-----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, RTi4fRcUWGHkCGUD8af4Y2/V9DA+XTWcVIP4uS6Cyb2RJvh6qBecphKiPDNrYuw6 F1WClQVlu92LqlbPJmHcMg== 0001068800-07-001165.txt : 20070502 0001068800-07-001165.hdr.sgml : 20070502 20070502101342 ACCESSION NUMBER: 0001068800-07-001165 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070228 FILED AS OF DATE: 20070502 DATE AS OF CHANGE: 20070502 EFFECTIVENESS DATE: 20070502 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: 0831 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04646 FILM NUMBER: 07808701 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-CSRS 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) Scott R. Plummer - 5228 Ameriprise Financial Center, Minneapolis, MN 55474 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (612) 671-1947 ----------------- Date of fiscal year end: 8/31 -------------- Date of reporting period: 2/28 -------------- Semiannual Report RIVERSOURCE [LOGO](R) INVESTMENTS RiverSource(R) California Tax-Exempt Fund RiverSource(R) Massachusetts Tax-Exempt Fund RiverSource(R) Michigan Tax-Exempt Fund RiverSource(R) Minnesota Tax-Exempt Fund RiverSource(R) New York Tax-Exempt Fund RiverSource(R) Ohio Tax-Exempt Fund Semiannual Report for the Period Ended Feb. 28, 2007 >Each Fund seeks to provide shareholders with a high level of income generally exempt from federal income tax as well as from respective state and local income tax. TABLE OF CONTENTS Fund Snapshots ......................................................... 2 Fund Snapshot 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 RiverSource California Tax-Exempt Fund .............................. 8 RiverSource Massachusetts Tax-Exempt Fund ........................... 10 RiverSource Michigan Tax-Exempt Fund ................................ 12 RiverSource Minnesota Tax-Exempt Fund ............................... 14 RiverSource New York Tax-Exempt Fund ................................ 16 RiverSource Ohio Tax-Exempt Fund .................................... 18 Questions & Answers with Portfolio Management .......................... 20 Fund Expenses Examples ................................................. 23 Investments in Securities RiverSource California Tax-Exempt Fund .............................. 27 RiverSource Massachusetts Tax-Exempt Fund ........................... 31 RiverSource Michigan Tax-Exempt Fund ................................ 34 RiverSource Minnesota Tax-Exempt Fund ............................... 37 RiverSource New York Tax-Exempt Fund ................................ 42 RiverSource Ohio Tax-Exempt Fund .................................... 46 Financial Statements ................................................... 49 Notes to Financial Statements .......................................... 60 Proxy Voting ........................................................... 89
[LOGO] DALBAR RATED 2007 FOR COMMUNICATION The RiverSource mutual fund shareholder reports have been awarded the Communications Seal from Dalbar Inc., an independent financial services research firm. The Seal recognizes communications demonstrating a level of excellence in the industry. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 1 FUND SNAPSHOT AT FEB. 28, 2007 RiverSource California Tax-Exempt Fund FUND OVERVIEW For California investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets Non-investment grade bonds 2.3% BBB bonds 11.1% A bonds 25.8% [PIE CHART] AAA bonds 51.2% AA bonds 9.6%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 4.0% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX [chart] Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Rick LaCoff* 15 * The Fund is managed by a team of portfolio managers led by Rick LaCoff.
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A ICALX 8/18/86 Class B ACABX 3/20/95 Class C -- 6/26/00 Total net assets $177.0 million Number of holdings 108 Effective maturity(1) 15 years Effective duration(2) 6.1 years Weighted average bond rating(3) AA (1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the 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. - ------------------------------------------------------------------------------ 2 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT FUND SNAPSHOT AT FEB. 28, 2007 RiverSource Massachusetts Tax-Exempt Fund FUND OVERVIEW For Massachusetts investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets Non-investment grade bonds -% BBB bonds 5.4% A bonds 2.7% [PIE CHART] AA bonds 23.9% AAA bonds 68.0%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.6% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX [chart] Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Rick LaCoff* 15 * The Fund is managed by a team of portfolio managers led by Rick LaCoff.
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A IDMAX 7/2/87 Class B AXMBX 3/20/95 Class C 6/26/00 Total net assets $54.2 million Number of holdings 59 Effective maturity(1) 12.4 years Effective duration(2) 6.1 years Weighted average bond rating(3) AA+ (1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the 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. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 3 FUND SNAPSHOT AT FEB. 28, 2007 RiverSource Michigan Tax-Exempt Fund FUND OVERVIEW 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. QUALITY BREAKDOWN Percentage of bond portfolio assets AAA bonds 74.6% AA bonds 14.9% A bonds 6.6% [PIE CHART] BBB bonds 3.9% Non-investment grade bonds --%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.1% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX [chart] Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Rick LaCoff* 15 * The Fund is managed by a team of portfolio managers led by Rick LaCoff.
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A INMIX 7/2/87 Class B -- 3/20/95 Class C -- 6/26/00 Total net assets $ 46.0 million Number of holdings 60 Effective maturity(1) 11.6 years Effective duration(2) 5.4 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.
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. - ------------------------------------------------------------------------------ 4 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT FUND SNAPSHOT AT FEB. 28, 2007 RiverSource Minnesota Tax-Exempt Fund FUND OVERVIEW For Minnesota investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets
AAA bonds 57.1% AA bonds 23.7% A bonds 10.0% [PIE CHART] BBB bonds 7.9% Non-investment grade bonds 1.3%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.5% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX [chart] Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Rick LaCoff* 15 * The Fund is managed by a team of portfolio managers led by Rick LaCoff.
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A IMNTX 8/18/86 Class B IDSMX 3/20/95 Class C -- 6/26/00 Total net assets $339.3 million Number of holdings 127 Effective maturity(1) 11.2 years Effective duration(2) 5.5 years Weighted average bond rating(3) AA (1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the 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. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 5 FUND SNAPSHOT AT FEB. 28, 2007 RiverSource New York Tax-Exempt Fund FUND OVERVIEW For New York investors, this Fund seeks to provide a high level of income generally exempt from federal income tax as well as from the respective state and local taxes. QUALITY BREAKDOWN Percentage of bond portfolio assets AAA bonds 50.1% AA bonds 35.3% A bonds 5.1% [PIE CHART] BBB bonds 8.8% Non-investment grade bonds 0.7%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. STYLE MATRIX [chart] Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Rick LaCoff* 15 * The Fund is managed by a team of portfolio managers led by Rick LaCoff.
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A INYKX 8/18/86 Class B -- 3/20/95 Class C -- 6/26/00 Total net assets $68.5 million Number of holdings 78 Effective maturity(1) 14.4 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.
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. - ------------------------------------------------------------------------------ 6 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT FUND SNAPSHOT AT FEB. 28, 2007 RiverSource Ohio Tax-Exempt Fund FUND OVERVIEW 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. QUALITY BREAKDOWN Percentage of bond portfolio assets AAA bonds 52.9% AA bonds 36.3% A bonds 4.7% [PIE CHART] BBB bonds 6.1% Non-investment grade bonds --%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself. Whenever possible, the Standard and Poor's rating is used to determine the credit quality of a security. Standard and Poor's rates the creditworthiness of corporate bonds, with 15 categories, ranging from AAA (highest) to D (lowest). Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. If Standard and Poor's doesn't rate a security, then Moody's rating is used. RiverSource Investments, LLC, the Fund's investment manager, rates a security using an internal rating system when Moody's doesn't provide a rating. Ratings for 1.2% of the bond portfolio assets were determined through internal analysis. STYLE MATRIX [chart] Shading within the style matrix indicates areas in which the Fund generally invests. DURATION SHORT INT. LONG X HIGH MEDIUM QUALITY LOW The style matrix can be a valuable tool for constructing and monitoring your portfolio. It provides a frame of reference for distinguishing the types of stocks or bonds owned by a mutual fund, and serves as a guideline for helping you build a portfolio. Investment products, including shares of mutual funds, are not federally or FDIC-insured are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. PORTFOLIO MANAGER
YEARS IN INDUSTRY Rick LaCoff* 15 * The Fund is managed by a team of portfolio managers led by Rick LaCoff.
FUND FACTS
TICKER SYMBOL INCEPTION DATE Class A IOHIX 7/2/87 Class B -- 3/20/95 Class C -- 6/26/00 Total net assets $ 46.3 million Number of holdings 64 Effective maturity(1) 13.5 years Effective duration(2) 6.0 years Weighted average bond rating(3) AA+ (1) EFFECTIVE MATURITY measures a bond's maturity, which takes into consideration the possibility that the issuer may call the bond before its maturity date. (2) EFFECTIVE DURATION measures the sensitivity of a security's price to parallel shifts in the yield curve (the graphical depiction of the levels of interest rates from two years out to 30 years). Positive duration means that as rates rise, the price decreases, and negative duration means that as rates rise, the price increases. (3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the underlying bonds in the portfolio.
There are risks associated with an investment in a bond fund, including credit risk, interest rate risk, and prepayment and extension risk. See the 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. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 7 PERFORMANCE SUMMARY RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 28, 2007 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] RiverSource California Tax-Exempt Fund Class A (excluding sales charge) +2.91% Lehman Brothers California 2 Plus Year Municipal Bond Index(1) (unmanaged) +3.08% Lehman Brothers Municipal Bond lndex(2) (unmanaged) +2.89% Lipper California Municipal Debt Funds lndex(3) +2.86% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (1) The Lehman Brothers California 2 Plus Year Municipal Bond Index, an unmanaged index, is a market value-weighted index of California investment-grade fixed-rate municipal bonds with maturities of two years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper California Municipal Debt Funds Index includes the 30 largest municipal debt funds in California tracked by Lipper Inc. The Lipper index returns include net reinvested dividends.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS) CALIFORNIA
NET TOTAL EXPENSES(a) Class A 0.87% 0.79% Class B 1.62% 1.55% Class C 1.63% 1.55% (a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2007, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net expenses (excluding any interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A; 1.55% for Class B; and 1.55% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions.
- ------------------------------------------------------------------------------ 8 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource California Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS AT FEB 28, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +2.91% +4.71% +3.93% +4.68% +4.96% +5.92% Class B (inception 3/20/95) +2.53% +4.12% +3.14% +3.90% +4.17% +4.41% Class C (inception 6/26/00) +2.53% +4.13% +3.14% +3.93% N/A +4.65% With sales charge Class A (inception 8/18/86) -1.97% -0.26% +2.25% +3.67% +4.45% +5.67% Class B (inception 3/20/95) -2.47% -0.88% +1.90% +3.55% +4.17% +4.41% Class C (inception 6/26/00) +1.53% +3.13% +3.14% +3.93% N/A +4.65%
AT MARCH 31, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +1.95% +5.13% +3.97% +5.08% +5.05% +5.88% Class B (inception 3/20/95) +1.37% +4.34% +3.13% +4.25% +4.25% +4.33% Class C (inception 6/26/00) +1.37% +4.34% +3.13% +4.24% N/A +4.51% With sales charge Class A (inception 8/18/86) -2.88% +0.14% +2.30% +4.06% +4.54% +5.63% Class B (inception 3/20/95) -3.62% -0.66% +1.89% +3.91% +4.25% +4.33% Class C (inception 6/26/00) +0.38% +3.34% +3.13% +4.24% N/A +4.51% Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1 % CDSC if shares are sold within one year after purchase. * Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 9 PERFORMANCE SUMMARY - ------------------------------------------------------------------------------ RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 28, 2007 [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.] RiverSource Massachusetts Fund Class A (excluding sales charge) +2.32% Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index Index(1) (unmanaged) +2.99% Lehman Brothers Municipal Bond Index(2) (unmanaged) +2.89% Lipper Massachusetts Municipal Debt Funds Index(3) +2.80% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (1) The Lehman Brothers 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 Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper Massachusetts Municipal Debt Funds Index includes the 10 largest municipal debt funds in Massachusetts tracked by Lipper Inc. The Lipper index returns include net reinvested dividends.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPESPECTUS) MASSACHUSETTS
TOTAL NET EXPENSES(a) Class A 1.08% 0.82% Class B 1.82% 1.58% Class C 1.84% 1.58% (a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2007, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net expenses (excluding 0.03% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A; 1.55% for Class B; and 1.55% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions.
- ------------------------------------------------------------------------------ 10 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS AT FEB. 28, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +2.32% +4.16% +2.93% +3.96% +4.50% +5.76% Class B (inception 3/20/95) +1.94% +3.37% +2.15% +3.17% +3.71% +4.03% Class C (inception 6/26/00) +2.13% +3.38% +2.16% +3.18% N/A +4.20% With sales charge Class A (inception 7/2/87) -2.54% -0.79% +1.28% +2.95% +3.99% +5.50% Class B (inception 3/20/95) -3.06% -1.63% +0.89% +2.82% +3.71% +4.03% Class C (inception 6/26/00) +1.13% +2.38% +2.16% +3.18% N/A +4.20%
AT MARCH 31, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +1.39% +4.75% +3.00% +4.19% +4.60% +5.72% Class B (inception 3/20/95) +1.01% +3.97% +2.22% +3.40% +3.81% +3.98% Class C (inception 6/26/00) +0.82% +3.77% +2.16% +3.37% N/A +4.07% With sales charge Class A (inception 7/2/87) -3.43% -0.22% +1.34% +3.18% +4.09% +5.46% Class B (inception 3/20/95) -3.97% -1.03% +0.96% +3.05% +3.81% +3.98% Class C (inception 6/26/00) -0.18% +2.77% +2.16% +3.37% N/A +4.07% Class A share performance reflects the maximum sales charge of.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. * Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 11 PERFORMANCE SUMMARY RIVERSOURCE MICHIGAN TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 28, 2007 [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.] RiverSource Michigan Tax-Exempt Fund Class A (excluding sales charge) +2.34% Lehman Brothers Michigan Municipal Bond Index(1) (unmanaged) +2.80% Lehman Brothers Municipal Bond Index(2) (unmanaged) +2.89% Lipper Michigan Municipal Debt Funds Index(3) +2.53% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (1) The Lehman Brothers Michigan Municipal Bond Index, an unmanaged index, is a subset of the Lehman Brothers Municipal Bond Index. The index is made up of investment-grade, tax-exempt, and fixed-rate bonds issued in the state of Michigan. All securities have effective maturities greater than one year and are selected from issues larger than $50 million. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper Michigan Municipal Debt Funds Index includes the 10 largest municipal debt funds in Michigan tracked by Lipper Inc. The Lipper index returns include net reinvested dividends.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS) MICHIGAN
TOTAL NET EXPENSES (a) Class A 1.11% 0.81% Class B 1.85% 1.57% Class C 1.86% 1.57% (a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2007, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net expenses (excluding 0.02% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A; 1.55% for Class B; and 1.55% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions.
- ------------------------------------------------------------------------------ 12 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS AT FEB. 28, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +2.34% +3.95% +3.06% +4.33% +4.60% +5.92% Class B (inception 3/20/95) +1.96% +3.35% +2.34% +3.58% +3.83% +4.12% Class C (inception 6/26/00) +1.76% +3.15% +2.28% +3.54% N/A +4.44% With sales charge Class A (inception 7/2/87) -2.52% -0.99% +1.41% +3.32% +4.09% +5.66% Class B (inception 3/20/95) -3.04% -1.65% +1.09% +3.23% +3.93% +4.12% Class C (inception 6/26/00) +0.76% +2.15% +2.28% +3.54% N/A +4.44%
AT MARCH 31, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +1.40% +4.35% +3.12% +4.59% +4.69% +5.88% Class B (inception 3/20/95) +0.82% +3.56% +2.33% +3.80% +3.90% +4.04% Class C (inception 6/26/00) +0.83% +3.56% +2.33% +3.80% N/A +4.33% With sales charge Class A (inception 7/2/87) -3.42% -0.61% +1.46% +3.58% +4.18% +5.62% Class B (inception 3/20/95) -4.15% -1.44% +1.08% +3.46% +3.90% +4.04% Class C (inception 6/26/00) -0.17% +2.56% +2.33% +3.80% N/A +4.33% Class A share performance reflects the maximum sales charge of.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. * Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 13 PERFORMANCE SUMMARY RIVERSOURCE MINNESOTA TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 28, 2007 [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.] RiverSource Minnesota Tax-Exempt Fund Class A (excluding sales charge) +2.45% Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index(1) (unmanaged) +2.76% Lehman Brothers Municipal Bond - Index(2) (unmanaged) +2.89% Lipper Minnesota Municipal Debt Funds Index(3) +2.55% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (1) The Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, an unmanaged index, is a market value-weighted index of Minnesota investment-grade fixed-rate municipal bonds with maturities of three years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper Minnesota Municipal Debt Funds Index includes the 10 largest municipal debt funds in Minnesota tracked by Lipper Inc. The Lipper index returns include net reinvested dividends.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS) MINNESOTA
TOTAL NET EXPENSES(a) Class A 1.06% 0.98% Class B 1.81% 1.74% Class C 1.82% 1.74% (a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2007, Unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net expenses (excluding 0.19% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A; 1.55% for Class B; and 1.55% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions.
- ------------------------------------------------------------------------------ 14 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS AT FEB. 28, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +2.45% +4.13% +3.10% +4.32% +4.79% +5.95% Class B (inception 3/20/95) +2.07% +3.35% +2.33% +3.53% +4.01% +4.30% Class C (inception 6/26/00) +2.07% +3.34% +2.32% +3.53% N/A +4.44% With sales charge Class A (inception 8/18/86) -2.42% -0.81% +1.44% +3.31% +4.28% +5.70% Class B (inception 3/20/95) -2.93% -1.65% +1.06% +3.18% +4.01% +4.30% Class C (inception 6/26/00) +1.07% +2.34% +2.32% +3.53% N/A +4.44%
AT MARCH 31, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +1.50% +4.74% +3.16% +4.59% +4.87% +5.91% Class B (inception 3/20/95) +1.12% +3.96% +2.39% +3.81% +4.09% +4.24% Class C (inception 6/26/00) +1.12% +3.95% +2.38% +3.80% N/A +4.33% With sales charge Class A (inception 8/18/86) -3.33% -0.23% +1.50% +3.58% +4.36% +5.66% Class B (inception 3/20/95) -3.86% -1.04% +1.12% +3.46% +4.09% +4.24% Class C (inception 6/26/00) +0.12% +2.95% +2.38% +3.80% N/A +4.33% Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. * Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 15 PERFORMANCE SUMMARY RIVERSOURCE NEW YORK TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 28, 2007 [THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL.] RiverSource New York Tax-Exempt Fund Class A (excluding sales charge) +2.60% Lehman Brothers New York 4 Plus Year Municipal Bond lndex(1) (unmanaged) +3.06% Lehman Brothers Municipal Bond lndex(2) (unmanaged) +2.89% Lipper New York Municipal Debt Funds lndex(3) +2.79% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (1) The Lehman Brothers New York 4 Plus Year Municipal Bond Index, an unmanaged index, is a market value-weighted index of New York investment-grade fixed-rate municipal bonds with maturities of four years or more. (2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a representative list of general obligation, revenue, insured and pre-refunded bonds. The index is frequently used as a general measure of tax-exempt bond market performance. The Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper New York Municipal Debt Funds Index includes the 30 largest municipal debt funds in New York tracked by Lipper Inc. The Lipper index returns include net reinvested dividends.
ANNUAL OPERATING EXPENSES RATIO (AS OF THE CURRENT PROSPECTUS) NEW YORK
TOTAL NET EXPENSES(a) Class A 1.20% 0.98% Class B 1.95% 1.74% Class C 1.97% 1.74% (a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2007, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net expenses (excluding 0.19% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A; 1.55% for Class B; and 1.55% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions.
- ------------------------------------------------------------------------------ 16 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource New York Tax-Exempt Fund AVERAGE ANNUAL TOTAL RETURNS AT FEB. 28, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +2.60% +4.38% +3.15% +4.45% +4.84% +5.74% Class B (inception 3/20/95) +2.21% +3.59% +2.37% +3.66% +4.06% +4.19% Class C (inception 6/26/00) +2.21% +3.59% +2.38% +3.66% N/A +4.52% With sales charge Class A (inception 8/18/86) -2.28% -0.57% +1.50% +3.44% +4.33% +5.49% Class B (inception 3/20/95) -2.79% -1.41% +1.13% +3.32% +4.06% +4.19% Class C (inception 6/26/00) +1.21% +2.59% +2.38% +3.66% N/A +4.52%
AT MARCH 31, 2007
SINCE without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 8/18/86) +1.41% +4.79% +3.15% +4.64% +4.90% +5.69% Class B (inception 3/20/95) +1.02% +4.00% +2.37% +3.85% +4.11% +4.11% Class C (inception 6/26/00) +1.02% +4.00% +2.38% +3.85% N/A +4.38% With sales charge Class A (inception 8/18/86) -3.41% -0.18% +1.49% +3.63% +4.39% +5.45% Class B (inception 3/20/95) -3.95% -1.00% +1.13% +3.51% +4.11% +4.11% Class C (inception 6/26/00) +0.03% +3.00% +2.38% +3.85% N/A +4.38% Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. * Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 17 PERFORMANCE SUMMARY RIVERSOURCE OHIO TAX-EXEMPT FUND PERFORMANCE COMPARISON For the six-month period ended Feb. 28, 2007 [THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.] RiverSource Ohio Tax-Exempt Fund Class A (excluding sales charge) +2.48% Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index(1) (unmanaged) +2.95% Lehman Brothers Municipal Bond Index (2) (unmanaged) +2.89% Lipper Ohio Municipal Debt Funds Index (3) +2.76% The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial institution or visiting riversource.com/funds. The 4.75% sales charge applicable to Class A shares of the Fund is not reflected in the bar chart. If reflected, returns would be lower than those shown. The performance of other classes may vary from that shown because of differences in expenses. The indices do not reflect the effects of sales charges, expenses (excluding Lipper) and taxes. It is not possible to invest directly in an index. (1) The Lehman Brothers 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 Lehman Brothers indices reflect reinvestment of all distributions and changes in market prices. (3) The Lipper Ohio Municipal Debt Funds Index includes the 10 largest municipal debt funds in Ohio tracked by Lipper Inc. The Lipper index returns include net reinvested dividends.
