds Highway Capital Improvement Series 2002G 05-01-12 5.25 750,000 818,490 State of Ohio Unlimited General Obligation Bonds Highway Capital Improvement Series 2005I 05-01-14 5.00% $1,000,000 $ 1,087,110 State of Ohio Unlimited General Obligation Bonds Infrastructure Improvement Series 2005A 09-01-21 5.00 500,000 532,855 Summit County Limited General Obligation Bonds Series 2003 12-01-18 5.25 1,490,000 1,645,929 Toledo City School District Unlimited General Obligation Bonds School Facilities Improvement Series 2003 (FSA) (School District Credit Enhancement Program) 12-01-15 5.00 1,000,000 1,077,000 University of Akron Revenue Bonds Series 2003A (AMBAC) 01-01-22 5.00 1,595,000 1,674,543 University of Cincinnati Revenue Bonds Series 2001A (FGIC) 06-01-14 5.50 1,000,000 1,093,050 University of Cincinnati Revenue Bonds Series 2005A (AMBAC) 06-01-19 5.00 1,000,000 1,072,040 Warren County Limited General Obligation Bonds Series 1992 12-01-12 6.10 500,000 543,490 - ----------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $53,130,754) $53,897,527 - -----------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 58 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE OHIO TAX-EXEMPT FUND MUNICIPAL NOTES (4.0%)
AMOUNT EFFECTIVE PAYABLE AT ISSUE(c),(e) YIELD MATURITY VALUE(a) Ohio Air Quality Development Authority Revenue Bonds Pollution Control - Ohio Edison Company V.R.D.N. Series 1988 (Wachovia Bank) A.M.T 09-01-18 3.85% $2,100,000 $ 2,100,000 State of Ohio Revenue Bonds BP Exploration & Oil Project V.R.D.N. Series 1999 A.M.T 08-01-34 3.85 150,000 150,000 - ----------------------------------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $2,250,000) $ 2,250,000 - ----------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $55,380,754)(f) $56,147,527 ===========================================================================================================
NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by 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 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 Dec. 31, 2005, the value of securities subject to alternative minimum tax represented 4.0% 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 - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 59 RIVERSOURCE OHIO TAX-EXEMPT FUND NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (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 5.8% of net assets at Dec. 31, 2005. (e) The Fund is entitled to receive principal and interest from the party within 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 Dec. 31, 2005. (f) At Dec. 31, 2005, the cost of securities for federal income tax purposes was approximately $55,381,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 952,000 Unrealized depreciation (185,000) ------------------------------------------------------------------ Net unrealized appreciation $ 767,000 ------------------------------------------------------------------
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 www.riversource.com/funds. - -------------------------------------------------------------------------------- 60 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES RIVERSOURCE STATE TAX-EXEMPT FUNDS
CALIFORNIA MASSACHUSETTS MICHIGAN TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT DEC. 31, 2005 (UNAUDITED) FUND FUND FUND ASSETS Investments in securities, at value (Note 1) (identified cost $183,899,679, $65,853,453 and $54,701,168) $190,420,994 $67,239,155 $55,921,400 Cash in bank on demand deposit 75,324 36,305 55,121 Capital shares receivable -- 500 191 Accrued interest receivable 2,624,382 1,181,269 690,386 - --------------------------------------------------------------------------------------------------------------------- Total assets 193,120,700 68,457,229 56,667,098 - --------------------------------------------------------------------------------------------------------------------- LIABILITIES Dividends payable to shareholders 156,244 48,482 41,616 Capital shares payable 17,765 5,107 500 Payable for investment securities purchased -- -- 552,843 Accrued investment management services fee 2,484 881 722 Accrued distribution fee 85,059 30,065 24,439 Accrued transfer agency fee 236 60 53 Accrued administrative services fee 370 131 107 Other accrued expenses 49,062 29,789 35,135 - --------------------------------------------------------------------------------------------------------------------- Total liabilities 311,220 114,515 655,415 - --------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $192,809,480 $68,342,714 $56,011,683 ===================================================================================================================== REPRESENTED BY Shares of beneficial interest -- $.01 par value (Note 1) $ 374,363 $ 128,452 $ 106,865 Additional paid-in capital 185,989,645 66,918,660 54,789,653 Undistributed net investment income 23,566 2,223 -- Accumulated net realized gain (loss) (99,409) (92,323) (105,067) Unrealized appreciation (depreciation) on investments 6,521,315 1,385,702 1,220,232 - --------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $192,809,480 $68,342,714 $56,011,683 ===================================================================================================================== Net assets applicable to outstanding shares: Class A $178,182,022 $52,733,905 $49,886,925 Class B $ 12,218,938 $14,373,532 $ 4,171,608 Class C $ 2,408,520 $ 1,235,277 $ 1,953,150 Outstanding shares of beneficial interest: Class A shares 34,595,574 9,911,473 9,518,261 Class B shares 2,373,687 2,701,446 795,597 Class C shares 467,065 232,266 372,626 Net asset value per share: Class A $ 5.15 $ 5.32 $ 5.24 Class B $ 5.15 $ 5.32 $ 5.24 Class C $ 5.16 $ 5.32 $ 5.24
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 61 STATEMENTS OF ASSETS AND LIABILITIES RIVERSOURCE STATE TAX-EXEMPT FUNDS
MINNESOTA NEW YORK OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT DEC. 31, 2005 (UNAUDITED) FUND FUND FUND ASSETS Investments in securities, at value (Note 1) (identified cost $358,485,627, $75,391,476 and $55,380,754) $368,833,545 $77,793,371 $56,147,527 Cash in bank on demand deposit -- 55,959 30,141 Capital shares receivable 11,180 19,436 619 Accrued interest receivable 5,601,001 1,027,151 550,063 Receivable for investment securities sold 1,756,649 -- -- - --------------------------------------------------------------------------------------------------------------------- Total assets 376,202,375 78,895,917 56,728,350 - --------------------------------------------------------------------------------------------------------------------- LIABILITIES Disbursements in excess of cash on demand deposit 115,565 -- -- Dividends payable to shareholders 277,658 63,851 41,430 Capital shares payable 95,134 -- -- Accrued investment management services fee 4,749 1,014 729 Accrued distribution fee 164,512 34,294 24,367 Accrued transfer agency fee 217 141 103 Accrued administrative services fee 720 151 109 Other accrued expenses 48,855 28,504 23,083 - --------------------------------------------------------------------------------------------------------------------- Total liabilities 707,410 127,955 89,821 - --------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $375,494,965 $78,767,962 $56,638,529 ===================================================================================================================== REPRESENTED BY Shares of beneficial interest -- $.01 par value (Note 1) $ 713,222 $ 156,227 $ 107,795 Additional paid-in capital 365,760,546 76,402,644 55,839,634 Undistributed net investment income 402,404 10,156 -- Accumulated net realized gain (loss) (Note 6) (1,729,125) (202,960) (75,673) Unrealized appreciation (depreciation) on investments 10,347,918 2,401,895 766,773 - --------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $375,494,965 $78,767,962 $56,638,529 ===================================================================================================================== Net assets applicable to outstanding shares: Class A $326,108,441 $68,489,854 $47,915,639 Class B $ 40,967,488 $ 8,977,332 $ 6,999,089 Class C $ 8,419,036 $ 1,300,776 $ 1,723,801 Outstanding shares of beneficial interest: Class A shares 61,942,825 13,584,077 9,119,371 Class B shares 7,780,402 1,780,585 1,332,113 Class C shares 1,599,013 257,993 327,967 Net asset value per share: Class A $ 5.26 $ 5.04 $ 5.25 Class B $ 5.27 $ 5.04 $ 5.25 Class C $ 5.27 $ 5.04 $ 5.26
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 62 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT STATEMENTS OF OPERATIONS RIVERSOURCE STATE TAX-EXEMPT FUNDS
