-----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, V3Cgh+qzVjm/TTkLVeh0Q75F44/0ANRVr6/mUTKxUxCv32zC8Prp8Z2sJwKRiTXB 1aHmnpDFu2GqqdVjCEaUFg== 0001068800-06-000912.txt : 20060901 0001068800-06-000912.hdr.sgml : 20060901 20060901093539 ACCESSION NUMBER: 0001068800-06-000912 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060901 DATE AS OF CHANGE: 20060901 EFFECTIVENESS DATE: 20060901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST CENTRAL INDEX KEY: 0000792717 IRS NUMBER: 411560213 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04646 FILM NUMBER: 061070012 BUSINESS ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 BUSINESS PHONE: 6126714321 MAIL ADDRESS: STREET 1: 50606 AMERIPRISE FINANCIAL CENTER STREET 2: H27/5228 CITY: MINNEAPOLIS STATE: MN ZIP: 55474 FORMER COMPANY: FORMER CONFORMED NAME: AXP CALIFORNIA TAX-EXEMPT TRUST DATE OF NAME CHANGE: 19990628 FORMER COMPANY: FORMER CONFORMED NAME: IDS CALIFORNIA TAX EXEMPT TRUST DATE OF NAME CHANGE: 19920703 0000792717 S000003336 RiverSource California Tax-Exempt Fund C000009057 RiverSource California Tax-Exempt Fund Class C C000009058 RiverSource California Tax-Exempt Fund Class A ICALX C000009059 RiverSource California Tax-Exempt Fund Class B ACABX N-CSR 1 california-ncsr.txt RIVERSOURCE 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 ------------ RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 50606 Ameriprise Financial Center, Minneapolis, Minnesota 55474 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) 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: 6/30 -------------- Annual Report RIVERSOURCE [LOGO] (SM) INVESTMENTS RIVERSOURCE (SM) 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 - -------------------------------------------------------------------------------- ANNUAL REPORT FOR THE PERIOD ENDED JUNE 30, 2006 > 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 ...............................................................2-8 RiverSource California Tax-Exempt Fund .....................................2 RiverSource Massachusetts Tax-Exempt Fund ..................................3 RiverSource Michigan Tax-Exempt Fund .......................................4 RiverSource Minnesota Tax-Exempt Fund ......................................5 RiverSource New York Tax-Exempt Fund .......................................6 RiverSource Ohio Tax-Exempt Fund ...........................................7 Performance Summary ........................................................9-14 RiverSource California Tax-Exempt Fund .....................................9 RiverSource Massachusetts Tax-Exempt Fund .................................10 RiverSource Michigan Tax-Exempt Fund ......................................11 RiverSource Minnesota Tax-Exempt Fund .....................................12 RiverSource New York Tax-Exempt Fund ......................................13 RiverSource Ohio Tax-Exempt Fund ..........................................14 Questions & Answers with Portfolio Management .................................................15 The Fund's Long-term Performance ..........................................20-31 RiverSource California Tax-Exempt Fund ....................................20 RiverSource Massachusetts Tax-Exempt Fund .................................22 RiverSource Michigan Tax-Exempt Fund ......................................24 RiverSource Minnesota Tax-Exempt Fund .....................................26 RiverSource New York Tax-Exempt Fund ......................................28 RiverSource Ohio Tax-Exempt Fund ..........................................30 Investments in Securities .................................................32-66 RiverSource California Tax-Exempt Fund ....................................32 RiverSource Massachusetts Tax-Exempt Fund .................................39 RiverSource Michigan Tax-Exempt Fund ......................................43 RiverSource Minnesota Tax-Exempt Fund .....................................48 RiverSource New York Tax-Exempt Fund ......................................56 RiverSource Ohio Tax-Exempt Fund ..........................................62 Financial Statements .........................................................67 Notes to Financial Statements ................................................74 Report of Independent Registered Public Accounting Firm ...................................................105 Federal Income Tax Information ..............................................106 Fund Expenses Example .......................................................118 Board Members and Officers ..................................................125 Approval of Investment Management Services Agreement .......................................................128 Proxy Voting ................................................................128 Results of Meeting of Shareholders ......................................129-134 RiverSource California Tax-Exempt Fund ...................................129 RiverSource Massachusetts Tax-Exempt Fund ................................130 RiverSource Michigan Tax-Exempt Fund .....................................131 RiverSource Minnesota Tax-Exempt Fund ....................................132 RiverSource New York Tax-Exempt Fund .....................................133 RiverSource Ohio Tax-Exempt Fund .........................................134
DALBAR [LOGO] RATED 2006 FOR COMMUNICATION RiverSource Funds' shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 1 - -------------------------------------------------------------------------------- FUND SNAPSHOT AT JUNE 30, 2006 RiverSource California Tax-Exempt Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER < - --------------------------------------------------------------------------------
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff. - -------------------------------------------------------------------------------- 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 $183.4 million Number of holdings 107 Effective maturity(1) 14.5 years Effective duration(2) 6.6 years Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. - -------------------------------------------------------------------------------- STYLE MATRIX < - --------------------------------------------------------------------------------
- ----------------------------- DURATION SHORT INT. LONG - ----------------------------- X HIGH - ----------------------------- MEDIUM QUALITY - ----------------------------- LOW - -----------------------------
Shading within the style matrix indicates areas in which the Fund generally invests. - -------------------------------------------------------------------------------- CREDIT QUALITY SUMMARY < - --------------------------------------------------------------------------------
Percentage of bond portfolio assets - -------------------------------------------------------------------------------- AAA Bonds 57.9% - -------------------------------------------------------------------------------- AA Bonds 8.2 - -------------------------------------------------------------------------------- A Bonds 24.8 - -------------------------------------------------------------------------------- BBB Bonds 7.3 - -------------------------------------------------------------------------------- Non-Investment Grade Bonds 1.8 - --------------------------------------------------------------------------------
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. 3.5% 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 credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. - -------------------------------------------------------------------------------- 2 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- FUND SNAPSHOT AT JUNE 30, 2006 RiverSource Massachusetts Tax-Exempt Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER < - --------------------------------------------------------------------------------
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff. - -------------------------------------------------------------------------------- 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 taxes.
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 $60.0 million Number of holdings 54 Effective maturity(1) 11.8 years Effective duration(2) 6.6 years Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. - -------------------------------------------------------------------------------- STYLE MATRIX < - --------------------------------------------------------------------------------
- ----------------------------- DURATION SHORT INT. LONG - ----------------------------- X HIGH - ----------------------------- MEDIUM QUALITY - ----------------------------- LOW - -----------------------------
Shading within the style matrix indicates areas in which the Fund generally invests. - -------------------------------------------------------------------------------- CREDIT QUALITY SUMMARY < - --------------------------------------------------------------------------------
Percentage of bond portfolio assets - -------------------------------------------------------------------------------- AAA bonds 69.7% - -------------------------------------------------------------------------------- AA bonds 27.9 - -------------------------------------------------------------------------------- A bonds 1.8 - -------------------------------------------------------------------------------- BBB bonds 0.6 - -------------------------------------------------------------------------------- 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 credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 3 - -------------------------------------------------------------------------------- FUND SNAPSHOT AT JUNE 30, 2006 RiverSource Michigan Tax-Exempt Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER < - --------------------------------------------------------------------------------
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff. - -------------------------------------------------------------------------------- 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 taxes.
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 $49.9 million Number of holdings 58 Effective maturity(1) 11.1 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 SHORT INT. LONG - ----------------------------- X HIGH - ----------------------------- MEDIUM QUALITY - ----------------------------- LOW - -----------------------------
Shading within the style matrix indicates areas in which the Fund generally invests. - -------------------------------------------------------------------------------- CREDIT QUALITY SUMMARY < - --------------------------------------------------------------------------------
Percentage of bond portfolio assets - -------------------------------------------------------------------------------- AAA bonds 74.4% - -------------------------------------------------------------------------------- AA bonds 19.3 - -------------------------------------------------------------------------------- A bonds 5.3 - -------------------------------------------------------------------------------- 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 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 credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. - -------------------------------------------------------------------------------- 4 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- FUND SNAPSHOT AT JUNE 30, 2006 RiverSource Minnesota Tax-Exempt Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER < - --------------------------------------------------------------------------------
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff. - -------------------------------------------------------------------------------- FUND OBJECTIVE < - -------------------------------------------------------------------------------- For Minnesota investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes.
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 $345.8 million Number of holdings 133 Effective maturity(1) 11.5 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 SHORT INT. LONG - ----------------------------- X HIGH - ----------------------------- MEDIUM QUALITY - ----------------------------- LOW - -----------------------------
Shading within the style matrix indicates areas in which the Fund generally invests. - -------------------------------------------------------------------------------- CREDIT QUALITY SUMMARY < - --------------------------------------------------------------------------------
Percentage of bond portfolio assets - -------------------------------------------------------------------------------- AAA bonds 65.5% - -------------------------------------------------------------------------------- AA bonds 18.1 - -------------------------------------------------------------------------------- A bonds 10.3 - -------------------------------------------------------------------------------- BBB bonds 3.9 - -------------------------------------------------------------------------------- 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. 1.7% 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 credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 5 - -------------------------------------------------------------------------------- FUND SNAPSHOT AT JUNE 30, 2006 RiverSource New York Tax-Exempt Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER < - --------------------------------------------------------------------------------
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff. - -------------------------------------------------------------------------------- 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 $71.4 million Number of holdings 76 Effective maturity(1) 14.3 years Effective duration(2) 7.2 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 SHORT INT. LONG - ----------------------------- X HIGH - ----------------------------- MEDIUM QUALITY - ----------------------------- LOW - -----------------------------
Shading within the style matrix indicates areas in which the Fund generally invests. - -------------------------------------------------------------------------------- CREDIT QUALITY SUMMARY < - --------------------------------------------------------------------------------
Percentage of bond portfolio assets - -------------------------------------------------------------------------------- AAA bonds 54.1% - -------------------------------------------------------------------------------- AA bonds 36.3 - -------------------------------------------------------------------------------- A bonds 4.7 - -------------------------------------------------------------------------------- BBB bonds 4.9 - -------------------------------------------------------------------------------- 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. 1.1% 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 credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. - -------------------------------------------------------------------------------- 6 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- FUND SNAPSHOT AT JUNE 30, 2006 RiverSource Ohio Tax-Exempt Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER < - --------------------------------------------------------------------------------
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff. - -------------------------------------------------------------------------------- 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 $49.1 million Number of holdings 58 Effective maturity(1) 12.6 years Effective duration(2) 6.6 years Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio. - -------------------------------------------------------------------------------- STYLE MATRIX < - --------------------------------------------------------------------------------
- ----------------------------- DURATION SHORT INT. LONG - ----------------------------- X HIGH - ----------------------------- MEDIUM QUALITY - ----------------------------- LOW - -----------------------------
Shading within the style matrix indicates areas in which the Fund generally invests. - -------------------------------------------------------------------------------- CREDIT QUALITY SUMMARY < - --------------------------------------------------------------------------------
Percentage of bond portfolio assets - -------------------------------------------------------------------------------- AAA bonds 61.1% - -------------------------------------------------------------------------------- AA bonds 30.0 - -------------------------------------------------------------------------------- A bonds 6.1 - -------------------------------------------------------------------------------- BBB bonds 2.8 - -------------------------------------------------------------------------------- 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. 1.1% 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 credit risk, interest rate risk, and prepayment and extension risk. See the Fund's prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Non-investment grade securities, commonly called "high-yield" or "junk" bonds, generally have more volatile prices and carry more risk to principal and income than investment grade securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains distribution. Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 7 - -------------------------------------------------------------------------------- YIELD SNAPSHOT RiverSource California Tax-Exempt Fund - -------------------------------------------------------------------------------- SEC YIELDS < - --------------------------------------------------------------------------------
At June 30, 2006 by class A: 3.48% B: 2.89% C: 2.88%
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 9 for additional performance information. RiverSource Massachusetts Tax-Exempt Fund - -------------------------------------------------------------------------------- SEC YIELDS < - --------------------------------------------------------------------------------
At June 30, 2006 by class A: 3.36% B: 2.76% 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 10 for additional performance information. RiverSource Michigan Tax-Exempt Fund - -------------------------------------------------------------------------------- SEC YIELDS < - --------------------------------------------------------------------------------
At June 30, 2006 by class A: 3.29% B: 2.69% C: 2.70%
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. RiverSource Minnesota Tax-Exempt Fund - -------------------------------------------------------------------------------- SEC YIELDS < - --------------------------------------------------------------------------------
At June 30, 2006 by class A: 3.45% B: 2.85% C: 2.86%
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 12 for additional performance information. RiverSource New York Tax-Exempt Fund - -------------------------------------------------------------------------------- SEC YIELDS < - --------------------------------------------------------------------------------
At June 30, 2006 by class A: 3.44% B: 2.86% C: 2.85%
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. RiverSource Ohio Tax-Exempt Fund - -------------------------------------------------------------------------------- SEC YIELDS < - --------------------------------------------------------------------------------
At June 30, 2006 by class A: 3.38% B: 2.78% C: 2.78%
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 14 for additional performance information. - -------------------------------------------------------------------------------- 8 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY RiverSource California Tax-Exempt Fund RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] RiverSource California Tax-Exempt Fund Class A (excluding sales charge) +0.81% Lehman Brothers California 2 Plus Year Municipal Bond Index (unmanaged) +1.18% Lehman Brothers Municipal Bond Index (unmanaged) +0.89% Lipper California Municipal Debt Funds Index +1.17%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C (INCEPTION DATES) (8/18/86) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT JUNE 30, 2006 - -------------------------------------------------------------------------------------------- 1 year +0.81% -3.98% +0.05% -4.75% +0.06% -0.91% - -------------------------------------------------------------------------------------------- 3 years +3.13% +1.47% +2.36% +1.14% +2.35% +2.35% - -------------------------------------------------------------------------------------------- 5 years +4.45% +3.44% +3.70% +3.36% +3.70% +3.70% - -------------------------------------------------------------------------------------------- 10 years +4.96% +4.45% +4.17% +4.17% N/A N/A - -------------------------------------------------------------------------------------------- Since inception +5.83% +5.57% +4.22% +4.22% +4.31% +4.31% - --------------------------------------------------------------------------------------------
(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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 9 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY RiverSource Massachusetts Tax-Exempt Fund RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] RiverSource Massachusetts Tax-Exempt Fund Class A (excluding sales charge) -0.29% Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +0.31% Lehman Brothers Municipal Bond Index (unmanaged) +0.89% Lipper Massachusetts Municipal Debt Funds Index +0.31%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C (INCEPTION DATES) (7/2/87) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT JUNE 30, 2006 - -------------------------------------------------------------------------------------------- 1 year -0.29% -5.03% -1.05% -5.84% -1.05% -2.01% - -------------------------------------------------------------------------------------------- 3 years +2.23% +0.59% +1.46% +0.22% +1.40% +1.40% - -------------------------------------------------------------------------------------------- 5 years +3.86% +2.85% +3.07% +2.72% +3.04% +3.04% - -------------------------------------------------------------------------------------------- 10 years +4.54% +4.04% +3.76% +3.76% N/A N/A - -------------------------------------------------------------------------------------------- Since inception +5.69% +5.42% +3.86% +3.86% +3.87% +3.87% - --------------------------------------------------------------------------------------------
(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. - -------------------------------------------------------------------------------- 10 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY RiverSource Michigan Tax-Exempt Fund RIVERSOURCE MICHIGAN TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] RiverSource Michigan Tax-Exempt Fund Class A (excluding sales charge) +0.40% Lehman Brothers Michigan Municipal Bond Index (unmanaged) +0.77% Lehman Brothers Municipal Bond Index (unmanaged) +0.89% Lipper Michigan Municipal Debt Funds Index +0.50%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C (INCEPTION DATES) (7/2/87) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT JUNE 30, 2006 - -------------------------------------------------------------------------------------------- 1 year +0.40% -4.37% -0.17% -4.99% -0.36% -1.32% - -------------------------------------------------------------------------------------------- 3 years +2.42% +0.77% +1.71% +0.48% +1.64% +1.64% - -------------------------------------------------------------------------------------------- 5 years +4.19% +3.18% +3.45% +3.10% +3.41% +3.41% - -------------------------------------------------------------------------------------------- 10 years +4.62% +4.11% +3.85% +3.85% N/A N/A - -------------------------------------------------------------------------------------------- Since inception +5.87% +5.60% +3.97% +3.97% +4.20% +4.20% - --------------------------------------------------------------------------------------------
(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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 11 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY RiverSource Minnesota Tax-Exempt Fund RIVERSOURCE MINNESOTA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] RiverSource Minnesota Tax-Exempt Fund Class A (excluding sales charge) +0.29% Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +0.82% Lehman Brothers Municipal Bond Index (unmanaged) +0.89% Lipper Minnesota Municipal Debt Funds Index +0.86%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C (INCEPTION DATES) (8/18/86) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT JUNE 30, 2006 - -------------------------------------------------------------------------------------------- 1 year +0.29% -4.47% -0.47% -5.30% -0.47% -1.44% - -------------------------------------------------------------------------------------------- 3 years +2.40% +0.75% +1.64% +0.38% +1.63% +1.63% - -------------------------------------------------------------------------------------------- 5 years +4.20% +3.19% +3.42% +3.07% +3.42% +3.42% - -------------------------------------------------------------------------------------------- 10 years +4.86% +4.35% +4.07% +4.07% N/A N/A - -------------------------------------------------------------------------------------------- Since inception +5.89% +5.63% +4.15% +4.15% +4.17% +4.17% - --------------------------------------------------------------------------------------------
(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. - -------------------------------------------------------------------------------- 12 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY RiverSource New York Tax-Exempt Fund RIVERSOURCE NEW YORK TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] RiverSource New York Tax-Exempt Fund Class A (excluding sales charge) +0.20% Lehman Brothers New York 4 Plus Year Municipal Bond Index (unmanaged) +0.78% Lehman Brothers Municipal Bond Index (unmanaged) +0.89% Lipper New York Municipal Debt Funds Index +0.71%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C (INCEPTION DATES) (8/18/86) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT JUNE 30, 2006 - -------------------------------------------------------------------------------------------- 1 year +0.20% -4.55% -0.55% -5.33% -0.55% -1.50% - -------------------------------------------------------------------------------------------- 3 years +2.36% +0.71% +1.58% +0.37% +1.59% +1.59% - -------------------------------------------------------------------------------------------- 5 years +4.12% +3.12% +3.34% +3.00% +3.38% +3.38% - -------------------------------------------------------------------------------------------- 10 years +4.84% +4.33% +4.05% +4.05% N/A N/A - -------------------------------------------------------------------------------------------- Since inception +5.66% +5.41% +4.01% +4.01% +4.22% +4.22% - --------------------------------------------------------------------------------------------
(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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 13 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY RiverSource Ohio Tax-Exempt Fund RIVERSOURCE OHIO TAX-EXEMPT FUND PERFORMANCE COMPARISON For the year ended June 30, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.] RiverSource Ohio Tax-Exempt Fund Class A (excluding sales charge) -0.41% Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index (unmanaged) +0.60% Lehman Brothers Municipal Bond Index (unmanaged) +0.89% Lipper Ohio Municipal Debt Funds Index +0.30%
(see "The Fund's Long-term Performance" for Index descriptions) The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS < - --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C (INCEPTION DATES) (7/2/87) (3/20/95) (6/26/00) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4) AT JUNE 30, 2006 - -------------------------------------------------------------------------------------------- 1 year -0.41% -5.15% -1.17% -5.99% -0.98% -1.94% - -------------------------------------------------------------------------------------------- 3 years +1.88% +0.24% +1.11% -0.14% +1.17% +1.17% - -------------------------------------------------------------------------------------------- 5 years +3.69% +2.69% +2.91% +2.56% +2.91% +2.91% - -------------------------------------------------------------------------------------------- 10 years +4.49% +3.98% +3.71% +3.71% N/A N/A - -------------------------------------------------------------------------------------------- Since inception +5.66% +5.39% +3.77% +3.77% +3.67% +3.67% - --------------------------------------------------------------------------------------------