ANNUAL OPERATING EXPENSE RATIO (AS OF THE CURRENT PROSPECTUS) OHIO
TOTAL NET EXPENSES(a) Class A 1.12% 0.81% Class B 1.87% 1.57% Class C 1.88% 1.57% (a) The investment manager and its affiliates have contractually agreed to waive certain fees and to absorb certain expenses until Aug. 31, 2007, unless sooner terminated at the discretion of the Fund's Board. Any amounts waived will not be reimbursed by the Fund. Under this agreement, net expenses (excluding 0.02% of interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 0.79% for Class A; 1.55% for Class B; and 1.55% for Class C. See the Notes to Financial Statements for more information regarding inverse floater program transactions.
- ------------------------------------------------------------------------------ 18 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Ohio Tax-Exempt Find AVERAGE ANNUAL TOTAL RETURNS AT FEB. 28, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +2.48% +4.07% +2.80% +3.86% +4.47% +5.74% Class B (inception 3/20/95) +2.09% +3.29% +2.02% +3.07% +3.69% +3.95% Class C (inception 6/26/00) +2.09% +3.29% +1.96% +3.07% N/A +3.98% With sales charge Class A (inception 7/2/87) -2.39% -0.87% +1.15% +2.85% +3.96% +5.48% Class B (inception 3/20/95) -2.91% -1.71% +0.74% +2.72% +3.69% +3.95% Class C (inception 6/26/00) +1.09% +2.29% +1.96% +3.07% N/A +3.98%
AT MARCH 31, 2007
SINCE Without sales charge 6 MONTHS* 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Class A (inception 7/2/87) +1.34% +4.28% +2.87% +4.05% +4.55% +5.69% Class B (inception 3/20/95) +0.96% +3.49% +2.08% +3.26% +3.77% +3.88% Class C (inception 6/26/00) +0.96% +3.50% +2.09% +3.26% N/A +3.85% With sales charge Class A (inception 7/2/87) -3.47% -0.67% +1.21% +3.04% +4.04% +5.43% Class B (inception 3/20/95) -4.03% -1.51% +0.81% +2.91% +3.77% +3.88% Class C (inception 6/26/00) -0.04% +2.50% +2.09% +3.26% N/A +3.85% Class A share performance reflects the maximum sales charge of 4.75%. Class B share performance reflects a contingent deferred sales charge (CDSC) applied as follows: first year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year 1%; no sales charge thereafter. Class C shares may be subject to a 1% CDSC if shares are sold within one year after purchase. * Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 19 QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT Below, Portfolio Manager Rick LaCoff discusses the Funds' positioning and results for the six months ended Feb. 28, 2007. Q: How did the RiverSource State Tax-Exempt Funds perform for the first half of the fiscal year? A: All Fund returns are for Class A shares, excluding sales charge. All returns are for the six months ended Feb. 28, 2007. All Lipper categories represent the respective Fund's peer group. RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND increased 2.91%. The Fund underperformed the Lehman Brothers California 2 Plus Year Municipal Bond Index, which returned 3.08%. The Lipper California Municipal Debt Funds Index increased 2.86% for the same period. RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND increased 2.32%. The Fund underperformed the Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, which increased 2.99%. The Lipper Massachusetts Municipal Debt Funds Index increased 2.80% for the same period. RIVERSOURCE MICHIGAN TAX-EXEMPT FUND increased 2.34%. The Fund underperformed the Lehman Brothers Michigan Municipal Bond Index, which increased 2.80%. The Lipper Michigan Municipal Debt Funds Index produced a total return of 2.53% for the same period. RIVERSOURCE MINNESOTA TAX-EXEMPT FUND increased 2.45%. The Fund underperformed the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, which increased 2.76%. The Lipper Minnesota Municipal Debt Funds Index increased 2.55% for the same period. RIVERSOURCE NEW YORK TAX-EXEMPT FUND increased 2.60%. The Fund underperformed the Lehman Brother New York 4 Plus Year Municipal Bond Index, which increased 3.06%. The Lipper New York Municipal Debt Funds Index increased 2.79% for the same period. RIVERSOURCE OHIO TAX-EXEMPT FUND increased 2.48%. The Fund underperformed the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, which increased 2.95%. The Lipper Ohio Municipal Debt Funds Index increased 2.76% for the same period. A broad barometer applicable to each of the Funds, the Lehman Brothers Municipal Bond Index, increased 2.89% for the same six-month period. ALL SIX OF THE RIVERSOURCE STATE TAX-EXEMPT FUNDS BENEFITED FROM THEIR POSITIONS IN HEALTH CARE MUNICIPAL BONDS AND THEIR INCREASED EXPOSURE TO COMMONWEALTH OF PUERTO RICO MUNICIPAL BONDS. Q: What factors most significantly affected performance during the semi-annual period? A: The tax-exempt fixed income market produced positive performance during the period. Tax-exempt yields actually moved higher across the short-term portion of the yield curve (i.e., five-year maturities and shorter) but declined across the remainder of the yield curve (i.e., six-year maturities and longer), causing a further flattening of the yield curve. Interest rates rallied across most of the tax-exempt yield curve. All six of the RiverSource State Tax-Exempt Funds benefited from their positions in health care municipal bonds and their increased exposure to Commonwealth of Puerto Rico municipal bonds. Both of these sectors performed well during the period, particularly select hospital bonds. Puerto Rico municipal bonds benefited from the fact that the Commonwealth enacted a local sales tax to raise revenues and implemented other reforms to cut expenses. As these potential fiscal remedies take hold, Puerto Rico municipal bonds may become increasingly attractive to investors, given the triple-tax-exemption (i.e. federal, state and local) they offer. - ------------------------------------------------------------------------------ 20 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT QUESTIONS & ANSWERS A positive contributing factor to the six-month 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 period. Widespread anticipation of the refunding of Golden State Tobacco Securitization Corporation particularly helped boost the performance of the municipal bond sector in California. Results of the RiverSource State Tax-Exempt Funds of California, Minnesota and New York were further helped by having positions in select non-investment grade or non-rated bonds, as these bonds performed strongly. Bonds that were advance refunded during the period boosted the returns of RiverSource California Tax-Exempt Fund but had a rather neutral effect on the other RiverSource State Tax-Exempt Funds. 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 conservatively 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. Each of the Funds underperformed its respective Lehman benchmark index due primarily to its comparatively short duration positioning during a period when rates generally declined. We implemented this duration strategy because we believed rates declined to levels that appeared too low given our economic view. Rather than rising as we had anticipated though, rates continued to fall through the period. Duration is a measure of the Funds' sensitivity to changes in interest rates. Also detracting modestly from all six of the Funds' results was yield curve positioning, that is, the way the Funds were positioned to respond to changes in short-term vs. long-term interest rates. The Funds' moderate exposure to the short-term segment of the municipal yield curve proved prudent. However this positive was not enough to offset the detracting effect of the Funds' modest position in long-term bonds, which performed best during the semiannual period. As yields at the long-term end of the yield curve fell, the prices of these bonds increased. The primary reason most of 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. We did add to each of the RiverSource State Tax-Exempt Fund's allocation to bonds rated BBB during the period on a highly selective basis, as we expect these bonds to perform well and provide attractive income during the coming months given anticipated technical conditions within the municipal bond market. Q: What changes did you make to the Funds and how are they currently positioned? A: Besides adding to each of the RiverSource State Tax-Exempt Funds' exposure to bonds rated BBB and Commonwealth of Puerto Rico bonds, as mentioned above, we also made several other changes during the semiannual period. We increased holdings in zero coupon bonds in RiverSource California Tax-Exempt Fund and added non-callable bonds in RiverSource Massachusetts Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund. Zero coupon bonds are municipal bonds that accumulate and compound interest for a given period of time before converting into an interest bearing bond at some date before maturity. Non-callable bonds are bonds that cannot be redeemed at the option of the issuer. Both of these types of bonds performed well as the fixed income market rallied during the period. We also increased exposure to non-enhanced municipal tobacco bonds in RiverSource California Tax-Exempt Fund and RiverSource New York Tax-Exempt Fund. We added special project financing bonds to RiverSource California Tax-Exempt Fund on an opportunistic basis. We increased holdings in single-family housing bonds in RiverSource California Tax-Exempt Fund and RiverSource Minnesota Tax-Exempt Fund, as this sector offered an attractive yield during the period. Within these housing bonds, we particularly focused on what are known as planned amortization class (PAC) bonds, which receive principal payments in accordance with a predetermined payment schedule. The PAC is therefore considered a bond class with among the most stable cash flow and the lowest prepayment risk. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 21 QUESTIONS & ANSWERS In each of the RiverSource State Tax-Exempt Funds, we decreased exposure to bonds with maturities at the shorter end of the yield curve (i.e., one- to five-years) and increased positions in longer intermediate-term and long-term bonds. Finally, when tax-exempt bond yields rallied in response to the equity market decline in February, we shortened the Funds' duration further, thereby removing some interest rate risk from the portfolios. STILL, WE BELIEVE THE TAX-EXEMPT BOND MARKET IS LIKELY TO CONTINUE TO PERFORM WELL AND PROVIDE ATTRACTIVE YIELD. Q: How do you intend to manage the Funds in the coming months? A: We believe the primary questions facing the municipal market at the end of February centered on the strength of the economy and the direction of the Federal Reserve going forward. Until there is more clarity surrounding these questions, volatility within the tax-exempt bond market will likely remain high. Still, we believe the tax-exempt bond market is likely to continue to perform well and provide attractive yield. Given our view that rates are too low and will ultimately move higher, we intend to maintain the Funds' current short duration positioning compared to their respective Lehman benchmark index for the near term. We further intend to watch closely for opportunities to modestly increase the Funds' exposure to bonds rated BBB and below, especially non-enhanced tobacco municipal bonds, hospital bonds, special project financing bonds and single-family housing bonds. At the same time, of course, 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. Any specific securities mentioned are for illustrative purposes only and are not a complete list of securities that have increased or decreased in value. The views expressed in this statement reflect those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily represent the views of RiverSource Investments, LLC (RiverSource) or any subadviser to the Fund or any other person in the RiverSource or subadviser organizations. Any such views are subject to change at any time based upon market or other conditions and RiverSource disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a RiverSource Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any RiverSource Fund. - ------------------------------------------------------------------------------ 22 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT FUND EXPENSES EXAMPLES (UNAUDITED) As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and (2) ongoing costs, which may include management fees; distribution and service (12b-1) fees and other Fund fees and expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expenses of the funds in which it invests (also referred to as "acquired funds"), including affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange traded funds). The Fund's indirect expense from investing in the acquired funds is based on the Fund's pro rata portion of the cumulative expenses charged by the acquired funds using the acquired funds expense ratio as of the most recent shareholder report. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the six months ended Feb. 28, 2007. ACTUAL EXPENSES The first line of each table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled "Expenses paid during the period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of each table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare each 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in each table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 23 RiverSource California Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO Class A Actual(b) $1,000 $1,029.10 $3.97 .79% Hypothetical (5% return before expenses) $1,000 $1,020.88 $3.96 .79% Class B Actual(b) $1,000 $1,025.30 $7.78 1.55% Hypothetical (5% return before expenses) $1,000 $1,017.11 $7.75 1.55% Class C Actual(b) $1,000 $1,025.30 $7.78 1.55% Hypothetical (5% return before expenses) $1,000 $1,017.11 $7.75 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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 28, 2007: +2.91% for Class A, +2.53% for Class B and +2.53% for Class C.
RiverSource Massachusetts Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO(c) Class A Actual(b) $1,000 $1,023.20 $4.11 .82% Hypothetical (5% return before expenses) $1,000 $1,020.73 $4.11 .82% Class B Actual(b) $1,000 $1,019.40 $7.91 1.58% Hypothetical (5% return before expenses) $1,000 $1,016.96 $7.90 1.58% Class C Actual(b) $1,000 $1,021.30 $7.92 1.58% Hypothetical (5% return before expenses) $1,000 $1,016.96 $7.90 1.58% (a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 28, 2007: +2.32% for Class A, +1.94% for Class B and +2.13% for Class C. (c) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.55% for Class B and 1.55% for Class C. See Notes 1 and 10 to the financial statements.
- ------------------------------------------------------------------------------ 24 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO(c) Class A Actual(b) $1,000 $1,023.40 $4.06 .81% Hypothetical (5% return before expenses) $1,000 $1,020.78 $4.06 .81% Class B Actual(b) $1,000 $1,019.60 $7.86 1.57% Hypothetical (5% return before expenses) $1,000 $1,017.01 $7.85 1.57% Class C Actual(b) $1,000 $1,017.60 $7.85 1.57% Hypothetical (5% return before expenses) $1,000 $1,017.01 $7.85 1.57% (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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 28, 2007: +2.34% for Class A, +1.96% for Class B and +1.76% for Class C. (c) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.55% for Class B and 1.55% for Class C. See Notes 1 and 10 to the financial statements.
RiverSource Minnesota Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO(c) Class A Actual(b) $1,000 $1,024.50 $4.92 .98% Hypothetical (5% return before expenses) $1,000 $1,019.93 $4.91 .98% Class B Actual(b) $1,000 $1,020.70 $8.72 1.74% Hypothetical (5% return before expenses) $1,000 $1,016.17 $8.70 1.74% Class C Actual(b) $1,000 $1,020.70 $8.72 1.74% Hypothetical (5% return before expenses) $1,000 $1,016.17 $8.70 1.74% (a) Expenses are equal to the Fund's annualized expense ratio as indicated above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 28, 2007: +2.45% for Class A, +2.07% for Class B and +2.07% for Class C. (c) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.55% for Class B and 1.55% for Class C. See Notes 1 and 10 to the financial statements.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 25 RiverSource New York Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO(c) Class A Actual(b) $1,000 $1,026.00 $4.97 .99% Hypothetical (5% return before expenses) $1,000 $1,019.89 $4.96 .99% Class B Actual(b) $1,000 $1,022.10 $8.77 1.75% Hypothetical (5% return before expenses) $1,000 $1,016.12 $8.75 1.75% Class C Actual(b) $1,000 $1,022.10 $8.77 1.75% Hypothetical (5% return before expenses) $1,000 $1,016.12 $8.75 1.75% (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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 28, 2007: +2.60% for Class A, +2.21% for Class B and +2.21% for Class C. (c) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.55% for Class B and 1.55% for Class C. See Notes 1 and 10 to the financial statements.
RiverSource Ohio Tax-Exempt Fund
BEGINNING ENDING EXPENSES ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED SEPT. 1, 2006 FEB. 28, 2007 THE PERIOD(a) EXPENSE RATIO(c) Class A Actual(b) $1,000 $1,024.80 $4.07 .81% Hypothetical (5% return before expenses) $1,000 $1,020.78 $4.06 .81% Class B Actual(b) $1,000 $1,020.90 $7.87 1.57% Hypothetical (5% return before expenses) $1,000 $1,017.01 $7.85 1.57% Class C Actual(b) $1,000 $1,020.90 $7.87 1.57% Hypothetical (5% return before expenses) $1,000 $1,017.01 $7.85 1.57% (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 181/365 (to reflect the one-half year period). (b) Based on the actual return for the six months ended Feb. 28, 2007: +2.48% for Class A, +2.09% for Class B and +2.09% for Class C. (c) Annualized expense ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. The ratios excluding interest and fee expense were 0.79% for Class A, 1.55% for Class B and 1.55% for Class C. See Notes 1 and 10 to the financial statements.