CALIFORNIA MASSACHUSETTS MICHIGAN TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT SIX MONTHS ENDED DEC. 31, 2005 (UNAUDITED) FUND FUND FUND INVESTMENT INCOME Income: Interest $ 4,462,335 $ 1,474,184 $1,213,398 - --------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 472,726 168,315 136,675 Distribution fee Class A 231,036 68,495 64,315 Class B 67,591 77,761 24,002 Class C 14,059 6,368 9,526 Transfer agency fee 39,985 22,746 16,193 Incremental transfer agency fee Class A 3,468 1,711 1,325 Class B 648 773 290 Class C 224 108 154 Administrative services fees and expenses 63,866 19,263 15,323 Compensation of board members 5,094 5,094 5,094 Custodian fees 15,555 5,336 4,575 Printing and postage 16,470 5,691 3,660 Registration fees 18,300 15,840 18,300 Audit fees 10,250 9,500 9,500 Other 2,272 2,382 1,666 - --------------------------------------------------------------------------------------------------------------------- Total expenses 961,544 409,383 310,598 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (61,851) (45,932) (41,930) - --------------------------------------------------------------------------------------------------------------------- 899,693 363,451 268,668 Earnings credits on cash balances (Note 2) (7,654) (2,026) (2,581) - --------------------------------------------------------------------------------------------------------------------- Total net expenses 892,039 361,425 266,087 - --------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 3,570,296 1,112,759 947,311 - --------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on security transactions (Note 3) 459,396 154,454 203,790 Net change in unrealized appreciation (depreciation) on investments (2,757,323) (1,431,441) (959,029) - --------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments (2,297,927) (1,276,987) (755,239) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 1,272,369 $ (164,228) $ 192,072 =====================================================================================================================
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 63 STATEMENTS OF OPERATIONS RIVERSOURCE STATE TAX-EXEMPT FUNDS
MINNESOTA NEW YORK OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT SIX MONTHS ENDED DEC. 31, 2005 (UNAUDITED) FUND FUND FUND INVESTMENT INCOME Income: Interest $ 8,343,101 $ 1,850,734 $ 1,188,324 - --------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 895,701 191,414 137,647 Distribution fee Class A 419,694 88,121 61,543 Class B 219,429 48,102 37,516 Class C 44,183 6,669 9,171 Transfer agency fee 96,972 24,023 17,570 Incremental transfer agency fee Class A 8,075 1,976 1,392 Class B 2,084 555 407 Class C 617 121 172 Administrative services fees and expenses 110,168 22,354 15,410 Compensation of board members 5,861 5,094 5,094 Custodian fees 17,175 6,090 4,490 Printing and postage 43,365 4,140 4,575 Registration fees 21,396 18,300 16,470 Audit fees 11,000 9,750 9,500 Other 5,743 3,320 1,807 - --------------------------------------------------------------------------------------------------------------------- Total expenses 1,901,463 430,029 322,764 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (98,956) (47,875) (42,285) - --------------------------------------------------------------------------------------------------------------------- 1,802,507 382,154 280,479 Earnings credits on cash balances (Note 2) (14,054) (2,982) (2,531) - --------------------------------------------------------------------------------------------------------------------- Total net expenses 1,788,453 379,172 277,948 - --------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 6,554,648 1,471,562 910,376 - --------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET Net realized gain (loss) on security transactions (Note 3) (1,666,165) 328,767 17,690 Net change in unrealized appreciation (depreciation) on investments (4,271,579) (1,772,319) (1,032,083) - --------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments (5,937,744) (1,443,552) (1,014,393) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 616,904 $ 28,010 $ (104,017) =====================================================================================================================
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 64 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS RIVERSOURCE STATE TAX-EXEMPT FUNDS
CALIFORNIA TAX-EXEMPT FUND MASSACHUSETTS TAX-EXEMPT FUND DEC. 31, 2005 JUNE 30, 2005 DEC. 31, 2005 JUNE 30, 2005 SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED (UNAUDITED) (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 3,570,296 $ 7,820,739 $ 1,112,759 $ 2,366,050 Net realized gain (loss) on investments 459,396 2,843,277 154,454 522,273 Net change in unrealized appreciation (depreciation) on investments (2,757,323) 6,675,883 (1,431,441) 2,650,326 - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 1,272,369 17,339,899 (164,228) 5,538,649 - ------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net Investment income Class A (3,344,979) (7,236,425) (971,902) (1,880,881) Class B (192,544) (544,611) (215,183) (449,620) Class C (40,164) (100,096) (17,734) (35,315) Net realized gain Class A (2,060,963) (2,650,310) (260,911) (266,380) Class B (141,135) (248,451) (70,980) (82,558) Class C (28,036) (42,061) (6,115) (6,105) - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (5,807,821) (10,821,954) (1,542,825) (2,720,859) - ------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 11,360,780 18,129,921 3,838,309 5,250,331 Class B shares 542,783 964,281 618,436 643,022 Class C shares 97,886 755,510 90,790 265,254 Reinvestment of distributions at net asset value Class A shares 3,989,265 7,334,232 987,976 1,789,144 Class B shares 288,037 670,599 221,218 419,010 Class C shares 63,100 132,696 21,292 38,737 Payments for redemptions Class A shares (22,689,336) (35,789,588) (6,867,959) (12,453,873) Class B shares (Note 2) (4,463,710) (7,417,183) (3,613,489) (4,843,199) Class C shares (Note 2) (744,307) (1,664,249) (215,506) (600,562) - ------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from share transactions (11,555,502) (16,883,781) (4,918,933) (9,492,136) - ------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets (16,090,954) (10,365,836) (6,625,986) (6,674,346) Net assets at beginning of period 208,900,434 219,266,270 74,968,700 81,643,046 - ------------------------------------------------------------------------------------------------------------------------------ Net assets at end of period $192,809,480 $208,900,434 $68,342,714 $ 74,968,700 ============================================================================================================================== Undistributed net investment income $ 23,566 $ 30,957 $ 2,223 $ 94,283 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 65 STATEMENTS OF CHANGES IN NET ASSETS RIVERSOURCE STATE TAX-EXEMPT FUNDS
MICHIGAN TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND DEC. 31, 2005 JUNE 30, 2005 DEC. 31, 2005 JUNE 30, 2005 SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED (UNAUDITED) (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 947,311 $ 2,102,624 $ 6,554,648 $ 13,459,781 Net realized gain (loss) on investments 203,790 545,582 (1,666,165) 1,307,808 Net change in unrealized appreciation (depreciation) on investments (959,029) 1,522,358 (4,271,579) 11,874,424 - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 192,072 4,170,564 616,904 26,642,013 - ------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net Investment income Class A (860,775) (1,891,829) (5,821,506) (11,812,371) Class B (61,932) (159,945) (593,733) (1,350,479) Class C (24,604) (50,776) (119,392) (240,632) Net realized gain Class A (405,309) (261,330) (630,199) (1,142,029) Class B (33,837) (28,921) (79,985) (166,188) Class C (15,842) (9,068) (16,239) (29,796) - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (1,402,299) (2,401,869) (7,261,054) (14,741,495) - ------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 2,439,562 5,810,522 15,858,013 40,052,864 Class B shares 60,108 294,638 1,052,731 2,238,758 Class C shares 373,061 335,521 878,700 2,013,530 Reinvestment of distributions at net asset value Class A shares 1,000,390 1,756,355 5,143,430 10,737,021 Class B shares 65,012 131,427 549,271 1,294,698 Class C shares 35,903 53,472 115,439 234,993 Payments for redemptions Class A shares (5,757,171) (11,580,469) (30,569,225) (66,760,048) Class B shares (Note 2) (1,329,322) (2,230,452) (8,520,308) (15,765,912) Class C shares (Note 2) (257,729) (559,800) (1,426,963) (2,730,362) - ------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from share transactions (3,370,186) (5,988,786) (16,918,912) (28,684,458) - ------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets (4,580,413) (4,220,091) (23,563,062) (16,783,940) Net assets at beginning of period 60,592,096 64,812,187 399,058,027 415,841,967 - ------------------------------------------------------------------------------------------------------------------------------ Net assets at end of period $56,011,683 $ 60,592,096 $375,494,965 $399,058,027 ============================================================================================================================== Undistributed net investment income $ -- $ -- $ 402,404 $ 382,387 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 66 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS RIVERSOURCE STATE TAX-EXEMPT FUNDS