(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. - -------------------------------------------------------------------------------- 14 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager David Kerwin discusses the Funds' positioning and results for the fiscal year. Effective July 24, 2006, Rick LaCoff replaced David Kerwin as portfolio manager of the Funds. Q: How did the RiverSource State Tax-Exempt Funds perform for the fiscal year? A: All Fund returns are for Class A shares, excluding sales charge. All returns are for the 12 months ended June 30, 2006. All Lipper categories represent the respective Fund's peer group. o RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND gained 0.81%. The Fund underperformed the Lehman Brothers California 2 Plus Year Municipal Bond Index, which returned 1.18%. The Lipper California Municipal Debt Funds Index rose 1.17% for the same period. o RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND fell 0.29%. The Fund underperformed the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, which rose 0.31%. The Lipper Massachusetts Municipal Debt Funds Index rose 0.31% for the same period. o RIVERSOURCE MICHIGAN TAX-EXEMPT FUND gained 0.40%. The Fund underperformed the Lehman Brothers Michigan Municipal Bond Index, which advanced 0.77%. The Lipper Michigan Municipal Debt Funds Index produced a total return of 0.50% for the same period. o RIVERSOURCE MINNESOTA TAX-EXEMPT FUND increased 0.29%. The Fund underperformed the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, which rose 0.82%. The Lipper Minnesota Municipal Debt Funds Index rose 0.86% for the same period. o RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 0.20%. The Fund underperformed the Lehman Brother New York 4 Plus Year Municipal Bond Index, which rose 0.78%. The Lipper New York Municipal Debt Funds Index increased 0.71% for the same period. o RIVERSOURCE OHIO TAX-EXEMPT FUND declined 0.41%. The Fund underperformed the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, which gained 0.60%. The Lipper Ohio Municipal Debt Funds Index gained 0.30% for the same period. A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index gained 0.89% for the same period. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 15 - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS > EACH OF THE FUNDS UNDERPERFORMED THEIR RESPECTIVE LEHMAN BENCHMARK INDICES 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. Q: What factors most significantly affected performance during the annual period? A: The tax-exempt fixed income market produced modest but positive performance during the period, as a result of sharply rising rates across the spectrum of maturities, or yield curve. While tax-exempt yields moved higher across the yield curve, they did so more significantly at the short-term end than at the long-term end of the curve, causing a significant yield curve flattening. Interest rates rose largely in reaction to continued policy tightening by the Federal Reserve Board (the Fed), which hiked interest rates eight more times, bringing the targeted federal funds rate to 5.25% by the end of June 2006. Each of the Funds underperformed their respective Lehman benchmark indices 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. As mentioned earlier, 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 shorter-term bonds. Thus, while the Funds' moderate exposure to the short-term segment of the municipal yield curve proved prudent, it was not enough to offset the detracting effect of the Funds' modest position in long-term bonds, which performed best over the annual period. A positive contributing factor to the annual performance of RiverSource New York Tax-Exempt Fund and RiverSource California Tax-Exempt Fund were their allocations to non-enhanced municipal tobacco bonds, which was a strong performing sector for the 12-month period. All six of the RiverSource state tax-exempt funds benefited from their positions in health care municipal bonds, which also performed well. - -------------------------------------------------------------------------------- 16 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS > GOING FORWARD, WE BELIEVE THE MAJOR FACTOR AFFECTING THE MUNICIPAL MARKET MAY WELL BE THE UNEXPECTED SLOWDOWN IN NEW ISSUE SUPPLY SEEN DURING THE FIRST SIX MONTHS OF 2006. Producing mixed results was exposure to bonds that were advance refunded during the 12 months ended June 30, 2006. Advance refunded bonds boosted the respective returns of RiverSource California Tax-Exempt Fund and RiverSource Michigan Tax-Exempt Fund and had a rather neutral effect on RiverSource Minnesota Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund. However, the modest exposure of RiverSource Massachusetts Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund to these strongly performing advance refunded bonds hurt performance. Advance refunding is a procedure in which a bond issuer floats a second bond at a lower interest rate, and the proceeds from the sale of the second bond are safely invested, usually in Treasury securities, which in turn, are held in escrow collateralizing the first bond. Given that the advance refunded bonds become, essentially, fully tax-exempt U.S. Treasury securities and no longer represent the credit risk profile of the original borrower, they often increase in value -- sometimes significantly. Detracting modestly from the RiverSource state-exempt funds of California, Michigan and New York was exposure to municipal bonds from Puerto Rico. Puerto Rico has been experiencing some fiscal distress, and the fundamentals of its municipal bond market deteriorated somewhat during the period. The primary reason the Funds underperformed their respective Lipper Municipal Debt Funds Index was their moderate exposure to bonds rated BBB compared to their peers. Bonds rated BBB generally outperformed higher quality bonds during the period. Q: What changes did you make to the Funds and how are they currently positioned? A: We increased holdings in single-family housing bonds in all of the RiverSource state tax-exempt funds but RiverSource Michigan Tax-Exempt Fund, as this sector offered an attractive yield during the period. In the RiverSource state tax-exempt funds of Massachusetts, Minnesota and Ohio, we established exposure to Commonwealth of - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 17 - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS Puerto Rico municipal bonds, adding to positions on market weakness. Puerto Rico's government is currently working on the introduction of a local sales tax to raise revenues and reforms that would cut expenses. Should these potential fiscal remedies 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 increased exposure to non-enhanced municipal tobacco bonds in RiverSource California Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund. We believe the litigation risks this sector has faced have been reduced, given the number of cases already heard, and thus we expect these bonds to continue to perform well going forward. We added to each of the RiverSource state tax-exempt funds' exposure to bonds rated BBB on a highly selective basis. Given anticipated technical conditions within the municipal bond market, we expect these bonds to continue to perform well and provide attractive income during the coming months. We added exposure to bonds with maturities at the long-term end of the yield curve, (i.e., 20 years or longer), in the RiverSource state tax-exempt funds of California, Massachusetts, New York and Ohio. Toward the end of the period, we extended all six of the RiverSource state tax-exempt funds' duration a bit to bring it toward a neutral position relative to its respective Lehman benchmark index. In anticipation of the Fed nearing an end of its current tightening cycle, we believed it would be appropriate to add some interest rate sensitivity to the Funds. 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 long term. At the same time, we sought opportunities to carry out tactical strategies wherever and whenever possible. - -------------------------------------------------------------------------------- 18 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- QUESTIONS & ANSWERS Q: How do you intend to manage the Funds in the coming months? A: Going forward, we believe the major factor affecting the municipal market may well be the unexpected slowdown in new issue supply seen during the first six months of 2006. We expect the slowdown to continue through much of the year. As a result, municipal bonds are expensive, but, as interest rates have risen, so, too, has retail buyer demand. Given this technical condition within the supply/demand balance of municipal bonds, we believe the tax-exempt bond market may well continue to outperform the taxable bond market through 2006. From a broader perspective, we intend to position the Funds based on our belief that U.S. interest rates across the range of maturities, or yield curve, have risen to levels that seem reasonable given our economic view. We believe the most likely scenario is for inflation to be nudged higher but also for a modest economic slowdown to become apparent toward the end of 2006, with a slowdown in the housing sector the likely catalyst. We thus believe the Fed may soon pause in its current tightening cycle. Given this view, we intend to maintain the Funds' current neutral duration positioning compared to their respective Lehman benchmark index for the near term. We further intend to reduce the Funds' exposure to insured bonds and increase their allocation to uninsured bonds, with a bias toward health care bonds, particularly bonds for large health care systems, and essential service revenue bonds, such as public power and water and sewer issues. We feel these sectors may enable the Funds to potentially pick up incremental yield without taking on significant risk. Finally, we are watching closely for opportunities to modestly increase the Funds' exposure to bonds rated BBB, including those in the tobacco and health care sectors. 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 - 2006 ANNUAL REPORT - 19 - -------------------------------------------------------------------------------- THE FUND'S LONG-TERM PERFORMANCE The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource California Tax-Exempt Fund Class A shares (from 7/1/96 to 6/30/06) as compared to the performance of three widely cited performance indices, the Lehman Brothers California 2 Plus Year Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper California Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2006
SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND (INCLUDES SALES CHARGE) - ------------------------------------------------------------------------------------------------------------- Class A Cumulative value of $10,000 $ 9,602 $10,448 $11,842 $15,460 $29,353 - ------------------------------------------------------------------------------------------------------------- Average annual total return -3.98% +1.47% +3.44% +4.45% +5.57% - ------------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS CALIFORNIA 2 PLUS YEAR MUNICIPAL BOND INDEX(1) - ------------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $10,118 $11,223 $13,020 $18,001 N/A - ------------------------------------------------------------------------------------------------------------- Average annual total return +1.18% +3.92% +5.42% +6.06% N/A - ------------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) - ------------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $10,089 $11,001 $12,793 $17,560 $79,917 - ------------------------------------------------------------------------------------------------------------- Average annual total return +0.89% +3.23% +5.05% +5.79% +11.05% - ------------------------------------------------------------------------------------------------------------- LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS INDEX(3) - ------------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $10,117 $11,087 $12,666 $16,941 $33,212 - ------------------------------------------------------------------------------------------------------------- Average annual total return +1.17% +3.50% +4.84% +5.41% +6.24% - -------------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 9. - -------------------------------------------------------------------------------- 20 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper California California 2 Municipal Bond California Tax-Exempt Plus Year Index(2) Municipal Fund Class A Municipal Debt Funds (includes Bond Index(1) Index(3) sales charge) 96 9525 10000 10000 10000 97 10265 10873 10825 10837 98 11066 11872 11762 11797 99 11270 12233 12087 12041 00 11517 12656 12480 12278 01 12438 13828 13726 13378 02 13142 14828 14676 14202 03 14096 16041 15959 15280 04 14131 16240 16080 15375 05 15336 17791 17405 16745 06 15460 18001 17560 16941
(1) The Lehman Brothers California 2 Plus Year Municipal Bond Index, an unmanaged index, is a market value-weighted index of California investment-grade fixed-rate municipal bonds with maturities of two years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (3) The Lipper California Municipal Debt Funds Index includes the 30 largest municipal debt funds in California tracked by Lipper Inc. The index's returns include net reinvested dividends. The index's returns include net reinvested dividends. (4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index and Lipper peer group data is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers California 2 Plus Year Municipal Bond Index. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 21 - -------------------------------------------------------------------------------- THE FUND'S LONG-TERM PERFORMANCE The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Massachusetts Tax-Exempt Fund Class A shares (from 7/1/96 to 6/30/06) as compared to the performance of three widely cited performance indices, the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper Massachusetts Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2006
SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND (INCLUDES SALES CHARGE) - ---------------------------------------------------------------------------------------------------------- Class A Cumulative value of $10,000 $ 9,497 $ 10,178 $ 11,509 $ 14,855 $ 27,257 - ---------------------------------------------------------------------------------------------------------- Average annual total return -5.03% +0.59% +2.85% +4.04% +5.42% - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MASSACHUSETTS 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,031 $ 10,937 $ 12,879 $ 17,767 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.31% +3.03% +5.19% +5.92% N/A - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,560 $ 35,592 - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.89% +3.23% +5.05% +5.79% +6.91% - ---------------------------------------------------------------------------------------------------------- LIPPER MASSACHUSETTS MUNICIPAL DEBT FUNDS INDEX(3) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,031 $ 10,845 $ 12,516 $ 16,536 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.31% +2.74% +4.59% +5.16% N/A - ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 10. - -------------------------------------------------------------------------------- 22 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper Massachusetts Massachusetts Municipal Bond Massachusetts Tax-Exempt 3 Plus Year Index(2) Municipal Debt Fund Class A Enhanced Funds Index(3) (includes Municipal Bond sales charge) Index(1) 96 9525 10000 10000 10000 97 10269 10847 10825 10775 98 11111 11799 11762 11676 99 11312 12082 12087 11872 00 11317 12454 12480 12029 01 12295 13794 13726 13211 02 13025 14813 14676 14043 03 13902 16245 15959 15245 04 13869 16321 16080 15268 05 14898 17712 17405 16485 06 14855 17767 17560 16536
(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 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 index reflects reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (3) The Lipper Massachusetts Municipal Debt Funds Index includes the 10 largest municipal debt funds in Massachusetts tracked by Lipper Inc. The index's returns include net reinvested dividends. (4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Massachusetts 3 Plus Enhanced Municipal Bond Index and Lipper peer group. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 23 - -------------------------------------------------------------------------------- THE FUND'S LONG-TERM PERFORMANCE The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Michigan Tax-Exempt Fund Class A shares (from 7/1/96 to 6/30/06) as compared to the performance of three widely cited performance indices, the Lehman Brothers Michigan Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper Michigan Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2006
SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE MICHIGAN TAX-EXEMPT FUND (INCLUDES SALES CHARGE) - ---------------------------------------------------------------------------------------------------------- Class A Cumulative value of $10,000 $ 9,563 $ 10,233 $ 11,694 $ 14,965 $ 28,155 - ---------------------------------------------------------------------------------------------------------- Average annual total return -4.37% +0.77% +3.18% +4.11% +5.60% - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MICHIGAN MUNICIPAL BOND INDEX(1) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,077 $ 10,905 $ 12,781 $ 17,604 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.77% +2.93% +5.03% +5.82% N/A - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,560 $ 35,592 - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.89% +3.23% +5.05% +5.79% +6.91% - ---------------------------------------------------------------------------------------------------------- LIPPER MICHIGAN MUNICIPAL DEBT FUNDS INDEX(3) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,050 $ 10,750 $ 12,308 $ 16,037 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.50% +2.44% + 4.24% +4.84% N/A - ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 11. - -------------------------------------------------------------------------------- 24 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper Michigan Michigan Municipal Bond Michigan Tax-Exempt Municipal Bond Index(2) Municipal Debt Fund Class A Index(1) Funds Index(3) (includes sales charge) 96 9525 10000 10000 10000 97 10203 10840 10825 10748 98 10993 11804 11762 11590 99 11207 12098 12087 11766 00 11191 12461 12480 11914 01 12187 13777 13726 13034 02 12898 14746 14676 13826 03 13930 16148 15959 14918 04 13956 16217 16080 14887 05 14905 17469 17405 15957 06 14965 17604 17560 16037
(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 index reflects 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 index's returns include net reinvested dividends. (4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Michigan Municipal Bond Index and Lipper peer group. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 25 - -------------------------------------------------------------------------------- THE FUND'S LONG-TERM PERFORMANCE The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Minnesota Tax-Exempt Fund Class A shares (from 7/1/96 to 6/30/06) as compared to the performance of three widely cited performance indices, the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper Minnesota Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2006
SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE MINNESOTA TAX-EXEMPT FUND (INCLUDES SALES CHARGE) - ---------------------------------------------------------------------------------------------------------- Class A Cumulative value of $10,000 $ 9,553 $ 10,227 $ 11,700 $ 15,310 $ 29,686 - ---------------------------------------------------------------------------------------------------------- Average annual total return -4.47% +0.75% +3.19% +4.35% +5.63% - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MINNESOTA 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,082 $ 10,991 $ 12,793 $ 17,470 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.82% +3.20% +5.05% +5.74% N/A - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,560 $ 36,793 - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.89% +3.23% +5.05% +5.79% +6.79% - ---------------------------------------------------------------------------------------------------------- LIPPER MINNESOTA MUNICIPAL DEBT FUNDS INDEX(3) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,086 $ 10,921 $ 12,510 $ 16,279 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.86% +2.98% +4.58% +4.99% N/A - ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 12. - -------------------------------------------------------------------------------- 26 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper Minnesota Minnesota Municipal Bond Minnesota Tax-Exempt 3 Plus Year Index(2) Municipal Debt Fund Class A Enhanced Funds Index(3) (includes Municipal Bond sales charge) Index(1) 96 9525 10000 10000 10000 97 10293 10817 10825 10734 98 11121 11755 11762 11578 99 11415 12050 12087 11839 00 11483 12402 12480 11931 01 12462 13655 13726 13010 02 13228 14590 14676 13800 03 14257 15894 15959 14907 04 14303 16058 16080 15029 05 15266 17328 17405 16140 06 15310 17470 17560 16279
(1) The Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Minnesota investment-grade fixed-rate municipal bonds with maturities of three years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (3) The Lipper Minnesota Municipal Debt Funds Index includes the 10 largest municipal debt funds in Minnesota tracked by Lipper Inc. The index's returns include net reinvested dividends. (4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index and Lipper peer group. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 27 - -------------------------------------------------------------------------------- THE FUND'S LONG-TERM PERFORMANCE The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource New York Tax-Exempt Fund Class A shares (from 7/1/96 to 6/30/06) as compared to the performance of three widely cited performance indices, the Lehman Brothers New York 4 Plus Year Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper New York Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2006
SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE NEW YORK TAX-EXEMPT FUND (INCLUDES SALES CHARGE) - ---------------------------------------------------------------------------------------------------------- Class A Cumulative value of $10,000 $ 9,545 $ 10,215 $ 11,660 $ 15,277 $ 28,482 - ---------------------------------------------------------------------------------------------------------- Average annual total return -4.55% +0.71% +3.12% +4.33% +5.41% - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS NEW YORK 4 PLUS YEAR MUNICIPAL BOND INDEX(1) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,078 $ 11,074 $ 12,952 $ 18,284 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.78% +3.46% +5.31% +6.22% N/A - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,560 $ 36,793 - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.89% +3.23% +5.05% +5.79% +6.79% - ---------------------------------------------------------------------------------------------------------- LIPPER NEW YORK MUNICIPAL DEBT FUNDS INDEX(3) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,071 $ 10,902 $ 12,432 $ 16,461 $ 32,054 - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.71% +2.92% +4.45% +5.11% +6.05% - ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 13. - -------------------------------------------------------------------------------- 28 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE NEW YORK TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper New York New York Municipal Bond New York Tax-Exempt 4 Plus Year Index(2) Municipal Debt Fund Class A Municipal Bond Funds Index(3) (includes Index(1) sales charge) 96 9525 10000 10000 10000 97 10249 10943 10825 10784 98 11092 12009 11762 11711 99 11335 12322 12087 11882 00 11422 12726 12480 12006 01 12482 14119 13726 13240 02 13139 15062 14676 13992 03 14247 16511 15959 15103 04 14244 16633 16080 15157 05 15247 18142 17405 16345 06 15277 18284 17560 16461
(1) The Lehman Brothers New York 4 Plus Year Municipal Bond Index, an unmanaged index, is a market value-weighted index of New York investment-grade fixed-rate municipal bonds with maturities of four years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The index reflects reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (3) The Lipper New York Municipal Debt Funds Index includes the 30 largest municipal debt funds in New York tracked by Lipper Inc. The index's returns include net reinvested dividends. (4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index and Lipper peer group is from Sept. 1, 1986. The Fund began operating before the inception of the Lehman Brothers New York 4 Plus Year Municipal Bond Index. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 29 - -------------------------------------------------------------------------------- THE FUND'S LONG-TERM PERFORMANCE The chart on the facing page illustrates the total value of an assumed $10,000 investment in RiverSource Ohio Tax-Exempt Fund Class A shares (from 7/1/96 to 6/30/06) as compared to the performance of three widely cited performance indices, the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper Ohio Municipal Debt Funds Index. In comparing the Fund's Class A shares to these indices, you should take into account the fact that the Fund's performance reflects the maximum sales charge of 4.75%, while such charges are not reflected in the performance of the indices. Returns for the Fund include the reinvestment of any distribution paid during each period. The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's current prospectus. COMPARATIVE RESULTS Results at June 30, 2006
SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4) RIVERSOURCE OHIO TAX-EXEMPT FUND (INCLUDES SALES CHARGE) - ---------------------------------------------------------------------------------------------------------- Class A Cumulative value of $10,000 $ 9,485 $ 10,072 $ 11,419 $ 14,708 $ 27,110 - ---------------------------------------------------------------------------------------------------------- Average annual total return -5.15% +0.24% +2.69% +3.98% +5.39% - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS OHIO 4 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,060 $ 10,978 $ 12,934 $ 17,621 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.60% +3.16% +5.28% +5.83% N/A - ---------------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL BOND INDEX(2) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,558 $ 35,592 - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.89% +3.23% +5.05% +5.79% +6.91% - ---------------------------------------------------------------------------------------------------------- LIPPER OHIO MUNICIPAL DEBT FUNDS INDEX(3) - ---------------------------------------------------------------------------------------------------------- Cumulative value of $10,000 $ 10,030 $ 10,832 $ 12,432 $ 16,382 N/A - ---------------------------------------------------------------------------------------------------------- Average annual total return +0.30% +2.70% +4.45% +5.04% N/A - ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 14. - -------------------------------------------------------------------------------- 30 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN RIVERSOURCE OHIO TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper Ohio Ohio Municipal Bond Ohio Tax-Exempt 4 Plus Year Index(2) Municipal Debt Fund Class A Municipal Bond Funds Index(3) (includes Index(1) sales charge) 96 9525 10000 10000 10000 97 10275 10813 10866 10800 98 10536 11733 11166 11012 99 10632 12029 11529 11173 00 11477 12373 12680 12232 01 12151 13623 13557 12993 02 13011 14631 14742 14036 03 12924 16049 14854 14068 04 13816 16123 16078 15158 05 14769 17516 17403 16333 06 14708 17621 17558 16382
(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 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 index reflects reinvestment of all distributions and changes in market prices, but exclude brokerage commissions or other fees. (3) The Lipper Ohio Municipal Debt Funds Index includes the 10 largest municipal debt funds in Ohio tracked by Lipper Inc. The index's returns include net reinvested dividends. (4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is from July 1, 1987. The Fund began operating before the inception of the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index and Lipper peer group. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 31 - -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES RiverSource California Tax-Exempt Fund JUNE 30, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------- MUNICIPAL BONDS (95.8%) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) 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 $ 2,244,836 Abag Finance Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13 2,500,000 2,677,050 Alhambra City Elementary School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999A (FSA) 09-01-22 5.95 1,055,000(b) 484,962 Anaheim Union High School District Prerefunded Unlimited General Obligation Bonds Series 2002A (FSA) 08-01-16 5.38 1,550,000 1,671,598 Beaumont Financing Authority Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,081,567 Beverly Hills Public Financing Authority Revenue Bonds Capital Improvements Project Series 1998A 06-01-23 5.00 3,000,000 3,059,460 California County Tobacco Securitization Agency Asset-backed Revenue Bonds Alameda County Series 2002 06-01-29 5.75 785,000 814,971 06-01-42 6.00 240,000 249,708 California Educational Facilities Authority Revenue Bonds Stanford University Series 1997N 12-01-27 5.20 1,000,000 1,026,180