- ------------------------------------------------------------------------------ 26 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT INVESTMENTS IN SECURITIES RiverSource California Tax-Exempt Fund FEB. 28, 2007 (UNAUDITED) (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (96.7%) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Abag Finance Authority for Nonprofit Corporations Revenue Bonds San Diego Hospital Association Series 2001A 08-15-20 6.13% $ 2,500,000 $ 2,712,625 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) 548,336 Anaheim Community Facilities District Special Tax Bonds Stadium Lofts Series 2007 09-01-37 5.00 1,000,000 1,020,870 Anaheim Union High School District Prerefunded Unlimited General Obligation Bonds Series 2002A (FSA) 08-01-16 5.38 1,550,000 1,688,772 Beaumont Financing Authority Prerefunded Revenue Bonds Series 2000A 09-01-32 7.38 1,955,000 2,230,147 California County Tobacco Securitization Agency Asset-backed Revenue Bonds Alameda County Series 2002 06-01-29 5.75 785,000 825,561 06-01-42 6.00 240,000 258,638 California Educational Facilities Authority Revenue Bonds Stanford University Series 1997N 12-01-27 5.20 1,000,000 1,021,390 California Educational Facilities Authority Revenue Bonds University of Southern California Series 2003A 10-01-33 5.00 2,000,000 2,107,920 California Educational Facilities Authority Revenue Bonds University of the Pacific Series 2006 11-01-25 5.00 1,685,000 1,780,641 California Health Facilities Financing Authority Prerefunded Revenue Bonds Sutter Health Series 1999A (MBIA) 08-15-28 5.35 160,000 168,118 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) California Health Facilities Financing Authority Refunding Revenue Bonds Cedars-Sinai Medical Center Series 2005 11-15-18 5.00% $ 1,500,000 $ 1,596,675 11-15-34 5.00 1,525,000 1,591,536 California Health Facilities Financing Authority Revenue Bonds Catholic Healthcare West Series 2004G 07-01-23 5.25 3,500,000 3,729,389 California Health Facilities Financing Authority Revenue Bonds Kaiser Permanente Series 2006A 04-01-39 5.25 2,000,000 2,144,520 California Housing Finance Agency Revenue Bonds Home Mortgage Series 2006H (FGIC) A.M.T. 08-01-30 5.75 2,000,000 2,154,280 California Housing Finance Agency Revenue Bonds Home Mortgage Series 2006K A.M.T. 08-01-41 4.80 1,500,000 1,509,660 02-01-42 5.50 1,000,000(g) 1,066,100 California Infrastructure & Economic Development Bank Prerefunded Revenue Bonds Bay Area Toll Bridges 1st Lien Series 2003A (AMBAC) 07-01-36 5.00 225,000 258,658 California Pollution Control Financing Authority Revenue Bonds Waste Management Project Series 2005C A.M.T. 11-01-23 5.13 1,500,000 1,581,135 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 45,000 45,025 California Statewide Communities Development Authority Prerefunded Revenue Bonds Thomas Jefferson School of Law Project Series 2001 10-01-31 7.75 2,460,000 2,836,995 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2004E 04-01-32 3.88% $ 750,000 $ 751,388 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2006B 03-01-45 5.25 1,000,000(g) 1,069,440 California Statewide Communities Development Authority Revenue Bonds Kaiser Permanente Series 2007B 04-01-36 4.37 300,000(i) 301,440 Chabot-Las Positas Community College District Unlimited General Obligation Bonds Capital Appreciation Election 2004-B Zero Coupon Series 2006 (AMBAC) 08-01-19 4.75 1,000,000(b) 587,510 City of Azusa Special Tax Bonds Escrow Community Facilities Series 2007 09-01-27 5.00 1,110,000 1,127,183 City of Long Beach Refunding Revenue Bonds Series 2005A (MBIA) A.M.T. 05-15-20 5.00 1,500,000 1,596,285 05-15-21 5.00 1,000,000 1,062,760 City of Los Angeles Revenue Bonds Series 2003A (FSA) 02-01-13 5.00 2,000,000 2,152,120 Clovis Unified School District Unlimited General Obligation Bonds Capital Appreciation Election 2004 Zero Coupon Series 2004A (FGIC) 08-01-24 4.65 5,000,000(b) 2,417,100 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00 1,000,000(c) 1,051,850 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-30 5.25 500,000(c) 544,145
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 27 RiverSource California 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 Refunding & Public Improvement Bonds Series 2006B 07-01-32 5.25% $ 1,250,000(c) $ 1,359,363 07-01-35 5.00 1,250,000(c) 1,324,425 County of Riverside Certificate of Participation Series 1998 (MBIA) 12-01-21 5.00 1,530,000 1,575,640 County of San Diego Certificate of Participation Series 1993 Inverse Floater (AMBAC) 09-01-07 7.17 3,200,000(f) 3,261,759 Desert Sands Unified School District Refunding Certificate of Participation Series 2003 (MBIA) 03-01-17 5.25 1,135,000 1,230,624 Eastern Municipal Water Special Tax Bonds District #2004-27 Cottonwood Series 2006 09-01-27 5.00 200,000 203,782 09-01-36 5.00 500,000 507,440 Encinitas Union School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1996 (MBIA) 08-01-15 5.85 2,500,000(b) 1,802,475 Fontana Unified School District Unlimited General Obligation Bonds Convertible Capital Appreciation Series 1997D (FGIC) 05-01-22 5.75 2,000,000 2,124,920 Golden State Tobacco Securitization Corporation Enhanced Asset-backed Revenue Bonds Series 2005A 06-01-45 5.00 1,300,000 1,351,701 Golden State Tobacco Securitization Corporation Prerefunded Enhanced Asset-backed Revenue Bonds Series 2003B (FSA) 06-01-43 5.00 110,000 118,086 Golden State Tobacco Securitization Corporation Revenue Bonds Series 2003A-1 06-01-33 6.25 2,490,000 2,795,822 06-01-39 6.75 1,510,000 1,735,262 06-01-40 6.63 750,000 856,755 Inglewood Redevelopment Agency Refunding Tax Allocation Bonds Merged Redevelopment Project Series 1998A (AMBAC) 05-01-23 5.25 1,100,000 1,257,333 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Lake Elsinore Public Financing Authority Revenue Bonds Series 1997F 09-01-20 7.10% $ 780,000 $ 803,876 Lammersville School District Community Facilities District Special Tax Bonds #2002 Mountain House Series 2006 09-01-35 5.13 1,000,000 1,022,030 Lancaster Redevelopment Agency Refunding Tax Allocation Bonds Combined Redevelopment Project Areas Series 2003 (MBIA) 08-01-17 5.13 1,840,000 2,052,888 Los Angeles Department of Water & Power Revenue Bonds Power System Series 2003B (FSA) 07-01-16 5.13 1,460,000 1,582,246 07-01-17 5.13 2,315,000 2,503,395 Los Angeles Harbor Department Refunding Revenue Bonds Series 2006A (MBIA) A.M.T. 08-01-13 5.00 2,000,000 2,134,080 Los Angeles Harbor Department Revenue Bonds Series 1988 Escrowed to Maturity 10-01-18 7.60 880,000(g) 1,068,109 Los Angeles Municipal Improvement Corporation Revenue Bonds Police Headquarters Facility Series 2006A (FGIC) 01-01-31 4.75 3,000,000 3,131,520 Menlo Park Unlimited General Obligation Bonds Series 2002 08-01-32 5.30 1,900,000 2,050,613 Merced Community College District Refunding Revenue Bonds School Facilities Financing Authority Series 2006 (MBIA) 08-01-21 5.00 700,000 785,050 Oxnard School District Unlimited General Obligation Refunding Bonds Series 2001A (MBIA) 08-01-30 5.75 2,575,000 3,149,663 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) 1,006,572 Port of Oakland Revenue Bonds Series 1997G (MBIA) A.M.T. 11-01-25 5.38 3,080,000 3,176,957 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Port of Oakland Revenue Bonds Series 2000K (FGIC) A.M.T. 11-01-18 5.63% $ 1,000,000 $ 1,050,700 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 1,000,000(c,j) 1,187,100 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 1,000,000(c) 1,062,730 Puerto Rico Public Finance Corporation Revenue Bonds Commonwealth Appropriation Series 2004A (MBIA) 08-01-29 5.25 1,000,000(c) 1,067,990 Roseville Natural Gas Finance Authority Revenue Bonds Series 2007 02-15-22 5.00 1,500,000 1,653,240 02-15-25 5.00 1,500,000 1,666,230 San Diego Public Water Facilities Financing Authority Revenue Bonds Series 2002 (MBIA) 08-01-26 5.00 2,500,000 2,627,800 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) 2,794,721 San Francisco Bay Area Transit Financing Authority Prerefunded Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 1,475,000 1,568,471 San Francisco Bay Area Transit Financing Authority Unrefunded Revenue Bonds Series 2001 (AMBAC) 07-01-36 5.13 525,000 550,111 San Francisco City & County Airports Commission Refunding Revenue Bonds 2nd Series 2001-27B (FGIC) 05-01-16 5.25 2,170,000 2,312,981 San Francisco City & County Public Utilities Commission Revenue Bonds Series 2002A (MBIA) 11-01-25 5.00 2,000,000 2,114,760 San Juan Unified School District Unlimited General Obligation Bonds Capital Appreciation Zero Coupon Series 1999 (FSA) 08-01-21 5.68 820,000(b) 457,634 08-01-24 5.70 1,810,000(b) 882,484
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 28 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL 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 Mateo County Community College District Unlimited General Obligation Bonds Election of 2001 Series 2002A (FGIC) 09-01-18 5.38% $ 1,000,000 $ 1,089,770 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 3,306,779 Semitropic Improvement District Revenue Bonds Series 2004A (XLCA) 12-01-28 5.00 2,000,000 2,112,780 State of California Prerefunded Unlimited General Obligation Bonds Series 2000 10-01-25 5.38 2,500,000 2,652,800 State of California Unlimited General Obligation Bonds Series 2001 03-01-31 5.13 2,500,000 2,605,550 06-01-31 5.13 2,500,000 2,611,475 State of California Unlimited General Obligation Bonds Series 2002 02-01-15 6.00 1,000,000(g) 1,146,040 State of California Unlimited General Obligation Bonds Series 2003 02-01-21 5.25 2,500,000 2,698,400 02-01-29 5.25 2,500,000 2,669,600 02-01-32 5.00 2,500,000 2,621,225 State of California Unlimited General Obligation Bonds Series 2004 03-01-14 5.25 2,000,000 2,184,220 04-01-29 5.30 2,000,000 2,158,720 02-01-33 5.00 1,000,000 1,051,160 State of California Unlimited General Obligation Bonds Series 2004 (FGIC) 02-01-33 5.00 2,500,000 2,643,275 State of California Unlimited General Obligation Bonds Various Purpose Series 2003 11-01-22 5.00 2,000,000 2,114,560 11-01-23 5.13 2,500,000 2,673,325 11-01-24 5.13 2,000,000 2,136,260 11-01-29 5.25 500,000 537,690 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 Various Purpose Series 2005 06-01-28 5.00% $ 2,000,000 $ 2,126,080 State of California Unlimited General Obligation Bonds Veterans Series 2000BJ A.M.T. 12-01-12 4.95 2,250,000 2,318,445 12-01-13 5.05 1,435,000 1,480,418 12-01-14 5.15 2,535,000 2,617,235 State of California Unrefunded Unlimited General Obligation Bonds Series 2000 05-01-19 5.63 400,000 427,016 Stockton Revenue Bonds Mortgage-backed Securities Program Series 1990A (GNMA/FNMA/FHLMC) A.M.T. 02-01-23 7.50 30,000 30,230 Tobacco Securitization Authority of Southern California Revenue Bonds Series 2006-A1 06-01-37 5.00 2,000,000 2,030,140 University of California Revenue Bonds Multiple Purpose Projects Series 2003Q (FSA) 09-01-18 5.00 2,000,000 2,138,140 Walnut Energy Center Authority Prerefunded Revenue Bonds Series 2004A (AMBAC) 01-01-29 5.00 2,500,000 2,632,575 01-01-34 5.00 1,000,000 1,050,300 Whittier Union High School District Prerefunded Unlimited General Obligation Bonds Election of 1999 Series 2003D (FSA) 08-01-28 5.00 2,615,000 2,815,309 - ------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $162,562,209) $ 171,187,067 - ------------------------------------------------------------------------------- MUNICIPAL NOTES (1.8%) ISSUE(d,e,h) 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 3.50% $ 700,000 $ 700,000 California Infrastructure & Economic Development Bank Revenue Bonds Rand Corporation V.R.D.N. Series 2002B (JPMorgan Chase Bank) AMBAC 04-01-42 3.50 1,100,000 1,100,000 California State Department of Water Resources Revenue Bonds V.R.D.N. Series 2002B-3 (Bank of New York) 05-01-22 3.50 900,000 900,000 California State Department of Water Resources Revenue Bonds V.R.D.N. Series 2005F-4 (Bank of America) 05-01-22 3.53 400,000 400,000 - ------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $3,100,000) $ 3,100,000 - ------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $165,662,209)(k) $ 174,287,067 =============================================================================== See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 29 RiverSource California Tax-Exempt Fund 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 4.3% of net assets at Feb. 28, 2007. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 28, 2007, the value of securities subject to alternative minimum tax represented 12.3% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (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 Feb. 28, 2007. At Feb. 28, 2007, the value of inverse floaters represented 1.8% of net assets. (g) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------ SALE CONTRACTS U.S. Treasury Note, June 2007, 10-year $13,600,000 (h) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (i) Interest rate varies either based on a predetermined schedule or to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (j) At Feb. 28, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $1,187,100. (k) At Feb. 28, 2007, the cost of securities for federal income tax purposes was approximately $165,662,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 8,664,000 Unrealized depreciation (39,000) ------------------------------------------------------------------------- Net unrealized appreciation $ 8,625,000 -------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - ------------------------------------------------------------------------------ 30 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT INVESTMENTS IN SECURITIES RiverSource Massachusetts Tax-Exempt Fund FEB. 28, 2007 (UNAUDITED) (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(c,d) Boston Metropolitan District Unlimited General Obligation Refunding Bonds Series 2002A 12-01-11 5.13% $ 2,050,000 $ 2,173,964 City of Boston Revenue Bonds Series 2004A 11-01-22 5.00 1,000,000 1,071,470 City of Boston Unlimited General Obligation Refunding Bonds Series 2003A (MBIA) 02-01-23 5.00 1,000,000 1,052,640 City of Springfield Prerefunded Limited General Obligation Bonds State Qualified Series 2003 (MBIA) 01-15-20 5.25 1,405,000 1,522,584 Commonwealth of Massachusetts Limited General Obligation Bonds Consolidated Loan Series 2002C (FSA) 11-01-15 5.50 2,500,000 2,826,599 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 1997A (AMBAC) 08-01-10 5.75 2,185,000 2,332,051 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 2004B 08-01-22 5.25 500,000 573,835 08-01-28 5.25 500,000 585,330 Commonwealth of Massachusetts Limited General Obligation Refunding Bonds Series 2004B (MBIA) 08-01-27 5.25 500,000 586,595 Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002A (FGIC) 01-01-14 5.00 1,500,000 1,536,105 Commonwealth of Massachusetts Prerefunded Limited General Obligation Bonds Consolidated Loan Series 2002C 11-01-30 5.25 1,290,000 1,390,452 11-01-30 5.25 710,000(g) 765,288 Commonwealth of Massachusetts Prerefunded Unlimited General Obligation Bonds Consolidated Loan Series 2003D 10-01-22 5.25 1,000,000 1,088,450 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(c,d) Commonwealth of Massachusetts Refunding Revenue Bonds Series 2005 (FGIC) 01-01-28 5.50% $ 500,000 $ 602,095 Commonwealth of Massachusetts Special Obligation Refunding Bonds Federal Highway Grant Anticipation Notes Series 2003A (FSA) 12-15-14 5.00 1,000,000 1,083,600 Commonwealth of Massachusetts Unlimited General Obligation Bonds Consolidated Loan Series 2005B 08-01-14 5.00 750,000 810,608 Commonwealth of Massachusetts Unlimited General Obligation Refunding Bonds Series 2004A (FSA) 08-01-20 5.25 500,000(g) 571,055 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001 (FSA) 07-01-16 5.50 500,000(b) 569,965 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001A (FGIC) 07-01-29 5.50 250,000(b) 304,588 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 375,000(b) 409,020 Commonwealth of Puerto Rico Unlimited General Obligation Refunding & Public Improvement Bonds Series 2006B 07-01-32 5.25 375,000(b) 407,809 07-01-35 5.00 250,000(b) 264,885 Massachusetts Bay Transportation Authority Prerefunded Special Assessment Bonds Series 2005A 07-01-25 5.00 250,000(g) 273,460 07-01-26 5.00 250,000 273,460 Massachusetts Bay Transportation Authority Refunding Revenue Bonds Series 1992B 03-01-16 6.20 1,500,000 1,709,985 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(c,d) Massachusetts Bay Transportation Authority Revenue Bonds Series 2005A 07-01-30 5.00% $ 450,000 $ 515,574 07-01-31 5.00 500,000 573,870 Massachusetts Development Finance Agency Prerefunded Revenue Bonds Briarwood Series 2001B 12-01-30 8.25 750,000 873,465 Massachusetts Development Finance Agency Revenue Bonds Boston University Series 1999P 05-15-59 6.00 325,000 403,822 Massachusetts Development Finance Agency Revenue Bonds Devens Electric System Series 2001 12-01-30 6.00 1,000,000 1,076,050 Massachusetts Development Finance Agency Revenue Bonds May Institute Series 1999 (Radian Group Financial Guaranty) 09-01-29 5.75 1,000,000 1,050,890 Massachusetts Health & Educational Facilities Authority Revenue Bonds Boston College Series 2003N 06-01-21 5.25 1,000,000 1,086,170 Massachusetts Health & Educational Facilities Authority Revenue Bonds Harvard University Series 2002FF 07-15-37 5.13 2,000,000 2,121,380 Massachusetts Health & Educational Facilities Authority Revenue Bonds Massachusetts Institute of Technology Series 2004M 07-01-25 5.25 1,000,000 1,166,890 Massachusetts Health & Educational Facilities Authority Revenue Bonds Milford Regional Medical Series 2007E 07-15-27 5.00 250,000 259,600 07-15-32 5.00 250,000 258,573 07-15-37 5.00 500,000 515,060
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 31 RiverSource Massachusetts Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(c,d) Massachusetts Health & Educational Facilities Authority Revenue Bonds Williams College Series 2003H 07-01-33 5.00% $ 1,000,000 $ 1,055,320 Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2003-98 A.M.T. 06-01-23 4.88 985,000 1,008,000 Massachusetts Housing Finance Agency Revenue Bonds Single Family Series 2006-122 A.M.T. 12-01-31 4.85 750,000 769,103 Massachusetts Industrial Finance Agency Revenue Bonds Tufts University Series 1998H (MBIA) 02-15-28 4.75 1,000,000 1,009,960 Massachusetts Municipal Wholesale Electric Company Revenue Bonds Nuclear Project #5 Series 2001A (MBIA) 07-01-10 5.00 1,000,000 1,040,240 Massachusetts Port Authority Revenue Bonds Series 2003A (MBIA) 07-01-18 5.00 1,000,000 1,062,780 Massachusetts State Water Pollution Abatement Prerefunded Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 855,000 928,128 Massachusetts State Water Pollution Abatement Unrefunded Revenue Bonds Pool Program Series 2002-8 08-01-20 5.00 25,000 26,528 Massachusetts State Water Pollution Abatement Unrefunded Revenue Bonds Pool Program Series 2004-10 08-01-34 5.00 145,000 153,542 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(c,d) Massachusetts Water Resources Authority Refunding Revenue Bonds Series 1998B (FSA) 08-01-11 5.50% $ 1,430,000 $ 1,536,106 Massachusetts Water Resources Authority Refunding Revenue Bonds Series 2005A (MBIA) 08-01-22 5.00 500,000 546,655 Massachusetts Water Resources Authority Revenue Bonds Series 1992A (FGIC) 07-15-19 6.50 2,000,000 2,400,139 Massachusetts Water Resources Authority Revenue Bonds Series 2004D (MBIA) 08-01-27 4.75 1,000,000 1,030,570 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 300,000(b,f) 356,130 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 300,000(b) 339,324 Puerto Rico Infrastructure Financing Authority Refunding Special Tax Bonds Series 2005C (AMBAC) 07-01-23 5.50 500,000(b) 594,554 University of Massachusetts Building Authority Prerefunded Revenue Bonds Series 2003-1 (AMBAC) 11-01-21 5.25 1,000,000 1,093,740 University of Massachusetts Building Authority Revenue Bonds Series 1976 Escrowed to Maturity 05-01-11 7.50 50,000 53,778 Woods Hole Martha's Vineyard & Nantucket Steamship Authority Revenue Bonds Series 2004B 03-01-20 5.00 750,000 810,435 Worcester Limited General Obligation Bonds Series 2001A (FGIC) 08-15-12 5.50 1,400,000 1,500,590 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $50,237,779) $ 52,002,859 - -------------------------------------------------------------------------------- MUNICIPAL BONDS HELD IN TRUST (2.1%)(e) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(c,d) Puerto Rico Electric Power Authority Revenue Bonds Series 2002 (MBIA) 07-01-17 5.50% $ 1,000,000(b) $ 1,149,510 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $1,000,000) $ 1,149,510 - -------------------------------------------------------------------------------- MUNICIPAL NOTES (0.7%) ISSUE(c,d,h) 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 3.63% $ 400,000 $ 400,000 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $400,000) $ 400,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $51,637,779)(i) $ 53,552,369 ================================================================================ See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 32 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 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) Municipal obligations include debt obligations issued by or on behalf of states, territories, possessions, or sovereign nations within the territorial boundaries of the United States. The securities represented 8.1% of net assets at Feb. 28, 2007. (c) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (d) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 28, 2007, the value of securities subject to alternative minimum tax represented 3.3% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (e) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (f) At Feb. 28, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $356,130. (g) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------ Sale contracts U.S. Treasury Note, June 2007, 10-year $ 4,300,000 (h) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (i) At Feb. 28, 2007, the cost of securities for federal income tax purposes was approximately $51,138,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 1,989,000 Unrealized depreciation (75,000) ------------------------------------------------------------------------ Net unrealized appreciation $ 1,914,000 ------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 33 INVESTMENTS IN SECURITIES RiverSource Michigan Tax-Exempt Fund FEB. 28, 2007 (UNAUDITED) (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (95.4%) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Allen Park Public School District Unlimited General Obligation Bonds School Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-18 5.00% $ 500,000 $ 536,320 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 1,050,720 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001A (FGIC) 07-01-29 5.50 500,000(c) 609,175 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00 500,000(c) 525,925 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-30 5.25 250,000(c) 272,073 Commonwealth of Puerto Rico Unlimited General Obligation Refunding & Public Improvement Bonds Series 2006B 07-01-32 5.25 250,000(c) 271,873 07-01-35 5.00 250,000(c) 264,885 Detroit Prerefunded Revenue Bonds Series 2003B (MBIA) 07-01-32 5.25 1,500,000 1,634,324 Detroit Revenue Bonds Second Lien Series 2005A (MBIA) 07-01-30 5.00 500,000 532,520 Detroit Revenue Bonds Senior Lien Series 2003A (MBIA) 07-01-34 5.00 1,375,000 1,450,281 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Detroit Unlimited General Obligation Bonds Series 2001A-1 (MBIA) 04-01-15 5.38% $ 1,000,000 $ 1,067,230 Eastern Michigan University Prerefunded Revenue Bonds Series 2003A (FGIC) 06-01-28 5.00 1,000,000 1,074,660 Goodrich Area School District Prerefunded Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 505,000 544,935 Goodrich Area School District Unrefunded Unlimited General Obligation Bonds Series 2003B (Qualified School Bond Loan Fund) 05-01-27 5.00 495,000 524,834 Grand Rapids Building Authority Prerefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 505,000(h) 551,975 Grand Rapids Building Authority Unrefunded Revenue Bonds Series 2002A (AMBAC) 10-01-17 5.50 765,000 832,940 Grand Traverse Academy Refunding Revenue Bonds Series 2007 11-01-17 5.00 390,000(i) 407,047 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 1,056,080 Jackson Limited General Obligation Bonds Capital Appreciation Downtown Development Zero Coupon Series 2001 (FSA) 06-01-21 5.58 1,450,000(b) 796,717 L'Anse Creuse Public Schools Unlimited General Obligation Refunding Bonds Building & Site Series 2003 (Qualified School Bond Loan Fund) 05-01-11 4.00 1,000,000 1,011,030 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Lansing Community College Limited General Obligation Bonds Series 2002 (FGIC) 05-01-12 5.00% $ 1,000,000 $ 1,063,840 Lawton Community Schools Prerefunded Unlimited General Obligation Bonds Series 2001 (Qualified School Bond Loan Fund) 05-01-31 5.00 800,000 845,816 Lawton Community Schools Unrefunded Unlimited General Obligation Bonds Series 2001 (Qualified School Bond Loan Fund) 05-01-31 5.00 200,000 208,494 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 1,473,303 Michigan Higher Education Student Loan Authority Revenue Bonds Student Loan Series 2006 XVII-Q (AMBAC) A.M.T. 03-01-26 4.95 200,000 208,614 03-01-31 5.00 725,000 758,444 Michigan Municipal Bond Authority Refunding Revenue Bonds Clean Water State Revolving Fund Series 2005 10-01-15 5.00 500,000(h) 546,210 Michigan Municipal Bond Authority Revenue Bonds Clean Water Revolving Fund Series 2001 10-01-14 5.00 500,000 528,390 10-01-20 5.00 1,000,000 1,054,630 Michigan Municipal Bond Authority Revenue Bonds Clean Water Revolving Fund Series 2006 10-01-27 5.00 390,000(h) 420,432 Michigan Municipal Bond Authority Revenue Bonds Clean Water State Revolving Fund Series 2002 10-01-20 5.38 1,000,000 1,089,390 10-01-21 5.38 1,000,000 1,087,820