NEW YORK TAX-EXEMPT FUND OHIO TAX-EXEMPT FUND DEC. 31, 2005 JUNE 30, 2005 DEC. 31, 2005 JUNE 30, 2005 SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED (UNAUDITED) (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) -- net $ 1,471,562 $ 3,103,932 $ 910,376 $ 1,931,489 Net realized gain (loss) on investments 328,767 571,057 17,690 618,488 Net change in unrealized appreciation (depreciation) on investments (1,772,319) 2,623,197 (1,032,083) 1,820,601 - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 28,010 6,298,186 (104,017) 4,370,578 - ------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net Investment income Class A (1,308,470) (2,732,716) (829,476) (1,682,964) Class B (142,254) (325,543) (97,230) (196,329) Class C (19,863) (43,807) (23,876) (49,329) Net realized gain Class A (665,060) (958,527) -- -- Class B (87,026) (144,685) -- -- Class C (12,789) (18,926) -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (2,235,462) (4,224,204) (950,582) (1,928,622) - ------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 4,579,715 6,562,422 3,409,606 3,342,352 Class B shares 403,974 609,622 95,224 444,801 Class C shares 175,945 300,146 49,781 251,354 Reinvestment of distributions at net asset value Class A shares 1,617,127 3,143,127 604,696 1,306,745 Class B shares 184,329 374,395 73,750 152,859 Class C shares 30,610 61,961 21,093 47,057 Payments for redemptions Class A shares (8,387,728) (17,872,425) (6,260,937) (12,063,570) Class B shares (Note 2) (2,257,799) (5,445,727) (1,182,074) (2,673,642) Class C shares (Note 2) (242,435) (999,298) (227,232) (755,439) - ------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from share transactions (3,896,262) (13,265,777) (3,416,093) (9,947,483) - ------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets (6,103,714) (11,191,795) (4,470,692) (7,505,527) Net assets at beginning of period 84,871,676 96,063,471 61,109,221 68,614,748 - ------------------------------------------------------------------------------------------------------------------------------ Net assets at end of period $78,767,962 $ 84,871,676 $56,638,529 $ 61,109,221 ============================================================================================================================== Undistributed net investment income $ 10,156 $ 9,181 $ -- $ 40,206 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 67 NOTES TO FINANCIAL STATEMENTS RIVERSOURCE STATE TAX-EXEMPT FUNDS (FORMERLY AXP STATE TAX-EXEMPT FUNDS) (UNAUDITED AS TO DEC. 31, 2005) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AXP California Tax-Exempt Trust and AXP Special Tax-Exempt Series Trust were organized as Massachusetts business trusts. AXP California Tax-Exempt Trust includes only RiverSource California Tax-Exempt Fund. AXP Special Tax-Exempt Series Trust is a "series fund" that is currently composed of individual state tax-exempt funds and one insured national tax-exempt fund, including RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund (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. The distribution fee and transfer agency fees (class specific expenses) 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. - -------------------------------------------------------------------------------- 68 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT 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. Securities for which market quotations are not readily available are valued at fair value according to methods selected in good faith by the Board. 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. ILLIQUID SECURITIES At Dec. 31, 2005, investments in securities for California Tax-Exempt Fund and Minnesota Tax-Exempt Fund include issues that are illiquid which the Funds currently limit to 10% of net assets, at market value, at the time of purchase. The aggregate value of such securities at Dec. 31, 2005, was $70,992 and $2,265,000 representing 0.04% and 0.60% of net assets for California Tax-Exempt Fund and Minnesota Tax-Exempt Fund, respectively. These securities are valued at fair value according to methods selected in good faith by the Board. According to board guidelines, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Assets are liquid if they can be sold or disposed of in the ordinary course of business within seven days at approximately the value at which the asset is valued by the Fund. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 69 OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Funds may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. The Funds also may write over-the-counter options where completing the obligation depends upon the credit standing of the other party. 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. 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. 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. SWAP TRANSACTIONS To produce incremental earnings, to gain exposure to or protect itself from market changes, the Funds may enter into swap agreements. Swaps are an agreement between two parties to exchange periodic cash flows based on a specified amount of principal. The net cash flow is generally the difference between a floating market interest rate versus a fixed interest rate. The Funds may employ swaps to synthetically add or subtract principal exposure to the municipal market. - -------------------------------------------------------------------------------- 70 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT Risks of entering into a 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 swap to experience adverse changes in value relative to expectations. In addition, swaps are subject to the risk of default of a counterparty, and the risk of adverse movements in market interest rates relative to the swap positions entered. Swaps are valued daily and unrealized appreciation and depreciation is recorded. The Funds will realize a gain or a loss when the swap is terminated. The Funds did not enter into any swap agreements for the six months ended Dec. 31, 2005. GUARANTEES AND INDEMNIFICATIONS Under each Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to each Fund. In addition, certain of each Fund's contracts with its service providers contain general indemnification clauses. Each Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against each Fund cannot be determined and each Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES Each Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Each Fund is treated as a separate entity for federal income tax purposes. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Funds. 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 -- 2005 SEMIANNUAL REPORT -- 71 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. Prior to Oct. 1, 2005, investment management services were provided by Ameriprise Financial, Inc. (Ameriprise Financial). The management fee is a percentage of each Fund's average daily net assets that declines from 0.47% to 0.38% annually as each Fund's assets increase. On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. Effective March 1, 2006, the management fee percentage of each Fund's average daily net assets will decline from 0.41% to 0.25% annually as each Fund's assets increase. Under the current Administrative Services Agreement, each Fund pays Ameriprise Financial 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. Prior to Oct. 1, 2005, the fee percentage of each Fund's average daily net assets declined from 0.04% to 0.02% annually as each Fund's assets increased. A minor portion of additional administrative service expenses paid by the Funds are consultants' fees and fund office expenses. Under this agreement, the Funds also pay taxes, audit and certain legal fees, registration fees for shares, compensation of board members, corporate filing fees and any other expenses properly payable by the Funds and approved by the Board. 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 separate 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 incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the base fee of $18.50. The Transfer Agent charges an annual closed account 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 statement of operations. Each Fund has agreements with Ameriprise Financial Services, Inc. (the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, each Fund pays a fee at an annual rate up to 0.25% of each Fund's average daily net assets attributable to Class A shares and up to 1.00% for Class B and Class C shares. - -------------------------------------------------------------------------------- 72 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT For the six months ended Dec. 31, 2005, the Investment Manager and its affiliates waived certain fees and expenses as follows:
FUND CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- California Tax-Exempt Fund 0.83% 1.59% 1.60% Massachusetts Tax-Exempt Fund 0.84 1.60 1.60 Michigan Tax-Exempt Fund 0.84 1.60 1.59 Minnesota Tax-Exempt Fund 0.83 1.58 1.59 New York Tax-Exempt Fund 0.83 1.60 1.60 Ohio Tax-Exempt Fund 0.84 1.60 1.60
Of these waived fees and expenses, the transfer agency fees waived are as follows:
FUND AMOUNT - --------------------------------------------------------------------------------- California Tax-Exempt Fund Class A $19,855 Class B 1,227 Class C 308 The management fees waived at the Fund level were $40,461. Massachusetts Tax-Exempt Fund Class A $16,322 Class B 4,102 Class C 384 The management fees waived at the Fund level were $25,124. Michigan Tax-Exempt Fund Class A $13,012 Class B 1,128 Class C 496 The management fees waived at the Fund level were $27,294. Minnesota Tax-Exempt Fund Class A $45,391 Class B 5,182 Class C 1,172 The management fees waived at the Fund level were $47,211. New York Tax-Exempt Fund Class A $19,173 Class B 2,400 Class C 378 The management fees waived at the Fund level were $25,924. Ohio Tax-Exempt Fund Class A $13,619 Class B 1,889 Class C 536 The management fees waived at the Fund level were $26,241.