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) California Educational Facilities Authority Revenue Bonds University of Southern California Series 2003A 10-01-33 5.00% $ 2,000,000 $ 2,027,240 California Educational Facilities Authority Revenue Bonds University of the Pacific Series 2006 11-01-25 5.00 1,685,000 1,703,653 California Health Facilities Financing Authority Refunding Revenue Bonds Cedars-Sinai Medical Center Series 2005 11-15-18 5.00 1,500,000 1,540,530 11-15-34 5.00 1,525,000 1,524,909 California Health Facilities Financing Authority Revenue Bonds Catholic Healthcare West Series 2004G 07-01-23 5.25 3,500,000 3,587,114 California Health Facilities Financing Authority Revenue Bonds Kaiser Permanente Series 2006A 04-01-39 5.25 2,000,000 2,045,760 California Health Facilities Financing Authority Revenue Bonds Sutter Health Series 1999A (MBIA) 08-15-28 5.35 2,500,000 2,615,225 California Infrastructure & Economic Development Bank Prerefunded Revenue Bonds Bay Area Toll Bridges 1st Lien Series 2003A (AMBAC) 07-01-36 5.00 225,000 239,427
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 32 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) 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% $ 50,000 $ 50,132 California State Department of Water Resources Prerefunded Revenue Bonds Series 2002A (MBIA) 05-01-15 6.00 2,000,000 2,234,840 California State Department of Water Resources Revenue Bonds Series 2002A (MBIA) 05-01-09 5.25 3,200,000 3,314,975 05-01-10 5.25 3,000,000 3,136,830 California State Public Works Board Revenue Bonds Department of General Services Capital East End Series 2002A 12-01-06 5.00 1,000,000 1,004,210 California Statewide Communities Development Authority Prerefunded Revenue Bonds Thomas Jefferson School of Law Project Series 2001 10-01-31 7.75 2,500,000 2,900,500 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2004E 04-01-32 3.88 750,000 745,973 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2006B 03-01-45 5.25 1,000,000 1,015,060 City of Los Angeles Revenue Bonds Series 2003A (FSA) 02-01-13 5.00 2,000,000 2,109,760 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 1,000,000(c) 1,009,830
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Contra Costa Water District Refunding Revenue Bonds Series 2003M (FSA) 10-01-16 5.00% $ 1,500,000 $ 1,572,210 County of Riverside Certificate of Participation Series 1998 (MBIA) 12-01-21 5.00 1,530,000 1,569,719 County of San Diego Certificate of Participation Series 1993 Inverse Floater (AMBAC) 09-01-07 7.32 3,200,000(g) 3,329,983 Desert Sands Unified School District Refunding Certificate of Participation Series 2003 (MBIA) 03-01-17 5.25 1,135,000 1,208,230 Encinitas Union School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1996 (MBIA) 08-01-15 5.85 2,500,000(b) 1,662,400 Fontana Unified School District Unlimited General Obligation Bonds Convertible Capital Appreciation Series 1997D (FGIC) 05-01-22 5.75 2,000,000 2,126,980 Golden State Tobacco Securitization Corporation Enhanced Asset-backed Revenue Bonds Series 2005A 06-01-19 5.00 1,500,000 1,524,615 06-01-45 5.00 1,200,000 1,196,400 Golden State Tobacco Securitization Corporation Enhanced Asset-backed Revenue Bonds Series 2005A (FGIC) 06-01-35 5.00 2,000,000 2,024,280 Golden State Tobacco Securitization Corporation Prerefunded Enhanced Asset-backed Revenue Bonds Series 2003B (FSA) 06-01-43 5.00 110,000 116,167
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 33 - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Golden State Tobacco Securitization Corporation Revenue Bonds Series 2003A-1 06-01-33 6.25% $ 2,490,000 $ 2,712,033 06-01-39 6.75 1,250,000 1,397,938 06-01-40 6.63 750,000 833,288 Inglewood Redevelopment Agency Refunding Tax Allocation Bonds Merged Redevelopment Project Series 1998A (AMBAC) 05-01-23 5.25 1,100,000 1,187,802 Lake Elsinore Public Financing Authority Revenue Bonds Series 1997F 09-01-20 7.10 800,000 838,720 Lancaster Redevelopment Agency Refunding Tax Allocation Bonds Combined Redevelopment Project Areas Series 2003 (MBIA) 08-01-17 5.13 1,840,000 1,967,512 Los Angeles Department of Water & Power Revenue Bonds Power System Series 2003B (FSA) 07-01-16 5.13 1,460,000 1,543,746 07-01-17 5.13 2,315,000 2,439,177 Los Angeles Harbor Department Refunding Revenue Bonds Series 2006A (MBIA) A.M.T. 08-01-13 5.00 2,000,000 2,091,940 Los Angeles Harbor Department Revenue Bonds Series 1988 Escrowed to Maturity 10-01-18 7.60 925,000 1,106,642 Los Angeles Unified School District Certificate of Participation Multiple Properties Project Series 2002B Escrowed to Maturity (FSA) 10-01-08 5.00 1,000,000 1,026,950 Menlo Park Unlimited General Obligation Bonds Series 2002 08-01-32 5.30 1,900,000 1,990,269
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Metropolitan Water District of Southern California Prerefunded Revenue Bonds Series 1997A 07-01-26 5.00% $ 1,090,000 $ 1,120,139 07-01-26 5.00 645,000 662,834 Oxnard School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA) 08-01-30 5.75 2,575,000 2,933,363 Pittsburg Redevelopment Agency Tax Allocation Bonds Los Medanos Community Development Project Zero Coupon Series 1999 (AMBAC) 08-01-24 6.05 2,100,000(b) 871,017 Port of Oakland Revenue Bonds Series 1997G (MBIA) A.M.T. 11-01-25 5.38 3,080,000 3,188,138 Port of Oakland Revenue Bonds Series 2000K (FGIC) A.M.T. 11-01-18 5.63 1,000,000 1,046,860 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 1,000,000(c) 1,048,420 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(c) 1,057,220 Sacramento Municipal Utility District Revenue Bonds Series 2001N (MBIA) 08-15-28 5.00 350,000 357,410 San Diego Public Water Facilities Financing Authority Revenue Bonds Series 2002 (MBIA) 08-01-26 5.00 2,500,000 2,552,350
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 34 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) San Diego Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999A (FGIC) 07-01-12 3.70% $ 3,420,000(b) $ 2,657,306 San Francisco Bay Area Transit Financing Authority Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 2,000,000 2,034,720 San Francisco City & County Airports Commission Refunding Revenue Bonds 2nd Series 2001-27B (FGIC) 05-01-16 5.25 2,170,000 2,285,770 San Francisco City & County Public Utilities Commission Revenue Bonds Series 2002A (MBIA) 11-01-25 5.00 2,000,000 2,047,720 San Jose Redevelopment Agency Refunding Tax Allocation Bonds Merged Area Redevelopment Project Series 2004A (MBIA) 08-01-18 4.54 2,000,000 1,999,940 San Jose Redevelopment Agency Tax Allocation Bonds Merged Area Redevelopment Project Series 2003 (FGIC) 08-01-33 4.90 2,395,000 2,407,694 San Juan Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999 (FSA) 08-01-21 5.68 820,000(b) 398,864 08-01-24 5.70 1,810,000(b) 750,734 San Mateo County Community College District Unlimited General Obligation Bonds Election of 2001 Series 2002A (FGIC) 09-01-18 5.38 1,000,000 1,069,780
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) San Ysidro School District Unlimited General Obligation Bonds Capital Appreciation Election 1997 Zero Coupon Series 2005D (FGIC) 08-01-27 4.91% $ 2,500,000(b) $ 879,550 Santa Maria Joint Union High School District Prerefunded Unlimited General Obligation Bonds Election of 2000 Series 2003B (FSA) 08-01-27 5.00 3,000,000 3,193,349 Semitropic Improvement District Revenue Bonds Series 2004A (XLCA) 12-01-28 5.00 2,000,000 2,023,160 State of California Prerefunded Unlimited General Obligation Bonds Series 2000 05-01-19 5.63 2,155,000 2,304,847 10-01-25 5.38 2,500,000 2,647,133 State of California Unlimited General Obligation Bonds Series 2001 03-01-31 5.13 2,500,000 2,539,600 06-01-31 5.13 2,500,000 2,541,550 State of California Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000 1,116,950 State of California Unlimited General Obligation Bonds Series 2003 02-01-10 5.00 1,000,000 1,033,940 02-01-21 5.25 2,500,000 2,612,375 02-01-29 5.25 2,500,000 2,576,850 02-01-32 5.00 2,500,000 2,522,125 State of California Unlimited General Obligation Bonds Series 2003 (FGIC) 11-01-20 5.25 1,000,000 1,054,560
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 35 - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) State of California Unlimited General Obligation Bonds Series 2004 03-01-14 5.25% $ 2,000,000 $ 2,133,420 04-01-29 5.30 2,000,000 2,083,520 02-01-33 5.00 1,000,000 1,008,740 State of California Unlimited General Obligation Bonds Series 2004 (FGIC) 02-01-33 5.00 2,500,000 2,537,675 State of California Unlimited General Obligation Bonds Series 2004A 01-01-11 5.25 1,000,000 1,052,120 State of California Unlimited General Obligation Bonds Series 2004A (FGIC) 07-01-17 5.00 2,000,000 2,073,120 State of California Unlimited General Obligation Bonds Various Purpose Series 2003 11-01-22 5.00 2,000,000 2,045,360 11-01-23 5.13 2,500,000 2,579,050 11-01-24 5.13 2,000,000 2,060,740 State of California Unlimited General Obligation Bonds Veterans Series 2000B A.M.T. 12-01-12 4.95 2,250,000 2,291,895 12-01-13 5.05 1,435,000 1,460,945 12-01-14 5.15 2,535,000 2,578,272 State of California Unlimited General Obligation Refunding Bonds Series 2000 05-01-19 5.63 845,000 896,393
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Stockton Revenue Bonds Mortgage-backed Securities Program Series 1990A (GNMA/FNMA/FHLMC) A.M.T. 02-01-23 7.50% $ 30,000 $ 30,295 Tobacco Securitization Authority of Northern California Prerefunded Asset-backed Revenue Bonds Series 2001A 06-01-41 5.38 255,000 271,629 University of California Revenue Bonds Multiple Purpose Projects Series 2003Q (FSA) 09-01-18 5.00 2,000,000 2,081,920 University of California Revenue Bonds Multiple Purpose Series 2000K (FGIC) 09-01-20 5.00 1,010,000 1,038,381 Walnut Energy Center Authority Revenue Bonds Series 2004A (AMBAC) 01-01-29 5.00 2,500,000 2,538,975 01-01-34 5.00 1,000,000 1,011,190 Western Hills Water District Special Tax Bonds Diablo Grande Community Facilities #1 Series 2001 09-01-31 6.88 1,000,000 1,037,480 Whittier Union High School District Prerefunded Unlimited General Obligation Bonds Election of 1999 Series 2003D (FSA) 08-01-28 5.00 2,615,000 2,795,330 - ------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $172,126,569) $ 175,726,019 - -------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 36 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL NOTES (2.9%) - ------------------------------------------------------------------------- ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY California Health Facilities Financing Authority Revenue Bonds Sutter Health V.R.D.N. Series 1996B (KBC Bank) AMBAC 07-01-12 3.88% $ 2,800,000 $ 2,800,000 California Infrastructure & Economic Development Bank Revenue Bonds Rand Corporation V.R.D.N. Series 2002B (JPMorgan Chase Bank) AMBAC 04-01-42 3.89 600,000 600,000
- ------------------------------------------------------------------------- MUNICIPAL NOTES (CONTINUED) - ------------------------------------------------------------------------- ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY California State Department of Water Resources Revenue Bonds V.R.D.N. Series 2002B-3 (Bank of New York) 05-01-22 3.91% $ 2,000,000 $ 2,000,000 - ------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $5,400,000) $ 5,400,000 - ------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $177,526,569)(h) $ 181,126,019 =========================================================================
- -------------------------------------------------------------------------------- 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 1.7% of net assets at June 30, 2006. (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 June 30, 2006, the value of securities subject to alternative minimum tax represented 6.9% 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 - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 37 - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund - -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) - -------------------------------------------------------------------------------- (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 June 30, 2006. (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 June 30, 2006. At June 30, 2006, the value of inverse floaters represented 1.8% of net assets. (h) At June 30, 2006, the cost of securities for federal income tax purposes was $177,497,138 and the aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $ 4,796,453 Unrealized depreciation (1,167,572) ------------------------------------------------------------------------- Net unrealized appreciation $ 3,628,881 -------------------------------------------------------------------------
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. - -------------------------------------------------------------------------------- 38 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES RiverSource Massachusetts Tax-Exempt Fund JUNE 30, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------- MUNICIPAL BONDS (97.0%) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Boston Metropolitan District Unlimited General Obligation Refunding Bonds Series 2002A 12-01-11 5.13% $ 2,050,000 $ 2,156,908 City of Boston Revenue Bonds Series 2004A 11-01-22 5.00 1,000,000 1,035,020 City of Boston Unlimited General Obligation Bonds Series 2005A 01-01-14 5.00 1,000,000 1,058,170 City of Boston Unlimited General Obligation Refunding Bonds Series 2003A (MBIA) 02-01-23 5.00 1,000,000 1,025,270 City of Springfield Limited General Obligation Bonds State Qualified Series 2003 (MBIA) 01-15-20 5.25 1,405,000 1,485,141 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002C (FSA) 11-01-15 5.50 2,500,000 2,740,274 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002E 01-01-10 5.50 2,000,000 2,101,360 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 1997A (AMBAC) 08-01-10 5.75 2,185,000 2,336,530 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 2004B 08-01-22 5.25 500,000 539,575
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002A (FGIC) 01-01-14 5.00% $ 2,500,000 $ 2,562,149 Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002C 11-01-30 5.25 2,000,000 2,131,360 Commonwealth of Massachusetts Prerefunded Unlimited General Obligation Bonds Consolidated Loan Series 2003D 10-01-22 5.25 1,000,000 1,064,870 Commonwealth of Massachusetts Revenue Bonds Grant Anticipation Notes Series 1998A (FSA) 06-15-09 5.25 1,500,000 1,550,670 Commonwealth of Massachusetts Special Obligation Refunding Bonds Federal Highway Grant Anticipation Notes Series 2003A (FSA) 12-15-14 5.00 1,000,000 1,051,260 Commonwealth of Massachusetts Unlimited General Obligation Bonds Consolidated Loan Series 2005B 08-01-14 5.00 750,000 790,163 Commonwealth of Massachusetts Unlimited General Obligation Refunding Bonds Series 2004A (FSA) 08-01-20 5.25 500,000 542,025 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 500,000(c) 548,295
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 39 - -------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001A (FGIC) 07-01-29 5.50% $ 375,000(c) $ 419,149 Massachusetts Bay Transportation Authority Refunding Revenue Bonds Series 1992B 03-01-16 6.20 1,500,000 1,686,930 Massachusetts Bay Transportation Authority Revenue Bonds Series 2005A 07-01-30 5.00 450,000 468,635 07-01-31 5.00 500,000 519,660 Massachusetts Bay Transportation Authority Special Assessment Bonds Series 2005A 07-01-25 5.00 250,000 258,035 07-01-26 5.00 250,000 257,478 Massachusetts Development Finance Agency Prerefunded Revenue Bonds Briarwood Series 2001B 12-01-30 8.25 750,000 881,775 Massachusetts Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,056,220 Massachusetts Development Finance Agency Revenue Bonds May Institute Series 1999 (Radian Group Financial Guaranty) 09-01-29 5.75 1,000,000 1,037,760 Massachusetts Development Finance Agency Revenue Bonds Smith College Series 2005 07-01-35 5.00 500,000 505,045 Massachusetts Health & Educational Facilities Authority Revenue Bonds Boston College Series 2003N 06-01-21 5.25 1,000,000 1,056,180
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Massachusetts Health & Educational Facilities Authority Revenue Bonds Harvard University Series 2002FF 07-15-37 5.13% $ 2,500,000 $ 2,576,299 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2003L 07-01-13 5.00 1,000,000 1,057,920 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2004M 07-01-25 5.25 1,000,000 1,100,460 Massachusetts Health & Educational Facilities Authority Revenue Bonds Williams College Series 2003H 07-01-33 5.00 1,750,000 1,784,073 Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2003-98 A.M.T. 06-01-23 4.88 985,000 986,202 Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2006-122 A.M.T. 12-01-31 4.85 750,000 738,548 Massachusetts Industrial Finance Agency Revenue Bonds Tufts University Series 1998H (MBIA) 02-15-28 4.75 1,000,000 1,001,900 Massachusetts Municipal Wholesale Electric Company Revenue Bonds Nuclear Project #5 Series 2001A (MBIA) 07-01-10 5.00 1,000,000 1,035,390 Massachusetts Port Authority Revenue Bonds Series 2003A (MBIA) 07-01-18 5.00 1,000,000 1,036,350
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 40 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Massachusetts School Building Authority Revenue Bonds Series 2005A (FSA) 08-15-24 5.00% $ 1,000,000 $ 1,031,700 Massachusetts State Water Pollution Abatement Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 1,000,000 1,021,940 Massachusetts State Water Pollution Abatement Unrefunded Revenue Bonds Pool Program Series 2002-8 08-01-20 5.00 25,000 25,871 Massachusetts Water Resources Authority Refunding Revenue Bonds Series 1998B (FSA) 08-01-11 5.50 1,430,000 1,529,528 Massachusetts Water Resources Authority Refunding Revenue Bonds Series 2005A (MBIA) 08-01-22 5.00 500,000 520,265 Massachusetts Water Resources Authority Revenue Bonds Series 1992A (FGIC) 07-15-19 6.50 2,000,000 2,341,099 Massachusetts Water Resources Authority Revenue Bonds Series 2004D (MBIA) 08-01-27 4.75 1,000,000 1,006,530 Massachusetts Water Resources Authority Revenue Bonds Series 2006A (AMBAC) 08-01-31 5.00 500,000 513,120 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 1,000,000(c) 1,040,989 Puerto Rico Electric Power Authority Revenue Bonds Series 2002A Inverse Floater (MBIA) 07-01-17 6.93 500,000(b,c) 596,840
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25% $ 300,000(c) $ 331,740 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 625,000(c) 655,263 University of Massachusetts Building Authority Prerefunded Revenue Bonds Series 2003-1 (AMBAC) 11-01-21 5.25 1,000,000 1,072,020 University of Massachusetts Building Authority Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 50,000 54,505 Woods Hole Martha's Vineyard & Nantucket Steamship Authority Revenue Bonds Series 2004B 03-01-20 5.00 750,000 780,953 Worcester Limited General Obligation Bonds Series 2001A (FGIC) 08-15-12 5.50 1,400,000 1,492,106 - ------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $57,987,449) $ 58,197,518 - -------------------------------------------------------------------------
- ------------------------------------------------------------------------- MUNICIPAL NOTES (1.5%) - ------------------------------------------------------------------------- ISSUE (d,e,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY Massachusetts Health & Educational Facilities Authority Revenue Bonds Capital Assets Program V.R.D.N. Series 1985D (State Street B&T) MBIA 01-01-35 3.93% $ 900,000 $ 900,000 - ------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $900,000) $ 900,000 - ------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $58,887,449)(g) $ 59,097,518 =========================================================================
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 41 - -------------------------------------------------------------------------------- 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 June 30, 2006. At June 30, 2006, the value of inverse floaters represented 1.0% 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 6.0% of net assets at June 30, 2006. (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 June 30, 2006, the value of securities subject to alternative minimum tax represented 2.9% 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 (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 June 30, 2006. (g) At June 30, 2006, the cost of securities for federal income tax purposes was $58,885,498 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 881,447 Unrealized depreciation (669,427) -------------------------------------------------------------------------- Net unrealized appreciation $ 212,020 --------------------------------------------------------------------------
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. - -------------------------------------------------------------------------------- 42 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES RiverSource Michigan Tax-Exempt Fund JUNE 30, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------- MUNICIPAL BONDS (97.9%) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d) Allen Park Public School District Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-18 5.00% $ 1,000,000 $ 1,037,940 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 1,022,680 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50 500,000(c) 548,295 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 500,000(c) 504,915 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 1,056,040 Detroit Revenue Bonds Second Lien Series 2005A (MBIA) 07-01-30 5.00 500,000 508,320 Detroit Revenue Bonds Senior Lien Series 2003A (MBIA) 07-01-34 5.00 1,375,000 1,396,038
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d) Detroit Revenue Bonds Series 2003B (MBIA) 07-01-32 5.25% $ 1,500,000 $ 1,554,960 Detroit Unlimited General Obligation Bonds Series 2001A-1 (MBIA) 04-01-15 5.38 1,000,000 1,057,540 Eastern Michigan University Prerefunded Revenue Bonds Series 2003A (FGIC) 06-01-28 5.00 1,000,000 1,056,060 Goodrich Area School District Prerefunded Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 505,000 533,462 Goodrich Area School District Unrefunded Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 495,000 507,464 Grand Rapids Building Authority Prerefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 505,000 546,122 Grand Rapids Building Authority Unrefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 765,000 816,760 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 1,022,680
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 43 - -------------------------------------------------------------------------------- RiverSource Michigan Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d) Jackson Limited General Obligation Bonds Capital Appreciation Downtown Development Zero Coupon Series 2001 (FSA) 06-01-21 5.58% $ 1,450,000(b) $ 709,920 L'Anse Creuse Public Schools Unlimited General Obligation Refunding Bonds Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-11 4.00 1,000,000 999,520 Lansing Community College Limited General Obligation Bonds Series 2002 (FGIC) 05-01-12 5.00 1,000,000 1,050,350 Lawton Community Schools Unlimited General Obligation Refunding Bonds Series 2001 (Qualified School Bond Loan Fund) 05-01-31 5.00 1,000,000 1,037,490 Manchester Community Schools Prerefunded Unlimited General Obligation Bonds Building & Site Series 2001 (Qualified School Bond Loan Fund) 05-01-26 5.00 1,400,000 1,463,854 Michigan Municipal Bond Authority Refunding Revenue Bonds Clean Water State Revolving Fund Series 2005 10-01-15 5.00 500,000 530,725 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2001 10-01-14 5.00 500,000 520,265 10-01-20 5.00 1,000,000 1,033,390 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2002 10-01-07 5.25 1,000,000 1,017,530 10-01-20 5.38 1,000,000 1,067,770 10-01-21 5.38 1,000,000 1,069,470
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d) Michigan Municipal Bond Authority Revenue Bonds School District City of Detroit Series 2005 (FSA) 06-01-19 5.00% $ 500,000 $ 516,670 Michigan Public Power Agency Refunding Revenue Bonds Belle River Project Series 2002A (MBIA) 01-01-09 5.25 2,000,000 2,062,899 01-01-13 5.25 500,000 532,160 01-01-14 5.25 500,000 533,420 Michigan State Building Authority Refunding Revenue Bonds Facilities Program Series 2003 II (MBIA) 10-15-29 5.00 1,000,000 1,019,470 Michigan State Building Authority Revenue Bonds State Police Communications System Series 2002 Escrowed to Maturity 10-01-07 4.00 1,000,000 1,002,830 Michigan State Building Authority Revenue Bonds State Police Communications System Series 2004 (MBIA) 10-01-13 5.38 500,000 537,270 Michigan State Hospital Finance Authority Refunding Revenue Bonds Henry Ford Health System Series 2006A 11-15-26 5.00 500,000 504,400 11-15-46 5.25 500,000 508,360 Michigan State Hospital Finance Authority Refunding Revenue Bonds Sparrow Obligated Group Series 2005 (MBIA) 11-15-36 5.00 500,000 505,680 Michigan State Hospital Finance Authority Revenue Bonds Oakwood Obligated Group Series 2003 11-01-18 5.50 1,000,000 1,054,060
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 44 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Michigan Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d) Michigan Strategic Fund Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA) 07-15-08 7.00% $ 1,000,000 $ 1,059,390 Plymouth-Canton Community School District Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-15 5.25 600,000 639,918 Puerto Rico Electric Power Authority Revenue Bonds Series 2002 Inverse Floater (MBIA) 07-01-17 6.93 250,000(c,g) 298,420 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA) 07-01-13 5.50 1,000,000(c) 1,084,290 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 500,000(c) 524,210 Roseville School District Refunding Unlimited General Obligation Bonds School Building & Site Series 2006 (FSA) (Qualified School Bond Loan Fund) 05-01-23 5.00 500,000 515,230 Saginaw Hospital Finance Authority Refunding Revenue Bonds Covenant Medical Center Series 2004G 07-01-22 5.13 500,000 509,340 Saline Area Schools Unlimited General Obligation Bonds Series 2000A (Qualified School Bond Loan Fund) 05-01-09 4.75 1,000,000 1,022,170 South Lyon Community Schools Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-28 5.00 1,000,000 1,018,910
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d) 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 $ 1,080,719 State of Michigan Certificate of Participation Series 2004A (MBIA) 09-01-31 4.25 750,000 750,998 State of Michigan Unlimited General Obligation Bonds Environmental Programs Series 2003A 05-01-10 5.00 1,000,000 1,038,630 Summit Academy North Prerefunded Certificate of Participation Series 2001 07-01-30 7.38 750,000 842,115 Summit Academy Prerefunded Certificate of Participation Full Term Series 1998 09-01-18 7.00 480,000 508,363 Troy City School District Unlimited General Obligation Bonds School Building & Site Series 2006 (MBIA) (Qualified School Board Loan Fund) 05-01-24 5.00 500,000 514,430 Waverly Community School Prerefunded Unlimited General Obligation Bonds Series 2000 (FGIC) 05-01-17 5.25 1,000,000 1,047,060 Western Township Utilities Authority Limited General Obligation Bonds Series 2002 (FGIC) 01-01-08 5.00 1,500,000 1,524,675 Williamston Community School District Unlimited General Obligation Bonds Series 1996 (MBIA) (Qualified School Bond Loan Fund) 05-01-25 5.50 1,000,000 1,100,280
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 45 - -------------------------------------------------------------------------------- RiverSource Michigan Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d) Wyandotte City School District Prerefunded Unlimited General Obligation Bonds Building & Site Series 2002 (Qualified School Bond Loan Fund) 05-01-14 5.38% $ 1,250,000 $ 1,339,713 - ------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $48,572,826) $ 48,865,640 - -------------------------------------------------------------------------
- ------------------------------------------------------------------------- MUNICIPAL NOTES (0.8%) - ------------------------------------------------------------------------- ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY Detroit Revenue Bonds Senior Lien V.R.D.N. Series 2003B (Dexia Credit Local) FSA 07-01-33 3.99% $ 200,000 $ 200,000 University of Michigan Refunding Revenue Bonds University of Michigan Hospitals V.R.D.N. Series 1992A 12-01-19 3.95 200,000 200,000 - ------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $400,000) $ 400,000 - ------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $48,972,826)(h) $ 49,265,640 =========================================================================
- -------------------------------------------------------------------------------- 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 5.9% of net assets at June 30, 2006. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation 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 - -------------------------------------------------------------------------------- 46 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL 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 June 30, 2006. (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 June 30, 2006. At June 30, 2006, the value of inverse floaters represented 0.6% of net assets. (h) At June 30, 2006, the cost of securities for federal income tax purposes was $48,972,826 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 707,890 Unrealized depreciation (415,076) -------------------------------------------------------------------------- Net unrealized appreciation $ 292,814 --------------------------------------------------------------------------