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 34 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Michigan Municipal Bond Authority Revenue Bonds School District City of Detroit Series 2005 (FSA) 06-01-19 5.00% $ 500,000 $ 536,950 Michigan Public Power Agency Refunding Revenue Bonds Belle River Project Series 2002A (MBIA) 01-01-09 5.25 1,000,000 1,027,730 01-01-14 5.25 500,000 545,380 Michigan State Building Authority Refunding Revenue Bonds Facilities Program Series 2003 II (MBIA) 10-15-29 5.00 1,000,000 1,058,140 Michigan State Hospital Finance Authority Refunding Revenue Bonds Henry Ford Health System Series 2006A 11-15-26 5.00 500,000 529,510 11-15-46 5.25 750,000 801,653 Michigan State Hospital Finance Authority Revenue Bonds MidMichigan Obligated Group Series 2006A 04-15-36 5.00 500,000 522,295 Michigan State Hospital Finance Authority Revenue Bonds Oakwood Obligated Group Series 2003 11-01-18 5.50 1,000,000 1,078,960 Michigan Strategic Fund Refunding Revenue Bonds Detroit Edison Series 1990BB (MBIA) 07-15-08 7.00 1,000,000 1,043,760 Oakland Schools Intermediate School District Limited General Obligation Bonds School Building & Site Series 2007 (FSA) 05-01-36 5.00 500,000(i) 538,340 Plymouth-Canton Community School District Unlimited General Obligation Refunding Bonds Series 2003 (Qualified School Bond Loan Fund) 05-01-15 5.25 600,000 653,160 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2002C (XLCA) 07-01-13 5.50 1,000,000(c) 1,105,329 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00% $ 500,000(c) $ 531,365 Roseville School District Refunding Unlimited General Obligation Bonds School Building & Site Series 2006 (FSA) (Qualified School Bond Loan Fund) 05-01-23 5.00 500,000 539,185 Saline Area Schools Unlimited General Obligation Bonds Series 2000A (Qualified School Bond Loan Fund) 05-01-09 4.75 1,000,000 1,021,720 South Lyon Community Schools Prerefunded Unlimited General Obligation Bonds School Building & Site Series 2003 (FGIC) 05-01-28 5.00 1,000,000 1,068,900 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 1,109,932 State of Michigan Certificate of Participation Series 2004A (MBIA) 09-01-31 4.25 750,000 765,045 Summit Academy North Prerefunded Certificate of Participation Series 2001 07-01-30 7.38 750,000 835,613 Summit Academy Prerefunded Certificate of Participation Full Term Series 1998 09-01-18 7.00 455,000 474,943 Troy City School District Unlimited General Obligation Bonds School Building & Site Series 2006 (MBIA) (Qualified School Board Loan Fund) 05-01-24 5.00 500,000 540,780 Waverly Community School Prerefunded Unlimited General Obligation Bonds Series 2000 (FGIC) 05-01-17 5.25 1,000,000 1,048,150 Wayne County Airport Authority Revenue Bonds Detroit Metro Wayne County Airport Series 2005 (MBIA) A.M.T. 12-01-19 4.75 500,000 518,060 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Western Township Utilities Authority Limited General Obligation Bonds Series 2002 (FGIC) 01-01-08 5.00% $ 500,000 $ 505,395 Williamston Community School District Unlimited General Obligation Bonds Series 1996 (MBIA) (Qualified School Bond Loan Fund) 05-01-25 5.50 1,000,000 1,160,290 - ------------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS (Cost: $42,267,523) $ 43,861,512 - ------------------------------------------------------------------------------ MUNICIPAL BONDS HELD IN TRUST (1.3%)(g) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE (d,e) Puerto Rico Electric Power Authority Revenue Bonds Series 2002 (MBIA) 07-01-17 5.50% $ 500,000(c) $ 574,755 - ------------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $561,588) $ 574,755 - ------------------------------------------------------------------------------ MUNICIPAL NOTES (4.6%) ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY Royal Oak Hospital Finance Authority Refunding Revenue Bonds William Beaumont University V.R.D.N. Series 2006U (Morgan Stanley Bank) AMBAC 01-01-20 3.64% $ 1,300,000 $ 1,300,000 University of Michigan Refunding Revenue Bonds University of Michigan Hospitals V.R.D.N. Series 1992A 12-01-19 3.64 800,000 800,000 - ------------------------------------------------------------------------------ TOTAL MUNICIPAL NOTES (Cost: $2,100,000) $ 2,100,000 - ------------------------------------------------------------------------------ TOTAL INVESTMENTS IN SECURITIES (Cost: $44,929,111)(j) $ 46,536,267 ============================================================================== See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 35 RiverSource Michigan Tax-Exempt Fund 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 9.0% of net assets at Feb. 28, 2007. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 28, 2007, the value of securities subject to alternative minimum tax represented 3.2% 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, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (g) Municipal Bonds Held in Trust - See Note 1 to the financial statements. (h) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------ SALE CONTRACTS U.S. Treasury Note, June 2007, 10-year $ 3,700,000 (i) At Feb. 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $938,956. (j) At Feb. 28, 2007, the cost of securities for federal income tax purposes was approximately $44,679,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 1,647,000 Unrealized depreciation (40,000) ------------------------------------------------------------------------ Net unrealized appreciation $ 1,607,000 ------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds. - ------------------------------------------------------------------------------ 36 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT INVESTMENTS IN SECURITIES RiverSource Minnesota Tax-Exempt Fund FEB. 28, 2007 (UNAUDITED) (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (93.8%) 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 $ 1,432,655 Anoka-Hennepin Independent School District #11 Unlimited General Obligation Bonds Series 2001A (School District Credit Enhancement Program) 02-01-13 5.00 4,175,000 4,378,281 02-01-15 5.00 1,990,000 2,084,684 02-01-16 5.00 2,000,000 2,095,900 Austin Housing & Redevelopment Authority Revenue Bonds Courtyard Residence Project Series 2000A 01-01-32 7.25 2,000,000 2,094,380 Bloomington Independent School District #271 Unlimited General Obligation Bonds Series 2001A (FSA) (School District Credit Enhancement Program) 02-01-24 5.13 4,000,000 4,244,760 City of Breckenridge Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 3,335,000 3,502,450 City of Chaska Refunding Revenue Bonds Generating Facilities Series 2005A 10-01-20 5.25 1,165,000 1,275,966 10-01-30 5.00 3,800,000 4,002,844 City of Minneapolis Revenue Bonds Fairview Health Services Series 2002B (MBIA) 05-15-14 5.50 2,050,000 2,239,748 05-15-15 5.50 2,160,000 2,355,653 05-15-16 5.50 2,200,000 2,397,098 05-15-17 5.50 1,295,000 1,409,102 City of Minneapolis Unlimited General Obligation Bonds Convention Center Series 2002 12-01-12 5.00 1,500,000 1,570,620 City of Minneapolis Unlimited General Obligation Bonds Various Purpose Series 2001 12-01-11 5.00 3,035,000 3,217,070 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) City of Stillwater Revenue Bonds Health System Obligation Group Series 2005 06-01-19 5.00% $ 2,505,000 $ 2,636,062 06-01-25 5.00 1,750,000 1,836,590 06-01-35 5.00 3,145,000 3,293,947 City of Willmar Unlimited General Obligation Bonds Rice Memorial Hospital Project Series 2002 (FSA) 02-01-11 5.00 1,025,000 1,074,149 02-01-12 5.00 1,120,000 1,184,736 02-01-13 5.00 1,200,000 1,280,064 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001 (FSA) 07-01-16 5.50 1,500,000(c) 1,709,895 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 2,000,000(c) 2,181,440 Commonwealth of Puerto Rico Unlimited General Obligation Refunding & Public Improvement Bonds Series 2006B 07-01-32 5.25 2,000,000(c) 2,174,980 07-01-35 5.00 1,500,000(c) 1,589,310 County of Ramsey Unlimited General Obligation Refunding Bonds Capital Improvement Plan Series 2002B 02-01-14 5.25 3,840,000 4,075,968 County of Washington Unlimited General Obligation Bonds Capital Improvement Plan Series 2000A 02-01-20 5.50 1,000,000 1,048,560 Edina Independent School District #273 Unlimited General Obligation Bonds Series 2004 02-01-12 4.00 3,700,000 3,759,237 02-01-22 4.25 3,000,000 3,026,430 02-01-23 4.50 3,000,000 3,095,640 02-01-24 4.50 3,400,000 3,524,746 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) 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 $ 3,193,140 Elk River Independent School District #728 Unlimited General Obligation Refunding Bonds School Building Series 2007A (FSA) (School District Credit Enhancement Program) 02-01-22 4.25 5,275,000(b) 5,313,033 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 3,885,691 Hennepin County Unlimited General Obligation Bonds Series 2003 12-01-23 4.75 2,000,000(h) 2,078,060 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 1,922,840 Lakeville Independent School District #194 Unlimited General Obligation Bonds Series 1997A (School District Credit Enhancement Program) 02-01-22 5.13 2,400,000 2,430,096 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 1,576,318 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2003 12-01-12 5.25 1,000,000 1,055,600 12-01-15 5.13 1,500,000 1,575,210 12-01-16 5.25 1,250,000 1,321,000 Minneapolis & St. Paul Housing & Redevelopment Authority Revenue Bonds HealthSpan Series 1993A (AMBAC) 11-15-18 4.75 5,000,000 5,002,350
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 37 RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1996-1 06-01-11 6.00% $ 980,000 $ 985,370 Minneapolis Community Development Agency Revenue Bonds Limited Tax - Common Bond Fund Series 1997-7A 06-01-12 5.50 250,000 253,308 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 1,069,960 Minneapolis/St. Paul Housing Finance Board Revenue Bonds Mortgage-backed-City Living Series 2006A-5 (GNMA/FNMA/FHLMC) 04-01-27 5.45 2,250,000 2,404,373 Minneapolis/St. Paul Housing Finance Board Revenue Bonds Single Family Housing Series 2005-A-4 (GNMA/FNMA/FHLMC) A.M.T. 12-01-37 4.70 104,428 105,580 Minneapolis-St. Paul Metropolitan Airports Commission Prerefunded Revenue Bonds Series 1998A (AMBAC) 01-01-24 5.20 4,000,000 4,090,680 Minneapolis-St. Paul Metropolitan Airports Commission Prerefunded Revenue Bonds Sub Series 2001C (FGIC) 01-01-18 5.50 2,000,000 2,132,240 01-01-32 5.25 7,000,000 7,400,959 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 1999B (FGIC) A.M.T. 01-01-16 5.63 2,920,000 3,042,698 Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds Series 2001B (FGIC) A.M.T. 01-01-16 5.75 4,875,000 5,190,315 Minnesota Agricultural & Economic Development Board Prerefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38 4,845,000 5,341,273 11-15-29 6.38 2,910,000 3,208,071 Minnesota Agricultural & Economic Development Board Revenue Bonds Health Care Benedictine Series 1999A (MBIA) 02-15-16 4.75 1,000,000 1,036,700 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Minnesota Agricultural & Economic Development Board Unrefunded Revenue Bonds Health Care System Series 2000A 11-15-22 6.38% $ 155,000 $ 170,877 11-15-29 6.38 90,000 99,482 Minnesota Higher Education Facilities Authority Revenue Bonds Macalester College 6th Series 2004B 03-01-17 5.00 2,395,000 2,562,363 Minnesota Higher Education Facilities Authority Revenue Bonds St. John's University 6th Series 2005G 10-01-22 5.00 2,000,000 2,140,880 Minnesota Higher Education Facilities Authority Revenue Bonds University of St.Thomas 5th Series 2004Y 10-01-34 5.25 2,800,000 3,007,704 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006B A.M.T. 07-01-26 4.75 1,905,000(h) 1,948,263 07-01-31 4.85 2,570,000 2,633,505 07-01-37 4.90 5,000,000 5,105,900 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2006M A.M.T. 01-01-37 5.75 3,000,000 3,223,650 Minnesota Housing Finance Agency Revenue Bonds Residential Housing Finance Series 2007D A.M.T. 01-01-38 5.50 4,000,000(b) 4,252,280 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1996J A.M.T. 07-01-21 5.60 80,000 81,622 Minnesota Housing Finance Agency Revenue Bonds Single Family Mortgage Series 1997K A.M.T. 01-01-26 5.75 935,000(h) 951,176 Minnesota Public Facilities Authority Prerefunded Revenue Bonds Series 2001A 03-01-20 5.00 4,000,000 4,155,040 Minnesota Public Facilities Authority Revenue Bonds Series 2002B 03-01-13 5.25 2,500,000 2,713,425 03-01-14 5.25 2,500,000 2,741,550 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Minnesota Public Facilities Authority Revenue Bonds Series 2005C 03-01-25 5.00% $ 2,000,000 $ 2,148,340 Minnesota State Municipal Power Agency Revenue Bonds Series 2004A 10-01-29 5.13 3,500,000 3,710,350 Minnesota State Municipal Power Agency Revenue Bonds Series 2005 10-01-30 5.00 2,000,000 2,106,760 Northern Municipal Power Agency Refunding Revenue Bonds Capital Appreciation Zero Coupon Series 1989A (AMBAC) 01-01-10 3.80 2,000,000(g,h) 1,790,960 Northern Municipal Power Agency Refunding Revenue Bonds Series 1998B (AMBAC) 01-01-20 4.75 5,000,000 5,124,400 Northfield Revenue Bonds Series 2006 11-01-31 5.38 1,500,000 1,576,635 Osseo Independent School District #279 Unlimited General Obligation Bonds School Building Series 2000A (School District Credit Enhancement Program) 02-01-13 5.75 3,200,000 3,406,912 02-01-14 5.75 1,100,000 1,169,685 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 1,648,783 02-01-12 5.00 3,455,000 3,664,235 02-01-15 5.25 3,585,000 3,837,061 Plymouth Housing & Redevelopment Authority Unlimited General Obligation Bonds Governmental Housing Project Series 2005 02-01-35 5.00 2,135,000 2,291,880 Puerto Rico Electric Power Authority Revenue Bonds Series 2003NN (MBIA) 07-01-32 5.00 2,820,000(c) 2,980,852 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 1,650,000(c) 1,866,282 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 2,250,000(c) 2,421,653
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 38 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 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 Municipal Finance Agency Unlimited General Obligation Bonds Series 2005A 08-01-11 5.00% $ 1,000,000(c) $ 1,045,330 Puerto Rico Public Buildings Authority Refunding Revenue Bonds Government Facilities Series 2004J (AMBAC) 07-01-36 5.00 1,500,000(c) 1,594,095 Shakopee Revenue Bonds St. Francis Regional Medical Center Series 2004 09-01-25 5.10 3,300,000 3,467,508 South Washington County Independent School District #833 Unlimited General Obligation Bonds School Building Series 2006A (FSA) (School District Credit Enhancement Program) 02-01-15 5.00 4,500,000 4,891,230 Southern Minnesota Municipal Power Agency Revenue Bonds Capital Appreciation Zero Coupon Series 1994A (MBIA) 01-01-19 6.67 17,000,000(g) 10,472,679 Southern Minnesota Municipal Power Agency Revenue Bonds Series 2002A (AMBAC) 01-01-17 5.25 6,000,000 6,707,280 St. Cloud Housing & Redevelopment Authority Revenue Bonds State University Foundation Project Series 2002 05-01-18 5.13 3,000,000 3,187,260 St. Paul Housing & Redevelopment Authority Prerefunded Revenue Bonds Community of Peace Academy Project Series 2001A 12-01-30 7.88 2,390,000 2,768,696 St. Paul Housing & Redevelopment Authority Revenue Bonds Healtheast Project Series 2005 11-15-25 6.00 1,250,000 1,395,738 St. Paul Housing & Redevelopment Authority Revenue Bonds HealthPartners Obligation Group Project Series 2006 05-15-23 5.25 1,000,000 1,068,870 05-15-26 5.25 1,000,000 1,062,370 05-15-36 5.25 4,750,000 5,030,915 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 Lyngblomsten Care Center Housing Project Series 1993 11-01-17 7.13% $ 1,410,000 $ 1,413,440 St. Paul Housing & Redevelopment Authority Revenue Bonds Rental - Lyngblomsten Housing Project Series 1993 11-01-24 7.00 1,640,000 1,643,460 St. Paul Port Authority Revenue Bonds Office Building at Cedar Street Series 2003 12-01-23 5.00 5,000,000 5,298,550 12-01-27 5.13 5,350,000 5,695,610 State of Minnesota Unlimited General Obligation Bonds Series 2001 10-01-10 5.00 5,000,000 5,234,250 10-01-14 5.00 4,000,000 4,234,040 10-01-15 5.00 4,455,000 4,725,285 State of Minnesota Unlimited General Obligation Bonds Series 2002 08-01-10 5.00 4,075,000 4,257,519 11-01-15 5.25 3,575,000 3,864,718 Steele Count Revenue Bonds Elderly Housing Project Series 2000 06-01-30 6.88 2,205,000 2,406,118 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 2,605,650 University of Minnesota Revenue Bonds State Supported Stadium Debt Series 2006 08-01-24 5.00 1,750,000 1,891,698 08-01-25 5.00 1,750,000 1,888,845 Virginia Housing & Redevelopment Authority Revenue Bonds Series 2005 10-01-20 5.13 1,350,000 1,405,512 Western Minnesota Municipal Power Agency Revenue Bonds Series 2003A (MBIA) 01-01-26 5.00 7,250,000 7,642,079 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) 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 $ 1,410,104 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 1,490,087 02-01-14 5.00 1,480,000 1,568,948 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $306,464,498) $ 318,308,219 - -------------------------------------------------------------------------------- MUNICIPAL BONDS HELD IN TRUST (8.2%)(i) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(d,e) Elk River Independent School District #728 Unlimited General Obligation Bonds Series 2002 (FSA) (School District Credit Enhancement Program) 02-01-18 5.25% $ 3,600,000 $ 3,879,072 02-01-19 5.25 3,450,000 3,717,444 02-01-20 5.25 2,850,000 3,070,932 02-01-21 5.25 3,865,000 4,164,611 Minnesota Housing Finance Agency Revenue Bonds Series 2002 A.M.T. 07-01-33 5.65 3,000,000 3,093,288 University of Minnesota Revenue Bonds Series 2002 07-01-21 5.50 8,500,000 9,966,987 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $26,054,372) $ 27,892,334 - --------------------------------------------------------------------------------
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 39 RiverSource Minnesota Tax-Exempt Fund