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 73 Under an agreement which was effective until Sept. 30, 2005, net expenses would not exceed 0.88% for Class A, 1.64% for Class B and 1.64% for Class C of the Fund's average daily net assets for Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt Fund. Beginning Oct. 1, 2005, a new agreement to waive certain fees and expenses is effective until June 30, 2006, such that net expenses will not exceed 0.79% for Class A, 1.55% for Class B and 1.55% for Class C of the Fund's average daily net assets for California Tax-Exempt Fund, Massachusetts Tax-Exempt Fund, Michigan Tax-Exempt Fund, Minnesota Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt Fund. Sales charges received by the Distributor for distributing the Funds' shares for the six months ended Dec. 31, 2005, are as follows:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------ California Tax-Exempt Fund $ 95,817 $16,545 $304 Massachusetts Tax-Exempt Fund 34,279 14,230 45 Michigan Tax-Exempt Fund 18,631 3,955 525 Minnesota Tax-Exempt Fund 183,009 37,211 779 New York Tax-Exempt Fund 37,290 8,741 938 Ohio Tax-Exempt Fund 24,913 4,084 121
During the six months ended Dec. 31, 2005, the Funds' custodian and transfer agency fees were reduced as a result of earnings credits from overnight cash balances as follows:
FUND REDUCTION - ---------------------------------------------------------------------------- California Tax-Exempt Fund $ 7,654 Massachusetts Tax-Exempt Fund 2,026 Michigan Tax-Exempt Fund 2,581 Minnesota Tax-Exempt Fund 14,054 New York Tax-Exempt Fund 2,982 Ohio Tax-Exempt Fund 2,531
3. SECURITIES TRANSACTIONS For the six months ended Dec. 31, 2005, cost of purchases and proceeds from sales (other than short-term obligations) aggregated for each Fund are as follows:
FUND PURCHASES PROCEEDS - ------------------------------------------------------------------------- California Tax-Exempt Fund $20,402,261 $34,203,332 Massachusetts Tax-Exempt Fund 6,160,949 8,671,489 Michigan Tax-Exempt Fund 3,584,374 8,828,906 Minnesota Tax-Exempt Fund 30,453,217 61,845,861 New York Tax-Exempt Fund 8,638,708 14,463,017 Ohio Tax-Exempt Fund 5,351,830 10,713,047
Realized gains and losses are determined on an identified cost basis. - -------------------------------------------------------------------------------- 74 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the periods indicated are as follows:
CALIFORNIA TAX-EXEMPT FUND SIX MONTHS ENDED DEC. 31, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 2,182,675 104,243 18,735 Issued for reinvested distributions 771,350 55,720 12,174 Redeemed (4,353,669) (854,376) (143,089) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (1,399,644) (694,413) (112,180) - ---------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 3,470,204 184,660 144,458 Issued for reinvested distributions 1,403,867 128,452 25,370 Redeemed (6,850,880) (1,423,411) (317,324) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (1,976,809) (1,110,299) (147,496) - ---------------------------------------------------------------------------------------------- MASSACHUSETTS TAX-EXEMPT FUND SIX MONTHS ENDED DEC. 31, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 713,720 115,729 17,084 Issued for reinvested distributions 184,950 41,422 3,988 Redeemed (1,283,784) (672,998) (40,265) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (385,114) (515,847) (19,193) - ---------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 973,442 118,798 49,187 Issued for reinvested distributions 330,855 77,493 7,167 Redeemed (2,306,644) (898,813) (111,173) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (1,002,347) (702,522) (54,819) - ---------------------------------------------------------------------------------------------- MICHIGAN TAX-EXEMPT FUND SIX MONTHS ENDED DEC. 31, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 461,588 11,374 70,564 Issued for reinvested distributions 190,043 12,354 6,827 Redeemed (1,088,418) (251,201) (48,759) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (436,787) (227,473) 28,632 - ---------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 1,092,631 55,503 63,091 Issued for reinvested distributions 329,971 24,678 10,044 Redeemed (2,177,836) (420,994) (105,325) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (755,234) (340,813) (32,190) - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 75
MINNESOTA TAX-EXEMPT FUND SIX MONTHS ENDED DEC. 31, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 2,998,700 199,282 165,665 Issued for reinvested distributions 975,129 104,137 21,889 Redeemed (5,795,008) (1,610,335) (270,324) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (1,821,179) (1,306,916) (82,770) - ---------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 7,546,438 419,686 378,689 Issued for reinvested distributions 2,015,244 243,032 44,107 Redeemed (12,549,607) (2,978,564) (513,275) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (2,987,925) (2,315,846) (90,479) - ---------------------------------------------------------------------------------------------- NEW YORK TAX-EXEMPT FUND SIX MONTHS ENDED DEC. 31, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 895,129 78,935 34,319 Issued for reinvested distributions 318,774 36,353 6,037 Redeemed (1,643,221) (440,698) (47,376) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (429,318) (325,410) (7,020) - ---------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 1,273,990 118,256 58,049 Issued for reinvested distributions 609,569 72,640 12,015 Redeemed (3,468,592) (1,058,818) (193,383) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (1,585,033) (867,922) (123,319) - ---------------------------------------------------------------------------------------------- OHIO TAX-EXEMPT FUND SIX MONTHS ENDED DEC. 31, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 648,662 18,104 9,460 Issued for reinvested distributions 114,822 14,004 4,005 Redeemed (1,191,449) (223,973) (43,229) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (427,965) (191,865) (29,764) - ---------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, 2005 CLASS A CLASS B CLASS C - ---------------------------------------------------------------------------------------------- Sold 634,596 83,991 47,441 Issued for reinvested distributions 246,552 28,844 8,876 Redeemed (2,278,127) (509,146) (142,885) - ---------------------------------------------------------------------------------------------- Net increase (decrease) (1,396,979) (396,311) (86,568) - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 76 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT 5. BANK BORROWINGS Each Fund has a revolving credit agreement 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 agreement went into effect Sept. 20, 2005. Each Fund must maintain asset coverage for borrowings of at least 300%. The agreement, which enables the Fund to participate with other RiverSource funds, permits borrowings up to $500 million, collectively. Interest is charged to each Fund based on its borrowings at a rate equal to either the higher of the Federal Funds Effective Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within 60 days after such loan is executed. Each Fund also pays a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Prior to this agreement, each Fund had a revolving credit agreement that permitted borrowings up to $500 million with The Bank of New York. Each Fund had no borrowings outstanding during the six months ended Dec. 31, 2005. 6. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs at June 30, 2005 are as follows:
FUND CARRY-OVER EXPIRATION DATE - ---------------------------------------------------------------------------------- Ohio Tax-Exempt Fund $87,465 2013
It is unlikely the Board will authorize a distribution of any net realized capital gains for a Fund until the respective capital loss carry-over has been offset or expires. 7. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), the parent company of RiverSource Investments, LLC (RiverSource Investments), entered into settlement agreements with the Securities and Exchange Commission (SEC) and Minnesota Department of Commerce (MDOC) related to market timing activities. In connection with these matters, the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain provisions of the federal and Minnesota securities laws by failing to adequately disclose market timing activities by allowing certain identified market timers to continue to market time contrary to disclosures in mutual fund and variable annuity product prospectuses. The Orders also alleged that AEFC failed to implement procedures to detect and prevent market timing in 401(k) plans for employees of AEFC and related companies and failed to adequately disclose that there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged that AEFC allowed inappropriate market timing to occur by failing to have written policies and procedures and failing to properly supervise its employees. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 77 As a result of the Orders, AEFC was censured and ordered to cease and desist from committing or causing any violations of certain provisions of the Investment Advisers Act of 1940, the Investment Company Act of 1940, and various Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay disgorgement of $10 million and civil money penalties of $7 million. AEFC also agreed to make presentations at least annually to its board of directors and the relevant mutual funds' board that include an overview of policies and procedures to prevent market timing, material changes to these policies and procedures and whether disclosures related to market timing are consistent with the SEC order and federal securities laws. AEFC also agreed to retain an independent distribution consultant to assist in developing a plan for distribution of all disgorgement and civil penalties ordered by the SEC in accordance with various undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In addition, AEFC agreed to complete and submit to the MDOC a compliance review of its procedures regarding market timing within one year of the MDOC Order, including a summary of actions taken to ensure compliance with applicable laws and regulations and certification by a senior officer regarding compliance and supervisory procedures. Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal or arbitration 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 or arbitration 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. - -------------------------------------------------------------------------------- 78 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT 8. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating each Fund's results. RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND CLASS A
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.27 $5.11 $5.37 $5.23 $5.18 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .20 .21 .23 .24 Net gains (losses) (both realized and unrealized) (.06) .23 (.20) .14 .05 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .03 .43 .01 .37 .29 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.20) (.21) (.23) (.24) Distributions from realized gains (.06) (.07) (.06) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.15) (.27) (.27) (.23) (.24) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.15 $5.27 $5.11 $5.37 $5.23 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 178 $ 190 $ 194 $ 237 $ 234 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .83%(c),(d) .86% .86% .85% .84% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.61%(d) 3.71% 4.03% 4.34% 4.56% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 11% 28% 30% 95% 16% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .68%(f) 8.53% .25% 7.26% 5.66% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class A would have been 0.90% for the six months ended Dec. 31, 2005. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 79 RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND CLASS B