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 - 2006 ANNUAL REPORT - 47 - -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES RiverSource Minnesota Tax-Exempt Fund JUNE 30, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------- MUNICIPAL BONDS (94.7%) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Anoka County Housing & Redevelopment Authority Unlimited General Obligation Bonds Housing Development Series 2004 (AMBAC) 02-01-34 5.00% $ 1,355,000 $ 1,378,008 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 2,481,654 02-01-10 5.00 1,000,000 1,036,300 02-01-13 5.00 4,175,000 4,340,581 02-01-15 5.00 1,990,000 2,058,018 02-01-16 5.00 2,000,000 2,067,520 Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Project Series 2000A 01-01-32 7.25 2,000,000 2,087,120 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 2,070,880 Bloomington Independent School District #271 Unlimited General Obligation Refunding Bonds Building Series 1999B (School District Credit Enhancement Program) 02-01-15 5.00 1,500,000 1,547,880 City of Breckenridge Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 3,335,000 3,408,370
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) City of Chaska Refunding Revenue Bonds Generating Facilities Series 2005A 10-01-20 5.25% $ 1,165,000 $ 1,223,168 10-01-30 5.00 3,800,000 3,836,100 City of Maple Grove Revenue Bonds North Memorial Health Care Series 2005 09-01-29 5.00 2,000,000 2,017,560 City of Minneapolis Revenue Bonds Fairview Health Services Series 2002B (MBIA) 05-15-14 5.50 2,050,000 2,211,950 05-15-15 5.50 2,160,000 2,324,808 05-15-16 5.50 2,200,000 2,364,296 05-15-17 5.50 1,295,000 1,392,410 City of Minneapolis Unlimited General Obligation Bonds Convention Center Series 2002 12-01-12 5.00 1,500,000 1,561,785 City of Minneapolis Unlimited General Obligation Bonds Various Purpose Series 2001 12-01-11 5.00 3,035,000 3,191,576 City of Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-19 5.00 2,505,000 2,537,214 06-01-25 5.00 1,750,000 1,758,663 06-01-35 5.00 3,145,000 3,149,340
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 48 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2001 (FSA) 07-01-16 5.50% $ 1,500,000(c) $ 1,644,885 County of Anoka Limited General Obligation Refunding Bonds Capital Improvement Series 2001C (MBIA) 02-01-09 4.60 2,960,000 3,017,365 County of Ramsey Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2002B 02-01-10 5.25 2,150,000 2,251,631 02-01-14 5.25 3,840,000 4,036,877 County of Washington Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2000A 02-01-20 5.50 1,000,000 1,048,390 Edina Independent School District #273 Unlimited General Obligation Bonds Series 2004 02-01-12 4.00 3,700,000 3,709,065 02-01-22 4.25 3,000,000 2,852,910 02-01-23 4.50 3,000,000 3,001,590 02-01-24 4.50 3,400,000 3,419,108 Elk River Independent School District #728 Unlimited General Obligation Bonds Series 2002 Inverse Floater (FSA) (School District Credit Enhancement Program) 02-01-18 7.50 1,200,000(g) 1,419,168 02-01-19 7.50 1,150,000(g) 1,349,893 02-01-20 7.50 950,000(g) 1,108,432 02-01-21 7.51 1,285,000(g) 1,495,329 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 3,129,450
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Farmington Independent School District #192 Unlimited General Obligation Bonds School Building Series 2005B (FSA) (School District Credit Enhancement Program) 02-01-21 5.00% $ 3,615,000 $ 3,742,248 Hennepin County Unlimited General Obligation Bonds Series 2003 12-01-06 4.00 2,000,000 2,002,500 12-01-23 4.75 2,000,000 2,029,420 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 1,891,302 Lakeville Independent School District #194 Unlimited General Obligation Refunding Bonds Series 1997A (School District Credit Enhancement Program) 02-01-22 5.13 2,400,000 2,443,896 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 1,490,252 Metropolitan Council Minneapolis-St. Paul Metropolitan Area Unlimited General Obligation Bonds Transportation Series 2002C 02-01-09 5.00 3,240,000 3,335,029 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2003 12-01-12 5.25 1,000,000 1,036,770 12-01-15 5.13 1,500,000 1,531,875 12-01-16 5.25 1,250,000 1,284,638
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 49 - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthSpan Series 1993A (AMBAC) 11-15-18 4.75% $ 5,000,000 $ 5,019,000 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1996-1 06-01-11 6.00 980,000 987,997 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1997-7A 06-01-12 5.50 250,000 255,158 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 2001-2-A A.M.T. 06-01-19 5.88 1,000,000 1,055,340 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 1,036,970 02-01-11 5.00 1,040,000 1,084,772 Minneapolis/St. Paul Housing Finance Board Revenue Bonds Single Family Housing Series 2005-A-4 (GNMA/FNMA/FHLMC) A.M.T. 12-01-37 4.70 109,828 104,798 Minneapolis-St. Paul Metropolitan Airports Commission Refunding Revenue Bonds Sub Series 2005C (FGIC) 01-01-25 5.00 4,000,000 4,114,160 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 1998A (AMBAC) 01-01-24 5.20 4,000,000 4,108,040 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 1999B (FGIC) A.M.T. 01-01-16 5.63 2,920,000 3,044,275
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001B (FGIC) A.M.T. 01-01-16 5.75% $ 4,875,000 $ 5,134,155 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Sub Series 2001C (FGIC) 01-01-18 5.50 2,000,000 2,115,340 01-01-32 5.25 7,000,000 7,231,139 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Sub Series 2005A (AMBAC) 01-01-29 5.00 1,900,000 1,946,170 Minnesota Agricultural & Economic Development Board Prerefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 4,845,000 5,349,704 11-15-29 6.38 2,910,000 3,213,135 Minnesota Agricultural & Economic Development Board Revenue Bonds Health Care System - Benedictine Health Series 1999A (MBIA) 02-15-16 4.75 1,000,000 1,018,590 Minnesota Agricultural & Economic Development Board Unrefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 155,000 169,195 11-15-29 6.38 90,000 98,393 Minnesota Higher Education Facilities Authority Revenue Bonds Macalester College 6th Series 2004B 03-01-17 5.00 2,395,000 2,495,279 Minnesota Higher Education Facilities Authority Revenue Bonds St. John's University 6th Series 2005G 10-01-22 5.00 2,000,000 2,053,440 Minnesota Higher Education Facilities Authority Revenue Bonds University of St. Thomas 5th Series 2004Y 10-01-34 5.25 2,800,000 2,890,440
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 50 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006B A.M.T. 07-01-26 4.75% $ 1,905,000 $ 1,868,824 07-01-31 4.85 2,570,000 2,526,130 07-01-37 4.90 5,000,000 4,883,100 Minnesota Housing Finance Agency Revenue Bonds Series 2002 Inverse Floater A.M.T. 07-01-33 8.48 1,075,000(g) 1,120,505 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1996J A.M.T. 07-01-21 5.60 90,000 90,962 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1997K A.M.T. 01-01-26 5.75 975,000 985,091 Minnesota Public Facilities Authority Prerefunded Revenue Bonds Series 2001A 03-01-20 5.00 4,000,000 4,146,880 Minnesota Public Facilities Authority Revenue Bonds Series 2002B 03-01-10 5.00 2,500,000 2,598,700 03-01-13 5.25 2,500,000 2,674,800 03-01-14 5.25 2,500,000 2,685,375 Minnesota Public Facilities Authority Revenue Bonds Series 2005C 03-01-25 5.00 2,000,000 2,066,560 Minnesota State Municipal Power Agency Revenue Bonds Series 2004A 10-01-29 5.13 3,500,000 3,552,570 Minnesota State Municipal Power Agency Revenue Bonds Series 2005 10-01-30 5.00 2,000,000 2,004,240
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) 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 $ 1,674,704 Northern Municipal Power Agency Refunding Revenue Bonds Capital Appreciation Zero Coupon Series 1989A (AMBAC) 01-01-10 3.80 2,000,000(b) 1,727,860 Northern Municipal Power Agency Refunding Revenue Bonds Series 1998B (AMBAC) 01-01-20 4.75 5,000,000 5,059,200 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 1,638,264 02-01-12 5.00 3,455,000 3,625,884 02-01-15 5.25 3,585,000 3,791,962 Osseo Independent School District #279 Unlimited General Obligation Refunding Bonds School Building Series 2000A (School District Credit Enhancement Program) 02-01-13 5.75 3,200,000 3,401,824 02-01-14 5.75 1,100,000 1,167,672 Plymouth Housing & Redevelopment Authority Unlimited General Obligation Bonds Governmental Housing Project Series 2005 02-01-35 5.00 2,135,000 2,197,897 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 3,000,000(c) 3,122,970 Puerto Rico Electric Power Authority Revenue Bonds Series 2003NN (MBIA) 07-01-32 5.00 2,820,000(c) 2,873,213
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 51 - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25% $ 1,650,000(c) $ 1,824,570 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 2,250,000(c) 2,386,485 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 1,500,000(c) 1,572,630 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 2,000,000(c) 2,114,440 Shakopee Revenue Bonds St. Francis Regional Medical Center Series 2004 09-01-25 5.10 3,300,000 3,339,270 Southern Minnesota Municipal Power Agency Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA) 01-01-19 6.67 17,000,000(b) 9,402,359 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2002A (AMBAC) 01-01-17 5.25 6,000,000 6,455,999 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-11 5.00 5,500,000 5,732,979 St. Cloud Housing & Redevelopment Authority Revenue Bonds State University Foundation Project Series 2002 05-01-18 5.13 3,000,000 3,122,910
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) St. Paul Housing & Redevelopment Authority Revenue Bonds Community of Peace Academy Project Series 2001A 12-01-30 7.88% $ 2,390,000 $ 2,535,455 St. Paul Housing & Redevelopment Authority Revenue Bonds Healtheast Project Series 2005 11-15-25 6.00 1,250,000 1,339,300 St. Paul Housing & Redevelopment Authority Revenue Bonds Lyngblomsten Care Center Housing Project Series 1993 11-01-06 7.13 265,000 266,529 11-01-17 7.13 1,480,000 1,485,520 St. Paul Housing & Redevelopment Authority Revenue Bonds Rental - Lyngblomsten Housing Project Series 1993 11-01-24 7.00 1,680,000 1,684,553 St. Paul Port Authority Revenue Bonds Office Building at Cedar Street Series 2003 12-01-23 5.00 5,000,000 5,120,900 12-01-27 5.13 5,350,000 5,504,027 State of Minnesota Unlimited General Obligation Bonds Series 2001 10-01-10 5.00 5,000,000 5,222,500 10-01-14 5.00 4,000,000 4,190,880 10-01-15 5.00 4,455,000 4,654,762 State of Minnesota Unlimited General Obligation Bonds Series 2002 08-01-10 5.00 4,075,000 4,251,407 11-01-15 5.25 3,575,000 3,805,731 State of Minnesota Unlimited General Obligation Bonds Series 2003 08-01-12 5.00 2,000,000 2,115,620
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 52 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) State of Minnesota Unlimited General Obligation Bonds Series 2004 11-01-24 5.00% $ 3,500,000 $ 3,637,340 Steele County Refunding Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,418,510 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 2,496,125 University of Minnesota Revenue Bonds Residual Certificates Series 2002 Inverse Floater 07-01-21 8.27 2,830,000(g) 3,771,711 Virginia Housing & Redevelopment Authority Revenue Bonds Series 2005 10-01-20 5.13 1,350,000 1,349,217 Western Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-26 5.00 7,250,000 7,431,394 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 1,414,999 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 1,472,342 02-01-14 5.00 1,480,000 1,544,928
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Willmar Unlimited General Obligation Bonds Rice Memorial Hospital Project Series 2002 (FSA) 02-01-11 5.00% $ 1,025,000 $ 1,066,953 02-01-12 5.00 1,120,000 1,171,979 02-01-13 5.00 1,200,000 1,258,800 - ------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $323,021,191) $ 327,491,025 - -------------------------------------------------------------------------
- ------------------------------------------------------------------------- MUNICIPAL NOTES (2.7%) - ------------------------------------------------------------------------- ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY City of Minneapolis Refunding Revenue Bonds Fairview Health Services V.R.D.N. Series 2005B (Royal Bank of Canada) AMBAC 11-15-29 3.96% $ 1,700,000 $ 1,700,000 City of Minneapolis Revenue Bonds Guthrie Theater Project V.R.D.N. Series 2003A (Wells Fargo Bank) 10-01-23 3.97 1,800,000 1,800,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2000H (Harris Trust & Savings Bank) 10-01-30 4.04 750,000 750,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M2 (Harris Trust & Savings Bank) 10-01-20 4.04 1,100,000 1,100,000 Robbinsdale Revenue Bonds North Memorial Healthcare-Tranche II V.R.D.N. Series 2003 AMBAC 05-15-33 3.45 2,875,000 2,875,000
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 53 - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL NOTES (CONTINUED) - ------------------------------------------------------------------------- ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY St. Paul Housing & Redevelopment Authority Revenue Bonds Minnesota Public Radio Project V.R.D.N. Series 2005 (Allied Irish Bank) 10-01-25 4.04% $ 1,020,000 $ 1,020,000
- ------------------------------------------------------------------------- MUNICIPAL NOTES (CONTINUED) - ------------------------------------------------------------------------- ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY St. Paul Port Authority Revenue Bonds Minnesota Public Radio Project V.R.D.N. 7th Series 2005 (Allied Irish Bank) 05-01-25 4.04% $ 100,000 $ 100,000 - ------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $9,345,000) $ 9,345,000 - ------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $332,366,191)(h) $ 336,836,025 =========================================================================
- -------------------------------------------------------------------------------- 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 4.5% of net assets at June 30, 2006. (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 June 30, 2006, the value of securities subject toalternative minimum tax represented 6.0% 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 - -------------------------------------------------------------------------------- 54 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund - -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) - -------------------------------------------------------------------------------- (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 June 30, 2006. (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 June 30, 2006. At June 30, 2006, the value of inverse floaters represented 3.0% of net assets. (h) At June 30, 2006, the cost of securities for federal income tax purposes was $332,161,195 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 7,223,474 Unrealized depreciation (2,548,644) ------------------------------------------------------------------- Net unrealized appreciation $ 4,674,830 -------------------------------------------------------------------
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 - 2006 ANNUAL REPORT - 55 - -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES RiverSource New York Tax-Exempt Fund JUNE 30, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------- MUNICIPAL BONDS (95.9%) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) City of New York Unlimited General Obligation Bonds Series 2000 Inverse Floater (FGIC) 05-15-16 9.41% $ 830,000(f) $ 1,027,167 City of New York Unlimited General Obligation Bonds Series 2002C (XLCA) 03-15-12 5.00 1,000,000 1,045,730 City of New York Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75 2,000,000 2,158,939 City of New York Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 2,000,000 2,101,880 City of New York Unlimited General Obligation Bonds Series 2003J 06-01-18 5.50 2,000,000 2,129,659 06-01-20 5.50 2,000,000 2,119,879 City of New York Unlimited General Obligation Bonds Series 2004D 11-01-34 5.00 1,000,000 1,011,470 City of New York Unlimited General Obligation Bonds Series 2004E (FSA) 11-01-22 5.00 750,000 773,108 Commonwealth of Puerto Rico Unlimited General Obligation Bonds Public Improvement Series 2004A 07-01-24 5.00 500,000(d) 504,915 County of Monroe Unlimited General Obligation Refunding Bonds Public Improvement Series 1996 (MBIA) 03-01-15 6.00 1,250,000 1,401,150
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Liberty Development Corporation Revenue Bonds Goldman Sachs Headquarters Series 2005 10-01-35 5.25% $ 500,000 $ 531,850 Long Island Power Authority Revenue Bonds Series 1998-8 (AMBAC) 04-01-09 5.25 1,000,000 1,035,970 Long Island Power Authority Revenue Bonds Series 2003C (CIFG) 09-01-33 5.00 20,000 20,372 Metropolitan Transportation Authority Prerefunded Revenue Bonds Series 1998A (FGIC) 04-01-28 4.75 1,000,000 1,044,020 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A 01-01-16 5.75 500,000 552,295 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A (AMBAC) 11-15-19 5.50 1,000,000 1,074,710 Metropolitan Transportation Authority Revenue Bonds Series 2002A (FSA) 11-15-26 5.50 750,000 803,438 Metropolitan Transportation Authority Revenue Bonds Series 2005F 11-15-12 5.00 560,000 587,289 11-15-35 5.00 500,000 504,810 Nassau County Tobacco Settlement Corporation Asset-backed Revenue Bonds Series 2006A-3 06-01-46 5.13 500,000 480,880
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 56 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) 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 $ 1,542,630 New York City Industrial Development Agency Revenue Bonds Terminal One Group Association Project Series 2005 A.M.T. 01-01-24 5.50 500,000 521,000 New York City Municipal Water Finance Authority Revenue Bonds Series 2002A 06-15-29 5.00 1,000,000 1,020,560 New York City Municipal Water Finance Authority Revenue Bonds Series 2004A 06-15-39 5.00 1,000,000 1,011,730 New York City Municipal Water Finance Authority Revenue Bonds Series 2005D (AMBAC) 06-15-39 5.00 750,000 766,800 New York City Transitional Finance Authority Prerefunded Revenue Bonds Future Tax Series 1999C 05-01-25 5.50 220,000 231,453 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2003D 02-01-23 5.00 500,000 514,925 02-01-31 5.00 1,000,000 1,020,150 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2004C 02-01-33 5.00 1,000,000 1,018,250 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 1,070,860
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) New York Counties Tobacco Trust II Revenue Bonds Tobacco Settlement Pass Thru Bonds Series 2001 06-01-35 5.63% $ 500,000 $ 509,775 New York Mortgage Agency Revenue Bonds Series 2002 Inverse Floater A.M.T. 04-01-32 7.88 400,000(f) 420,112 New York Power Authority Revenue Bonds Series 2000A 11-15-30 5.25 1,000,000 1,040,560 New York State Dormitory Authority Prerefunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 459,853 New York State Dormitory Authority Revenue Bonds Brooklyn Law School Series 2003B (XLCA) 07-01-30 5.13 1,000,000 1,035,290 New York State Dormitory Authority Revenue Bonds Consolidated City University System Series 1993A 07-01-13 5.75 3,000,000 3,211,289 New York State Dormitory Authority Revenue Bonds Education Series 2005F 03-15-23 5.00 250,000 257,805 New York State Dormitory Authority Revenue Bonds Hospital Series 2004A (FHA/FSA) 08-15-13 5.25 500,000 533,220 New York State Dormitory Authority Revenue Bonds Memorial Sloan-Kettering Center Series 2003-1 (MBIA) 07-01-21 5.00 1,000,000 1,029,080
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 57 - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) New York State Dormitory Authority Revenue Bonds Memorial Sloan-Kettering Center Series 2006-1 07-01-35 5.00% $ 500,000 $ 510,245 New York State Dormitory Authority Revenue Bonds Mental Health Services Facilities Improvement Series 2005E (FGIC) 02-15-22 5.00 750,000 772,703 New York State Dormitory Authority Revenue Bonds Montefiore Hospital Series 2004 (FGIC/FHA) 08-01-19 5.00 735,000 762,460 New York State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00 1,500,000 1,607,220 New York State Dormitory Authority Revenue Bonds Series 2002B (AMBAC) 11-15-26 5.25 1,000,000 1,063,050 New York State Dormitory Authority Unrefunded Revenue Bonds Series 1990B 05-15-11 7.50 970,000 1,071,055 New York State Energy Research & Development Authority Revenue Bonds New York State Electric & Gas Series 1985B (MBIA) 10-15-15 4.00 1,000,000 980,200 New York State Energy Research & Development Authority Revenue Bonds Residual Certificates Series 2000 Inverse Floater (MBIA) 01-01-21 8.30 330,000(f) 348,464 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 1,031,700
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) 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 $ 1,021,080 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 1,025,260 New York State Environmental Facilities Corporation Revenue Bonds Revolving Funds Series 2003 06-15-32 5.00 1,000,000 1,022,320 New York State Thruway Authority Revenue Bonds Second General Resolution Series 2003B (FSA) 04-01-21 4.75 835,000 846,473 New York State Thruway Authority Revenue Bonds Series 2005G (FSA) 01-01-24 5.00 1,000,000 1,033,630 01-01-28 5.00 750,000 769,095 New York State Thruway Authority Revenue Bonds Transportation Series 2003A (MBIA) 03-15-22 5.00 1,000,000 1,027,970 New York State Thruway Authority Revenue Bonds Transportation Series 2004A (AMBAC) 03-15-12 5.25 750,000 798,825 New York State Urban Development Corporation Refunding Revenue Bonds Service Contract Series 2005 (FSA) 01-01-17 5.00 1,000,000 1,050,190
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 58 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) New York State Urban Development Corporation Revenue Bonds Series 2002A (XLCA) 01-01-11 5.25% $ 1,000,000 $ 1,052,120 Niagara Falls Public Water Authority Prerefunded Revenue Bonds Series 2003A (MBIA) 07-15-28 5.50 1,000,000 1,000,440 Port Authority of New York & New Jersey Revenue Bonds Consolidated 134th Series 2004 07-15-34 5.00 1,000,000 1,017,430 Port Authority of New York & New Jersey Revenue Bonds Consolidated 143rd Series 2006 FSA A.M.T. 10-01-21 5.00 1,000,000 1,026,300 Puerto Rico Electric Power Authority Revenue Bonds Series 2002 Inverse Floater (MBIA) 07-01-17 6.93 500,000(d,f) 596,840 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 1,000,000(d) 1,060,660 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(d) 1,057,220 Rensselaer County Industrial Development Agency Revenue Bonds Rensselaer Polytechnic Institute Series 2006 03-01-36 5.00 500,000 506,465 Sales Tax Asset Receivables Corporation Revenue Bonds Series 2004A (MBIA) 10-15-23 5.00 750,000 777,195
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Suffolk County Industrial Development Agency Prerefunded Revenue Bonds 1st Mortgage Jeffersons Ferry Series 1999A 11-01-28 7.25% $ 250,000 $ 279,635 Tobacco Settlement Financing Authority Asset-backed Revenue Bonds Series 2003A-1 06-01-16 5.50 500,000 524,255 Tobacco Settlement Financing Authority Revenue Bonds Series 2003B-1C 06-01-14 5.50 500,000 519,510 06-01-15 5.50 500,000 524,435 Triborough Bridge & Tunnel Authority Refunding Revenue Bonds Series 2002B 11-15-29 5.13 1,000,000 1,036,970 Triborough Bridge & Tunnel Authority Revenue Bonds Convention Center Project Series 1990E 01-01-11 6.00 1,145,000 1,236,234 TSASC Incorporated Revenue Bonds 1st Series 2006 06-01-34 5.00 500,000 483,995 Westchester Tobacco Asset Securitization Revenue Bonds Series 2005 06-01-26 5.00 875,000 858,708 - ------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $67,585,507) $ 68,425,225 - -------------------------------------------------------------------------
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 59 - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL NOTES (2.8%) - ------------------------------------------------------------------------- ISSUE(b,c,e) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY City of New York Unlimited General Obligation Bonds V.R.D.N. Series 2005E-2 (Bank of America) 08-01-34 4.03% $ 200,000 $ 200,000 New York City Municipal Water Finance Authority Revenue Bonds V.R.D.N. Series 1993C FGIC 06-15-23 3.93 1,800,000 1,800,000 - ------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $2,000,000) $ 2,000,000 - ------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $69,585,507)(g) $ 70,425,225 =========================================================================
- -------------------------------------------------------------------------------- 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 CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (c) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At June 30, 2006, the value of securities subject to alternative minimum tax represented 2.8% 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 - -------------------------------------------------------------------------------- 60 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL 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 4.5% of net assets at June 30, 2006. (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 June 30, 2006. (f) 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 June 30, 2006. At June 30, 2006, the value of inverse floaters represented 3.4% of net assets. (g) At June 30, 2006, the cost of securities for federal income tax purposes was $69,574,341 and the aggregate gross unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $1,475,044 Unrealized depreciation (624,160) -------------------------------------------------------------------------- Net unrealized appreciation $ 850,884 --------------------------------------------------------------------------
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 - 2006 ANNUAL REPORT - 61 - -------------------------------------------------------------------------------- INVESTMENTS IN SECURITIES RiverSource Ohio Tax-Exempt Fund JUNE 30, 2006 (Percentages represent value of investments compared to net assets)
- ------------------------------------------------------------------------- MUNICIPAL BONDS (97.5%) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Bowling Green State University Revenue Bonds Series 2003 (AMBAC) 06-01-12 5.00% $ 1,145,000 $ 1,203,395 Brookville Local School District Unlimited General Obligation Bonds Series 2003 (FSA) 12-01-18 5.25 1,000,000 1,060,300 Cincinnati City School District Limited General Obligation Bonds School Improvement Series 2002 (FSA) 06-01-21 5.25 1,000,000 1,053,210 Cincinnati City School District Unlimited General Obligation Bonds Classroom Facilities Construction & Improvement Series 2003 (FSA) 12-01-31 5.00 500,000 508,640 City of Cincinnati Unlimited General Obligation Bonds Series 2000 12-01-16 5.25 1,000,000 1,047,500 City of Cleveland Revenue Bonds Series 2002K (FGIC) 01-01-10 5.00 2,000,000 2,071,719 City of Columbus Prerefunded Unlimited General Obligation Bonds Series 1999-2 06-15-15 5.75 1,000,000 1,075,170 Cleveland State University Revenue Bonds Series 2003A (FGIC) 06-01-15 5.00 1,000,000 1,045,030 Cleveland State University Revenue Bonds Series 2004 (FGIC) 06-01-24 5.25 500,000 526,045
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Columbus City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003 (FGIC) 12-01-11 5.00% $ 1,000,000 $ 1,048,620 Columbus City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2004 (FSA) 12-01-29 5.25 500,000 522,770 County of Cuyahoga Limited General Obligation Bonds Series 1993 05-15-13 5.60 450,000 471,420 County of Cuyahoga Refunding Revenue Bonds Series 2003A 01-01-17 6.00 1,000,000 1,094,700 01-01-32 6.00 1,000,000 1,071,730 County of Cuyahoga Revenue Bonds Canton Incorporated Project Series 2000 01-01-30 7.50 500,000 554,120 County of Erie Revenue Bonds Firelands Regional Medical Center Series 2002A 08-15-32 5.63 245,000 254,496 County of Montgomery Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 750,000 761,588 05-01-32 5.00 500,000 507,400
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 62 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003A (FGIC) 12-01-27 5.00% $ 1,250,000 $ 1,277,750 12-01-31 5.00 1,000,000 1,016,880 Dayton City School District Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2003D (FGIC) 12-01-17 5.00 1,000,000 1,038,960 Franklin County Refunding Revenue Bonds OhioHealth Corporation Series 2003C 05-15-24 5.25 1,000,000 1,038,990 Franklin County Refunding Revenue Bonds Trinity Health Credit Series 2005A 06-01-20 5.00 500,000 511,155 Hamilton County Convention Facilities Authority Revenue Bonds First Lien Series 2004 (FGIC) 12-01-33 5.00 1,000,000 1,014,290 Jackson Prerefunded Revenue Bonds Consolidated Health System - Jackson Hospital Series 1999 (Radian Group Financial Guaranty) 10-01-20 6.13 1,000,000 1,076,100 Kenston Local School District Unlimited General Obligation Bonds School Improvement Series 2003 (MBIA) 12-01-16 5.00 1,000,000 1,041,990 Lakewood Limited General Obligation Bonds Series 2003 12-01-19 5.00 1,515,000 1,568,540 Licking Heights Local School District Unlimited General Obligation Bonds Series 2004 (FGIC) 12-01-28 5.00 1,000,000 1,018,250