MUNICIPAL NOTES (3.4%) ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE YIELD PAYABLE AT MATURITY Center City Revenue Bonds Hazelden Foundation Project V.R.D.N. Series 2005 (Bank of New York) 11-01-35 3.64% $ 4,000,000 $ 4,000,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2000H (Harris Trust & Savings Bank) 10-01-30 3.64 1,200,000 1,200,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M1 (Harris Trust & Savings Bank) 10-01-32 3.64 1,100,000 1,100,000 Minnesota Higher Education Facilities Authority Revenue Bonds St. Olaf College V.R.D.N. 5th Series 2002M2 (Harris Trust & Savings Bank) 10-01-20 3.64 3,900,000 3,900,000 MUNICIPAL NOTES (CONTINUED) ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE 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 3.64% $ 620,000 $ 620,000 St. Paul Port Authority Revenue Bonds Minnesota Public Radio Project V.R.D.N. 7th Series 2005 (Allied Irish Bank) 05-01-25 3.64 700,000 700,000 - ------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $11,520,000) $ 11,520,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $344,038,870)(j) $ 357,720,553 ================================================================================ NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in Note 1 to the financial statements. (b) At Feb. 28, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $9,545,935. (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 5.2% of net assets at Feb. 28, 2007. (d) The following abbreviations may be used in the portfolio security descriptions to identify the insurer of the issue: ACA -- ACA Financial Guaranty Corporation AMBAC -- Ambac Assurance Corporation BIG -- Bond Investors Guarantee CGIC -- Capital Guaranty Insurance Company CIFG -- IXIS Financial Guaranty FGIC -- Financial Guaranty Insurance Company FHA -- Federal Housing Authority FNMA -- Federal National Mortgage Association FHLMC -- Federal Home Loan Mortgage Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association MBIA -- MBIA Insurance Corporation XLCA -- XL Capital Assurance (e) The following abbreviations may be used in the portfolio descriptions: A.M.T. -- Alternative Minimum Tax -- At Feb. 28, 2007, the value of securities subject to alternative minimum tax represented 9.0% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (f) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (g) For zero coupon bonds, the interest rate disclosed represents the annualized effective yield on the date of acquisition. - ------------------------------------------------------------------------------ 40 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (h) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): TYPE OF SECURITY NOTIONAL AMOUNT - -------------------------------------------------------------------------------- SALE CONTRACTS U.S. Treasury Note, June 2007, 10-year $ 26,100,000 (i) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (j) At Feb. 28, 2007, the cost of securities for federal income tax purposes was approximately $327,229,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 13,880,000 Unrealized depreciation (198,000) - ------------------------------------------------------------------------------ Net unrealized appreciation $ 13,682,000 - ------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 41 INVESTMENTS IN SECURITIES RiverSource New York Tax-Exempt Fund FEB. 28, 2007 (UNAUDITED) (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (93.5%) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) City of New York Prerefunded Unlimited General Obligation Bonds Series 2002E 08-01-16 5.75% $ 100,000 $ 110,524 City of New York Prerefunded Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 1,465,000 1,602,314 City of New York Prerefunded Unlimited General Obligation Bonds Series 2003J 06-01-20 5.50 655,000 723,179 City of New York Unlimited General Obligation Bonds Series 2002C (XLCA) 03-15-12 5.00 1,000,000 1,057,720 City of New York Unlimited General Obligation Bonds Series 2003J 06-01-18 5.50 2,000,000 2,192,959 City of New York Unlimited General Obligation Bonds Series 2004D 11-01-34 5.00 1,000,000 1,055,210 City of New York Unlimited General Obligation Refunding Bonds Series 2002E 08-01-16 5.75 1,900,000 2,085,269 City of New York Unrefunded Unlimited General Obligation Bonds Series 2003I 03-01-27 5.38 535,000 578,265 City of New York Unrefunded Unlimited General Obligation Bonds Series 2003J 06-01-20 5.50 1,345,000 1,476,339 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001A (FGIC) 07-01-29 5.50 500,000(d) 609,175 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2004A 07-01-24 5.00 500,000(d) 525,925 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-30 5.25 500,000(d) 544,145 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Commonwealth of Puerto Rico Unlimited General Obligation Refunding & Public Improvement Bonds Series 2006B 07-01-32 5.25% $ 500,000(d) $ 543,745 07-01-35 5.00 375,000(d) 397,328 County of Monroe Unlimited General Obligation Refunding & Public Improvement Bonds Series 1996 (MBIA) 03-01-15 6.00 1,250,000 1,436,088 Hudson Yards Infrastructure Corporation Revenue Bonds Series 2006A 02-15-47 5.00 500,000 531,395 Liberty Development Corporation Revenue Bonds Goldman Sachs Headquarters Series 2005 10-01-35 5.25 500,000 586,865 Metropolitan Transportation Authority Prerefunded Revenue Bonds Series 1998A (FGIC) 04-01-28 4.75 1,000,000 1,081,850 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A 01-01-16 5.75 500,000 569,660 Metropolitan Transportation Authority Refunding Revenue Bonds Series 2002A (AMBAC) 11-15-19 5.50 1,000,000 1,091,600 Metropolitan Transportation Authority Revenue Bonds Series 2002A (FSA) 11-15-26 5.50 750,000 816,690 Metropolitan Transportation Authority Revenue Bonds Series 2005F 11-15-12 5.00 560,000 595,857 11-15-35 5.00 500,000 528,855 Metropolitan Transportation Authority Revenue Bonds Series 2006A 11-15-22 5.00 750,000 808,485 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 1,603,020 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) New York City Industrial Development Agency Revenue Bonds Queens Baseball Stadium Pilot Series 2006 (AMBAC) 01-01-23 5.00% $ 500,000 $ 541,945 01-01-24 5.00 500,000(g) 541,100 New York City Industrial Development Agency Revenue Bonds Terminal One Group Association Project Series 2005 A.M.T. 01-01-24 5.50 500,000 545,165 New York City Municipal Water Finance Authority Revenue Bonds Series 2002A 06-15-29 5.00 1,000,000 1,050,010 New York City Municipal Water Finance Authority Revenue Bonds Series 2004A 06-15-39 5.00 1,000,000 1,054,790 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2003D 02-01-23 5.00 500,000 529,555 02-01-31 5.00 1,000,000 1,052,640 New York City Transitional Finance Authority Revenue Bonds Future Tax Secured Series 2004C 02-01-33 5.00 1,000,000 1,056,080 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 1,078,770 New York Counties Tobacco Trust II Revenue Bonds Tobacco Settlement Pass Thru Bonds Series 2001 06-01-35 5.63 500,000 519,650 New York Mortgage Agency Revenue Bonds Series 2007-140 A.M.T. 10-01-21 4.60 500,000 509,650 New York State Dormitory Authority Prerefunded Revenue Bonds Series 1990B 05-15-11 7.50 415,000 454,060
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 42 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL 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 Dormitory Authority Revenue Bonds Brooklyn Law School Series 2003B (XLCA) 07-01-30 5.13% $ 1,000,000 $ 1,072,050 New York State Dormitory Authority Revenue Bonds Consolidated City University System Series 1993A 07-01-13 5.75 3,000,000 3,249,839 New York State Dormitory Authority Revenue Bonds Cornell University Series 2006A 07-01-26 5.00 1,000,000 1,080,360 New York State Dormitory Authority Revenue Bonds Education Series 2006C 12-15-31 5.00 750,000 809,528 New York State Dormitory Authority Revenue Bonds Memorial Sloan-Kettering Center Series 2003-1 (MBIA) 07-01-21 5.00 1,000,000 1,060,480 New York State Dormitory Authority Revenue Bonds Memorial Sloan-Kettering Center Series 2006-1 07-01-35 5.00 500,000 533,345 New York State Dormitory Authority Revenue Bonds Mental Health Services Facilities Improvement Series 2005E (FGIC) 02-15-22 5.00 750,000 804,293 New York State Dormitory Authority Revenue Bonds Montefiore Hospital Series 2004 (FGIC/FHA) 08-01-19 5.00 735,000 791,595 New York State Dormitory Authority Revenue Bonds New York Hospital Medical Center Queens Series 2007 (FHA) 02-15-37 4.75 500,000 509,920 New York State Dormitory Authority Revenue Bonds New York University Hospitals Center Series 2006A 07-01-20 5.00 500,000 519,980 New York State Dormitory Authority Revenue Bonds Pratt Institute Series 1999 (Radian Group Financial Guaranty) 07-01-20 6.00 1,500,000 1,599,045 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 Series 2005F 03-15-23 5.00% $ 250,000 $ 268,975 New York State Dormitory Authority Unrefunded Revenue Bonds Series 1990B 05-15-11 7.50 970,000 1,061,617 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 1,070,360 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 1,051,960 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 1,055,370 New York State Thruway Authority Revenue Bonds Second Generation Resolution Series 2003B (FSA) 04-01-21 4.75 835,000 872,567 New York State Thruway Authority Revenue Bonds Series 2005G (FSA) 01-01-24 5.00 1,000,000 1,076,010 New York State Thruway Authority Revenue Bonds Transportation Series 2003A (MBIA) 03-15-22 5.00 1,000,000 1,066,870 New York State Thruway Authority Revenue Bonds Transportation Series 2004A (AMBAC) 03-15-12 5.25 750,000 806,085 New York State Urban Development Corporation Refunding Revenue Bonds Service Contract Series 2005 (FSA) 01-01-17 5.00 1,000,000 1,090,090 New York State Urban Development Corporation Revenue Bonds Series 2002A (XLCA) 01-01-11 5.25 1,000,000 1,056,550 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) 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 $ 1,070,710 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 1,000,000(d,f) 1,187,100 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 1,000,000(d) 1,076,290 Suffolk County Industrial Development Agency Prerefunded Revenue Bonds 1st Mortgage Jeffersons Ferry Series 1999A 11-01-28 7.25 250,000 277,310 Tobacco Settlement Financing Authority Asset-backed Revenue Bonds Series 2003A-1 06-01-16 5.50 500,000 526,110 06-01-19 4.25 500,000 502,970 Tobacco Settlement Financing Authority Revenue Bonds Series 2003B-1C 06-01-15 5.50 500,000 526,420 Triborough Bridge & Tunnel Authority Refunding Revenue Bonds Series 2002B 11-15-29 5.13 1,000,000 1,060,910 Triborough Bridge & Tunnel Authority Revenue Bonds Convention Center Project Series 1990E 01-01-11 6.00 1,145,000 1,237,573 TSASC Incorporated Revenue Bonds Series 2006-1 06-01-34 5.00 500,000 508,225 06-01-42 5.13 500,000 512,850 Westchester Tobacco Asset Securitization Revenue Bonds Series 2005 06-01-26 5.00 875,000 894,005 - ------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $61,359,125) $ 63,973,239 - -------------------------------------------------------------------------------
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 43 RiverSource New York Tax-Exempt Fund
MUNICIPAL BONDS HELD IN TRUST (8.9%)(h) 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 (FGIC) 05-15-16 5.88% $ 2,500,000 $ 2,694,245 New York Mortgage Agency Revenue Bonds Series 2002 A.M.T. 04-01-32 5.40 1,200,000 1,241,136 New York State Energy Research & Development Authority Revenue Bonds Residual Certificates Series 2000-379 (MBIA) 01-01-21 5.50 990,000 1,000,712 Puerto Rico Electric Power Authority Revenue Bonds Series 2002 (MBIA) 07-01-17 5.50 1,000,000(d) 1,149,510 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $5,840,303) $ 6,085,603 - -------------------------------------------------------------------------------- MUNICIPAL NOTES (2.0%) 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 2006H-1 (Dexia Credit Local) 01-01-36 3.62% $ 500,000 $ 500,000 New York City Municipal Water Finance Authority 2nd Generation Resolution Revenue Bonds V.R.D.N. Series 2005AA-2 06-15-32 3.62 500,000(g) 500,000 New York City Municipal Water Finance Authority 2nd Generation Resolution Revenue Bonds V.R.D.N. Series 2006CC-1 (Bank of Nova Scotia) 06-15-38 3.62 400,000(g) 400,000 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $1,400,000) $ 1,400,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $68,599,428)(i) $ 71,458,842 ================================================================================ 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 Feb. 28, 2007, the value of securities subject to alternative minimum tax represented 4.9% 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 (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 8.8% of net assets at Feb. 28, 2007. (e) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (f) At Feb. 28, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $1,187,100. - ------------------------------------------------------------------------------ 44 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource New York Tax-Exempt Fund NOTES TO INVESTMENTS IN SECURITIES (CONTINUED) (g) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): TYPE OF SECURITY NOTIONAL AMOUNT ----------------------------------------------------------------------- SALE CONTRACTS U.S. Treasury Note, June 2007, 10-year $ 5,500,000 (h) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (i) At Feb. 28, 2007, the cost of securities for federal income tax purposes was approximately $64,969,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $ 2,866,000 Unrealized depreciation (6,000) ----------------------------------------------------------------------- Net unrealized appreciation $ 2,860,000 -----------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 45 INVESTMENTS IN SECURITIES RiverSource Ohio Tax-Exempt Fund FEB. 28, 2007 (UNAUDITED) (Percentages represent value of investments compared to net assets)
MUNICIPAL BONDS (96.1%) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Bowling Green State University Refunding Revenue Bonds Series 2005 (MBIA) 06-01-15 5.00% $ 500,000 $ 545,400 Bowling Green State University Revenue Bonds Series 2003 (AMBAC) 06-01-12 5.00 1,145,000 1,219,162 Brookville Local School District Prerefunded Unlimited General Obligation Bonds Series 2003 (FSA) 12-01-18 5.25 1,000,000 1,094,770 Cincinnati City School District Limited General Obligation Bonds School Improvement Series 2002 (FSA) 06-01-21 5.25 1,000,000 1,079,430 Cincinnati City School District Unlimited General Obligation Refunding Bonds Classroom Construction & Improvement Series 2006 (FGIC) 12-01-25 5.25 500,000(g) 587,650 City of Cincinnati Unlimited General Obligation Bonds Series 2000 12-01-16 5.25 1,000,000 1,054,320 City of Cleveland Limited General Obligation Refunding Bonds Series 2005 (AMBAC) 10-01-23 5.50 500,000 597,640 City of Columbus Unlimited General Obligation Bonds Various Purpose Series 2006A 12-15-20 5.00 500,000 547,735 Cleveland State University Revenue Bonds Series 2003A (FGIC) 06-01-15 5.00 1,000,000 1,070,630 Cleveland State University Revenue Bonds Series 2004 (FGIC) 06-01-24 5.25 500,000 545,145 Columbus City School District Prerefunded Unlimited General Obligation Bonds School Facilities Construction & Improvement Series 2004 (FSA) 12-01-29 5.25 500,000 552,775 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 $ 1,059,990 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2001A (FGIC) 07-01-29 5.50 500,000(d) 609,175 Commonwealth of Puerto Rico Unlimited General Obligation Public Improvement Bonds Series 2006A 07-01-27 5.25 250,000(d) 272,680 07-01-30 5.25 250,000(d) 272,073 Commonwealth of Puerto Rico Unlimited General Obligation Refunding & Public Improvement Bonds Series 2006B 07-01-32 5.25 250,000(d) 271,873 07-01-35 5.00 250,000(d) 264,885 County of Cuyahoga Limited General Obligation Bonds Series 1993 05-15-13 5.60 450,000 472,145 County of Cuyahoga Refunding Revenue Bonds Series 2003A 01-01-17 6.00 1,000,000 1,117,190 01-01-32 6.00 1,000,000 1,110,680 County of Cuyahoga Revenue Bonds Canton Incorporated Project Series 2000 01-01-30 7.50 500,000 557,290 County of Erie Revenue Bonds Firelands Regional Medical Center Series 2002A 08-15-32 5.63 245,000 262,422 County of Montgomery Revenue Bonds Catholic Health Initiatives Series 2004A 05-01-30 5.00 750,000 787,185 05-01-32 5.00 500,000 524,475 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 $ 1,326,138 12-01-31 5.00 1,000,000 1,058,630 Franklin County Refunding Revenue Bonds OhioHealth Corporation Series 2003C 05-15-24 5.25 1,000,000 1,070,190 Franklin County Refunding Revenue Bonds Trinity Health Credit Series 2005A 06-01-20 5.00 500,000 531,165 Kenston Local School District Unlimited General Obligation Bonds School Improvement Series 2003 (MBIA) 12-01-16 5.00 1,000,000 1,068,910 Lakewood Limited General Obligation Bonds Series 2003 12-01-19 5.00 1,515,000 1,599,127 Miami County Improvement Refunding Revenue Bonds Upper Valley Medical Center Series 2006 05-15-26 5.25 500,000 535,335 Miami University Refunding Revenue Bonds Series 2005 (AMBAC) 09-01-23 4.75 500,000 529,720 Ohio Housing Finance Agency Revenue Bonds Residential Mortgage-backed Securities Series 2006A (GNMA) A.M.T. 09-01-26 4.75 500,000 513,250 09-01-36 4.90 500,000 511,310 Ohio Housing Finance Agency Revenue Bonds Residential Mortgage-backed Securities Series 2006E (GNMA/FNMA) A.M.T. 09-01-36 5.00 500,000 513,660 Ohio Municipal Electric Generation Agency Refunding Revenue Bonds Joint Venture 5 Series 2004 (AMBAC) 02-15-24 4.75 750,000 779,648
See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ 46 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Ohio Tax-Exempt Fund
MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Ohio State Building Authority Refunding Revenue Bonds State Facilities Adult Correctional Series 2001A (FSA) 10-01-14 5.50% $ 1,000,000 $ 1,077,230 Ohio State Building Authority Revenue Bonds State Facilities Adult Correctional Building Fund Projects Series 2005A (FSA) 04-01-22 5.00 750,000 806,640 Ohio State Higher Educational Facility Commission Revenue Bonds University Hospitals Health System Series 2007A 01-15-36 4.75 500,000 504,680 Ohio State Higher Educational Facility Commission Unrefunded Revenue Bonds Oberlin Series 1999 10-01-29 5.00 85,000 88,035 Port of Greater Cincinnati Development Authority Revenue Bonds Sisters of Mercy Series 2006 10-01-25 5.00 500,000 527,615 Puerto Rico Highway & Transportation Authority Refunding Revenue Bonds Series 2007N (MBIA) 07-01-32 5.25 500,000(d,e) 593,550 Puerto Rico Highway & Transportation Authority Revenue Bonds Series 1996Y 07-01-13 6.25 250,000(d) 282,770 Puerto Rico Infrastructure Financing Authority Refunding Special Tax Bonds Series 2005C (AMBAC) 07-01-23 5.50 400,000(d) 475,644 Puerto Rico Municipal Finance Agency Revenue Bonds Series 2002A (FSA) 08-01-17 5.25 750,000(d) 807,217 State of Ohio Revenue Bonds Case Western Reserve University Project Series 2006 (MBIA) 12-01-21 5.25 250,000 288,460 State of Ohio Revenue Bonds Denison University 2007 Project Series 2007 11-01-32 5.00 595,000 639,226 State of Ohio Revenue Bonds Mount Union College Project Series 2006 10-01-31 5.00 500,000 528,420 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 Common Schools Capital Facilities Series 2001A 06-15-13 5.00% $ 1,500,000 $ 1,560,059 State of Ohio Unlimited General Obligation Bonds Common Schools Capital Facilities Series 2001B 09-15-20 5.00 1,000,000 1,055,010 State of Ohio Unlimited General Obligation Bonds Conservation Projects Series 2005A 03-01-20 5.00 500,000 531,865 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2002A 08-01-18 5.38 500,000(g) 538,170 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2004B 02-01-12 5.00 500,000 529,820 State of Ohio Unlimited General Obligation Bonds Higher Education Series 2005B 05-01-23 5.00 500,000(g) 537,360 State of Ohio Unlimited General Obligation Bonds Highway Capital Improvements Series 2002G 05-01-12 5.25 750,000 805,530 State of Ohio Unlimited General Obligation Bonds Infrastructure Improvement Series 2005A 09-01-21 5.00 500,000 538,505 Summit County Limited General Obligation Bonds Series 2003 12-01-18 5.25 1,490,000 1,632,130 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 1,076,240 University of Akron Revenue Bonds Series 2003A (AMBAC) 01-01-22 5.00 1,000,000 1,057,810 MUNICIPAL BONDS (CONTINUED) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) University of Cincinnati Revenue Bonds Series 2001A (FGIC) 06-01-14 5.50% $ 1,000,000 $ 1,080,560 Warren County Limited General Obligation Bonds Series 1992 12-01-12 6.10 445,000 473,191 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (Cost: $43,433,683) $ 44,549,540 - -------------------------------------------------------------------------------- MUNICIPAL BONDS HELD IN TRUST (1.2%)(f) NAME OF COUPON PRINCIPAL VALUE(a) ISSUER AND RATE AMOUNT TITLE OF ISSUE(b,c) Puerto Rico Electric Power Authority Revenue Bonds Series 2002 (MBIA) 07-01-17 5.50% $ 500,000(d) $ 574,755 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS HELD IN TRUST (Cost: $561,588) $ 574,755 - -------------------------------------------------------------------------------- MUNICIPAL NOTES (0.9%) ISSUE(b,c,h) EFFECTIVE AMOUNT VALUE(a) YIELD PAYABLE AT MATURITY Ohio Air Quality Development Authority Revenue Bonds Pollution Control Ohio Edison V.R.D.N. Series 2000C (Wachovia Bank) 06-01-23 3.63% $ 300,000 $ 300,000 Ohio State Water Development Authority Refunding Revenue Bonds FirstEnergy Generation V.R.D.N. Series 2006A (Barclays Bank) 05-15-19 3.64 100,000 100,000 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL NOTES (Cost: $400,000) $ 400,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES (Cost: $44,395,271)(i) $ 45,524,295 ================================================================================ See accompanying notes to investments in securities. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 47 RiverSource Ohio Tax-Exempt Fund 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 Feb. 28, 2007, the value of securities subject to alternative minimum tax represented 3.3% of net assets. B.A.N. -- Bond Anticipation Note C.P. -- Commercial Paper R.A.N. -- Revenue Anticipation Note T.A.N. -- Tax Anticipation Note T.R.A.N. -- Tax & Revenue Anticipation Note V.R. -- Variable Rate V.R.D.B. -- Variable Rate Demand Bond V.R.D.N. -- Variable Rate Demand Note (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 9.5% of net assets at Feb. 28, 2007. (e) At Feb. 28, 2007, the cost of securities purchased, including interest purchased, on a when-issued and/or other forward-commitment basis was $593,550. (f) Municipal Bonds Held in Trust -- See Note 1 to the financial statements. (g) Partially pledged as initial deposit on the following open interest rate futures contracts (see Note 5 to the financial statements): TYPE OF SECURITY NOTIONAL AMOUNT ------------------------------------------------------------------------ SALE CONTRACTS U.S. Treasury Note, June 2007, 10-year $3,700,000 (h) The Fund is entitled to receive principal and interest from the party, if indicated in parentheses, after a day or a week's notice or upon maturity. The maturity date disclosed represents the final maturity. Interest rate varies to reflect current market conditions; rate shown is the effective rate on Feb. 28, 2007. (i) At Feb. 28, 2007, the cost of securities for federal income tax purposes was approximately $44,145,000 and the approximate aggregate gross unrealized appreciation and depreciation based on that cost was: Unrealized appreciation $1,141,000 Unrealized depreciation (12,000) ------------------------------------------------------------------------ Net unrealized appreciation $1,129,000 ------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS (i) The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (Commission) for the first and third quarters of each fiscal year on Form N-Q; (ii) The Fund's Forms N-Q are available on the Commission's website at http://www.sec.gov; (iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC (information on the operations of the Public Reference Room may be obtained by calling 1-800-SEC-0330); and (iv) The Fund's complete schedule of portfolio holdings, as disclosed in its annual and semiannual shareholder reports and in its filings on Form N-Q, can be found at riversource.com/funds - ------------------------------------------------------------------------------ 48 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES