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.27 $5.11 $5.37 $5.23 $5.17 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .16 .17 .19 .20 Net gains (losses) (both realized and unrealized) (.06) .23 (.20) .14 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .01 .39 (.03) .33 .26 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.16) (.17) (.19) (.20) Distributions from realized gains (.06) (.07) (.06) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.13) (.23) (.23) (.19) (.20) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.15 $5.27 $5.11 $5.37 $5.23 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 12 $ 16 $ 21 $ 27 $ 27 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.59%(c),(d) 1.61% 1.61% 1.60% 1.59% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.84%(d) 2.95% 3.28% 3.58% 3.81% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 11% 28% 30% 95% 16% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .30%(f) 7.72% (.50%) 6.44% 5.07% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class B would have been 1.65% for the six months ended Dec. 31, 2005. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 80 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND CLASS C
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.28 $5.12 $5.38 $5.24 $5.18 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .16 .17 .19 .20 Net gains (losses) (both realized and unrealized) (.06) .23 (.20) .14 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .01 .39 (.03) .33 .26 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.16) (.17) (.19) (.20) Distributions from realized gains (.06) (.07) (.06) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.13) (.23) (.23) (.19) (.20) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.16 $5.28 $5.12 $5.38 $5.24 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 2 $ 3 $ 4 $ 5 $ 3 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.62% 1.62% 1.61% 1.60% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.85%(d) 2.94% 3.27% 3.56% 3.86% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 11% 28% 30% 95% 16% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .30%(f) 7.71% (.50%) 6.43% 5.07% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class C would have been 1.66% for the six months ended Dec. 31, 2005. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 81 RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND CLASS A
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.45 $5.26 $5.51 $5.37 $5.28 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 .17 .18 .19 .22 Net gains (losses) (both realized and unrealized) (.09) .22 (.19) .16 .09 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.01) .39 (.01) .35 .31 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.17) (.18) (.19) (.22) Distributions from realized gains (.03) (.03) (.06) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.12) (.20) (.24) (.21) (.22) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.32 $5.45 $5.26 $5.51 $5.37 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 53 $ 56 $ 59 $ 73 $ 66 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .84%(c),(d) .88%(c) .88%(c) .88%(c) .91% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.29%(d) 3.17% 3.35% 3.57% 4.11% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 9% 14% 141% 53% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) (.14%)(f) 7.42% (.24%) 6.73% 5.94% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.97% for the six months ended Dec. 31, 2005 and 0.94%, 0.93% and 0.92% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 82 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND CLASS B
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.45 $5.26 $5.51 $5.37 $5.28 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .13 .14 .15 .18 Net gains (losses) (both realized and unrealized) (.10) .22 (.19) .16 .09 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.03) .35 (.05) .31 .27 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.13) (.14) (.15) (.18) Distributions from realized gains (.03) (.03) (.06) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.16) (.20) (.17) (.18) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.32 $5.45 $5.26 $5.51 $5.37 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 14 $ 18 $ 21 $ 24 $ 24 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60%(c),d) 1.64%(c) 1.64%(c) 1.63%(c) 1.66% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.52%(d) 2.41% 2.59% 2.81% 3.34% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 9% 14% 141% 53% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) (.52%)(f) 6.61% (.99%) 5.92% 5.15% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.72% for the six months ended Dec. 31, 2005 and 1.69%, 1.69% and 1.68% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 83 RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND CLASS C
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.44 $5.26 $5.51 $5.37 $5.28 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .13 .14 .15 .18 Net gains (losses) (both realized and unrealized) (.09) .21 (.19) .16 .09 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.02) .34 (.05) .31 .27 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.13) (.14) (.15) (.18) Distributions from realized gains (.03) (.03) (.06) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.16) (.20) (.17) (.18) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.32 $5.44 $5.26 $5.51 $5.37 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1 $ 1 $ 2 $ 2 $ 2 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.64%(c) 1.64%(c) 1.66% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.54%(d) 2.41% 2.58% 2.88% 3.32% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 9% 14% 141% 53% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) (.34%)(f) 6.41% (.97%) 5.91% 5.16% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.73% for the six months ended Dec. 31, 2005 and 1.70%, 1.69% and 1.68% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 84 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MICHIGAN TAX-EXEMPT FUND CLASS A
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.21 $5.47 $5.33 $5.27 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .18 .19 .22 .24 Net gains (losses) (both realized and unrealized) (.07) .17 (.18) .19 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .02 .35 .01 .41 .30 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.18) (.19) (.22) (.24) Distributions from realized gains (.04) (.03) (.08) (.05) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.13) (.21) (.27) (.27) (.24) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.24 $5.35 $5.21 $5.47 $5.33 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 50 $ 53 $ 56 $ 70 $ 70 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .84%(c),(d) .88%(c) .88%(c) .88%(c) .92% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.35%(d) 3.45% 3.55% 4.06% 4.57% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 6% 9% 32% 113% 33% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .42%(f) 6.80% .19% 8.00% 5.83% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.98% for the six months ended Dec. 31, 2005 and 0.96%, 0.94% and 0.93% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 85 RIVERSOURCE MICHIGAN TAX-EXEMPT FUND CLASS B
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.21 $5.47 $5.33 $5.27 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .14 .15 .18 .20 Net gains (losses) (both realized and unrealized) (.07) .17 (.18) .19 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations -- .31 (.03) .37 .26 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.14) (.15) (.18) (.20) Distributions from realized gains (.04) (.03) (.08) (.05) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.17) (.23) (.23) (.20) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.24 $5.35 $5.21 $5.47 $5.33 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 4 $ 5 $ 7 $ 9 $ 8 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.63%(c) 1.67% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.58%(d) 2.69% 2.79% 3.28% 3.82% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 6% 9% 32% 113% 33% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .04%(f) 5.99% (.56%) 7.18% 5.04% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.74% for the six months ended Dec. 31, 2005 and 1.71%, 1.70% and 1.69% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 86 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MICHIGAN TAX-EXEMPT FUND CLASS C
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.21 $5.47 $5.33 $5.27 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .14 .15 .18 .20 Net gains (losses) (both realized and unrealized) (.07) .17 (.18) .19 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations -- .31 (.03) .37 .26 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.14) (.15) (.18) (.20) Distributions from realized gains (.04) (.03) (.08) (.05) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.11) (.17) (.23) (.23) (.20) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.24 $5.35 $5.21 $5.47 $5.33 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 2 $ 2 $ 2 $ 2 $ 1 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.59%(c),(d) 1.64%(c) 1.64%(c) 1.63%(c) 1.66% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.58%(d) 2.70% 2.80% 3.27% 3.80% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 6% 9% 32% 113% 33% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) 0.04%(f) 5.99% (.57%) 7.18% 5.05% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.74% for the six months ended Dec. 31, 2005 and 1.72%, 1.70% and 1.69% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 87 RIVERSOURCE MINNESOTA TAX-EXEMPT FUND CLASS A
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.20 $5.37 $5.20 $5.14 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .18 .19 .22 .25 Net gains (losses) (both realized and unrealized) (.08) .17 (.17) .17 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .01 .35 .02 .39 .31 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.18) (.19) (.22) (.25) Distributions from realized gains (.01) (.02) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.20) (.19) (.22) (.25) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.26 $5.35 $5.20 $5.37 $5.20 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in millions) $ 326 $ 341 $ 347 $ 393 $ 375 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .83%(c),(d) .85% .84% .84% .83% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.48%(d) 3.37% 3.60% 4.26% 4.82% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 8% 15% 23% 73% 36% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .24%(f) 6.73% .32% 7.78% 6.15% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class A would have been 0.88% for the six months ended Dec. 31, 2005. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 88 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MINNESOTA TAX-EXEMPT FUND CLASS B