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Miami County Refunding & Improvement Revenue Bonds Upper Valley Medical Center Series 2006 05-15-26 5.25% $ 500,000 $ 511,560 Miami University Refunding Revenue Bonds Series 2005 (AMBAC) 09-01-23 4.75 500,000 507,015 Ohio Housing Finance Agency Revenue Bonds Residential Mortgage-backed Securities Series 2006A (GNMA) A.M.T. 09-01-26 4.75 500,000 492,320 09-01-36 4.90 500,000 490,695 Ohio Housing Finance Agency Revenue Bonds Residential Mortgage-backed Securities Series 2006E (GNMA/FNMA) A.M.T. 09-01-36 5.00 500,000 492,690 Ohio Municipal Electric Generation Agency Refunding Revenue Bonds Joint Venture 5 Series 2004 (AMBAC) 02-15-24 4.75 750,000 755,205 Ohio State Building Authority State Facilities Refunding Revenue Bonds Adult Correctional Building Fund Projects Series 2001A (FSA) 10-01-14 5.50 1,000,000 1,065,300 Ohio State Building Authority State Facilities Revenue Bonds Adult Correctional Building Fund Projects Series 2005A (FSA) 04-01-22 5.00 750,000 774,053 Ohio State Higher Educational Facility Commission Unrefunded Revenue Bonds Oberlin Series 1999 10-01-29 5.00 85,000 86,486 Ohio University Revenue Bonds Sub Series 2006B (FSA) 12-01-31 5.00 500,000 511,795
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 63 - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Port of Greater Cincinnati Development Authority Revenue Bonds Sisters of Mercy Series 2006 10-01-25 5.00% $ 500,000 $ 503,550 Puerto Rico Electric Power Authority Revenue Bonds Series 1998DD (FSA) 07-01-13 5.13 1,000,000(d) 1,040,990 Puerto Rico Electric Power Authority Revenue Bonds Series 2002 Inverse Floater (MBIA) 07-01-17 6.93 250,000(d,e) 298,420 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 250,000(d) 276,450 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 750,000(d) 795,495 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 500,000(d) 524,210 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001A 06-15-13 5.00 1,500,000 1,560,825 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001B 09-15-20 5.00 1,000,000 1,036,440 State of Ohio Unlimited General Obligation Bonds Common Schools Series 2003C 03-15-10 5.00 1,000,000 1,037,770
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) State of Ohio Unlimited General Obligation Bonds Conservation Projects Series 2005A 03-01-20 5.00% $ 500,000 $ 517,985 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2003A 05-01-11 5.00 1,000,000 1,046,060 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2005B 05-01-23 5.00 500,000 517,265 State of Ohio Unlimited General Obligation Bonds Highway Capital Improvements Series 2002G 05-01-12 5.25 750,000 799,005 State of Ohio Unlimited General Obligation Bonds Infrastructure Improvement Series 2005A 09-01-21 5.00 500,000 519,180 Summit County Limited General Obligation Bonds Series 2003 12-01-18 5.25 1,490,000 1,590,545 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 1,048,460 University of Akron Revenue Bonds Series 2003A (AMBAC) 01-01-22 5.00 1,000,000 1,027,850 University of Cincinnati Revenue Bonds Series 2001A (FGIC) 06-01-14 5.50 1,000,000 1,065,180
See accompanying notes to investments in securities. - -------------------------------------------------------------------------------- 64 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund
- ------------------------------------------------------------------------- MUNICIPAL BONDS (CONTINUED) - ------------------------------------------------------------------------- NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Warren County Limited General Obligation Bonds Series 1992 12-01-12 6.10% $ 500,000 $ 530,720 - ------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $48,152,790) $ 47,904,277 - -------------------------------------------------------------------------
- ------------------------------------------------------------------------- MUNICIPAL NOTES (1.4%) - ------------------------------------------------------------------------- ISSUE(c,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY Ohio State Water Development Authority Refunding Revenue Bonds FirstEnergy Generation V.R.D.N. Series 2006A (Barclays Bank) 05-15-19 4.04% $ 700,000 $ 700,000 - ------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $700,000) $ 700,000 - ------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $48,852,790)(g) $ 48,604,277 =========================================================================
- ------------------------------------------------------------------------- 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 June 30, 2006, the value of securities subject to alternative minimum tax represented 3.0% 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 (d) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 6.0% of net assets at June 30, 2006. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 65 - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund - -------------------------------------------------------------------------------- NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) - -------------------------------------------------------------------------------- (e) 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 June 30, 2006. At June 30, 2006, the value of inverse floaters represented 0.6% of net assets. (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 June 30, 2006. (g) At June 30, 2006, the cost of securities for federal income tax purposes was $48,852,790 and the aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 413,793 Unrealized depreciation (662,306) -------------------------------------------------------------------------- Net unrealized depreciation $ (248,513) --------------------------------------------------------------------------
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. - -------------------------------------------------------------------------------- 66 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES RiverSource State Tax-Exempt Funds
CALIFORNIA MASSACHUSETTS MICHIGAN TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT JUNE 30, 2006 FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------------------------------- Investments in securities, at value (Note 1) (identified cost $177,526,569, $58,887,449 and $48,972,826) $ 181,126,019 $ 59,097,518 $ 49,265,640 Cash in bank on demand deposit 51,339 -- 88,209 Capital shares receivable 2,000 500 -- Accrued interest receivable 2,393,987 1,021,044 662,770 Receivable for investment securities sold 300,608 -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total assets 183,873,953 60,119,062 50,016,619 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------------------------------------------------------- Disbursements in excess of cash on demand deposit -- 4,738 -- Dividends payable to shareholders 77,677 22,471 20,219 Capital shares payable 297,459 800 -- Accrued investment management services fee 2,059 673 560 Accrued distribution fee 81,828 27,103 22,398 Accrued transfer agency fee 221 120 87 Accrued administrative services fee 352 115 96 Other accrued expenses 47,989 35,215 40,933 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities 507,585 91,235 84,293 - ------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $ 183,366,368 $ 60,027,827 $ 49,932,326 =============================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------- REPRESENTED BY - ------------------------------------------------------------------------------------------------------------------------------- Shares of beneficial interest -- $.01 par value (Note 1) $ 362,090 $ 115,086 $ 96,886 Additional paid-in capital 179,753,910 59,866,846 49,598,429 Undistributed net investment income 29,431 2,332 -- Accumulated net realized gain (loss) (Note 6) (378,513) (166,506) (55,803) Unrealized appreciation (depreciation) on investments 3,599,450 210,069 292,814 - ------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $ 183,366,368 $ 60,027,827 $ 49,932,326 =============================================================================================================================== Net assets applicable to outstanding shares: Class A $ 170,581,612 $ 47,709,676 $ 45,147,756 Class B $ 10,638,143 $ 11,501,053 $ 3,297,235 Class C $ 2,146,613 $ 817,098 $ 1,487,335 Outstanding shares of beneficial interest: Class A shares 33,683,750 9,147,002 8,760,496 Class B shares 2,101,900 2,204,884 639,567 Class C shares 423,362 156,742 288,563 Net asset value per share: Class A $ 5.06 $ 5.22 $ 5.15 Class B $ 5.06 $ 5.22 $ 5.16 Class C $ 5.07 $ 5.21 $ 5.15 - -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 67 - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES RiverSource State Tax-Exempt Funds
MINNESOTA NEW YORK OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT JUNE 30, 2006 FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------------------------------- Investments in securities, at value (Note 1) (identified cost $332,366,191, $69,585,507 and $48,852,790) $ 336,836,025 $ 70,425,225 $ 48,604,277 Cash in bank on demand deposit 71,233 25,932 81,959 Capital shares receivable 69,135 4,195 4,554 Accrued interest receivable 5,271,989 1,004,748 502,100 Receivable for investment securities sold 3,935,903 -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total assets 346,184,285 71,460,100 49,192,890 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------------------------------------------------------- Dividends payable to shareholders 133,937 29,214 19,270 Capital shares payable 52,056 -- -- Accrued investment management services fee 3,812 800 551 Accrued distribution fee 155,512 32,090 22,367 Accrued transfer agency fee 537 128 94 Accrued administrative services fee 662 137 94 Other accrued expenses 63,548 36,835 32,846 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities 410,064 99,204 75,222 - ------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to outstanding shares $ 345,774,221 $ 71,360,896 $ 49,117,668 =============================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------- REPRESENTED BY - ------------------------------------------------------------------------------------------------------------------------------- Shares of beneficial interest -- $.01 par value (Note 1) $ 668,483 $ 144,203 $ 95,298 Additional paid-in capital 342,430,401 70,377,792 49,316,286 Undistributed net investment income 409,732 11,167 -- Accumulated net realized gain (loss) (Note 6) (2,204,229) (11,984) (45,403) Unrealized appreciation (depreciation) on investments 4,469,834 839,718 (248,513) - ------------------------------------------------------------------------------------------------------------------------------- Total -- representing net assets applicable to outstanding shares $ 345,774,221 $ 71,360,896 $ 49,117,668 =============================================================================================================================== Net assets applicable to outstanding shares: Class A $ 303,210,542 $ 62,510,924 $ 42,254,434 Class B $ 34,360,562 $ 7,701,508 $ 5,314,345 Class C $ 8,203,117 $ 1,148,464 $ 1,548,889 Outstanding shares of beneficial interest: Class A shares 58,620,649 12,631,934 8,198,217 Class B shares 6,641,881 1,556,322 1,031,110 Class C shares 1,585,812 232,088 300,431 Net asset value per share: Class A $ 5.17 $ 4.95 $ 5.15 Class B $ 5.17 $ 4.95 $ 5.15 Class C $ 5.17 $ 4.95 $ 5.16 - -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 68 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS RiverSource State Tax-Exempt Funds
CALIFORNIA MASSACHUSETTS MICHIGAN TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT YEAR ENDED JUNE 30, 2006 FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME - ------------------------------------------------------------------------------------------------------------------------------- Income: Interest $ 8,784,573 $ 2,832,945 $ 2,329,003 - ------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 880,490 306,031 251,431 Distribution fee Class A 450,844 131,376 124,222 Class B 124,630 140,903 42,252 Class C 25,844 11,424 18,031 Transfer agency fee 77,619 43,524 31,242 Incremental transfer agency fee Class A 6,749 3,276 2,561 Class B 1,226 1,470 544 Class C 416 194 297 Administrative services fees and expenses 126,617 42,344 34,522 Compensation of board members 8,844 8,844 8,844 Custodian fees 18,695 10,119 9,125 Printing and postage 32,850 9,903 9,300 Registration fees 42,705 37,070 39,100 Audit fees 21,000 19,500 19,500 Other 12,375 4,775 2,572 - ------------------------------------------------------------------------------------------------------------------------------- Total expenses 1,830,904 770,753 593,543 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (129,935) (102,889) (94,095) - ------------------------------------------------------------------------------------------------------------------------------- 1,700,969 667,864 499,448 Earnings and bank fee credits on cash balances (Note 2) (17,465) (8,320) (6,650) - ------------------------------------------------------------------------------------------------------------------------------- Total net expenses 1,683,504 659,544 492,798 - ------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 7,101,069 2,173,401 1,836,205 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET - ------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on: Security transactions (Note 3) 123,549 60,245 236,365 Futures contracts 56,742 20,026 16,689 Reimbursement from affiliate (Note 2) 16,837 5,873 5,451 - ------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 197,128 86,144 258,505 Net change in unrealized appreciation (depreciation) on investments (5,679,188) (2,607,074) (1,886,447) - ------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments (5,482,060) (2,520,930) (1,627,942) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 1,619,009 $ (347,529) $ 208,263 ===============================================================================================================================
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 69 - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS RiverSource State Tax-Exempt Funds
MINNESOTA NEW YORK OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT YEAR ENDED JUNE 30, 2006 FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME - ------------------------------------------------------------------------------------------------------------------------------- Income: Interest $ 16,187,482 $ 3,559,507 $ 2,284,047 - ------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 1,661,816 352,633 250,961 Distribution fee Class A 815,467 169,873 117,636 Class B 408,052 89,633 68,128 Class C 85,832 12,639 17,305 Transfer agency fee 188,098 46,110 33,678 Incremental transfer agency fee Class A 15,682 3,782 2,670 Class B 3,955 1,049 763 Class C 1,191 230 322 Administrative services fees and expenses 243,244 49,410 34,377 Compensation of board members 10,211 8,844 8,844 Custodian fees 27,720 11,296 9,950 Printing and postage 81,555 13,990 9,125 Registration fees 39,527 39,500 38,850 Audit fees 22,500 20,000 19,500 Other 10,258 6,580 2,996 - ------------------------------------------------------------------------------------------------------------------------------- Total expenses 3,615,108 825,569 615,105 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (205,028) (111,449) (97,315) - ------------------------------------------------------------------------------------------------------------------------------- 3,410,080 714,120 517,790 Earnings and bank fee credits on cash balances (Note 2) (50,995) (8,318) (6,726) - ------------------------------------------------------------------------------------------------------------------------------- Total net expenses 3,359,085 705,802 511,064 - ------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) -- net 12,828,397 2,853,705 1,772,983 - ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -- NET - ------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on: Security transactions (Note 3) (2,248,309) 499,717 31,271 Futures contracts 106,808 20,027 16,689 Reimbursement from affiliate (Note 2) 27,504 8,239 5,251 - ------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (2,113,997) 527,983 53,211 Net change in unrealized appreciation (depreciation) on investments (10,149,663) (3,334,496) (2,047,369) - ------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments (12,263,660) (2,806,513) (1,994,158) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 564,737 $ 47,192 $ (221,175) ===============================================================================================================================
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 70 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS RiverSource State Tax-Exempt Funds
CALIFORNIA TAX-EXEMPT FUND MASSACHUSETTS TAX-EXEMPT FUND YEAR ENDED JUNE 30, 2006 2005 2006 2005 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS AND DISTRIBUTIONS - ------------------------------------------------------------------------------------------------------------------------------------ Investment income (loss) -- net $ 7,101,069 $ 7,820,739 $ 2,173,401 $ 2,366,050 Net realized gain (loss) on investments 197,128 2,843,277 86,144 522,273 Net change in unrealized appreciation (depreciation) on investments (5,679,188) 6,675,883 (2,607,074) 2,650,326 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 1,619,009 17,339,899 (347,529) 5,538,649 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income Class A (6,678,350) (7,236,425) (1,851,979) (1,880,881) Class B (365,234) (544,611) (387,693) (449,620) Class C (75,848) (100,096) (31,553) (35,315) Net realized gain Class A (2,060,962) (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 (9,349,565) (10,821,954) (2,609,231) (2,720,859) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS (NOTE 4) - ------------------------------------------------------------------------------------------------------------------------------------ Proceeds from sales Class A shares (Note 2) 20,891,751 18,129,921 6,460,310 5,250,331 Class B shares 1,055,877 964,281 849,949 643,022 Class C shares 491,178 755,510 151,990 265,254 Reinvestment of distributions at net asset value Class A shares 6,405,081 7,334,232 1,715,619 1,789,144 Class B shares 436,470 670,599 357,931 419,010 Class C shares 97,101 132,696 34,168 38,737 Payments for redemptions Class A shares (39,268,742) (35,789,588) (14,249,579) (12,453,873) Class B shares (Note 2) (6,518,006) (7,417,183) (6,616,572) (4,843,199) Class C shares (Note 2) (1,394,220) (1,664,249) (687,929) (600,562) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from share transactions (17,803,510) (16,883,781) (11,984,113) (9,492,136) - ------------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets (25,534,066) (10,365,836) (14,940,873) (6,674,346) Net assets at beginning of year 208,900,434 219,266,270 74,968,700 81,643,046 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $ 183,366,368 $ 208,900,434 $ 60,027,827 $ 74,968,700 ==================================================================================================================================== Undistributed net investment income $ 29,431 $ 30,957 $ 2,332 $ 94,283 - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 71 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS RiverSource State Tax-Exempt Funds
MICHIGAN TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND YEAR ENDED JUNE 30, 2006 2005 2006 2005 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS AND DISTRIBUTIONS - ------------------------------------------------------------------------------------------------------------------------------------ Investment income (loss) -- net $ 1,836,205 $ 2,102,624 $ 12,828,397 $ 13,459,781 Net realized gain (loss) on investments 258,505 545,582 (2,113,997) 1,307,808 Net change in unrealized appreciation (depreciation) on investments (1,886,447) 1,522,358 (10,149,663) 11,874,424 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 208,263 4,170,564 564,737 26,642,013 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income Class A (1,683,666) (1,891,829) (11,469,702) (11,812,371) Class B (110,672) (159,945) (1,122,358) (1,350,479) Class C (47,318) (50,776) (236,496) (240,632) Net realized gain Class A (405,309) (261,330) (630,199) (1,142,029) Class B (33,837) (28,921) (79,986) (166,188) Class C (15,842) (9,068) (16,239) (29,796) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (2,296,644) (2,401,869) (13,554,980) (14,741,495) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS (NOTE 4) - ------------------------------------------------------------------------------------------------------------------------------------ Proceeds from sales Class A shares (Note 2) 5,292,299 5,810,522 28,475,102 40,052,864 Class B shares 131,671 294,638 1,638,107 2,238,758 Class C shares 524,009 335,521 1,632,443 2,013,530 Reinvestment of distributions at net asset value Class A shares 1,671,150 1,756,355 9,873,223 10,737,021 Class B shares 101,482 131,427 1,007,721 1,294,698 Class C shares 55,784 53,472 221,889 234,993 Payments for redemptions Class A shares (13,226,236) (11,580,469) (65,255,595) (66,760,048) Class B shares (Note 2) (2,254,715) (2,230,452) (15,531,202) (15,765,912) Class C shares (Note 2) (866,833) (559,800) (2,355,251) (2,730,362) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from share transactions (8,571,389) (5,988,786) (40,293,563) (28,684,458) - ------------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets (10,659,770) (4,220,091) (53,283,806) (16,783,940) Net assets at beginning of year 60,592,096 64,812,187 399,058,027 415,841,967 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $ 49,932,326 $ 60,592,096 $ 345,774,221 $ 399,058,027 ==================================================================================================================================== Undistributed net investment income $ -- $ -- $ 409,732 $ 382,387 - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 72 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS RiverSource State Tax-Exempt Funds
NEW YORK TAX-EXEMPT FUND OHIO TAX-EXEMPT FUND YEAR ENDED JUNE 30, 2006 2005 2006 2005 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS AND DISTRIBUTIONS - ------------------------------------------------------------------------------------------------------------------------------------ Investment income (loss) -- net $ 2,853,705 $ 3,103,932 $ 1,772,983 $ 1,931,489 Net realized gain (loss) on investments 527,983 571,057 53,211 618,488 Net change in unrealized appreciation (depreciation) on investments (3,334,496) 2,623,197 (2,047,369) 1,820,601 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 47,192 6,298,186 (221,175) 4,370,578 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income Class A (2,553,156) (2,732,716) (1,594,779) (1,682,964) Class B (268,752) (325,543) (178,210) (196,329) Class C (38,050) (43,807) (45,451) (49,329) Net realized gain Class A (665,061) (958,527) -- -- Class B (87,026) (144,685) -- -- Class C (12,789) (18,926) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (3,624,834) (4,224,204) (1,818,440) (1,928,622) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS (NOTE 4) - ------------------------------------------------------------------------------------------------------------------------------------ Proceeds from sales Class A shares (Note 2) 7,210,267 6,562,422 4,686,479 3,342,352 Class B shares 625,727 609,622 184,460 444,801 Class C shares 237,394 300,146 111,991 251,354 Reinvestment of distributions at net asset value Class A shares 2,653,759 3,143,127 1,201,933 1,306,745 Class B shares 287,925 374,395 140,854 152,859 Class C shares 48,248 61,961 41,682 47,057 Payments for redemptions Class A shares (16,835,510) (17,872,425) (12,949,939) (12,063,570) Class B shares (Note 2) (3,708,928) (5,445,727) (2,915,146) (2,673,642) Class C shares (Note 2) (452,020) (999,298) (454,252) (755,439) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from share transactions (9,933,138) (13,265,777) (9,951,938) (9,947,483) - ------------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets (13,510,780) (11,191,795) (11,991,553) (7,505,527) Net assets at beginning of year 84,871,676 96,063,471 61,109,221 68,614,748 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $ 71,360,896 $ 84,871,676 $ 49,117,668 $ 61,109,221 ==================================================================================================================================== Undistributed net investment income $ 11,167 $ 9,181 $ -- $ 40,206 - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 73 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS RiverSource State Tax-Exempt Funds 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource California Tax-Exempt Trust (formerly AXP California Tax-Exempt Trust) and RiverSource Special Tax-Exempt Series Trust (formerly AXP Special Tax-Exempt Series Trust) were organized as Massachusetts business trusts. RiverSource California Tax-Exempt Trust includes only RiverSource California Tax-Exempt Fund. RiverSource Special Tax-Exempt Series Trust is a "series fund" that is currently composed of individual state tax-exempt funds, including RiverSource 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. o Class A shares are sold with a front-end sales charge. o 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. o 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. - -------------------------------------------------------------------------------- 74 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL 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. SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS Delivery and payment for securities that have been purchased by the Funds on a forward-commitment basis, including when-issued securities and other forward-commitments, can take place one month or more after the transaction date. During this period, such securities are subject to market fluctuations, and they may affect each Fund's net assets the same as owned securities. The Funds designate cash or liquid securities at least equal to the amount of its forward-commitments. At June 30, 2006, the Funds had no outstanding forward-commitments. 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. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 75 - -------------------------------------------------------------------------------- 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. 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 year ended June 30, 2006. 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. - -------------------------------------------------------------------------------- 76 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- 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. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, undistributed net investment income and accumulated net realized gain (loss) have been increased (decreased), resulting in net reclassification adjustments to additional paid-in capital by the following:
CALIFORNIA MASSACHUSETTS MICHIGAN MINNESOTA NEW YORK OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FUND FUND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------ Undistributed net investment income $ 16,837 $ 5,873 $ 5,451 $ 27,504 $ 8,239 $ 5,251 Accumulated net realized gain (loss) (16,837) (5,873) (5,451) (27,271) (8,239) (5,251) - ------------------------------------------------------------------------------------------------------------ Additional paid-in capital reduction (increase) $ -- $ -- $ -- $ 233 $ -- $ -- - ------------------------------------------------------------------------------------------------------------
The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED JUNE 30, 2006 2005 - ----------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) ................... $ 6,798,475 $ 7,236,561 Long-term capital gain .................................................... 1,940,837 2,650,174 CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) ................... 373,460 544,611 Long-term capital gain .................................................... 132,909 248,451 CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(a) ................... 77,483 99,960 Long-term capital gain .................................................... 26,401 42,197
(a) Tax-exempt distributions were 98% and 98.70% for the years ended 2006 and 2005, respectively. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 77 - --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 2005 - ----------------------------------------------------------------------------------------------------------------- MASSACHUSETTS TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) ................... $ 1,869,690 $ 1,880,881 Long-term capital gain .................................................... 243,200 266,380 CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) ................... 392,511 449,620 Long-term capital gain .................................................... 66,162 82,558 CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(b) ................... 31,968 35,315 Long-term capital gain .................................................... 5,700 6,105
(b) Tax-exempt distributions were 98.78% and 97.10% for the years ended 2006 and 2005, respectively. MICHIGAN TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) ................... $ 1,723,762 $ 1,950,028 Long-term capital gain .................................................... 365,213 203,131 CLASS B Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) ................... 114,019 166,262 Long-term capital gain .................................................... 30,490 22,604 CLASS C Distributions paid from: Ordinary income -- tax-exempt interest distributions(c) ................... 48,885 52,795 Long-term capital gain .................................................... 14,275 7,049