CALIFORNIA MASSACHUSETTS MICHIGAN TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FEB. 28, 2007 (UNAUDITED) FUND FUND FUND ASSETS Investments in securities, at value (Note 1) (identified cost $165,662,209, $51,637,779 and $44,929,111) $ 174,287,067 $ 53,552,369 $ 46,536,267 Cash in bank on demand deposit 8,333 5,098 52,389 Capital shares receivable 381 24,658 333 Accrued interest receivable 1,989,755 524,378 631,342 Receivable for investment securities sold 5,194,788 1,046,150 -- - ------------------------------------------------------------------------------------------------------------------ Total assets 181,480,324 55,152,653 47,220,331 - ------------------------------------------------------------------------------------------------------------------ LIABILITIES Dividends payable to shareholders 124,888 23,621 21,164 Capital shares payable 17,225 -- 6 Payable for investment securities purchased 4,313,700 356,130 957,281 Short-term floating rate notes outstanding (Note 1) -- 500,000 250,000 Accrued investment management services fee 1,988 610 517 Accrued distribution fee 35,238 11,062 9,263 Accrued transfer agency fee 204 16 9 Accrued administrative services fee 339 104 88 Other accrued expenses 33,510 27,494 26,075 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 4,527,092 919,037 1,264,403 - ------------------------------------------------------------------------------------------------------------------ Net assets applicable to outstanding shares $ 176,953,232 $ 54,233,616 $ 45,955,928 ================================================================================================================== REPRESENTED BY Shares of beneficial interest - $.01 par value (Note 1) $ 339,716 $ 101,168 $ 86,995 Additional paid-in capital 168,228,543 52,482,926 44,410,806 Undistributed net investment income 30,503 1,997 15 Accumulated net realized gain (loss) (Note 7) (186,675) (239,733) (126,160) Unrealized appreciation (depreciation) on investments (Note 5) 8,541,145 1,887,258 1,584,272 - ------------------------------------------------------------------------------------------------------------------ Total - representing net assets applicable to outstanding shares $ 176,953,232 $ 54,233,616 $ 45,955,928 ================================================================================================================== Net assets applicable to outstanding shares: Class A $ 166,525,046 $ 45,676,872 $ 42,424,792 Class B $ 8,345,492 $ 7,961,719 $ 2,283,389 Class C $ 2,082,694 $ 595,025 $ 1,247,747 Outstanding shares of beneficial interest: Class A shares 31,969,029 8,520,467 8,031,336 Class B shares 1,603,209 1,485,305 432,046 Class C shares 399,343 111,058 236,158 Net asset value per share: Class A $ 5.21 $ 5.36 $ 5.28 Class B $ 5.21 $ 5.36 $ 5.29 Class C $ 5.22 $ 5.36 $ 5.28 - ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 49 STATEMENTS OF ASSETS AND LIABILITIES
MINNESOTA NEW YORK OHIO TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT FEB. 28, 2007 (UNAUDITED) FUND FUND FUND ASSETS Investments in securities, at value (Note 1) (identified cost $344,038,870, $68,599,428 and $44,395,271) $ 357,720,553 $ 71,458,842 $ 45,524,295 Cash in bank on demand deposit 258,651 11,000 91,023 Capital shares receivable 14,821 -- 619 Accrued interest receivable 3,403,134 791,968 570,323 Receivable for investment securities sold 4,740,225 1,086,620 1,052,642 - ------------------------------------------------------------------------------------------------------------------ Total assets 366,137,384 73,348,430 47,238,902 - ------------------------------------------------------------------------------------------------------------------ LIABILITIES Dividends payable to shareholders 177,332 33,018 19,561 Capital shares payable 14,433 -- -- Payable for investment securities purchased 9,706,390 1,187,100 593,550 Short-term floating rate notes outstanding (Note 1) 16,810,000 3,630,000 250,000 Accrued investment management services fee 3,754 770 521 Accrued distribution fee 67,707 13,729 9,339 Accrued transfer agency fee 499 16 30 Accrued administrative services fee 651 131 89 Other accrued expenses 37,844 31,078 22,634 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 26,818,610 4,895,842 895,724 - ------------------------------------------------------------------------------------------------------------------ Net assets applicable to outstanding shares $ 339,318,774 $ 68,452,588 $ 46,343,178 ================================================================================================================== REPRESENTED BY Shares of beneficial interest - $.01 par value (Note 1) $ 640,711 $ 134,735 $ 87,506 Additional paid-in capital 327,878,303 65,611,772 45,230,685 Undistributed (excess of distributions over) net investment income 223,177 12,441 (215) Accumulated net realized gain (loss) (Note 7) (2,944,645) (131,874) (80,938) Unrealized appreciation (depreciation) on investments (Note 5) 13,521,228 2,825,514 1,106,140 - ------------------------------------------------------------------------------------------------------------------ Total - representing net assets applicable to outstanding shares $ 339,318,774 $ 68,452,588 $ 46,343,178 ================================================================================================================== Net assets applicable to outstanding shares: Class A $ 303,908,162 $ 61,323,787 $ 40,354,654 Class B $ 27,496,575 $ 6,144,798 $ 4,721,162 Class C $ 7,914,037 $ 984,003 $ 1,267,362 Outstanding shares of beneficial interest: Class A shares 57,385,764 12,070,249 7,619,998 Class B shares 5,191,065 1,209,587 891,370 Class C shares 1,494,221 193,706 239,238 Net asset value per share: Class A $ 5.30 $ 5.08 $ 5.30 Class B $ 5.30 $ 5.08 $ 5.30 Class C $ 5.30 $ 5.08 $ 5.30 - ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ 50 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT STATEMENTS OF OPERATIONS
CALIFORNIA TAX-EXEMPT FUND MASSACHUSETTS TAX-EXEMPT FUND SIX MONTHS SIX MONTHS ENDED ENDED FEB. 28, PERIOD ENDED YEAR ENDED FEB. 28, PERIOD ENDED YEAR ENDED 2007 AUG. 31, JUNE 30, 2007 AUG. 31, JUNE 30, (UNAUDITED) 2006(a) 2006 (UNAUDITED) 2006(a) 2006 INVESTMENT INCOME INCOME: Interest (Note 1) $ 4,075,843 $ 1,430,060 $ 8,784,573 $ 1,214,706 $ 437,845 $ 2,872,156 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses (Note 2): Investment management services fee 362,309 127,684 880,490 115,534 41,475 306,031 Distribution fee Class A 207,546 72,992 450,844 58,967 20,570 131,376 Class B 42,851 15,773 124,630 42,407 17,499 140,903 Class C 10,637 3,680 25,844 3,508 1,377 11,424 Transfer agency fee 35,860 12,322 77,619 19,075 6,643 43,524 Incremental transfer agency fee Class A 1,745 1,086 6,749 804 505 3,276 Class B 316 165 1,226 392 205 1,470 Class C 112 61 416 46 26 194 Administrative services fees and expenses 61,858 22,618 126,617 19,725 7,162 42,344 Interest and fee expense (Note 1) -- -- -- 9,516 3,379 39,211 Compensation of board members 1,831 1,797 8,844 601 1,797 8,844 Custodian fees 9,360 3,100 18,695 5,907 1,664 10,119 Printing and postage 22,656 2,840 32,850 7,375 1,400 9,903 Registration fees 11,740 5,824 42,705 11,544 5,980 37,070 Professional fees 10,777 14,500 21,000 9,840 13,600 19,500 Other 24,405 535 12,375 20,850 232 4,775 - ------------------------------------------------------------------------------------------------------------------------------------ Total expenses 804,003 284,977 1,830,904 326,091 123,514 809,964 Expenses waived/reimbursed by the Investment Manager and its affiliates (Note 2) (65,399) (24,169) (129,935) (59,177) (25,874) (102,889) - ------------------------------------------------------------------------------------------------------------------------------------ 738,604 260,808 1,700,969 266,914 97,640 707,075 Earnings and bank fee credits on cash balances (Note 2) (8,699) (1,945) (17,465) (4,629) (672) (8,320) - ------------------------------------------------------------------------------------------------------------------------------------ Total net expenses 729,905 258,863 1,683,504 262,285 96,968 698,755 - ------------------------------------------------------------------------------------------------------------------------------------ Investment income (loss) - net 3,345,938 1,171,197 7,101,069 952,421 340,877 2,173,401 - ------------------------------------------------------------------------------------------------------------------------------------ Realized and Unrealized gain (loss) - net Net realized gain (loss) on: Security transactions (Note 3) 270,433 141,692 123,549 38,819 (48,017) 60,245 Futures contracts (175,559) (22,669) 56,742 (55,517) (7,556) 20,026 payment from affiliate (Note 2) -- -- 16,837 -- -- 5,873 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments 94,874 119,023 197,128 (16,698) (55,573) 86,144 Net change in unrealized appreciation (depreciation) on investments 1,503,564 3,438,131 (5,679,188) 365,366 1,311,823 (2,607,074) - ------------------------------------------------------------------------------------------------------------------------------------ Net gain (loss) on investments 1,598,438 3,557,154 (5,482,060) 348,668 1,256,250 (2,520,930) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $ 4,944,376 $ 4,728,351 $ 1,619,009 $ 1,301,089 $ 1,597,127 $ (347,529) ==================================================================================================================================== (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 51 STATEMENTS OF OPERATIONS
MICHIGAN TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND SIX MONTHS ENDED PERIOD ENDED YEAR ENDED SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 (UNAUDITED) (UNAUDITED) INVESTMENT INCOME Income: Interest (Note 1) $ 1,025,800 $ 358,767 $ 2,331,310 $ 7,793,648 $ 2,676,058 $ 16,742,991 - ------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 97,437 34,676 251,431 684,267 236,249 1,661,816 Distribution fee Class A 54,679 19,288 124,222 378,802 129,940 815,467 Class B 12,249 4,968 42,252 141,694 52,438 408,052 Class C 6,681 2,452 18,031 39,906 13,856 85,832 Transfer agency fee 13,809 4,832 31,242 87,328 29,827 188,098 Incremental transfer agency fee Class A 634 400 2,561 4,044 2,514 15,682 Class B 139 74 544 1,079 552 3,955 Class C 80 44 297 342 187 1,191 Administrative services fees and expenses 16,636 5,953 34,522 118,777 42,806 243,244 Interest and fee expense (Note 1) 4,689 1,690 2,307 320,559 112,173 555,509 Compensation of board members 520 1,797 8,844 3,501 1,930 10,211 Custodian fees 5,285 1,550 9,125 13,575 4,325 27,720 Printing and postage 5,270 1,280 9,300 48,550 11,805 81,555 Registration fees 14,100 6,200 39,100 11,520 7,990 39,527 Professional fees 9,826 13,600 19,500 11,772 15,400 22,500 Other 12,115 247 2,572 8,552 10,623 10,258 - ------------------------------------------------------------------------------------------------------------------------------- Total expenses 254,149 99,051 595,850 1,874,268 672,615 4,170,617 Expenses waived/ reimbursed by the Investment Manager and its affiliates (Note 2) (47,371) (24,907) (94,095) (75,722) (47,073) (205,028) - ------------------------------------------------------------------------------------------------------------------------------- 206,778 74,144 501,755 1,798,546 625,542 3,965,589 Earnings and bank fee credits on cash balances (Note 2) (3,247) (570) (6,650) (21,285) (9,068) (50,995) - ------------------------------------------------------------------------------------------------------------------------------- Total net expenses 203,531 73,574 495,105 1,777,261 616,474 3,914,594 - ------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) - net 822,269 285,193 1,836,205 6,016,387 2,059,584 12,828,397 - ------------------------------------------------------------------------------------------------------------------------------- Realized and unrealized gain (loss) - net Net realized gain (loss) on: Security transactions (Note 3) 25,698 (41,518) 236,365 (155,832) (201,478) (2,248,309) Futures contracts (47,473) (5,985) 16,689 (341,119) (41,987) 106,808 Payment from affiliate (Note 2) -- -- 5,451 -- -- 27,504 - ------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments (21,775) (47,503) 258,505 (496,951) (243,465) (2,113,997) Net change in unrealized appreciation (depreciation) on investments 275,419 1,016,039 (1,886,447) 2,171,095 6,880,299 (10,149,663) - ------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments 253,644 968,536 (1,627,942) 1,674,144 6,636,834 (12,263,660) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 1,075,913 $ 1,253,729 $ 208,263 $ 7,690,531 $ 8,696,418 $ 564,737 =============================================================================================================================== (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ 52 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT STATEMENTS OF OPERATIONS
NEW YORK TAX-EXEMPT FUND OHIO TAX-EXEMPT FUND SIX MONTHS ENDED PERIOD ENDED YEAR ENDED SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 (UNAUDITED) (UNAUDITED) INVESTMENT INCOME Income: Interest (Note 1) $ 1,636,315 $ 572,495 $ 3,691,625 $ 992,015 $ 353,010 $ 2,286,353 - ------------------------------------------------------------------------------------------------------------------------------- Expenses (Note 2): Investment management services fee 141,678 49,608 352,633 96,536 34,119 250,961 Distribution fee Class A 77,126 26,781 169,873 51,005 18,012 117,636 Class B 31,897 11,930 89,633 24,335 8,607 68,128 Class C 5,147 1,938 12,639 7,091 2,561 17,305 Transfer agency fee 20,475 7,101 46,110 14,965 5,196 33,678 Incremental transfer agency fee Class A 936 587 3,782 662 417 2,670 Class B 274 141 1,049 200 102 763 Class C 64 35 230 77 45 322 Administrative services fees and expenses 24,189 8,563 49,410 16,482 5,858 34,377 Interest and fee expense (Note 1) 68,607 23,052 132,118 4,689 1,689 2,306 Compensation of board members 731 1,797 8,844 520 1,797 8,844 Custodian fees 5,792 1,984 11,296 4,755 1,860 9,950 Printing and postage 8,342 2,170 13,990 5,525 1,550 9,125 Registration fees 12,100 6,200 39,500 11,630 5,580 38,850 Professional fees 10,108 13,900 20,000 9,825 13,600 19,500 Other 19,308 265 6,580 17,856 316 2,996 - ------------------------------------------------------------------------------------------------------------------------------- Total expenses 426,774 156,052 957,687 266,153 101,309 617,411 Expenses waived/ reimbursed by the Investment Manager and its affiliates (Note 2) (57,121) (26,875) (111,449) (51,655) (25,390) (97,315) - ------------------------------------------------------------------------------------------------------------------------------- Earnings and bank fee credits 369,653 129,177 846,238 214,498 75,919 520,096 on cash balances (Note 2) (3,512) (1,748) (8,318) (2,807) (1,024) (6,726) - ------------------------------------------------------------------------------------------------------------------------------- Total net expenses 366,141 127,429 837,920 211,691 74,895 513,370 - ------------------------------------------------------------------------------------------------------------------------------- Investment income (loss) - net 1,270,174 445,066 2,853,705 780,324 278,115 1,772,983 - ------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - NET Net realized gain (loss) on: Security transactions (Note 3) 101,241 (63,412) 499,717 57,496 (40,482) 31,271 Futures contracts (69,938) (9,127) 20,027 (46,773) (5,776) 16,689 Payment from affiliate (Note 2) -- -- 8,239 -- -- 5,251 - ------------------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments 31,303 (72,539) 527,983 10,723 (46,258) 53,211 Net change in unrealized appreciation (depreciation) on investments 470,923 1,514,873 (3,334,496) 296,719 1,057,934 (2,047,369) - ------------------------------------------------------------------------------------------------------------------------------- Net gain (loss) on investments 502,226 1,442,334 (2,806,513) 307,442 1,011,676 (1,994,158) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 1,772,400 $ 1,887,400 $ 47,192 $ 1,087,766 $ 1,289,791 $ (221,175) =============================================================================================================================== (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 53 STATEMENTS OF CHANGES IN NET ASSETS
CALIFORNIA TAX-EXEMPT FUND SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) - net $ 3,345,938 $ 1,171,197 $ 7,101,069 Net realized gain (loss) on investments 94,874 119,023 197,128 Net change in unrealized appreciation (depreciation) on investments 1,503,564 3,438,131 (5,679,188) - -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 4,944,376 4,728,351 1,619,009 - -------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (3,181,699) (1,111,403) (6,678,350) Class B (131,689) (47,396) (365,234) Class C (32,664) (11,212) (75,848) Net realized gain Class A (20,710) -- (2,060,962) Class B (1,083) -- (141,135) Class C (266) -- (28,036) - -------------------------------------------------------------------------------------------------------------------------- Total distributions (3,368,111) (1,170,011) (9,349,565) - -------------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 6,757,380 3,629,083 20,891,751 Class B shares 267,467 143,769 1,055,877 Class C shares 96,009 56,836 491,178 Reinvestment of distributions at net asset value Class A shares 2,231,149 799,255 6,405,081 Class B shares 110,432 40,099 436,470 Class C shares 30,496 10,802 97,101 Payments for redemptions Class A shares (14,235,018) (8,060,501) (39,268,742) Class B shares (Note 2) (878,675) (2,227,223) (6,518,006) Class C shares (Note 2) (240,450) (78,651) (1,394,220) - -------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (5,861,210) (5,686,531) (17,803,510) - -------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (4,284,945) (2,128,191) (25,534,066) Net assets at beginning of period 181,238,177 183,366,368 208,900,434 - -------------------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 176,953,232 $ 181,238,177 $ 183,366,368 ========================================================================================================================== Undistributed net investment income $ 30,503 $ 30,617 $ 29,431 - -------------------------------------------------------------------------------------------------------------------------- (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ 54 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
MASSACHUSETTS TAX-EXEMPT FUND SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) - net $ 952,421 $ 340,877 $ 2,173,401 Net realized gain (loss) on investments (16,698) (55,573) 86,144 Net change in unrealized appreciation (depreciation) on investments 365,366 1,311,823 (2,607,074) - ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,301,089 1,597,127 (347,529) - ----------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (826,471) (289,620) (1,851,979) Class B (116,465) (47,646) (387,693) Class C (9,632) (3,799) (31,553) Net realized gain Class A (802) -- (260,911) Class B (142) -- (70,980) Class C (12) -- (6,115) - ----------------------------------------------------------------------------------------------------------------- Total distributions (953,524) (341,065) (2,609,231) - ----------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 2,557,715 1,907,931 6,460,310 Class B shares 182,193 53,468 849,949 Class C shares 22,475 17,855 151,990 Reinvestment of distributions at net asset value Class A shares 663,703 236,232 1,715,619 Class B shares 87,720 36,650 357,931 Class C shares 8,639 3,546 34,168 Payments for redemptions Class A shares (6,605,159) (2,110,518) (14,249,579) Class B shares (Note 2) (1,431,506) (2,732,774) (6,616,572) Class C shares (Note 2) (238,559) (57,449) (687,929) - ----------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (4,752,779) (2,645,059) (11,984,113) - ----------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (4,405,214) (1,388,997) (14,940,873) Net assets at beginning of period 58,638,830 60,027,827 74,968,700 - ----------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 54,233,616 $ 58,638,830 $ 60,027,827 ================================================================================================================= Undistributed net investment income $ 1,997 $ 2,144 $ 2,332 - ----------------------------------------------------------------------------------------------------------------- (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 55 STATEMENTS OF CHANGES IN NET ASSETS
MICHIGAN TAX-EXEMPT FUND SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) - net $ 822,269 $ 285,193 $ 1,836,205 Net realized gain (loss) on investments (21,775) (47,503) 258,505 Net change in unrealized appreciation (depreciation) on investments 275,419 1,016,039 (1,886,447) - ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,075,913 1,253,729 208,263 - ----------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (769,860) (265,857) (1,683,666) Class B (33,784) (13,020) (110,672) Class C (18,451) (6,475) (47,318) Net realized gain Class A (993) -- (405,309) Class B (55) -- (33,837) Class C (31) -- (15,842) - ----------------------------------------------------------------------------------------------------------------- Total distributions (823,174) (285,352) (2,296,644) - ----------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 1,755,803 650,935 5,292,299 Class B shares 23,512 10,393 131,671 Class C shares 91,588 26,971 524,009 Reinvestment of distributions at net asset value Class A shares 614,292 219,921 1,671,150 Class B shares 25,839 9,697 101,482 Class C shares 15,793 5,742 55,784 Payments for redemptions Class A shares (5,884,842) (1,196,107) (13,226,236) Class B shares (Note 2) (429,385) (722,774) (2,254,715) Class C shares (Note 2) (282,576) (132,316) (866,833) - ----------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (4,069,976) (1,127,538) (8,571,389) - ----------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (3,817,237) (159,161) (10,659,770) Net assets at beginning of period 49,773,165 49,932,326 60,592,096 - ----------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 45,955,928 $ 49,773,165 $ 49,932,326 ================================================================================================================= Undistributed (excess of distributions over) net investment income $ 15 $ (159) $ -- - ----------------------------------------------------------------------------------------------------------------- (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ 56 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