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.20 $5.37 $5.20 $5.14 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .14 .15 .18 .21 Net gains (losses) (both realized and unrealized) (.07) .17 (.17) .17 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations -- .31 (.02) .35 .27 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.14) (.15) (.18) (.21) Distributions from realized gains (.01) (.02) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.08) (.16) (.15) (.18) (.21) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.27 $5.35 $5.20 $5.37 $5.20 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 41 $ 49 $ 59 $ 68 $ 64 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.58%(c),(d) 1.60% 1.59% 1.59% 1.59% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.71%(d) 2.62% 2.85% 3.48% 4.02% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 8% 15% 23% 73% 36% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .05%(f) 5.94% (.44%) 6.97% 5.36% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class B would have been 1.63% for the six months ended Dec. 31, 2005. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 89 RIVERSOURCE MINNESOTA TAX-EXEMPT FUND CLASS C
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.20 $5.37 $5.20 $5.14 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .14 .15 .18 .21 Net gains (losses) (both realized and unrealized) (.07) .17 (.17) .17 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations -- .31 (.02) .35 .27 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.14) (.15) (.18) (.21) Distributions from realized gains (.01) (.02) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.08) (.16) (.15) (.18) (.21) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.27 $5.35 $5.20 $5.37 $5.20 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 8 $ 9 $ 9 $ 9 $ 5 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.59%(c),(d) 1.61% 1.60% 1.60% 1.59% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.72%(d) 2.62% 2.84% 3.44% 4.04% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 8% 15% 23% 73% 36% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .04%(f) 5.94% (.44%) 6.96% 5.36% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratio of expenses for Class C would have been 1.64% for the six months ended Dec. 31, 2005. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 90 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE NEW YORK TAX-EXEMPT FUND CLASS A
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.18 $5.07 $5.36 $5.16 $5.12 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .18 .18 .20 .22 Net gains (losses) (both realized and unrealized) (.09) .17 (.18) .22 .04 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations -- .35 -- .42 .26 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.18) (.18) (.20) (.22) Distributions from realized gains (.05) (.06) (.11) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.14) (.24) (.29) (.22) (.22) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.04 $5.18 $5.07 $5.36 $5.16 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 68 $ 73 $ 79 $ 97 $ 92 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .83%(c),(d) .88%(c) .88%(c) .88%(c) .90% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.72%(d) 3.47% 3.44% 3.88% 4.38% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 11% 30% 36% 91% 44% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) .10%(f) 7.04% (.02%) 8.43% 5.26% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.95% for the six months ended Dec. 31, 2005 and 0.92%, 0.93% and 0.90% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 91 RIVERSOURCE NEW YORK TAX-EXEMPT FUND CLASS B
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.18 $5.07 $5.36 $5.16 $5.12 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .14 .14 .16 .19 Net gains (losses) (both realized and unrealized) (.09) .17 (.18) .22 .04 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.02) .31 (.04) .38 .23 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.14) (.14) (.16) (.19) Distributions from realized gains (.05) (.06) (.11) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.12) (.20) (.25) (.18) (.19) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.04 $5.18 $5.07 $5.36 $5.16 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 9 $ 11 $ 15 $ 18 $ 18 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.63%(c) 1.65% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.95%(d) 2.70% 2.69% 3.13% 3.60% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 11% 30% 36% 91% 44% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) (.27%)(f) 6.23% (.78%) 7.61% 4.48% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.71% for the six months ended Dec. 31, 2005 and 1.67%, 1.69% and 1.66% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 92 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE NEW YORK TAX-EXEMPT FUND CLASS C
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.18 $5.07 $5.36 $5.16 $5.11 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .14 .14 .16 .19 Net gains (losses) (both realized and unrealized) (.09) .17 (.18) .22 .05 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.02) .31 (.04) .38 .24 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.14) (.14) (.16) (.19) Distributions from realized gains (.05) (.06) (.11) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.12) (.20) (.25) (.18) (.19) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.04 $5.18 $5.07 $5.36 $5.16 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1 $ 1 $ 2 $ 2 $ 1 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.64%(c) 1.66% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.96%(d) 2.70% 2.68% 3.07% 3.69% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 11% 30% 36% 91% 44% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) (.27%)(f) 6.23% (.78%) 7.60% 4.68% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.72% for the six months ended Dec. 31, 2005 and 1.68%, 1.69% and 1.66% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 93 RIVERSOURCE OHIO TAX-EXEMPT FUND CLASS A
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.16 $5.43 $5.35 $5.27 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 .16 .17 .18 .22 Net gains (losses) (both realized and unrealized) (.09) .19 (.20) .19 .08 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.01) .35 (.03) .37 .30 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.16) (.17) (.18) (.22) Distributions from realized gains -- -- (.07) (.11) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.16) (.24) (.29) (.22) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.25 $5.35 $5.16 $5.43 $5.35 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 48 $ 51 $ 56 $ 67 $ 69 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .84%(c),(d) .88%(c) .88%(c) .88%(c) .91% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.23%(d) 3.07% 3.13% 3.40% 4.22% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 10% 33% 17% 194% 33% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) (.20%)(f) 6.90% (.67%) 7.08% 5.87% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.98% for the six months ended Dec. 31, 2005 and 0.95%, 0.95% and 0.92% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 94 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE OHIO TAX-EXEMPT FUND CLASS B
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.16 $5.43 $5.34 $5.27 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06 .12 .13 .14 .18 Net gains (losses) (both realized and unrealized) (.09) .19 (.20) .20 .07 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.03) .31 (.07) .34 .25 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.12) (.13) (.14) (.18) Distributions from realized gains -- -- (.07) (.11) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.07) (.12) (.20) (.25) (.18) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.25 $5.35 $5.16 $5.43 $5.34 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 7 $ 8 $ 10 $ 13 $ 12 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.63%(c) 1.66% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.47%(d) 2.31% 2.38% 2.62% 3.46% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 10% 33% 17% 194% 33% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) (.58%)(f) 6.10% (1.43%) 6.47% 4.89% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class B would have been 1.74% for the six months ended Dec. 31, 2005 and 1.70%, 1.71% and 1.68% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 95 RIVERSOURCE OHIO TAX-EXEMPT FUND CLASS C
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002 PER SHARE INCOME AND CAPITAL CHANGES(a) Net asset value, beginning of period $5.35 $5.16 $5.43 $5.35 $5.28 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .06 .12 .13 .14 .18 Net gains (losses) (both realized and unrealized) (.08) .19 (.20) .19 .07 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.02) .31 (.07) .33 .25 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.12) (.13) (.14) (.18) Distributions from realized gains -- -- (.07) (.11) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.07) (.12) (.20) (.25) (.18) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.26 $5.35 $5.16 $5.43 $5.35 - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 2 $ 2 $ 2 $ 3 $ 1 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.63%(c) 1.66% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.47%(d) 2.31% 2.38% 2.54% 3.45% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 10% 33% 17% 194% 33% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(e) (.39%)(f) 6.10% (1.44%) 6.26% 4.89% - ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) Expense ratio is based on total expenses of the Fund before reduction of earnings credits on cash balances. (c) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class C would have been 1.75% for the six months ended Dec. 31, 2005 and 1.71%, 1.71% and 1.68% for the years ended June 30, 2005, 2004 and 2003, respectively. (d) Adjusted to an annual basis. (e) Total return does not reflect payment of a sales charge. (f) Not annualized. (g) Six months ended Dec. 31, 2005 (Unaudited). - -------------------------------------------------------------------------------- 96 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT FUND EXPENSES EXAMPLE (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, including management fees; distribution and service (12b-1) fees; and other Fund 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. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Dec. 31, 2005. ACTUAL EXPENSES The first line of each table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of each table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare each 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in each table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 97 RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,006.80 $4.18(c) .83% Hypothetical (5% return before expenses) $1,000 $1,020.91 $4.20(c) .83% Class B Actual(b) $1,000 $1,003.00 $7.98(c) 1.59% Hypothetical (5% return before expenses) $1,000 $1,017.10 $8.04(c) 1.59% Class C Actual(b) $1,000 $1,003.00 $8.03(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