(c) Tax-exempt distributions were 97.36% and 95.09% for the years ended 2006 and 2005, respectively. MINNESOTA TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt distributions(d) ............................ $ 11,469,904 $ 11,812,371 Long-term capital gain .................................................... 629,997 1,142,029 CLASS B Distributions paid from: Ordinary income -- tax-exempt distributions(d) ............................ 1,122,384 1,350,479 Long-term capital gain .................................................... 79,960 166,188 CLASS C Distributions paid from: Ordinary income -- tax-exempt distributions(d) ............................ 236,501 240,632 Long-term capital gain .................................................... 16,234 29,796
(d) Tax-exempt distributions were 98.25% and 100% for the years ended 2006 and 2005, respectively. - -------------------------------------------------------------------------------- 78 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 2005 - ----------------------------------------------------------------------------------------------------------------- NEW YORK TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt distributions(e) ............................ $ 2,592,222 $ 2,774,686 Long-term capital gain .................................................... 625,995 916,557 CLASS B Distributions paid from: Ordinary income -- tax-exempt distributions(e) ............................ 273,864 331,878 Long-term capital gain .................................................... 81,914 138,350 CLASS C Distributions paid from: Ordinary income -- tax-exempt distributions(e) ............................ 38,801 44,636 Long-term capital gain .................................................... 12,038 18,097
(e) Tax-exempt distributions were 98.21% and 97.38% for the years ended 2006 and 2005, respectively. OHIO TAX-EXEMPT FUND CLASS A Distributions paid from: Ordinary income -- tax-exempt distributions(f) ............................ $ 1,594,779 $ 1,682,964 Long-term capital gain .................................................... -- -- CLASS B Distributions paid from: Ordinary income -- tax-exempt distributions(f) ............................ 178,210 196,329 Long-term capital gain .................................................... -- -- CLASS C Distributions paid from: Ordinary income -- tax-exempt distributions(f) ............................ 45,451 49,329 Long-term capital gain .................................................... -- --
(f) Tax-exempt distributions were 99.73% and 98.41% for the years ended 2006 and 2005, respectively. At June 30, 2006, the components of distributable earnings on a tax basis for each Fund are as follows:
ACCUMULATED UNREALIZED UNDISTRIBUTED LONG-TERM APPRECIATION FUND TAX-EXEMPT INCOME GAIN (LOSS) (DEPRECIATION) - ------------------------------------------------------------------------------------- California Tax-Exempt Fund $ 97,416 $ 1,944 $3,228,685 Massachusetts Tax-Exempt Fund 23,765 20 44,581 Michigan Tax-Exempt Fund 20,722 512 235,996 Minnesota Tax-Exempt Fund 338,673 (2,155,906) 4,626,507 New York Tax-Exempt Fund 46,278 61,501 760,336 Ohio Tax-Exempt Fund 19,271 (39,505) (254,412)
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 79 - -------------------------------------------------------------------------------- DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of each Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. 2. EXPENSES AND SALES CHARGES Under an Investment Management Services Agreement, RiverSource Investments, LLC (the Investment Manager) determines which securities will be purchased, held or sold. 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 0.41% to 0.25% annually as each Fund's assets increase. Prior March 1, 2006, the fee percentage of each Fund's average daily net assets declined from 0.47% to 0.38% annually as each Fund's assets increased. 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: o Class A $20.50 o Class B $21.50 o Class C $21.00 - -------------------------------------------------------------------------------- 80 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- 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. For the year ended June 30, 2006, the Investment Manager and its affiliates waived certain fees and expenses as follows:
FUND CLASS A CLASS B CLASS C - -------------------------------------------------------------------------------- California Tax-Exempt Fund 0.81% 1.57% 1.58% Massachusetts Tax-Exempt Fund 0.81 1.58 1.58 Michigan Tax-Exempt Fund 0.81 1.58 1.57 Minnesota Tax-Exempt Fund 0.81 1.57 1.57 New York Tax-Exempt Fund 0.81 1.58 1.58 Ohio Tax-Exempt Fund 0.81 1.58 1.58
Of these waived fees and expenses, the transfer agency fees waived are as follows:
FUND AMOUNT - ---------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-EXEMPT FUND Class A $ 58,036 Class B 3,499 Class C 850 The management fees waived at the Fund level were $67,550. MASSACHUSETTS TAX-EXEMPT FUND Class A 34,233 Class B 8,270 Class C 748 The management fees waived at the Fund level were $59,638. MICHIGAN TAX-EXEMPT FUND Class A 27,785 Class B 2,229 Class C 1,034 The management fees waived at the Fund level were $63,047. MINNESOTA TAX-EXEMPT FUND Class A 132,553 Class B 14,644 Class C 3,422 The management fees waived at the Fund level were $54,409.
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 81 - --------------------------------------------------------------------------------
FUND AMOUNT - ------------------------------------------------------------------------------------------------------------------------- NEW YORK TAX-EXEMPT FUND Class A $ 40,263 Class B 4,927 Class C 780 The management fees waived at the Fund level were $65,479. OHIO TAX-EXEMPT FUND Class A 28,633 Class B 3,812 Class C 1,103 The management fees waived at the Fund level were $63,767.
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. Effective as of Oct. 1, 2005, the Investment Manager and its affiliates have agreed to waive certain fees and expenses until June 30, 2007, unless sooner terminated at the discretion of the Board, 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 year ended June 30, 2006, are as follows:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Fund $ 151,906 $ 29,100 $ 449 Massachusetts Tax-Exempt Fund 53,101 38,137 582 Michigan Tax-Exempt Fund 38,134 9,161 1,077 Minnesota Tax-Exempt Fund 355,581 85,770 1,314 New York Tax-Exempt Fund 64,053 18,982 987 Ohio Tax-Exempt Fund 38,443 19,731 254
During the year ended June 30, 2006, the Funds' custodian and transfer agency fees were reduced as a result of earnings and bank fee credits from overnight cash balances as follows:
FUND REDUCTION - ------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Fund $ 17,465 Massachusetts Tax-Exempt Fund 8,320 Michigan Tax-Exempt Fund 6,650 Minnesota Tax-Exempt Fund 50,995 New York Tax-Exempt Fund 8,318 Ohio Tax-Exempt Fund 6,726
- -------------------------------------------------------------------------------- 82 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- In addition, the Funds received a one time reimbursement by Ameriprise Financial for additional earnings from overnight cash balances determined to be owed for prior years. This amount was insignificant to each Fund's net asset value and total return.
FUND AMOUNT - ------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Fund $ 16,837 Massachusetts Tax-Exempt Fund 5,873 Michigan Tax-Exempt Fund 5,451 Minnesota Tax-Exempt Fund 27,504 New York Tax-Exempt Fund 8,239 Ohio Tax-Exempt Fund 5,251
3. SECURITIES TRANSACTIONS For the year ended June 30, 2006, 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 $ 37,444,049 $ 56,682,384 Massachusetts Tax-Exempt Fund 11,061,113 20,483,447 Michigan Tax-Exempt Fund 8,425,631 16,731,081 Minnesota Tax-Exempt Fund 46,848,044 94,852,979 New York Tax-Exempt Fund 12,725,196 24,426,424 Ohio Tax-Exempt Fund 9,865,820 20,218,584
Realized gains and losses are determined on an identified cost basis. 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the years indicated are as follows:
CALIFORNIA TAX-EXEMPT FUND YEAR ENDED JUNE 30, 2006 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------- Sold 4,036,004 204,267 95,008 Issued for reinvested distributions 1,243,495 84,748 18,813 Redeemed (7,590,967) (1,255,215) (269,704) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) (2,311,468) (966,200) (155,883) - -------------------------------------------------------------------------------------------------------------------------
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) - -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 83 - --------------------------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND YEAR ENDED JUNE 30, 2006 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------- Sold 1,209,044 159,477 28,692 Issued for reinvested distributions 322,790 67,314 6,428 Redeemed (2,681,419) (1,239,200) (129,837) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) (1,149,585) (1,012,409) (94,717) - -------------------------------------------------------------------------------------------------------------------------
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 YEAR ENDED JUNE 30, 2006 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------- Sold 1,007,240 25,135 99,433 Issued for reinvested distributions 318,908 19,353 10,644 Redeemed (2,520,700) (427,991) (165,508) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) (1,194,552) (383,503) (55,431) - -------------------------------------------------------------------------------------------------------------------------
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) - -------------------------------------------------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND YEAR ENDED JUNE 30, 2006 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------- Sold 5,404,198 310,952 309,585 Issued for reinvested distributions 1,880,076 191,786 42,259 Redeemed (12,427,629) (2,948,175) (447,815) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) (5,143,355) (2,445,437) (95,971) - -------------------------------------------------------------------------------------------------------------------------
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) - -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 84 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - --------------------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND YEAR ENDED JUNE 30, 2006 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------- Sold 1,420,333 123,189 46,590 Issued for reinvested distributions 525,877 57,046 9,561 Redeemed (3,327,671) (729,908) (89,076) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) (1,381,461) (549,673) (32,925) - -------------------------------------------------------------------------------------------------------------------------
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 YEAR ENDED JUNE 30, 2006 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------- Sold 892,271 35,150 21,350 Issued for reinvested distributions 229,263 26,859 7,950 Redeemed (2,470,653) (554,877) (86,600) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) (1,349,119) (492,868) (57,300) - -------------------------------------------------------------------------------------------------------------------------
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) - -------------------------------------------------------------------------------------------------------------------------
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 each 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 year ended June 30, 2006. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 85 - -------------------------------------------------------------------------------- 6. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs at June 30, 2006 are as follows:
FUND 2013 2014 2015 - ------------------------------------------------------------------------------------------------------------------------- California Tax-Exempt Fund $ -- $ -- $ 210,187 - ------------------------------------------------------------------------------------------------------------------------- Massachusetts Tax-Exempt Fund -- -- 88,281 - ------------------------------------------------------------------------------------------------------------------------- Michigan Tax-Exempt Fund -- -- 20,334 - ------------------------------------------------------------------------------------------------------------------------- Minnesota Tax-Exempt Fund -- 1,520,753 635,153 - ------------------------------------------------------------------------------------------------------------------------- Ohio Tax-Exempt Fund 39,505 -- -- - -------------------------------------------------------------------------------------------------------------------------
It is unlikely the Board will authorize distributions of any net realized capital gains for the Funds until the respective capital loss carry-overs have been offset or expire. 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. 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. - -------------------------------------------------------------------------------- 86 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. 8. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating each Fund's results. RiverSource California Tax-Exempt Fund
CLASS A - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.27 $ 5.11 $ 5.37 $ 5.23 $ 5.18 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19 .20 .21 .23 .24 Net gains (losses) (both realized and unrealized) (.15) .23 (.20) .14 .05 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .04 .43 .01 .37 .29 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.20) (.21) (.23) (.24) Distributions from realized gains (.06) (.07) (.06) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.25) (.27) (.27) (.23) (.24) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.06 $ 5.27 $ 5.11 $ 5.37 $ 5.23 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 171 $ 190 $ 194 $ 237 $ 234 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .81%(c) .86% .86% .85% .84% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.69% 3.71% 4.03% 4.34% 4.56% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 20% 28% 30% 95% 16% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(d) .81% 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 and bank fee 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 year ended June 30, 2006. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 87 - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
CLASS B - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.27 $ 5.11 $ 5.37 $ 5.23 $ 5.17 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15 .16 .17 .19 .20 Net gains (losses) (both realized and unrealized) (.15) .23 (.20) .14 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations -- .39 (.03) .33 .26 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.16) (.17) (.19) (.20) Distributions from realized gains (.06) (.07) (.06) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.21) (.23) (.23) (.19) (.20) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.06 $ 5.27 $ 5.11 $ 5.37 $ 5.23 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 11 $ 16 $ 21 $ 27 $ 27 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.57%(c) 1.61% 1.61% 1.60% 1.59% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.92% 2.95% 3.28% 3.58% 3.81% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 20% 28% 30% 95% 16% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(d) .05% 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 and bank fee 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 year ended June 30, 2006. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 88 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
CLASS C - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.28 $ 5.12 $ 5.38 $ 5.24 $ 5.18 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15 .16 .17 .19 .20 Net gains (losses) (both realized and unrealized) (.15) .23 (.20) .14 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations -- .39 (.03) .33 .26 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.16) (.17) (.19) (.20) Distributions from realized gains (.06) (.07) (.06) -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.21) (.23) (.23) (.19) (.20) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.07 $ 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) 1.58%(c) 1.62% 1.62% 1.61% 1.60% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.93% 2.94% 3.27% 3.56% 3.86% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 20% 28% 30% 95% 16% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(d) .06% 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 and bank fee 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 year ended June 30, 2006. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 89 - -------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund
CLASS A - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.45 $ 5.26 $ 5.51 $ 5.37 $ 5.28 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18 .17 .18 .19 .22 Net gains (losses) (both realized and unrealized) (.20) .22 (.19) .16 .09 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.02) .39 (.01) .35 .31 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.17) (.18) (.19) (.22) Distributions from realized gains (.03) (.03) (.06) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.21) (.20) (.24) (.21) (.22) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 48 $ 56 $ 59 $ 73 $ 66 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .81%(c) .88%(c) .88%(c) .88%(c) .91% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.38% 3.17% 3.35% 3.57% 4.11% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 17% 9% 14% 141% 53% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(d) (.29%) 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 and bank fee 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%, 0.94%, 0.93% and 0.92% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 90 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund
CLASS B - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.45 $ 5.26 $ 5.51 $ 5.37 $ 5.28 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14 .13 .14 .15 .18 Net gains (losses) (both realized and unrealized) (.20) .22 (.19) .16 .09 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.06) .35 (.05) .31 .27 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.13) (.14) (.15) (.18) Distributions from realized gains (.03) (.03) (.06) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.16) (.20) (.17) (.18) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 12 $ 18 $ 21 $ 24 $ 24 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.64%(c) 1.63%(c) 1.66% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.61% 2.41% 2.59% 2.81% 3.34% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 17% 9% 14% 141% 53% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(d) (1.05%) 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 and bank fee 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%, 1.69%, 1.69% and 1.68% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 91 - -------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund
CLASS C - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.44 $ 5.26 $ 5.51 $ 5.37 $ 5.28 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14 .13 .14 .15 .18 Net gains (losses) (both realized and unrealized) (.20) .21 (.19) .16 .09 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.06) .34 (.05) .31 .27 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.13) (.14) (.15) (.18) Distributions from realized gains (.03) (.03) (.06) (.02) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.17) (.16) (.20) (.17) (.18) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.21 $ 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) 1.58%(c) 1.64%(c) 1.64%(c) 1.64%(c) 1.66% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.62% 2.41% 2.58% 2.88% 3.32% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 17% 9% 14% 141% 53% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(d) (1.05%) 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 and bank fee 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%, 1.70%, 1.69% and 1.68% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 92 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Michigan Tax-Exempt Fund
CLASS A - ---------------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18 .18 .19 .22 .24 Net gains (losses) (both realized and unrealized) (.16) .17 (.18) .19 .06 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .02 .35 .01 .41 .30 - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.18) (.19) (.22) (.24) Distributions from realized gains (.04) (.03) (.08) (.05) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.22) (.21) (.27) (.27) (.24) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 45 $ 53 $ 56 $ 70 $ 70 - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .81%(c) .88%(c) .88%(c) .88%(c) .92% - ---------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.38% 3.45% 3.55% 4.06% 4.57% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 16% 9% 32% 113% 33% - ---------------------------------------------------------------------------------------------------------------------------------- Total return(d) .40% 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 and bank fee 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%, 0.96%, 0.94% and 0.93% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 93 - -------------------------------------------------------------------------------- RiverSource Michigan Tax-Exempt Fund
CLASS B - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14 .14 .15 .18 .20 Net gains (losses) (both realized and unrealized) (.15) .17 (.18) .19 .06 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.01) .31 (.03) .37 .26 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.14) (.15) (.18) (.20) Distributions from realized gains (.04) (.03) (.08) (.05) -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.18) (.17) (.23) (.23) (.20) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 5.16 $ 5.35 $ 5.21 $ 5.47 $ 5.33 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 3 $ 5 $ 7 $ 9 $ 8 - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.63%(c) 1.63%(c) 1.67% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 2.61% 2.69% 2.79% 3.28% 3.82% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 16% 9% 32% 113% 33% - ------------------------------------------------------------------------------------------------------------------------------ Total return(d) (.17)% 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 and bank fee 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%, 1.71%, 1.70% and 1.69% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 94 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Michigan Tax-Exempt Fund
CLASS C - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14 .14 .15 .18 .20 Net gains (losses) (both realized and unrealized) (.16) .17 (.18) .19 .06 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.02) .31 (.03) .37 .26 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.14) (.15) (.18) (.20) Distributions from realized gains (.04) (.03) (.08) (.05) -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.18) (.17) (.23) (.23) (.20) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 1 $ 2 $ 2 $ 2 $ 1 - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) 1.57%(c) 1.64%(c) 1.64%(c) 1.63%(c) 1.66% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 2.61% 2.70% 2.80% 3.27% 3.80% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 16% 9% 32% 113% 33% - ------------------------------------------------------------------------------------------------------------------------------ Total return(d) (.36)% 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 and bank fee 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%, 1.72%, 1.70% and 1.69% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 95 - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
CLASS A - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .18 .18 .19 .22 .25 Net gains (losses) (both realized and unrealized) (.17) .17 (.17) .17 .06 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .01 .35 .02 .39 .31 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.18) (.19) (.22) (.25) Distributions from realized gains (.01) (.02) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.19) (.20) (.19) (.22) (.25) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 303 $ 341 $ 347 $ 393 $ 375 - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) .81%(c) .85% .84% .84% .83% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 3.52% 3.37% 3.60% 4.26% 4.82% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 13% 15% 23% 73% 36% - ------------------------------------------------------------------------------------------------------------------------------ Total return(d) .29% 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 and bank fee 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 0.86% for the year ended June 30, 2006. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 96 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
CLASS B - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14 .14 .15 .18 .21 Net gains (losses) (both realized and unrealized) (.17) .17 (.17) .17 .06 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.03) .31 (.02) .35 .27 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.14) (.15) (.18) (.21) Distributions from realized gains (.01) (.02) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.15) (.16) (.15) (.18) (.21) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 34 $ 49 $ 59 $ 68 $ 64 - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) 1.57%(c) 1.60% 1.59% 1.59% 1.59% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 2.75% 2.62% 2.85% 3.48% 4.02% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 13% 15% 23% 73% 36% - ------------------------------------------------------------------------------------------------------------------------------ Total return(d) (.47%) 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 and bank fee 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 1.62% for the year ended June 30, 2006. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 97 - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
CLASS C - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .14 .14 .15 .18 .21 Net gains (losses) (both realized and unrealized) (.17) .17 (.17) .17 .06 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.03) .31 (.02) .35 .27 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.14) (.15) (.18) (.21) Distributions from realized gains (.01) (.02) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.15) (.16) (.15) (.18) (.21) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 5.17 $ 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) 1.57%(c) 1.61% 1.60% 1.60% 1.59% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 2.76% 2.62% 2.84% 3.44% 4.04% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 13% 15% 23% 73% 36% - ------------------------------------------------------------------------------------------------------------------------------ Total return(d) (.47%) 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 and bank fee 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 1.62% for the year ended June 30, 2006. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 98 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
CLASS A - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE INCOME AND CAPITAL CHANGES(a) - ------------------------------------------------------------------------------------------------------------------------------ Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.12 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .19 .18 .18 .20 .22 Net gains (losses) (both realized and unrealized) (.18) .17 (.18) .22 .04 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .01 .35 -- .42 .26 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.19) (.18) (.18) (.20) (.22) Distributions from realized gains (.05) (.06) (.11) (.02) -- - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.24) (.24) (.29) (.22) (.22) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in millions) $ 63 $ 73 $ 79 $ 97 $ 92 - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets(b) .81%(c) .88%(c) .88%(c) .88%(c) .90% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 3.75% 3.47% 3.44% 3.88% 4.38% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 17% 30% 36% 91% 44% - ------------------------------------------------------------------------------------------------------------------------------ Total return(d) .20% 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 and bank fee 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 0.96%, 0.92%, 0.93% and 0.90% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 99 - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