MINNESOTA TAX-EXEMPT FUND SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) - net $ 6,016,387 $ 2,059,584 $ 12,828,397 Net realized gain (loss) on investments (496,951) (243,465) (2,113,997) Net change in unrealized appreciation (depreciation) on investments 2,171,095 6,880,299 (10,149,663) - ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 7,690,531 8,696,418 564,737 - ----------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (5,665,610) (1,869,249) (11,469,702) Class B (422,618) (146,952) (1,122,358) Class C (119,125) (38,972) (236,496) Net realized gain Class A -- -- (630,199) Class B -- -- (79,986) Class C -- -- (16,239) - ----------------------------------------------------------------------------------------------------------------- Total distributions (6,207,353) (2,055,173) (13,554,980) - ----------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 14,720,400 6,491,810 28,475,102 Class B shares 340,887 117,193 1,638,107 Class C shares 512,591 79,478 1,632,443 Reinvestment of distributions at net asset value Class A shares 4,567,399 1,552,821 9,873,223 Class B shares 361,835 126,055 1,007,721 Class C shares 104,498 35,357 221,889 Payments for redemptions Class A shares (25,260,671) (8,600,320) (65,255,595) Class B shares (Note 2) (2,805,204) (5,711,230) (15,531,202) Class C shares (Note 2) (888,357) (324,412) (2,355,251) - ----------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (8,346,622) (6,233,248) (40,293,563) - ----------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (6,863,444) 407,997 (53,283,806) Net assets at beginning of period 346,182,218 345,774,221 399,058,027 - ----------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 339,318,774 $ 346,182,218 $ 345,774,221 ================================================================================================================= Undistributed net investment income $ 223,177 $ 414,143 $ 409,732 - ----------------------------------------------------------------------------------------------------------------- (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 57 STATEMENTS OF CHANGES IN NET ASSETS
NEW YORK TAX-EXEMPT FUND SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) - net $ 1,270,174 $ 445,066 $ 2,853,705 Net realized gain (loss) on investments 31,303 (72,539) 527,983 Net change in unrealized appreciation (depreciation) on investments 470,923 1,514,873 (3,334,496) - ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,772,400 1,887,400 47,192 - ----------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (1,155,950) (405,739) (2,553,156) Class B (95,212) (35,821) (268,752) Class C (15,378) (5,866) (38,050) Net realized gain Class A (70,294) -- (665,061) Class B (7,232) -- (87,026) Class C (1,128) -- (12,789) - ----------------------------------------------------------------------------------------------------------------- Total distributions (1,345,194) (447,426) (3,624,834) - ----------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 2,466,664 1,254,286 7,210,267 Class B shares 257,264 104,005 625,727 Class C shares 70,209 32,356 237,394 Reinvestment of distributions at net asset value Class A shares 995,233 333,628 2,653,759 Class B shares 83,154 28,703 287,925 Class C shares 15,257 5,642 48,248 Payments for redemptions Class A shares (5,612,013) (2,281,555) (16,835,510) Class B shares (Note 2) (1,064,913) (1,146,108) (3,708,928) Class C shares (Note 2) (256,528) (60,772) (452,020) - ----------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (3,045,673) (1,729,815) (9,933,138) - ----------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (2,618,467) (289,841) (13,510,780) Net assets at beginning of period 71,071,055 71,360,896 84,871,676 - ----------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 68,452,588 $ 71,071,055 $ 71,360,896 ================================================================================================================= Undistributed net investment income $ 12,441 $ 8,807 $ 11,167 - ----------------------------------------------------------------------------------------------------------------- (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ 58 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS
OHIO TAX-EXEMPT FUND SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 20061(a) JUNE 30, 2006 (UNAUDITED) OPERATIONS AND DISTRIBUTIONS Investment income (loss) - net $ 780,324 $ 278,115 $ 1,772,983 Net realized gain (loss) on investments 10,723 (46,258) 53,211 Net change in unrealized appreciation (depreciation) on investments 296,719 1,057,934 (2,047,369) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,087,766 1,289,791 (221,175) - -------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income Class A (697,070) (248,276) (1,594,779) Class B (64,639) (22,960) (178,210) Class C (18,830) (6,879) (45,451) - -------------------------------------------------------------------------------------------------------------------- Total distributions (780,539) (278,115) (1,818,440) - -------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS (NOTE 4) Proceeds from sales Class A shares (Note 2) 1,286,526 1,007,750 4,686,479 Class B shares 118,662 52,305 184,460 Class C shares 36,254 14,061 111,991 Reinvestment of distributions at net asset value Class A shares 529,048 191,425 1,201,933 Class B shares 52,278 18,814 140,854 Class C shares 17,413 6,450 41,682 Payments for redemptions Class A shares (3,967,562) (2,090,937) (12,949,939) Class B shares (Note 2) (471,331) (498,609) (2,915,146) Class C shares (Note 2) (290,015) (105,925) (454,252) - -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from share transactions (2,688,727) (1,404,666) (9,951,938) - -------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (2,381,500) (392,990) (ll,991,553) Net assets at beginning of period 48,724,678 49,117,668 61,109,221 - -------------------------------------------------------------------------------------------------------------------- Net assets at end of period $ 46,343,178 $48,724,678 $ 49,117,668 ==================================================================================================================== (a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 59 NOTES TO FINANCIAL STATEMENTS (Unaudited as to Feb. 28, 2007) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RiverSource California Tax-Exempt Trust and RiverSource 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, except for RiverSource Minnesota Tax-Exempt Fund, which is a diversified fund, 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. 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 Feb. 28, 2007, the outstanding forward-commitments for the Funds are as follows:
WHEN-ISSUED OTHER FUND SECURITIES FORWARD-COMMITMENTS - -------------------------------------------------------------------------------- California Tax-Exempt Fund $ 1,187,100 $-- Massachusetts Tax-Exempt Fund 356,130 -- Michigan Tax-Exempt Fund 938,956 -- Minnesota Tax-Exempt Fund 9,545,935 -- New York Tax-Exempt Fund 1,187,100 -- Ohio Tax-Exempt Fund 593,550 --
- ------------------------------------------------------------------------------ 60 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT OPTION TRANSACTIONS To produce incremental earnings, protect gains and facilitate buying and selling of securities for investments, the Funds may buy and sell put and call options and write covered call options on portfolio securities as well as write cash-secured put options. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that the Funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of being unable to enter into a closing transaction if a liquid secondary market does not exist. The Funds also may write over-the-counter options where completing the obligation depends upon the credit standing of the other party. Option contracts are valued daily at the closing prices on their primary exchanges and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss when the option transaction expires or closes. When options on debt securities or futures are exercised, the Funds will realize a gain or loss. When other options are exercised, the proceeds on sales for a written call option, the purchase cost for a written put option or the cost of a security for a purchased put or call option is adjusted by the amount of the premium received or paid. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. SWAP TRANSACTIONS To produce incremental earnings, to gain exposure to or protect itself from market changes, the Funds may enter into swap agreements. Swaps are an agreement between two parties to exchange periodic cash flows based on a specified amount of principal. The net cash flow is generally the difference between a floating market interest rate versus a fixed interest rate. The Funds may employ swaps to synthetically add or subtract principal exposure to the municipal market. Risks of entering into a swap include a lack of correlation between swaps and the portfolio of municipal bonds the swaps are designed to hedge or replicate. A lack of correlation may cause the swap to experience adverse changes in value relative to expectations. In addition, swaps are subject to the risk of default of a counterparty, and the risk of adverse movements in market interest rates relative to the swap positions entered. Swaps are valued daily and unrealized appreciation and depreciation is recorded. The Funds will realize a gain or a loss when the swap is terminated. The Funds did not enter into any swap agreements for the six months ended Feb. 28, 2007. INVERSE FLOATER PROGRAM TRANSACTIONS Each Fund may enter into transactions in which it transfers to trusts fixed rate municipal bonds in exchange for cash and residual interests in the trusts' assets and cash flows, which are in the form of inverse floating rate securities. The trusts fund the purchases of the municipal bonds by issuing short-term floating rate notes to third parties. The residual interests held by each Fund (inverse floating rate securities) include the right of each Fund (1) to cause the holders of the short-term floating rate notes to tender their notes at par, and (2) to transfer the municipal bonds from the trusts to each Fund, thereby collapsing the trusts. The municipal bonds transferred to the trusts remain in each Fund's investments in securities and the related short-term floating rate notes are reflected as Fund liabilities under the caption "Short-term floating rate notes outstanding" in the "Statement of assets and liabilities." The notes issued by the trusts have interest rates that are multi-modal, which means that they can be reset to a new or different mode at the reset date (e.g., mode can be daily, weekly, monthly or a fixed specific date) at the discretion of the holder of the inverse floating rate security. The floating rate note holders have the option to tender their notes to the trusts for redemption at par at each reset date. Each Fund's investments are held by the trusts and serve as collateral in short-term floating rate notes outstanding. Contractual maturities and interest rates of the municipal bonds held in trust at Feb. 28, 2007, are presented in the "Investments in Securities." The inclusion of interest and fee expense related to the short-term floating rate notes corresponds to an equal increase in interest income from the fixed rate municipal bonds held in trust. At Feb. 28, 2007, the short-term floating rate notes outstanding were as follows: - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 61
MARKET VALUE SHORT-TERM OF MUNICIPAL FLOATING RATE RANGE OF BONDS HELD NOTES INTEREST FUND IN TRUST OUTSTANDING RATES - -------------------------------------------------------------------------------- Massachusetts Tax-Exempt Fund $ 1,149,510 $ 500,000 3.65% Michigan Tax-Exempt Fund 574,755 250,000 3.65% Minnesota Tax-Exempt Fund 27,892,334 16,810,000 3.69% - 3.72% New York Tax-Exempt Fund 6,085,603 3,630,000 3.65% - 3.72% Ohio Tax-Exempt Fund 574,755 250,000 3.65%
GUARANTEES AND INDEMNIFICATIONS Under each Fund's organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to each Fund. In addition, certain of each Fund's contracts with its service providers contain general indemnification clauses. Each Fund's maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against each Fund cannot be determined and each Fund has no historical basis for predicting the likelihood of any such claims. FEDERAL TAXES Each Fund's policy is to comply with Subchapter M of the Internal Revenue Code that applies to regulated investment companies and to distribute substantially all of its taxable income to shareholders. No provision for income or excise taxes is thus required. Each Fund is treated as a separate entity for federal income tax purposes. Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of deferred losses on certain futures contracts and losses deferred due to "wash sale" transactions. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains (losses) were recorded by the Funds. RECENT ACCOUNTING PRONOUNCEMENTS On Sept. 20, 2006, the Financial Accounting Standards Board ("FASB") released Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" ("SFAS 157"). SFAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of SFAS 157 is required for fiscal years beginning after Nov. 15, 2007 and interim periods within those fiscal years. The impact of SFAS 157 on the Fund's financial statements is being evaluated. In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48 prescribes a two-step process to recognize and measure a tax position taken or expected to be taken in a tax return. The first step is to determine whether a tax position has met the more-likely-than-not recognition threshold and the second step is to measure a tax position that meets the threshold to determine the amount of benefit to recognize. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after Dec. 15, 2006. Tax positions of each Fund are being evaluated to determine the impact, if any, to the Funds. The adoption of FIN 48 is not anticipated to have a material impact on the Funds. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income, declared daily and paid monthly, are reinvested in additional shares of each Fund at net asset value or payable in cash. Capital gains, when available, are distributed along with the last income dividend of the calendar year. OTHER Security transactions are accounted for on the date securities are purchased or sold. Interest income, including amortization of premium, market discount and original issue discount using the effective interest method, is accrued daily. - ------------------------------------------------------------------------------ 62 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 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 to 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 an 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. Other expenses are for, among other things, certain expenses of the Funds or the Board including: Fund boardroom and office expense, employee compensation, employee health and retirement benefits, and certain other expenses. Payment of these Fund and Board expenses is facilitated by a company providing limited administrative services to the Funds and the Board. For the six months ended Feb. 28, 2007, these amounts are as follows:
FUND OTHER EXPENSES - -------------------------------------------------------------------------------- California Tax-Exempt Fund $ 3,579 Massachusetts Tax-Exempt Fund 3,348 Michigan Tax-Exempt Fund 3,317 Minnesota Tax-Exempt Fund 4,092 New York Tax-Exempt Fund 3,380 Ohio Tax-Exempt Fund 3,312
Compensation of Board members includes, for the former Board Chair, compensation as well as retirement benefits. Certain other aspects of the former Board Chair's compensation, including health benefits and payment of certain other expenses, are included under other expenses. Under a Deferred Compensation Plan (the Plan), non-interested board members may defer receipt of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of each Fund or other RiverSource funds. Each Fund's liability for these amounts is adjusted for market value changes and remains in each Fund until distributed in accordance with the Plan. Professional fees included fees paid by each Fund for legal services and independent auditor services. Under a Transfer Agency Agreement, RiverSource Service Corporation (the Transfer Agent) maintains shareholder accounts and records. Each Fund pays the Transfer Agent an annual fee per shareholder account for this service as follows: o Class A $20.50 o Class B $21.50 o Class C $21.00 The incremental transfer agency fee is the amount charged to the specific classes for the additional expense above the base fee of $18.50. The Transfer Agent charges an annual closed account fee of $5 per inactive account, charged on a pro rata basis for 12 months from the date the account becomes inactive. These fees are included in the transfer agency fees on the statements of operations. Each Fund has agreements with Ameriprise Financial Services, Inc. and RiverSource Distributors, Inc. (collectively, the Distributor) for distribution and shareholder services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-l, each Fund pays a fee at an annual rate of up to 0.25% of each Fund's average daily net assets attributable to Class A shares and a fee at an annual rate of up to 1.00% of each Fund's average daily net assets attributable to Class B and Class C shares. 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 Aug. 31, 2007, unless sooner terminated at the discretion of the Board, such that net expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs) will not exceed 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. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 63 For the six months ended Feb. 28, 2007, the Investment Manager and its affiliates waived certain fees and expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs), such that the Funds net expenses are as follows:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt Fund 0.79% 1.55% 1.55% Massachusetts Tax-Exempt Fund 0.79 1.55 1.55 Michigan Tax-Exempt Fund 0.79 1.55 1.55 Minnesota Tax-Exempt Fund 0.79 1.55 1.55 New York Tax-Exempt Fund 0.79 1.55 1.55 Ohio Tax-Exempt Fund 0.79 1.55 1.55
For the period from July 1, 2006 to Aug. 31, 2006, the Investment Manager and its affiliates waived certain fees and expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs), such that the Funds net expenses are as follows:
FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt Fund 0.79% 1.55% 1.55% Massachusetts Tax-Exempt Fund 0.79 1.55 1.55 Michigan Tax-Exempt Fund 0.79 1.55 1.55 Minnesota Tax-Exempt Fund 0.79 1.55 1.55 New York Tax-Exempt Fund 0.79 1.55 1.55 Ohio Tax-Exempt Fund 0.79 1.55 1.55
For the year ended June 30, 2006, the Investment Manager and its affiliates waived certain fees and expenses (excluding interest and fee expenses related to the Fund's participation in certain inverse floater programs), such that the Funds net expenses are 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
- ------------------------------------------------------------------------------ 64 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT Of these waived fees and expenses, the transfer agency fees waived (noted by share class) and management fees for the periods indicated are as follows:
SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 FUND AMOUNT AMOUNT AMOUNT - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt Fund Class A $ 35,434 $ 9,368 $ 58,036 Class B 1,749 385 3,499 Class C 468 128 850 The management fees waived at the Fund level were 27,748 14,288 67,550 Massachusetts Tax-Exempt Fund Class A 16,774 15,032 34,233 Class B 2,939 2,876 8,270 Class C 256 252 748 The management fees waived at the Fund level were 39,208 7,714 59,638 Michigan Tax-Exempt Fund Class A 13,344 4,808 27,785 Class B 752 309 2,229 Class C 418 159 1,034 The management fees waived at the Fund level were 32,857 19,631 63,047 Minnesota Tax-Exempt Fund Class A 67,937 28,966 132,553 Class B 6,036 2,697 14,644 Class C 1,749 754 3,422 The management fees waived at the Fund level were -- 14,656 54,409 New York Tax-Exempt Fund Class A 19,217 6,875 40,263 Class B 1,926 722 4,927 Class C 331 129 780 The management fees waived at the Fund level were 35,647 19,149 65,479 Ohio Tax-Exempt Fund Class A 13,630 4,914 28,633 Class B 1,602 553 3,812 Class C 440 179 1,103 The management fees waived at the Fund level were. 35,983 19,744 63,767 (a) For the period from July 1, 2006 to Aug. 31, 2006.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 65 Sales charges received by the Distributor for distributing the Funds' shares for the periods indicated are as follows:
SIX MONTHS ENDED FEB. 28, 2007 FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt Fund $ 57,897 $ 5,021 $ 131 Massachusetts Tax-Exempt Fund 24,004 9,029 12 Michigan Tax-Exempt Fund 12,432 1,134 284 Minnesota Tax-Exempt Fund 152,016 15,245 352 New York Tax-Exempt Fund 12,091 6,489 410 Ohio Tax-Exempt Fund 10,274 1,746 51
PERIOD ENDED AUG. 31, 2006(a) FUND CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt Fund $ 28,971 $ 1,714 $ 17 Massachusetts Tax-Exempt Fund 7,835 7,394 1 Michigan Tax-Exempt Fund 2,094 3,820 362 Minnesota Tax-Exempt Fund 32,269 5,001 467 New York Tax-Exempt Fund 4,504 959 75 Ohio Tax-Exempt Fund 8,897 767 -- (a) For the period from July 1, 2006 to Aug. 31, 2006.
YEAR ENDED JUNE 30, 2006 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
The Funds' custodian and transfer agency fees were reduced as a result of earnings and bank fee credits from overnight cash balances for the periods indicated and are as follows:
SIX MONTHS ENDED PERIOD ENDED YEAR ENDED FEB. 28, 2007 AUG. 31, 2006(a) JUNE 30, 2006 FUND REDUCTION REDUCTION REDUCTION - ------------------------------------------------------------------------------------------------------------------------------------ California Tax-Exempt Fund $8,699 $1,945 $17,465 Massachusetts Tax-Exempt Fund 4,629 672 8,320 Michigan Tax-Exempt Fund 3,247 570 6,650 Minnesota Tax-Exempt Fund 21,285 9,068 50,995 New York Tax-Exempt Fund 3,512 1,748 8,318 Ohio Tax-Exempt Fund 2,807 1,024 6,726 (a) For the period from July 1, 2006 to Aug. 31, 2006.