(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 183/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2005: +0.68% for Class A, +0.30% for Class B and +0.30% for Class C. (c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. In addition, on Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If the revised fee schedules under the Administrative Services Agreement, the Investment Management Services Agreement and the cap/fee waiver agreement had been in place for the entire six-month period ended Dec. 31, 2005, the actual expenses paid would have been $3.97 for Class A, $7.78 for Class B and $7.78 for Class C; the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for Class B and $7.84 for Class C. - -------------------------------------------------------------------------------- 98 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $ 998.60 $4.21(c) .84% Hypothetical (5% return before expenses) $1,000 $1,020.86 $4.26(c) .84% Class B Actual(b) $1,000 $ 994.80 $8.00(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60% Class C Actual(b) $1,000 $ 996.60 $8.01(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
(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 183/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2005: -0.14% for Class A, -0.52% for Class B, and -0.34% for Class C. (c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. In addition, on Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If the revised fee schedules under the Administrative Services Agreement, the Investment Management Services Agreement and the cap/fee waiver agreement had been in place for the entire six-month period ended Dec. 31, 2005, the actual expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.76 for Class C; the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for Class B and $7.84 for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 99 RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,004.20 $4.22(c) .84% Hypothetical (5% return before expenses) $1,000 $1,020.86 $4.26(c) .84% Class B Actual(b) $1,000 $1,000.40 $8.02(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60% Class C Actual(b) $1,000 $1,000.40 $7.97(c) 1.59% Hypothetical (5% return before expenses) $1,000 $1,017.10 $8.04(c) 1.59%
(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 183/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2005: +0.42% for Class A, +0.04% for Class B and +0.04% for Class C. (c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. In addition, on Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If the revised fee schedules under the Administrative Services Agreement, the Investment Management Services Agreement and the cap/fee waiver agreement had been in place for the entire six-month period ended Dec. 31, 2005, the actual expenses paid would have been $3.97 for Class A, $7.77 for Class B and $7.77 for Class C; the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for Class B and $7.84 for Class C. - -------------------------------------------------------------------------------- 100 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,002.40 $4.17(c) .83% Hypothetical (5% return before expenses) $1,000 $1,020.91 $4.20(c) .83% Class B Actual(b) $1,000 $1,000.50 $7.92(c) 1.58% Hypothetical (5% return before expenses) $1,000 $1,017.15 $7.99(c) 1.58% Class C Actual(b) $1,000 $1,000.40 $7.97(c) 1.59% Hypothetical (5% return before expenses) $1,000 $1,017.10 $8.04(c) 1.59%
(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 183/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2005: +0.24% for Class A, +0.05% for Class B and +0.04% for Class C. (c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. In addition, on Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If the revised fee schedules under the Administrative Services Agreement, the Investment Management Services Agreement and the cap/fee waiver agreement had been in place for the entire six-month period ended Dec. 31, 2005, the actual expenses paid would have been $3.97 for Class A, $7.77 for Class B and $7.77 for Class C; the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for Class B and $7.84 for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 101 RIVERSOURCE NEW YORK TAX-EXEMPT FUND
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,001.00 $4.16(c) .83% Hypothetical (5% return before expenses) $1,000 $1,020.91 $4.20(c) .83% Class B Actual(b) $1,000 $ 997.30 $8.01(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60% Class C Actual(b) $1,000 $ 997.30 $8.01(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
(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 183/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2005: +0.10% for Class A, -0.27% for Class B and -0.27% for Class C. (c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. In addition, on Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If the revised fee schedules under the Administrative Services Agreement, the Investment Management Services Agreement and the cap/fee waiver agreement had been in place for the entire six-month period ended Dec. 31, 2005, the actual expenses paid would have been $3.96 for Class A, $7.76 for Class B and $7.76 for Class C; the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for Class B and $7.84 for Class C. - -------------------------------------------------------------------------------- 102 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT RIVERSOURCE OHIO TAX-EXEMPT FUND
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $ 998.00 $4.21(c) .84% Hypothetical (5% return before expenses) $1,000 $1,020.86 $4.26(c) .84% Class B Actual(b) $1,000 $ 994.20 $8.00(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60% Class C Actual(b) $1,000 $ 996.10 $8.01(c) 1.60% Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
(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 183/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Dec. 31, 2005: -0.20% for Class A, -0.58% for Class B, and -0.39% for Class C. (c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to the fee schedule under the Administrative Services Agreement between Ameriprise Financial and the Fund. The Investment Manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until June 30, 2006, unless sooner terminated at the discretion of the Board. Under this expense cap/fee waiver agreement, net expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for Class C. In addition, on Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If the revised fee schedules under the Administrative Services Agreement, the Investment Management Services Agreement and the cap/fee waiver agreement had been in place for the entire six-month period ended Dec. 31, 2005, the actual expenses paid would have been $3.96 for Class A, $7.75 for Class B and $7.76 for Class C; the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for Class B and $7.84 for Class C. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 103 APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND RIVERSOURCE MICHIGAN TAX-EXEMPT FUND RIVERSOURCE MINNESOTA TAX-EXEMPT FUND RIVERSOURCE NEW YORK TAX-EXEMPT FUND RIVERSOURCE OHIO TAX-EXEMPT FUND RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial, formerly American Express Financial Corporation), serves as the investment manager to the Fund. Under an investment management services agreement (the IMS Agreement), the investment manager provides investment advice and other services to the Fund. Throughout the year, the Fund's Board of Directors (the Board) and the Board's Investment Review and Contracts Committees monitor these services. Ameriprise Financial had served as investment manager to the Fund until Sept. 29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise Financial transferred its rights, title, and interest and its burdens and obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary. Each year, the Board determines whether to continue the IMS Agreement by evaluating the quality and level of services received and the costs associated with those services. To assist the Board in making this determination, the investment manager prepares detailed reports for the Board and its Contracts Committee in March and April and provides data prepared by independent organizations. The Board gives considerable weight to the work, deliberations and conclusions of the Contracts and Investment Review Committees in determining whether to continue the IMS Agreement. BACKGROUND This past year, prior to the Board's annual review process, on Feb. 1, 2005, American Express Company, the former parent of Ameriprise Financial, announced its intention to pursue a spin-off of Ameriprise Financial by distributing shares of the common stock of Ameriprise Financial to shareholders of American Express Company. Following this announcement, the Board determined to proceed with its annual review process and, after thorough review of the reports and data provided, at a meeting held in person on April 14, 2005, the Board, including all of its independent members, determined that the quality and level of advisory services provided pursuant to the IMS Agreement were satisfactory and that fees were fair and reasonable. However, in light of the announced plans of the spin-off, the Board approved continuation of the IMS Agreement with Ameriprise Financial for only an interim period ending on the later of (i) the effective date of the spin-off; or (ii) the approval of a new IMS Agreement with Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in no event for a period longer than one year. - -------------------------------------------------------------------------------- 104 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT During the course of the six-month period following the April 2005 meeting, the Board evaluated whether to approve new investment management services agreements for each of the funds within the Ameriprise Financial fund complex (together, the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling their statutory and other responsibilities associated with the spin-off and the resulting consideration of new contracts, including the new IMS Agreement. The Board and its committees were provided with a wealth of written and oral information in this regard. Furthermore, in connection with the Board's considerations as to whether post-spin Ameriprise Financial, as an entity independent from American Express Company, would be capable of continuing to provide a high quality of services to the Funds, the Board's independent members retained their own financial adviser, Credit Suisse First Boston LLC (CSFB), to assist them in analyzing the capital adequacy of post-spin Ameriprise Financial. (The costs of independent counsel and CSFB and of additional meetings of the Boards were borne by Ameriprise Financial as part of the commitment of the American Express Company to ensure a complete and thorough review of the proposed spin-off and its effect on the services provided by Ameriprise Financial and its subsidiaries.) At a meeting of the Board held on Sept. 8, 2005, the Board, including all of its independent members, approved, and recommended that shareholders approve, a proposed new IMS Agreement with RiverSource (the New IMS Agreement). At a meeting of the Fund's shareholders held on Feb. 15, 2006, shareholders approved the New IMS Agreement. The following section, "Board Considerations Related to the New IMS Agreement," provides a detailed discussion of the Board's considerations and determinations respecting the New IMS Agreement. BOARD CONSIDERATIONS RELATED TO THE NEW IMS AGREEMENT In carrying out its legal responsibilities associated with the consideration of the New IMS Agreement, the Board evaluated the following factors: NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY POST-SPIN AMERIPRISE FINANCIAL (AND ITS SUBSIDIARIES) The Board recognized that only a few months had passed since its April 2005 conclusion that the nature, extent and quality of services provided by Ameriprise Financial were satisfactory and consistent with those that would be expected for a fund family of the size of the Funds and its determination to renew the IMS Agreement for the interim period. However, the Board also recognized the need to supplement this assessment with an evaluation of whether the spin-off or other factors would result in changes to the advisory services being provided under the current IMS Agreement. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 105 The Board focused its evaluation on the following factors potentially impacting the nature, extent and quality of advisory services to be provided by Ameriprise Financial: (i) Ameriprise Financial's projected capital structure and capital adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its ability to retain and attract personnel; and (iv) its ability to successfully re-brand its products and services. Based on extensive presentations and reports by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed capital structure (which includes certain indemnification commitments made by American Express Company) should enable RiverSource to continue to provide a high quality and level of advisory services to the Fund. In making this determination, the Board took into account representations by management of Ameriprise Financial that projected capital levels would allow Ameriprise Financial and RiverSource to meet legal and compliance responsibilities, build their distribution network, pursue technological upgrades, make capital commitments necessary to retain and attract key personnel devoted to legal and compliance responsibilities, portfolio management and distribution, and pursue smaller asset management acquisitions to help grow the asset management business. The Board accorded significant weight to CSFB's confirmation as to the reasonableness of the proposed capital structure. The Board also considered the fact that there were no expected departures of key personnel involved in the portfolio management, operations and marketing of the Funds as a result of the announcement of the spin-off. The Board concluded that, based on all of the materials and information provided, post-spin Ameriprise Financial (including RiverSource) would be in a position to continue to provide a high quality and level of advisory services to the Fund. INVESTMENT PERFORMANCE The Board next focused on investment performance. The Board reviewed reports documenting the Fund's performance over one-, three- and/or five-year periods, as well as the entire period during which its current portfolio manager has managed the Fund, and compared to relevant Lipper and market indices. FOR RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND The Board took into account its determination in April 2005 that investment performance in 2004 approximated the median. FOR RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND The Board took into account its determination in April 2005 that investment performance in 2004 was below median. The Board also considered the fact that Ameriprise Financial had implemented a new fixed income sector team approach to managing the Fund and performance has begun to improve. FOR RIVERSOURCE MICHIGAN TAX-EXEMPT FUND The Board took into account its determination in April 2005 that investment performance in 2004 exceeded the median. - -------------------------------------------------------------------------------- 106 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT FOR RIVERSOURCE MINNESOTA TAX-EXEMPT FUND The Board took into account its determination in April 2005 that investment performance in 2004 was below median. The Board also considered the fact that Ameriprise Financial had implemented a new fixed income sector team approach to managing the Fund and performance has begun to improve. FOR RIVERSOURCE NEW YORK TAX-EXEMPT FUND The Board took into account its determination in April 2005 that investment performance in 2004 approximated the median. The Board also considered the fact that Ameriprise Financial had implemented a new fixed income sector team approach to managing the Fund and performance has begun to improve. RIVERSOURCE OHIO TAX-EXEMPT FUND The Board took into account its determination in April 2005 that investment performance in 2004 was below median. The Board also considered the fact that Ameriprise Financial had implemented a new fixed income sector team approach to managing the Fund and performance has begun to improve. The Board also considered that it had been receiving monthly performance reports for the Fund and that there had been no significant deviations from April's overall performance data. COST OF SERVICES PROVIDED The Board evaluated comparative fees and the costs of services under the current IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise Financial (including RiverSource and other subsidiaries) to institutional clients. The Board observed that the proposed advisory fee changes are designed to work in tandem with proposed changes to administrative services fees and that advisory fees under the New IMS Agreement for RiverSource California Tax-Exempt Fund, RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund would decrease. The Board studied RiverSource's effort (i.e., its "pricing philosophy") to set substantially all Funds' total expense ratios at or below the median expense ratio of comparable mutual funds (as compiled by Lipper). It also noted that RiverSource has agreed to voluntarily impose expense caps or waivers to achieve this pricing objective whenever the expense ratio exceeded the median expense ratio by more than three basis points. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 107 The Board next considered the expected profitability to Ameriprise Financial and RiverSource derived from their relationship with the Fund, recalling the April 2005 determination that the profitability level was appropriate. The Board noted that projected profitability of Ameriprise Financial would allow it to operate effectively and, at the same time, reinvest in RiverSource and its other asset management businesses. The Board also considered that the proposed changes in advisory fees and the mergers of certain other Funds would result in revenue gains to Ameriprise Financial, but that these increases would not materially alter profit margins due to expected increases in costs associated with the spin-off, particularly re-branding and separation. CSFB also reported that Ameriprise Financial's projected level of return on equity was generally reasonable in light of the returns on equity of its industry competitors. In evaluating profitability, the Board also considered the benefits Ameriprise Financial obtains through the use of commission dollars paid on portfolio transactions for the Fund and from other business relationships that result from managing the Fund. The Board also considered the fees charged by Ameriprise Financial (and its subsidiaries) to institutional clients as well as the fees paid to, and charged by, subadvisers, noting the differences in services provided in each case. In light of these considerations, the Board concluded that projected profitability levels were appropriate. ECONOMIES OF SCALE The Board also considered the "breakpoints" in fees that would be triggered as Fund net asset levels grew and the extent to which shareholders would benefit from such growth. The Board observed that the revised fee schedules under the proposed New IMS Agreement would continue to provide breakpoints similar to those in place pursuant to the current IMS Agreement. Accordingly, the Board concluded that the proposed New IMS Agreement provides adequate opportunity for shareholders to realize benefits as Fund assets grow. OTHER CONSIDERATIONS In addition, the Board accorded weight to the fact that, under the New IMS Agreement, RiverSource Investments is held to a higher standard of care than under the current IMS Agreement. The Board also noted Ameriprise Financial's commitment to a culture that adheres to ethical business practice, assigns accountability to senior management and seeks to identify conflicts and propose appropriate action to minimize the risks posed by the conflicts. Furthermore, the Board recognized that it was not limited to considering management's proposed New IMS Agreement. In this regard, the Board evaluated the circumstances under which it would consider the retention of an investment adviser different from RiverSource Investments. The Board concluded, based on its consultation with independent counsel, that pursuing the retention of a different adviser was not necessary, primarily because, in its best judgment, Ameriprise Financial continues to be basically the same organization (from a functional and managerial standpoint) as it was prior to the spin-off. The Board reasoned that shareholders purchased shares of the Fund with an expectation that the current investment advisory organization would be servicing the Fund. - -------------------------------------------------------------------------------- 108 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT PROXY VOTING The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling (800) 862-7919; by looking at the website www.riversource.com/funds; or by 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 during the most recent 12-month period ended June 30 is available without charge by calling the Fund's administrator, Board Services Corporation, collect at (612) 330-9283; by looking at the website www.riversource.com/funds; or by searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 109 THIS PAGE LEFT BLANK INTENTIONALLY - -------------------------------------------------------------------------------- 110 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT THIS PAGE LEFT BLANK INTENTIONALLY - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 111 [RIVERSOURCE(SM) INVESTMENTS LOGO] RIVERSOURCE INVESTMENTS 200 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 This report must be accompanied or preceded by the Fund's current prospectus. RiverSource Funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both companies are part of Ameriprise Financial, Inc. 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) AXP California Tax-Exempt Trust By /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date March 7, 2006 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/ Paula R. Meyer ------------------ Paula R. Meyer President and Principal Executive Officer Date March 7, 2006 By /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Principal Financial Officer Date March 7, 2006 EX-99.CERT 2 ca_ex99cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Paula Meyer, certify that: 1. I have reviewed this report on Form N-CSR of AXP California Tax-Exempt Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 14, 2006 /s/ Paula R. Meyer -------------------- Name: Paula R. Meyer Title: President and Chief Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey Fox, certify that: 1. I have reviewed this report on Form N-CSR of AXP California Tax-Exempt Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 14, 2006 /s/ Jeffrey P. Fox ------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 3 ca_ex99906.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION AXP California Tax-Exempt Trust (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 14, 2006 /s/ Paula R. Meyer ------------------ Paula R. Meyer President and Chief Executive Officer Date: February 14, 2006 /s/ Jeffrey P. Fox ------------------ Jeffrey P. Fox Treasurer and Chief 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-----