CLASS B - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.12 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15 .14 .14 .16 .19 Net gains (losses) (both realized and unrealized) (.18) .17 (.18) .22 .04 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.03) .31 (.04) .38 .23 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.14) (.14) (.16) (.19) Distributions from realized gains (.05) (.06) (.11) (.02) -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.20) (.25) (.18) (.19) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 8 $ 11 $ 15 $ 18 $ 18 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.63%(c) 1.63%(c) 1.65% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.98% 2.70% 2.69% 3.13% 3.60% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 17% 30% 36% 91% 44% - ----------------------------------------------------------------------------------------------------------------------------- Total return(d) (.55%) 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 and bank fee 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%, 1.67%, 1.69% and 1.66% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 100 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
CLASS C - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.11 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .15 .14 .14 .16 .19 Net gains (losses) (both realized and unrealized) (.18) .17 (.18) .22 .05 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.03) .31 (.04) .38 .24 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.15) (.14) (.14) (.16) (.19) Distributions from realized gains (.05) (.06) (.11) (.02) -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.20) (.20) (.25) (.18) (.19) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 4.95 $ 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) 1.58%(c) 1.64%(c) 1.63%(c) 1.64%(c) 1.66% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.99% 2.70% 2.68% 3.07% 3.69% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 17% 30% 36% 91% 44% - ----------------------------------------------------------------------------------------------------------------------------- Total return(d) (.55%) 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 and bank fee 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%, 1.68%, 1.69% and 1.66% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 101 - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund
CLASS A - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.16 $ 5.43 $ 5.35 $ 5.27 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .17 .16 .17 .18 .22 Net gains (losses) (both realized and unrealized) (.19) .19 (.20) .19 .08 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.02) .35 (.03) .37 .30 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.18) (.16) (.17) (.18) (.22) Distributions from realized gains -- -- (.07) (.11) -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.18) (.16) (.24) (.29) (.22) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.35 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 42 $ 51 $ 56 $ 67 $ 69 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) .81%(c) .88%(c) .88%(c) .88%(c) .91% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.31% 3.07% 3.13% 3.40% 4.22% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 18% 33% 17% 194% 33% - ----------------------------------------------------------------------------------------------------------------------------- Total return(d) (.41%) 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 and bank fee 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 0.99%, 0.95%, 0.95% and 0.92% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 102 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund
CLASS B - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.16 $ 5.43 $ 5.34 $ 5.27 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .13 .12 .13 .14 .18 Net gains (losses) (both realized and unrealized) (.19) .19 (.20) .20 .07 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.06) .31 (.07) .34 .25 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.12) (.13) (.14) (.18) Distributions from realized gains -- -- (.07) (.11) -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.14) (.12) (.20) (.25) (.18) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.34 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 5 $ 8 $ 10 $ 13 $ 12 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.63%(c) 1.63%(c) 1.66% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.54% 2.31% 2.38% 2.62% 3.46% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 18% 33% 17% 194% 33% - ----------------------------------------------------------------------------------------------------------------------------- Total return(d) (1.17%) 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 and bank fee 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%, 1.70%, 1.71% and 1.68% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 103 - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund
CLASS C - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE INCOME AND CAPITAL CHANGES(a) - ----------------------------------------------------------------------------------------------------------------------------- Fiscal period ended June 30, 2006 2005 2004 2003 2002 Net asset value, beginning of period $ 5.35 $ 5.16 $ 5.43 $ 5.35 $ 5.28 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .13 .12 .13 .14 .18 Net gains (losses) (both realized and unrealized) (.18) .19 (.20) .19 .07 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.05) .31 (.07) .33 .25 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.14) (.12) (.13) (.14) (.18) Distributions from realized gains -- -- (.07) (.11) -- - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.14) (.12) (.20) (.25) (.18) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.16 $ 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) 1.58%(c) 1.64%(c) 1.63%(c) 1.63%(c) 1.66% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.55% 2.31% 2.38% 2.54% 3.45% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 18% 33% 17% 194% 33% - ----------------------------------------------------------------------------------------------------------------------------- Total return(d) (.98%) 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 and bank fee 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%, 1.71%, 1.71% and 1.68% for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (d) Total return does not reflect payment of a sales charge. - -------------------------------------------------------------------------------- 104 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD AND SHAREHOLDERS RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of RiverSource California Tax-Exempt Fund (a fund within RiverSource California Tax-Exempt Trust) and 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 (funds within RiverSource Special Tax-Exempt Series Trust) as of June 30, 2006, the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period ended June 30, 2006, and the financial highlights for each of the years in the five-year period ended June 30, 2006. These financial statements and the financial highlights are the responsibility of fund management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of 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 and RiverSource Ohio Tax-Exempt Fund as of June 30, 2006, and the results of their operations, changes in their net assets and the financial highlights for each of the periods stated in the first paragraph above, in conformity with U.S. generally accepted accounting principles. KPMG LLP Minneapolis, Minnesota August 21, 2006 - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 105 - -------------------------------------------------------------------------------- FEDERAL INCOME TAX INFORMATION (UNAUDITED) Each Fund is required by the Internal Revenue Code of 1986 to tell its shareholders about the tax treatment of the dividends it pays during its fiscal year. The dividends listed below are reported to you on your year-end statement. RiverSource California Tax-Exempt Fund Fiscal year ended June 30, 2006 CLASS A INCOME DISTRIBUTIONS -- 98% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01471 Aug. 29, 2005 ..................................................... 0.01659 Sept. 29, 2005 .................................................... 0.01565 Oct. 27, 2005 ..................................................... 0.01450 Nov. 29, 2005 ..................................................... 0.01733 Dec. 22, 2005 ..................................................... 0.01563 Jan. 26, 2006 ..................................................... 0.01830 Feb. 27, 2006 ..................................................... 0.01679 March 27, 2006 .................................................... 0.01478 April 26, 2006 .................................................... 0.01596 May 25, 2006 ...................................................... 0.01549 June 26, 2006 ..................................................... 0.01766 Total ............................................................. $ 0.19339
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.05671 Total distributions ............................................... $ 0.25010
CLASS B INCOME DISTRIBUTIONS -- 98% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01156 Aug. 29, 2005 ..................................................... 0.01303 Sept. 29, 2005 .................................................... 0.01226 Oct. 27, 2005 ..................................................... 0.01157 Nov. 29, 2005 ..................................................... 0.01378 Dec. 22, 2005 ..................................................... 0.01314 Jan. 26, 2006 ..................................................... 0.01452 Feb. 27, 2006 ..................................................... 0.01336 March 27, 2006 .................................................... 0.01177 April 26, 2006 .................................................... 0.01276 May 25, 2006 ...................................................... 0.01241 June 26, 2006 ..................................................... 0.01425 Total ............................................................. $ 0.15441
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.05671 Total distributions ............................................... $ 0.21112
- -------------------------------------------------------------------------------- 106 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS C INCOME DISTRIBUTIONS -- 98% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01155 Aug. 29, 2005 ..................................................... 0.01311 Sept. 29, 2005 .................................................... 0.01226 Oct. 27, 2005 ..................................................... 0.01159 Nov. 29, 2005 ..................................................... 0.01381 Dec. 22, 2005 ..................................................... 0.01311 Jan. 26, 2006 ..................................................... 0.01458 Feb. 27, 2006 ..................................................... 0.01332 March 27, 2006 .................................................... 0.01179 April 26, 2006 .................................................... 0.01278 May 25, 2006 ...................................................... 0.01244 June 26, 2006 ..................................................... 0.01427 Total ............................................................. $ 0.15461
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.05671 Total distributions ............................................... $ 0.21132
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was 7.43%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 107 - -------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund Fiscal year ended June 30, 2006 CLASS A INCOME DISTRIBUTIONS -- 98.78% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01369 Aug. 29, 2005 ..................................................... 0.01984 Sept. 29, 2005 .................................................... 0.01677 Oct. 27, 2005 ..................................................... 0.01360 Nov. 29, 2005 ..................................................... 0.01644 Dec. 22, 2005 ..................................................... 0.01320 Jan. 26, 2006 ..................................................... 0.01751 Feb. 27, 2006 ..................................................... 0.01593 March 27, 2006 .................................................... 0.01400 April 26, 2006 .................................................... 0.01526 May 25, 2006 ...................................................... 0.01460 June 26, 2006 ..................................................... 0.01691 Total ............................................................. $ 0.18775
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.02458 Total distributions ............................................... $ 0.21233
CLASS B INCOME DISTRIBUTIONs -- 98.78% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01042 Aug. 29, 2005 ..................................................... 0.01620 Sept. 29, 2005 .................................................... 0.01328 Oct. 27, 2005 ..................................................... 0.01060 Nov. 29, 2005 ..................................................... 0.01279 Dec. 22, 2005 ..................................................... 0.01051 Jan. 26, 2006 ..................................................... 0.01362 Feb. 27, 2006 ..................................................... 0.01238 March 27, 2006 .................................................... 0.01091 April 26, 2006 .................................................... 0.01197 May 25, 2006 ...................................................... 0.01142 June 26, 2006 ..................................................... 0.01340 Total ............................................................. $ 0.14750
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.02458 Total distributions ............................................... $ 0.17208
- -------------------------------------------------------------------------------- 108 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS C INCOME DISTRIBUTIONS -- 98.78% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01042 Aug. 29, 2005 ..................................................... 0.01626 Sept. 29, 2005 .................................................... 0.01327 Oct. 27, 2005 ..................................................... 0.01059 Nov. 29, 2005 ..................................................... 0.01280 Dec. 22, 2005 ..................................................... 0.01055 Jan. 26, 2006 ..................................................... 0.01362 Feb. 27, 2006 ..................................................... 0.01239 March 27, 2006 .................................................... 0.01092 April 26, 2006 .................................................... 0.01196 May 25, 2006 ...................................................... 0.01143 June 26, 2006 ..................................................... 0.01340 Total ............................................................. $ 0.14761
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.02458 Total distributions ............................................... $ 0.17219
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was 2.05%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 109 - -------------------------------------------------------------------------------- RiverSource Michigan Tax-Exempt Fund Fiscal year ended June 30, 2006 CLASS A INCOME DISTRIBUTIONS -- 97.36% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01398 Aug. 29, 2005 ..................................................... 0.01562 Sept. 29, 2005 .................................................... 0.01498 Oct. 27, 2005 ..................................................... 0.01356 Nov. 29, 2005 ..................................................... 0.01606 Dec. 22, 2005 ..................................................... 0.01529 Jan. 26, 2006 ..................................................... 0.01702 Feb. 27, 2006 ..................................................... 0.01545 March 27, 2006 .................................................... 0.01364 April 26, 2006 .................................................... 0.01481 May 25, 2006 ...................................................... 0.01413 June 26, 2006 ..................................................... 0.01619 Total ............................................................. $ 0.18073
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.03862 Total distributions ............................................... $ 0.21935
CLASS B INCOME DISTRIBUTIONS -- 97.36% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01077 Aug. 29, 2005 ..................................................... 0.01203 Sept. 29, 2005 .................................................... 0.01155 Oct. 27, 2005 ..................................................... 0.01059 Nov. 29, 2005 ..................................................... 0.01246 Dec. 22, 2005 ..................................................... 0.01278 Jan. 26, 2006 ..................................................... 0.01320 Feb. 27, 2006 ..................................................... 0.01196 March 27, 2006 .................................................... 0.01058 April 26, 2006 .................................................... 0.01156 May 25, 2006 ...................................................... 0.01101 June 26, 2006 ..................................................... 0.01274 Total ............................................................. $ 0.14123
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.03862 Total distributions ............................................... $ 0.17985
- -------------------------------------------------------------------------------- 110 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS C INCOME DISTRIBUTIONS -- 97.36% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01074 Aug. 29, 2005 ..................................................... 0.01208 Sept. 29, 2005 .................................................... 0.01153 Oct. 27, 2005 ..................................................... 0.01060 Nov. 29, 2005 ..................................................... 0.01243 Dec. 22, 2005 ..................................................... 0.01277 Jan. 26, 2006 ..................................................... 0.01319 Feb. 27, 2006 ..................................................... 0.01196 March 27, 2006 .................................................... 0.01058 April 26, 2006 .................................................... 0.01155 May 25, 2006 ...................................................... 0.01101 June 26, 2006 ..................................................... 0.01274 Total ............................................................. $ 0.14118
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 ..................................................... $ 0.03862 Total distributions ............................................... $ 0.17980
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was 0%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 111 - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund Fiscal year ended June 30, 2006 CLASS A INCOME DISTRIBUTIONS -- 98.25% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01432 Aug. 29, 2005 ..................................................... 0.01548 Sept. 29, 2005 .................................................... 0.01600 Oct. 27, 2005 ..................................................... 0.01414 Nov. 29, 2005 ..................................................... 0.01683 Dec. 22, 2005 ..................................................... 0.01156 Jan. 26, 2006 ..................................................... 0.01756 Feb. 27, 2006 ..................................................... 0.01611 March 27, 2006 .................................................... 0.01399 April 26, 2006 .................................................... 0.01528 May 25, 2006 ...................................................... 0.01509 June 26, 2006 ..................................................... 0.01716 Total ............................................................. $ 0.18352
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2006 ..................................................... $ 0.01019 Total distributions ............................................... $ 0.19371
CLASS B INCOME DISTRIBUTIONS -- 98.25% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01112 Aug. 29, 2005 ..................................................... 0.01193 Sept. 29, 2005 .................................................... 0.01259 Oct. 27, 2005 ..................................................... 0.01118 Nov. 29, 2005 ..................................................... 0.01323 Dec. 22, 2005 ..................................................... 0.00905 Jan. 26, 2006 ..................................................... 0.01372 Feb. 27, 2006 ..................................................... 0.01259 March 27, 2006 .................................................... 0.01092 April 26, 2006 .................................................... 0.01202 May 25, 2006 ...................................................... 0.01195 June 26, 2006 ..................................................... 0.01369 Total ............................................................. $ 0.14399
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2006 ..................................................... $ 0.01019 Total distributions ............................................... $ 0.15418
- -------------------------------------------------------------------------------- 112 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS C INCOME DISTRIBUTIONS -- 98.25% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 ..................................................... $ 0.01087 Aug. 29, 2005 ..................................................... 0.01195 Sept. 29, 2005 .................................................... 0.01257 Oct. 27, 2005 ..................................................... 0.01118 Nov. 29, 2005 ..................................................... 0.01323 Dec. 22, 2005 ..................................................... 0.00905 Jan. 26, 2006 ..................................................... 0.01372 Feb. 27, 2006 ..................................................... 0.01260 March 27, 2006 .................................................... 0.01092 April 26, 2006 .................................................... 0.01202 May 25, 2006 ...................................................... 0.01195 June 26, 2006 ..................................................... 0.01369 Total ............................................................. $ 0.14375
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2006 ..................................................... $ 0.01019 Total distributions ............................................... $ 0.15394
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was 6.14%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 113 - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund Fiscal year ended June 30, 2006 CLASS A INCOME DISTRIBUTIONS -- 98.21% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 .................................................... $ 0.01506 Aug. 29, 2005 .................................................... 0.01647 Sept. 29, 2005 ................................................... 0.01579 Oct. 27, 2005 .................................................... 0.01451 Nov. 29, 2005 .................................................... 0.01727 Dec. 22, 2005 .................................................... 0.01525 Jan. 26, 2006 .................................................... 0.01827 Feb. 27, 2006 .................................................... 0.01658 March 27, 2006 ................................................... 0.01462 April 26, 2006 ................................................... 0.01572 May 25, 2006 ..................................................... 0.01487 June 26, 2006 .................................................... 0.01729 Total ............................................................ $ 0.19170
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 .................................................... $ 0.04663 Total distributions .............................................. $ 0.23833
CLASS B INCOME DISTRIBUTIONS -- 98.21% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 .................................................... $ 0.01195 Aug. 29, 2005 .................................................... 0.01334 Sept. 29, 2005 ................................................... 0.01238 Oct. 27, 2005 .................................................... 0.01154 Nov. 29, 2005 .................................................... 0.01394 Dec. 22, 2005 .................................................... 0.01282 Jan. 26, 2006 .................................................... 0.01459 Feb. 27, 2006 .................................................... 0.01321 March 27, 2006 ................................................... 0.01168 April 26, 2006 ................................................... 0.01259 May 25, 2006 ..................................................... 0.01187 June 26, 2006 .................................................... 0.01397 Total ............................................................ $ 0.15388
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 .................................................... $ 0.04663 Total distributions .............................................. $ 0.20051
- -------------------------------------------------------------------------------- 114 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS C INCOME DISTRIBUTIONS -- 98.21% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 .................................................... $ 0.01195 Aug. 29, 2005 .................................................... 0.01348 Sept. 29, 2005 ................................................... 0.01248 Oct. 27, 2005 .................................................... 0.01154 Nov. 29, 2005 .................................................... 0.01394 Dec. 22, 2005 .................................................... 0.01283 Jan. 26, 2006 .................................................... 0.01459 Feb. 27, 2006 .................................................... 0.01321 March 27, 2006 ................................................... 0.01168 April 26, 2006 ................................................... 0.01260 May 25, 2006 ..................................................... 0.01187 June 26, 2006 .................................................... 0.01398 Total ............................................................ $ 0.15415
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE Dec. 22, 2005 .................................................... $ 0.04663 Total distributions .............................................. $ 0.20078
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was 3.98%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 115 - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund Fiscal year ended June 30, 2006 CLASS A INCOME DISTRIBUTIONS -- 99.73% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 .................................................... $ 0.01302 Aug. 29, 2005 .................................................... 0.01516 Sept. 29, 2005 ................................................... 0.01704 Oct. 27, 2005 .................................................... 0.01351 Nov. 29, 2005 .................................................... 0.01587 Dec. 22, 2005 .................................................... 0.01093 Jan. 26, 2006 .................................................... 0.01704 Feb. 27, 2006 .................................................... 0.01534 March 27, 2006 ................................................... 0.01350 April 26, 2006 ................................................... 0.01475 May 25, 2006 ..................................................... 0.01409 June 26, 2006 .................................................... 0.01616 Total ............................................................ $ 0.17641
CLASS B INCOME DISTRIBUTIONs -- 99.73% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 .................................................... $ 0.00981 Aug. 29, 2005 .................................................... 0.01159 Sept. 29, 2005 ................................................... 0.01350 Oct. 27, 2005 .................................................... 0.01045 Nov. 29, 2005 .................................................... 0.01218 Dec. 22, 2005 .................................................... 0.00842 Jan. 26, 2006 .................................................... 0.01321 Feb. 27, 2006 .................................................... 0.01183 March 27, 2006 ................................................... 0.01043 April 26, 2006 ................................................... 0.01149 May 25, 2006 ..................................................... 0.01096 June 26, 2006 .................................................... 0.01269 Total ............................................................ $ 0.13656
- -------------------------------------------------------------------------------- 116 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- CLASS C INCOME DISTRIBUTIONS -- 99.73% are tax-exempt.
PAYABLE DATE PER SHARE July 28, 2005 .................................................... $ 0.00980 Aug. 29, 2005 .................................................... 0.01163 Sept. 29, 2005 ................................................... 0.01351 Oct. 27, 2005 .................................................... 0.01056 Nov. 29, 2005 .................................................... 0.01217 Dec. 22, 2005 .................................................... 0.00843 Jan. 26, 2006 .................................................... 0.01321 Feb. 27, 2006 .................................................... 0.01185 March 27, 2006 ................................................... 0.01044 April 26, 2006 ................................................... 0.01149 May 25, 2006 ..................................................... 0.01096 June 26, 2006 .................................................... 0.01271 Total ............................................................ $ 0.13676
SOURCE OF DISTRIBUTIONS For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50% of its assets in tax-exempt obligations at the end of each fiscal quarter. FEDERAL TAXATION Tax-exempt distributions are exempt from federal income taxes and should not be included in shareholders' gross income. The income from this Fund is subject to the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was 1.99%. OTHER TAXATION Tax-exempt distributions may be subject to state and local taxes. Each shareholder should consult a tax advisor about reporting this income for state and local tax purposes. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 117 - -------------------------------------------------------------------------------- FUND EXPENSE EXAMPLES (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments; and (2) ongoing costs, 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 June 30, 2006. 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. - -------------------------------------------------------------------------------- 118 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource California Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO - ----------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 1,001.30 $ 3.94(c) .79% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79% - ----------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 997.50 $ 7.72(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Class C - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 997.50 $ 7.72(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2006: +0.13% for Class A, -0.25% for Class B and -0.25% for Class C. (c) On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If this change had been in place for the entire six-month period ended June 30, 2006, the actual and hypothetical expenses paid would have been the same as those presented in the table above. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 119 - -------------------------------------------------------------------------------- RiverSource Massachusetts Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO - ----------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 998.50 $ 3.94(c) .79% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79% - ----------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 994.70 $ 7.71(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Class C - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 992.80 $ 7.70(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2006: -0.15% for Class A, -0.53% for Class B and -0.72% for Class C. (c) On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If this change had been in place for the entire six-month period ended June 30, 2006, the actual and hypothetical expenses paid would have been the same as those presented in the table above. - -------------------------------------------------------------------------------- 120 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource Michigan Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO - ----------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 999.80 $ 3.94(c) .79% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79% - ----------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 998.00 $ 7.72(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Class C - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 996.00 $ 7.71(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2006: -0.02% for Class A, -0.20% for Class B and -0.40% for Class C. (c) On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If this change had been in place for the entire six-month period ended June 30, 2006, the actual and hypothetical expenses paid would have been the same as those presented in the table above. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 121 - -------------------------------------------------------------------------------- RiverSource Minnesota Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO - ----------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 1,000.60 $ 3.94(c) .79% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79% - ----------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 994.90 $ 7.71(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Class C - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 994.90 $ 7.71(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2006: +0.06% for Class A, -0.51% for Class B and -0.51% for Class C. (c) On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If this change had been in place for the entire six-month period ended June 30, 2006, the actual and hypothetical expenses paid would have been the same as those presented in the table above. - -------------------------------------------------------------------------------- 122 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RiverSource New York Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO - ----------------------------------------------------------------------------------------------------------- Class A - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 1,001.00 $ 3.94(c) .79% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79% - ----------------------------------------------------------------------------------------------------------- Class B - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 997.20 $ 7.72(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Class C - ----------------------------------------------------------------------------------------------------------- Actual(b) $ 1,000 $ 997.20 $ 7.72(c) 1.55% - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55% - -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2006: +0.10% for Class A, -0.28% for Class B and -0.28% for Class C. (c) On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If this change had been in place for the entire six-month period ended June 30, 2006, the actual and hypothetical expenses paid would have been the same as those presented in the table above. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 123 - -------------------------------------------------------------------------------- RiverSource Ohio Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO - ---------------------------------------------------------------------------------------------------------- Class A - ---------------------------------------------------------------------------------------------------------- Actual(b) $1,000 $ 997.80 $3.93(c) .79% - ---------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.99 $3.98(c) .79% - ---------------------------------------------------------------------------------------------------------- Class B - ---------------------------------------------------------------------------------------------------------- Actual(b) $1,000 $ 994.00 $7.71(c) 1.55% - ---------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,017.20 $7.80(c) 1.55% - ---------------------------------------------------------------------------------------------------------- Class C - ---------------------------------------------------------------------------------------------------------- Actual(b) $1,000 $ 994.10 $7.71(c) 1.55% - ---------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,017.20 $7.80(c) 1.55% - ----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended June 30, 2006: -0.22% for Class A, -0.60% for Class B and -0.59% for Class C. (c) On Feb. 15, 2006, shareholders approved a change to the Investment Management Services Agreement. If this change had been in place for the entire six-month period ended June 30, 2006, the actual and hypothetical expenses paid would have been the same as those presented in the table above. - -------------------------------------------------------------------------------- 124 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- BOARD MEMBERS AND OFFICERS Shareholders elect a Board that oversees the Fund's operations. The Board appoints officers who are responsible for day-to-day business decisions based on policies set by the Board. The following is a list of the Fund's Board members. Each member oversees 99 RiverSource funds. Board members serve until the next regular shareholders' meeting or until he or she reaches the mandatory retirement age established by the Board. Under the current Board policy, members may serve until the end of the meeting following their 75th birthday, or the fifteenth anniversary of the first Board meeting they attended as members of the Board, whichever occurs first. This policy does not apply to Ms. Jones who may retire after her 75th birthday. INDEPENDENT BOARD MEMBERS
NAME POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------------------------------------- Kathleen Blatz Board member Chief Justice, Minnesota Supreme Court, 1998-2005 901 S. Marquette Ave. since 2006 Minneapolis, MN 55402 Age 52 - ----------------------------------------------------------------------------------------------------------------------------------- Arne H. Carlson Board member Chair, Board Services Corporation (provides 901 S. Marquette Ave. since 1999 administrative services to boards); former Governor of Minneapolis, MN 55402 Minnesota Age 71 - ----------------------------------------------------------------------------------------------------------------------------------- Patricia M. Flynn Board member Trustee Professor of Economics and Management, Bentley 901 S. Marquette Ave. since 2004 College; former Dean, McCallum Graduate School of Minneapolis, MN 55402 Business, Bentley College Age 55 - ----------------------------------------------------------------------------------------------------------------------------------- Anne P. Jones Board member Attorney and Consultant 901 S. Marquette Ave. since 1985 Minneapolis, MN 55402 Age 71 - ----------------------------------------------------------------------------------------------------------------------------------- Jeffrey Laikind Board member Former Managing Director, Shikiar Asset Management American 901 S. Marquette Ave. since 2005 Progressive Minneapolis, MN 55402 Insurance Age 70 - ----------------------------------------------------------------------------------------------------------------------------------- Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Economics, Valmont Industries, 901 S. Marquette Ave. since 2002 Carleton College Inc. (manufactures Minneapolis, MN 55402 irrigation systems) Age 67 - -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 125 - -------------------------------------------------------------------------------- INDEPENDENT BOARD MEMBERS (CONTINUED)
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------------------------------------- Catherine James Paglia Board member since 2004 Director, Enterprise Asset Management, Inc. (private Strategic 901 S. Marquette Ave. real estate and asset management company) Distribution, Inc. Minneapolis, MN 55402 (transportation, Age 53 distribution and logistics consultants) - ----------------------------------------------------------------------------------------------------------------------------------- Vikki L. Pryor Board member since 2006 President and Chief Executive Officer, SBLI USA Mutual 901 S. Marquette Ave. Life Insurance Company, Inc. since 1999 Minneapolis, MN 55402 Age 53 - ----------------------------------------------------------------------------------------------------------------------------------- Alan K. Simpson Board member since 1997 Former three-term United States Senator for Wyoming 1201 Sunshine Ave. Cody, WY 82414 Age 74 - ----------------------------------------------------------------------------------------------------------------------------------- Alison Taunton-Rigby Board member since 2002 Chief Executive Officer, RiboNovix, Inc. since 2003 Hybridon, Inc. 901 S. Marquette Ave. (biotechnology); former President, Forester Biotech (biotechnology); Minneapolis, MN 55402 American Age 62 Healthways, Inc. (health management programs) - -----------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS - ----------------------------------------------------------------------------------------------------------------------------------- William F. Truscott** Board member President, Ameriprise Certificate Company since 2006; 53600 Ameriprise Financial since 2001, President - U.S. Asset Management and Chief Investment Center Vice President Officer, Ameriprise Financial, Inc. and President, Minneapolis, MN 55474 since 2002, Chairman of the Board and Chief Investment Officer, Age 45 Acting President RiverSource Investments, LLC since 2005; Senior Vice since 2006 President - Chief Investment Officer, Ameriprise Financial, Inc. and Chairman of the Board and Chief Investment Officer, RiverSource Investments, LLC, 2001-2005 - -----------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder and/or employee of RiverSource Investments. ** Paula R. Meyer resigned her position as President for the RiverSource funds. Mr. Truscott has been appointed Acting President and will be assuming the responsibilities of President until a permanent replacement for Ms. Meyer is found. - -------------------------------------------------------------------------------- 126 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- The Board has appointed officers who are responsible for day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the Fund's other officers are: FUND OFFICERS
NAME, POSITION HELD ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION AGE LENGTH OF SERVICE DURING PAST FIVE YEARS - ----------------------------------------------------------------------------------------------------------------------------------- Jeffrey P. Fox Treasurer Vice President - Investment Accounting, Ameriprise Financial, Inc., since 105 Ameriprise Financial Center since 2002 2002; Vice President - Finance, American Express Company, 2000-2002 Minneapolis, MN 55474 Age 51 - ----------------------------------------------------------------------------------------------------------------------------------- Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed Income, Ameriprise Financial, 172 Ameriprise Financial Center since 2004 Inc. and RiverSource Investments, LLC since 2006; Vice President - Minneapolis, MN 55474 Investments, Ameriprise Certificate Company since 2003; Senior Vice Age 42 President - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and RiverSource Investments, LLC, 2004-2006; Managing Director, Zurich Global Assets, 2001-2002 - ----------------------------------------------------------------------------------------------------------------------------------- Leslie L. Ogg Vice President, President of Board Services Corporation 901 S. Marquette Ave. General Counsel, Minneapolis, MN 55402 and Secretary Age 67 since 1978 - ----------------------------------------------------------------------------------------------------------------------------------- Edward S. Dryden* Acting Chief Chief Compliance Officer, Ameriprise Certificate Company since 2006; Vice 1875 Ameriprise Financial Center Compliance Officer President - Asset Management Compliance, RiverSource Investments, LLC since Minneapolis, MN 55474 since 2006 2006; Chief Compliance Officer - Mason Street Advisors, LLC, 2002-2006 Age 41 - ----------------------------------------------------------------------------------------------------------------------------------- Neysa M. Alecu Anti-Money Compliance Director and Anti-Money Laundering Officer, Ameriprise Financial, 2934 Ameriprise Financial Center Laundering Officer Inc. since 2004; Manager Anti-Money Laundering, Ameriprise Financial, Inc., Minneapolis, MN 55474 since 2004 2003-2004; Compliance Director and Bank Secrecy Act Officer, American Age 42 Express Centurion Bank, 2000-2003 - -----------------------------------------------------------------------------------------------------------------------------------
* Beth E. Weimer resigned her position as Chief Compliance Officer for the RiverSource funds. Mr. Dryden has been appointed Acting Chief Compliance Officer and will be assuming the responsibilities of Chief Compliance Officer until a permanent replacement for Ms. Weimer is found. The SAI has additional information about the Fund's directors and is available, without charge, upon request by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; or visiting www.riversource.com/funds. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 127 - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT During the period covered by this report, RiverSource Investments, LLC ("RiverSource Investments" or the "investment manager"), a wholly-owned subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), served as the investment manager to RiverSource funds under an Investment Management Services Agreement ("IMS Agreement"). The Board of Directors (the "Board") annually determines whether to continue the IMS Agreement and subadvisory agreements, as applicable, by evaluating the quality and level of services received and the costs associated with those services. The Board did not make the specific determination this year as each fund's IMS Agreement was approved by the vote of a majority of the outstanding voting securities of the funds at a shareholder meeting held on Feb. 15, 2006. 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 RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting www.riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006 is available without charge by visiting www.riversource.com/funds; or searching the website of the SEC at www.sec.gov. - -------------------------------------------------------------------------------- 128 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD - -------------------------------------------------------------------------------- Kathleen Blatz 109,404,967.67 10,845,879.41 - -------------------------------------------------------------------------------- Arne H. Carlson 109,366,235.14 10,884,611.94 - -------------------------------------------------------------------------------- Patricia M. Flynn 109,412,504.55 10,838,342.53 - -------------------------------------------------------------------------------- Anne P. Jones 109,371,157.11 10,879,689.97 - -------------------------------------------------------------------------------- Jeffrey Laikind 109,399,154.87 10,851,692.21 - -------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 109,504,027.26 10,746,819.82 - -------------------------------------------------------------------------------- Catherine James Paglia 109,378,087.01 10,872,760.07 - -------------------------------------------------------------------------------- Vikki L. Pryor 109,273,821.60 10,977,025.48 - -------------------------------------------------------------------------------- Alan K. Simpson 109,209,255.53 11,041,591.55 - -------------------------------------------------------------------------------- Alison Taunton-Rigby 109,484,884.51 10,765,962.57 - -------------------------------------------------------------------------------- William F. Truscott 109,466,068.77 10,784,778.31 - --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 107,274,620.58 1,913,403.67 11,017,638.69 45,184.14 - --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 106,519,267.44 2,770,807.48 10,915,588.02 45,184.14 - --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 105,342,167.12 2,745,810.08 12,117,685.74 45,184.14 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 129 - -------------------------------------------------------------------------------- RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD - -------------------------------------------------------------------------------- Kathleen Blatz 32,670,491.04 6,729,639.60 - -------------------------------------------------------------------------------- Arne H. Carlson 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- Patricia M. Flynn 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- Anne P. Jones 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- Jeffrey Laikind 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- Catherine James Paglia 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- Vikki L. Pryor 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- Alan K. Simpson 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- Alison Taunton-Rigby 32,679,549.30 6,720,581.34 - -------------------------------------------------------------------------------- William F. Truscott 32,621,421.19 6,778,709.45 - --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 32,547,854.13 531,038.86 6,321,237.65 0.00 - --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 31,538,164.21 1,246,501.44 6,615,464.99 0.00 - --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 31,529,262.02 1,267,894.15 6,602,974.47 0.00 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 130 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE MICHIGAN TAX-EXEMPT FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD - -------------------------------------------------------------------------------- Kathleen Blatz 31,511,106.38 2,140,762.26 - -------------------------------------------------------------------------------- Arne H. Carlson 31,530,288.21 2,121,580.43 - -------------------------------------------------------------------------------- Patricia M. Flynn 31,530,288.21 2,121,580.43 - -------------------------------------------------------------------------------- Anne P. Jones 31,511,106.38 2,140,762.26 - -------------------------------------------------------------------------------- Jeffrey Laikind 31,537,739.76 2,114,128.88 - -------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 31,537,739.76 2,114,128.88 - -------------------------------------------------------------------------------- Catherine James Paglia 31,530,288.21 2,121,580.43 - -------------------------------------------------------------------------------- Vikki L. Pryor 31,518,557.94 2,133,310.70 - -------------------------------------------------------------------------------- Alan K. Simpson 31,518,557.94 2,133,310.70 - -------------------------------------------------------------------------------- Alison Taunton-Rigby 31,537,739.76 2,114,128.88 - -------------------------------------------------------------------------------- William F. Truscott 31,455,155.33 2,196,713.31 - --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 30,981,492.38 1,181,865.37 1,488,484.59 26.30 - --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 30,958,013.02 1,167,443.41 1,526,385.91 26.30 - --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 31,063,619.48 1,001,892.66 1,586,330.20 26.30 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 131 - -------------------------------------------------------------------------------- RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE MINNESOTA TAX-EXEMPT FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD - -------------------------------------------------------------------------------- Kathleen Blatz 197,476,387.65 20,804,045.77 - -------------------------------------------------------------------------------- Arne H. Carlson 196,732,680.48 21,547,752.94 - -------------------------------------------------------------------------------- Patricia M. Flynn 198,039,772.54 20,240,660.88 - -------------------------------------------------------------------------------- Anne P. Jones 197,671,787.54 20,608,645.88 - -------------------------------------------------------------------------------- Jeffrey Laikind 197,534,399.86 20,746,033.56 - -------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 198,050,712.30 20,229,721.12 - -------------------------------------------------------------------------------- Catherine James Paglia 197,699,534.83 20,580,898.59 - -------------------------------------------------------------------------------- Vikki L. Pryor 197,672,202.43 20,608,230.99 - -------------------------------------------------------------------------------- Alan K. Simpson 197,395,026.66 20,885,406.76 - -------------------------------------------------------------------------------- Alison Taunton-Rigby 197,981,873.22 20,298,560.20 - -------------------------------------------------------------------------------- William F. Truscott 197,716,339.86 20,564,093.56 - --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 194,497,455.81 5,333,001.16 18,247,182.41 202,794.04 - --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 192,139,907.64 6,563,405.35 19,374,326.39 202,794.04 - --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 192,823,816.49 6,157,018.63 19,096,804.26 202,794.04 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 132 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE NEW YORK TAX-EXEMPT FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD - -------------------------------------------------------------------------------- Kathleen Blatz 40,200,466.06 7,489,839.64 - -------------------------------------------------------------------------------- Arne H. Carlson 40,167,538.87 7,522,766.83 - -------------------------------------------------------------------------------- Patricia M. Flynn 40,229,452.29 7,460,853.41 - -------------------------------------------------------------------------------- Anne P. Jones 40,071,299.37 7,619,006.33 - -------------------------------------------------------------------------------- Jeffrey Laikind 40,105,747.44 7,584,558.26 - -------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 40,193,668.04 7,496,637.66 - -------------------------------------------------------------------------------- Catherine James Paglia 40,229,452.29 7,460,853.41 - -------------------------------------------------------------------------------- Vikki L. Pryor 40,186,363.25 7,503,942.45 - -------------------------------------------------------------------------------- Alan K. Simpson 39,955,578.68 7,734,727.02 - -------------------------------------------------------------------------------- Alison Taunton-Rigby 40,214,282.90 7,476,022.80 - -------------------------------------------------------------------------------- William F. Truscott 40,169,526.02 7,520,779.68 - --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 39,400,203.69 936,719.17 7,318,574.68 34,808.16 - --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 38,494,932.47 1,784,859.77 7,375,705.30 34,808.16 - --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 38,749,521.21 1,579,462.54 7,326,513.79 34,808.16 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 133 - -------------------------------------------------------------------------------- RESULTS OF MEETING OF SHAREHOLDERS RIVERSOURCE OHIO TAX-EXEMPT FUND REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006 (UNAUDITED) A brief description of each proposal voted upon at the meeting and the votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each proposal is set forth below. A vote is based on total dollar interest in a fund. ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD - -------------------------------------------------------------------------------- Kathleen Blatz 31,103,892.97 1,831,514.89 - -------------------------------------------------------------------------------- Arne H. Carlson 30,743,455.12 2,191,952.74 - -------------------------------------------------------------------------------- Patricia M. Flynn 31,103,892.97 1,831,514.89 - -------------------------------------------------------------------------------- Anne P. Jones 30,743,455.12 2,191,952.74 - -------------------------------------------------------------------------------- Jeffrey Laikind 30,794,380.63 2,141,027.23 - -------------------------------------------------------------------------------- Stephen R. Lewis, Jr. 30,700,912.83 2,234,495.03 - -------------------------------------------------------------------------------- Catherine James Paglia 31,050,323.95 1,885,083.91 - -------------------------------------------------------------------------------- Vikki L. Pryor 31,103,892.97 1,831,514.89 - -------------------------------------------------------------------------------- Alan K. Simpson 30,695,114.41 2,240,293.45 - -------------------------------------------------------------------------------- Alison Taunton-Rigby 31,039,740.70 1,895,667.16 - -------------------------------------------------------------------------------- William F. Truscott 31,050,323.95 1,885,083.91 - --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 30,193,477.77 1,665,303.75 1,076,626.34 0.00 - --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 30,045,451.57 1,609,793.82 1,280,162.47 0.00 - --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES - -------------------------------------------------------------------------------- 29,857,379.64 1,619,762.29 1,458,265.93 0.00 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 134 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - -------------------------------------------------------------------------------- RIVERSOURCE(SM) STATE TAX-EXEMPT FUNDS 734 Ameriprise Financial Center Minneapolis, MN 55474 RIVERSOURCE.COM/FUNDS This report must be accompanied or preceded by the Fund's current prospectus. RiverSource Funds are managed by RiverSource Investments, LLC and distributed by Ameriprise Financial Services, Inc., Member NASD. Both RIVERSOURCE [LOGO] (SM) companies are part of Ameriprise Financial, Inc. INVESTMENTS S-6328 AC (8/06) Item 2. (a) The Registrant has adopted a code of ethics that applies to the Registrant's principal executive officer and principal financial officer. A copy of the code of ethics is filed as an exhibit to this form N-CSR. (b) During the period covered by this report, there were not any amendments to the provisions of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a). Item 3. The Registrant's board of directors has determined that independent directors Jeffrey Laikind and Anne P. Jones, each qualify as audit committee financial experts. Item 4. Principal Accountant Fees and Services Fund - Related Fees* (a) Audit Fees. The fees paid for the years ended June 30, to KPMG LLP for professional services rendered for the audits of the annual financial statements for RiverSource California Tax-Exempt Trust were as follows: 2006 - $20,500; 2005 - $19,500 (b) Audit - Related Fees. The fees paid for the years ended June 30, to KPMG LLP for additional professional services rendered in connection with the registrant's security count pursuant to Rule 17f-2 for RiverSource California Tax-Exempt Trust were as follows: 2006 - $46; 2005 - $50 (c) Tax Fees. The fees paid for the years ended June 30, to KPMG LLP for tax compliance related services for RiverSource California Tax-Exempt Trust were as follows: 2006 - $2,756; 2005 - $2,550 (d) All Other Fees. The fees paid for the years ended June 30, to KPMG LLP for additional professional services rendered for RiverSource California Tax-Exempt Trust were as follows: 2006 - $113; 2005 - $40 (e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley pre-approval requirements, all services to be performed by KPMG LLP for the registrant and to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant must be pre-approved by the audit committee. (e) (2) 100% of the services performed for items (b) through (d) above during 2006 and 2005 were pre-approved by the audit committee. (f) Not applicable. (g) Non-Audit Fees. The fees paid for the years ended June 30, by the registrant for non-audit services to KPMG LLP were as follows: 2006 -$56,369; 2005 - $141,490 The fees paid for the years ended June 30, to KPMG LLP by the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant were as follows: 2006 - $53,500; 2005 - $138,900 (h) 100% of the services performed for item (g) above during 2006 and 2005 were pre-approved by the audit committee. *2005 represents bills paid 7/1/04 - 6/30/05 2006 represents bills paid 7/1/05 - 6/30/06 Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics as applies to the Registrant's principal executive officer and principal financial officer, as required to be disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource California Tax-Exempt Trust By /s/ William F. Truscott ------------------- William F. Truscott President and Principal Executive Officer Date September 1, 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/ William F. Truscott ------------------- William F. Truscott President and Principal Executive Officer Date September 1, 2006 By /s/ Jeffrey P. Fox -------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date September 1, 2006 EX-99.CODE ETH 2 code-of_ethics.txt CODE OF ETHICS RIVERSOURCE FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS PURPOSE OF THE CODE; COVERED OFFICERS This code of ethics ("Code") for the RiverSource Funds (collectively, "Funds," and each, "Fund") applies to the Funds' Principal Executive Officer and Principal Financial Officer (the "Covered Officers," each of whom is identified in Exhibit A) for the purpose of promoting, in connection with his or her duties: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Funds; o compliance with laws and governmental rules and regulations applicable to the conduct of the Funds' business and their financial reporting; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions, such as the purchase or sale of securities or other property, with the Funds because of their status as "affiliated persons" of the Funds. The compliance programs and procedures of the Funds and of Ameriprise Financial, Inc. and its affiliates ("Ameriprise") are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Funds and Ameriprise, of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Funds or for Ameriprise, or for both, be involved in establishing policies and implementing decisions that will have different effects on Ameriprise and the Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Funds and Ameriprise and is consistent with the performance by the Covered Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. Each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would benefit personally to the detriment of the Funds; o not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; and o not use material non-public knowledge of portfolio transactions made or contemplated for the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. DISCLOSURE AND COMPLIANCE Each Covered Officer o should familiarize himself or herself with the disclosure requirements generally applicable to the Funds; o should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including any member of the Board of Directors or Board of Trustees of any Fund ("Boards"), auditors, governmental regulators, and representatives of self-regulatory organizations; o should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and Ameriprise with the goal of promoting full, fair, accurate, timely, and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules, and regulations. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he or she has received, read, and understands the Code; o annually thereafter affirm to the Boards that he or she has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of Ameriprise for reports of potential violations that are made in good faith; and o notify the Funds' General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. APPLYING THE CODE The Funds' General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular -2- situation. Any approvals or waivers sought by a Covered Officers will be considered by each Board or appropriate committee of the Board. The Funds' General Counsel o shall notify the Boards whenever any evidence of a material violation has been reported, it being understood that the Funds' General Counsel may determine whether to provide such notice immediately or at the next meetings of the Boards based on the nature of the violation; o will take all appropriate action to investigate such reported violations; o shall make a determination after the investigation and o if the Funds' General Counsel believes that no violation has occurred, the Boards will be so notified and no further action is required; o if the Funds' General Counsel believes a violation has occurred, the matter shall be reported to the Boards or the committees of the Funds affected by the potential violation for further determination; o if the Boards or the committees determine that a violation has occurred the Boards will consider appropriate action, which may include: a review of applicable policies and procedures; the appropriate modifications to such policies and procedures; the notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o will cause to be made such disclosures as are required by SEC rules if any changes to or waivers of this Code is made by the Boards; and o shall maintain a record of each reported evidence of material violation, the response thereto, and all related correspondence for a period of not less than 10 years. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds or Ameriprise govern or purport to govern the activities of the Covered Officers, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. Ameriprise's code of ethics under Rule 17j-1 under the Investment Company Act is a separate requirement applying to the Covered Officers and others, and is not part of this Code. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of each Fund's Board, including a majority of its independent directors. Adopted: July 9, 2003; Amended: April 12, 2006 EXHIBIT A Persons Covered by this Code of Ethics Paula R. Meyer* President William F. Truscott Acting President Jeffrey P. Fox Treasurer * Until August 5, 2006. -3- EX-99.CERT 3 ex-99cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, William Truscott, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource California Tax-Exempt Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 21, 2006 /s/ William F. Truscott -------------------------------- Name: William F. Truscott Title: President and Principal 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 RiverSource California Tax-Exempt Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 21, 2006 /s/ Jeffrey P. Fox ------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Chief Financial Officer EX-99.906 CERT 4 ex99-906cert.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST (the Registrant) Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Each of the undersigned below certifies that 1. This report on Form N-CSR of the Registrant (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 21, 2006 /s/ William F. Truscott ----------------------- William F. Truscott President and Principal Executive Officer Date: August 21, 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-----