For the year ended June 30, 2006, the Funds received a one time payment 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
- ------------------------------------------------------------------------------ 66 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 3. SECURITIES TRANSACTIONS For the six months ended Feb. 28, 2007, 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 $24,372,280 $30,112,585 Massachusetts Tax-Exempt Fund 2,192,376 7,102,233 Michigan Tax-Exempt Fund 2,400,833 6,434,323 Minnesota Tax-Exempt Fund 31,210,573 38,151,651 New York Tax-Exempt Fund 5,418,488 7,949,630 Ohio Tax-Exempt Fund 4,343,078 7,441,789
Realized gains and losses are determined on an identified cost basis. 4. SHARE TRANSACTIONS Transactions in shares for each Fund for the periods indicated are as follows:
CALIFORNIA TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 28, 2007 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 1,303,332 51,669 18,526 Issued for reinvested distributions 429,972 21,296 5,870 Redeemed (2,743,974) (169,609) (46,287) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (1,010,670) (96,644) (21,891) - ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(a) CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 713,105 28,307 11,091 Issued for reinvested distributions 155,930 7,832 2,105 Redeemed (1,573,086) (438,186) (15,324) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (704,051) (402,047) (2,128) - ------------------------------------------------------------------------------------------------------------------------------------
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) - ------------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 28, 2007 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 478,375 34,021 4,203 Issued for reinvested distributions 124,095 16,401 1,617 Redeemed (1,236,226) (268,183) (44,673) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (633,756) (217,761) (38,853) - ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(a) CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 363,719 10,202 3,388 Issued for reinvested distributions 44,686 6,934 672 Redeemed (401,184) (518,954) (10,891) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) 7,221 (501,818) (6,831) - ------------------------------------------------------------------------------------------------------------------------------------
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) - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 67
MICHIGAN TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 28, 2007 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 333,228 4,466 17,351 Issued for reinvested distributions 116,489 4,898 2,995 Redeemed (1,116,473) (81,487) (53,572) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (666,756) (72,123) (33,226) - ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(a) CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold Issued for 125,670 1,992 5,188 reinvested distributions 42,120 1,857 1,100 Redeemed (230,194) (139,247) (25,467) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (62,404) (135,398) (19,179) - ------------------------------------------------------------------------------------------------------------------------------------
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) - ------------------------------------------------------------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 28, 2007 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 2,784,437 64,594 96,979 Issued for reinvested distributions 863,339 68,370 19,746 Redeemed (4,778,184) (530,981) (168,094) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (1,130,408) (398,017) (51,369) - ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(a) CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 1,249,041 22,719 15,239 Issued for reinvested distributions 296,839 24,100 6,760 Redeemed (1,650,357) (1,099,618) (62,221) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (104,477) (1,052,799) (40,222) - ------------------------------------------------------------------------------------------------------------------------------------
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) - ------------------------------------------------------------------------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 28, 2007 CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 487,557 50,634 13,866 Issued for reinvested distributions 196,255 16,403 3,010 Redeemed (1,107,773) (209,824) (50,669) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (423,961) (142,787) (33,793) - ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(a) CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Sold 252,039 20,852 6,460 Issued for reinvested distributions 66,580 5,730 1,126 Redeemed (456,343) (230,530) (12,175) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) (137,724) (203,948) (4,589) - ------------------------------------------------------------------------------------------------------------------------------------
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) - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ 68 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT
OHIO TAX-EXEMPT FUND SIX MONTHS ENDED FEB. 28, 2007 CLASS A CLASS B CLASS C - --------------------------------------------------------------------------------------------- Sold 243,730 22,402 6,869 Issued for reinvested distributions 100,135 9,895 3,296 Redeemed (751,650) (89,402) (54,873) - --------------------------------------------------------------------------------------------- Net increase (decrease) (407,785) (57,105) (44,708) - ---------------------------------------------------------------------------------------------
PERIOD ENDED AUG. 31, 2006(a) CLASS A CLASS B CLASS C - --------------------------------------------------------------------------------------------- Sold 194,690 10,118 2,707 Issued for reinvested distributions 36,662 3,603 1,235 Redeemed (401,786) (96,356) (20,427) - --------------------------------------------------------------------------------------------- Net increase (decrease) (170,434) (82,635) (16,485) - ---------------------------------------------------------------------------------------------
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) - --------------------------------------------------------------------------------------------- (a) For the period from July 1, 2006 to Aug. 31, 2006.
5. INTEREST RATE FUTURES CONTRACTS At Feb. 28, 2007, RiverSource California Tax-Exempt Fund's investments in securities included securities valued at $111,315 that were pledged as collateral to cover initial margin deposits on 136 open sale contracts. The notional market value of the open sale contracts at Feb. 28, 2007 was $14,768,750 with a net unrealized loss of $83,713. See "Summary of significant accounting policies" and "Notes to investments in securities." At Feb. 28, 2007, RiverSource Massachusetts Tax-Exempt Fund's investments in securities included securities valued at $39,621 that were pledged as collateral to cover initial margin deposits on 43 open sale contracts. The notional market value of the open sale contracts at Feb. 28, 2007 was $4,669,531 with a net unrealized loss of $27,332. See "Summary of significant accounting policies" and "Notes to investments in securities." At Feb. 28, 2007, RiverSource Michigan Tax-Exempt Fund's investments in securities included securities valued at $37,022 that were pledged as collateral to cover initial margin deposits on 37 open sale contracts. The notional market value of the open sale contracts at Feb. 28, 2007 was $4,017,969 with a net unrealized loss of $22,884. See "Summary of significant accounting policies" and "Notes to investments in securities." At Feb. 28, 2007, RiverSource Minnesota Tax-Exempt Fund's investments in securities included securities valued at $236,215 that were pledged as collateral to cover initial margin deposits on 261 open sale contracts. The notional market value of the open sale contracts at Feb. 28, 2007 was $28,342,969 with a net unrealized loss of $160,455. See "Summary of significant accounting policies" and "Notes to investments in securities." At Feb. 28, 2007, RiverSource New York Tax-Exempt Fund's investments in securities included securities valued at $54,644 that were pledged as collateral to cover initial margin deposits on 55 open sale contracts. The notional market value of the open sale contracts at Feb. 28, 2007 was $5,972,656 with a net unrealized loss of $33,900. See "Summary of significant accounting policies" and "Notes to investments in securities." At Feb. 28, 2007, RiverSource Ohio Tax-Exempt Fund's investments in securities included securities valued at $45,875 that were pledged as collateral to cover initial margin deposits on 37 open sale contracts. The notional market value of the open sale contracts at Feb. 28, 2007 was $4,017,969 with a net unrealized loss of 22,884. See "Summary of significant accounting policies" and "Notes to investments in securities." - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 69 6. 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. 19, 2006. 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 0.06% per annum. Prior to this agreement, the Fund paid a commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.07% per annum. Each Fund had no borrowings under the facility outstanding during the six months ended Feb. 28, 2007. 7. CAPITAL LOSS CARRY-OVER For federal income tax purposes, capital loss carry-overs at Aug. 31, 2006 are as follows:
FUND 2012 2013 2014 - ----------------------------------------------------------------- California Tax-Exempt Fund $ -- $ -- $ 109,278 Massachusetts Tax-Exempt Fund -- -- 150,080 Michigan Tax-Exempt Fund -- -- 73,073 Minnesota Tax-Exempt Fund -- 1,520,753 913,006 New York Tax-Exempt Fund -- -- 79,756 Ohio Tax-Exempt Fund 39,505 -- 51,069
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. 8. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS In June 2004, an action captioned John E. Gallus et al. v. American Express Financial Corp. and American Express Financial Advisors Inc., was filed in the United States District Court for the District of Arizona. The plaintiffs allege that they are investors in several American Express Company mutual funds and they purport to bring the action derivatively on behalf of those funds under the Investment Company Act of 1940. The plaintiffs allege that fees allegedly paid to the defendants by the funds for investment advisory and administrative services are excessive. The plaintiffs seek remedies including restitution and rescission of investment advisory and distribution agreements. The plaintiffs voluntarily agreed to transfer this case to the United States District Court for the District of Minnesota. In response to our motion to dismiss the complaint, the Court dismissed one of plaintiffs' four claims and granted plaintiffs limited discovery. Discovery is currently set to end in March 2007. In December 2005, without admitting or denying the allegations, American Express Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc. (Ameriprise Financial)), 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. - ------------------------------------------------------------------------------ 70 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT Ameriprise Financial and its affiliates have cooperated with the SEC and the MDOC in these legal proceedings, and have made regular reports to the RiverSource Funds' Boards of Directors/Trustees. Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov. There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial. 9. CHANGE OF FUND'S FISCAL YEAR The By-Laws of each Fund were amended on April 13, 2006, changing their fiscal year end from June 30 to Aug. 31, effective Aug. 31, 2006. 10. FINANCIAL HIGHLIGHTS The tables below show certain important financial information for evaluating each Fund's results. RiverSource California Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $5.16 $5.06 $5.27 $5.11 $5.37 $5.23 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .10 .03 .19 .20 .21 .23 Net gains (losses) (both realized and unrealized) .05 .10 (.15) .23 (.20) .14 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .15 .13 .04 .43 .01 .37 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.03) (.19) (.20) (.21) (.23) Distributions from realized gains -- -- (.06) (.07) (.06) -- - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.03) (.25) (.27) (.27) (.23) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.21 $5.16 $5.06 $5.27 $ 5.11 $5.37 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 167 $ 170 $ 171 $ 190 $ 194 $ 237 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) .79%(d),(e) .79%(d),(e) .81%(d) .86% .86% .85% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.83%(e) 3.81%(e) 3.69% 3.71% 4.03% 4.34% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 14% 7% 20% 28% 30% 95% - --------------------------------------------------------------------------------------------------------------------------- Total return(f) 2.91%(g) 2.63%(g) .81% 8.53% .25% 7.26% - --------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 0.86% for the six months ended Feb. 28, 2007, 0.87% for the period ended Aug. 31, 2006 and 0.88% for the year ended June 30, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 71 RiverSource California Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $5.16 $5.06 $5.27 $5.11 $5.37 $5.23 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 .03 .15 .16 .17 .19 Net gains (losses) (both realized and unrealized) .05 .10 (.15) .23 (.20) .14 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .13 .13 -- .39 (.03) .33 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.03) (.15) (.16) (.17) (.19) Distributions from realized gains -- -- (.06) (.07) (.06) - - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.08) (.03) (.21) (.23) (.23) (.19) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $5.21 $5.16 $5.06 $5.27 $5.11 $5.37 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 8 $ 9 $ 11 $ 16 $ 21 $ 27 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.55%(d),(e) 1.55%(d),(e) 1.57%(d) 1.61% 1.61% 1.60% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.08%(e) 3.01%(e) 2.92% 2.95% 3.28% 3.58% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 14% 7% 20% 28% 30% 95% - --------------------------------------------------------------------------------------------------------------------------- Total return(f) 2.53%(g) 2.50%(g) .05% 7.72% (.50%) 6.44% - --------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.62% for the six months ended Feb. 28, 2007, 1.62% for the period ended Aug. 31, 2006 and 1.63% for the year ended June 30, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
- ------------------------------------------------------------------------------ 72 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource California Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.17 $ 5.07 $ 5.28 $ 5.12 $ 5.38 $ 5.24 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .08 .03 .15 .16 .17 .19 Net gains (losses) (both realized and unrealized) .05 .10 (.15) .23 (.20) .14 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .13 .13 -- .39 (.03) .33 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.03) (.15) (.16) (.17) (.19) Distributions from realized gains -- -- (.06) (.07) (.06) - - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.08) (.03) (.21) (.23) (.23) (.19) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.22 $ 5.17 $ 5.07 $ 5.28 $ 5.12 $ 5.38 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 2 $ 2 $ 2 $ 3 $ 4 $ 5 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets(c) 1.55%(d),(e) 1.55%(d),(e) 1.58%(d) 1.62% 1.62% 1.61% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.07%(e) 3.05%(e) 2.93% 2.94% 3.27% 3.56% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 14% 7% 20% 28% 30% 95% - --------------------------------------------------------------------------------------------------------------------------- Total return(f) 2.53%(g) 2.50%(g) .06% 7.71% (.50%) 6.43% - --------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.62% for the six months ended Feb. 28, 2007, 1.63% for the period ended Aug. 31, 2006 and 1.64% for the year ended June 30, 2006. (e) Adjusted to an annual basis. (f) Total return does not reflect payment of a sales charge. (g) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 73 RiverSource Massachusetts Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.33 $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37 - ------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .03 .18 .17 .18 .19 Net gains (losses) (both realized and unrealized) .03 .11 (.20) .22 (.19) .16 - ------------------------------------------------------------------------------------------------------------------------- Total from investment operations .12 .14 (.02) .39 (.01) .35 - ------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.03) (.18) (.17) (.18) (.19) Distributions from realized gains -- -- (.03) (.03) (.06) (.02) - ------------------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.03) (.21) (.20) (.24) (.21) - ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.36 $ 5.33 $ 5.22 $ 5.45 $ 5.26 $ 5.51 - ------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 46 $ 49 $ 48 $ 56 $ 59 $ 73 - ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) .79%(e) .79%(e) .81% .88% .88% .88% - ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) .82%(e) .82%(e) .87% .92% .90% .98% - ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.50%(e) 3.52%(e) 3.38% 3.17% 3.35% 3.57% - ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 4% 5% 17% 9% 14% 141% - ------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.32%(h) 2.72%(h) (.29%) 7.42% (.24%) 6.73% - ------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31,2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.00%, excluding interest and fee expense, and 1.03%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.05%, excluding interest and fee expense, and 1.08% including interest and fee expense, for the period ended Aug. 31, 2006 and 0.97%, 0.94%, 0.93% and 0.92%, excluding interest and fee expense, and 1.03%, 0.98%, 0.95% and 1.02%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 74 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Massachusetts Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.33 $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37 - ------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .03 .14 .13 .14 .15 Net gains (losses) (both realized and unrealized) .03 .10 (.20) .22 (.19) .16 - ------------------------------------------------------------------------------------------------------------------------- Total from investment operations .10 .13 (.06) .35 (.05) .31 - ------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.02) (.14) (.13) (.14) (.15) Distributions from realized gains -- -- (.03) (.03) (.06) (.02) - ------------------------------------------------------------------------------------------------------------------------- Total distributions (.07) (.02) (.17) (.16) (.20) (.17) - ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.36 $ 5.33 $ 5.22 $ 5.45 $ 5.26 $ 5.51 - ------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 8 $ 9 $ 12 $ 18 $ 21 $ 24 - ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) 1.55%(e) 1.55%(e) 1.58% 1.64% 1.64% 1.63% - ------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.58%(e) 1.58%(e) 1.64% 1.68% 1.66% 1.73% - ------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.75%(e) 2.72%(e) 2.61% 2.41% 2.59% 2.81% - ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 4% 5% 17% 9% 14% 141% - ------------------------------------------------------------------------------------------------------------------------- Total return(g) 1.94%(h) 2.58%(h) (1.05%) 6.61% (.99%) 5.92% - ------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.76%, excluding interest and fee expense, and 1.79%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.79%, excluding interest and fee expense, and 1.82%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.72%, 1.69%, 1.69% and 1.68%, excluding interest and fee expense, and 1.78%, 1.73%, 1.71% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 75 RiverSource Massachusetts Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.32 $ 5.21 $ 5.44 $ 5.26 $ 5.51 $ 5.37 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .03 .14 .13 .14 .15 Net gains (losses) (both realized and unrealized) .04 .11 (.20) .21 (.19) .16 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .11 .14 (.06) .34 (.05) .31 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.03) (.14) (.13) (.14) (.15) Distributions from realized gains -- -- (.03) (.03) (.06) (.02) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.07) (.03) (.17) (.16) (.20) (.17) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.36 $ 5.32 $ 5.21 $ 5.44 $ 5.26 $ 5.51 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1 $ 1 $ 1 $ 1 $ 2 $ 2 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) 1.55%(e) 1.55%(e) 1.58% 1.64% 1.64% 1.64% - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.58%(e) 1.58%(e) 1.64% 1.68% 1.66% 1.74% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.75%(e) 2.76%(e) 2.62% 2.41% 2.58% 2.88% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 4% 5% 17% 9% 14% 141% - --------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.13%(h) 2.59%(h) (1.05%) 6.41% (.97%) 5.91% - --------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.76%, excluding interest and fee expense, and 1.79%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.81%, excluding interest and fee expense, and 1.84%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.73%, 1.70%, 1.69% and 1.68%, excluding interest and fee expense, and 1.79%, 1.74%, 1.71% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 76 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.25 $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .03 .18 .18 .19 .22 Net gains (losses) (both realized and unrealized) .03 .10 (.16) .17 (.18) .19 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .12 .13 .02 .35 .01 .41 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.03) (.18) (.18) (.19) (.22) Distributions from realized gains -- -- (.04) (.03) (.08) (.05) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.03) (.22) (.21) (.27) (.27) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.28 $ 5.25 $ 5.15 $ 5.35 $ 5.21 $ 5.47 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 42 $ 46 $ 45 $ 53 $ 56 $ 70 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) .79%(e) .79%(e) .81% .88% .88% .88% - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) .81%(e) .81%(e) .81% .88% .89% .97% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.52%(e) 3.44%(e) 3.38% 3.45% 3.55% 4.06% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 5% 6% 16% 9% 32% 113% - --------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.34%(h) 2.54%(h) .40% 6.80% .19% 8.00% - --------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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%, excluding interest and fee expense, and 1.01%, including interest and fee expense, for the six months ended Feb. 28,2007 and 1.09%, excluding interest and fee expense, and 1.11%, including interest and fee expense, for the period ended Aug. 31,2006 and 0.98%, 0.96%, 0.94% and 0.93%, excluding interest and fee expense, and 0.98%, 0.96%, 0.95% and 1.02%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 77 RiverSource Michigan Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.26 $ 5.16 $ 5.35 $ 5.21 $ 5.47 $ 5.33 - --------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .02 .14 .14 .15 .18 Net gains (losses) (both realized and unrealized) .03 .10 (.15) .17 (.18) .19 - --------------------------------------------------------------------------------------------------------------------------- Total from investment operations .10 .12 (.01) .31 (.03) .37 - --------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.02) (.14) (.14) (.15) (.18) Distributions from realized gains -- -- (.04) (.03) (.08) (.05) - --------------------------------------------------------------------------------------------------------------------------- Total distributions (.07) (.02) (.18) (.17) (.23) (.23) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.29 $ 5.26 $ 5.16 $ 5.35 $ 5.21 $ 5.47 - --------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 2 $ 3 $ 3 $ 5 $ 7 $ 9 - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) 1.55%(e) 1.55%(e) 1.58% 1.64% 1.63% 1.63% - --------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.57%(e) 1.57%(e) 1.58% 1.64% 1.64% 1.72% - --------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.76%(e) 2.65%(e) 2.61% 2.69% 2.79% 3.28% - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 5% 6% 16% 9% 32% 113% - --------------------------------------------------------------------------------------------------------------------------- Total return(g) 1.96%(h) 2.39%(h) (.17%) 5.99% (.56%) 7.18% - --------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.75%, excluding interest and fee expense, and 1.77%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.83%, excluding interest and fee expense, and 1.85%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.74%, 1.71%, 1.70% and 1.69%, excluding interest and fee expense, and 1.74%, 1.71%, 1.71% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 78 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Michigan Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.26 $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33 - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .02 .14 .14 .15 .18 Net gains (losses) (both realized and unrealized) .02 .11 (.16) .17 (.18) .19 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .09 .13 (.02) .31 (.03) .37 - ------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.02) (.14) (.14) (.15) (.18) Distributions from realized gains -- -- (.04) (.03) (.08) (.05) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.07) (.02) (.18) (.17) (.23) (.23) - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.28 $ 5.26 $ 5.15 $ 5.35 $ 5.21 $ 5.47 - ------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1 $ 1 $ 1 $ 2 $ 2 $ 2 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) 1.55%(e) 1.55%(e) 1.57% 1.64% 1.64% 1.63% - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.57%(e) 1.57%(e) 1.57% 1.64% 1.65% 1.72% - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.77%(e) 2.67%(e) 2.61% 2.70% 2.80% 3.27% - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 5% 6% 16% 9% 32% 113% - ------------------------------------------------------------------------------------------------------------------------------- Total return(g) 1.76%(h) 2.59%(h) (.36%) 5.99% (.57%) 7.18% - ------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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%, excluding interest and fee expense, and 1.77%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.84%, excluding interest and fee expense, and 1.86%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.74%, 1.72%, 1.70% and 1.69%, excluding interest and fee expense, and 1.74%, 1.72%, 1.71% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 79 RiverSource Minnesota Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20 - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .03 .18 .18 .19 .22 Net gains (losses) (both realized and unrealized) .04 .10 (.17) .17 (.17) .17 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .13 .13 .01 .35 .02 .39 - ------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.10) (.03) (.18) (.18) (.19) (.22) Distributions from realized gains -- -- (.01) (.02) -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.03) (.19) (.20) (.19) (.22) - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.30 $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 - ------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in millions) $ 304 $ 309 $ 303 $ 341 $ 347 $ 393 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c) .79%(d),(e) .79%(d),(e) .81%(d) .85% .84% .84% - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) .98%(d),(e) .98%(d),(e) .96%(d) .95% .90% .96% - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.63%(e) 3.60%(e) 3.52% 3.37% 3.60% 4.26% - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 3% 13% 15% 23% 73% - ------------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.45%(h) 2.56.%(h) .29% 6.73% .32% 7.78% - ------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 0.84%, excluding interest and fee expense, and 1.02%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 0.87%, excluding interest and fee expense, and 1.06%, including interest and fee expense, for the period ended Aug. 31, 2006 and 0.86%, excluding interest and fee expense, and 1.01%, including interest and fee expense, for the year ended June 30, 2006. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 80 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Minnesota Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20 - ------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .03 .14 .14 .15 .18 Net gains (losses) (both realized and unrealized) .04 .10 (.17) .17 (.17) .17 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .11 .13 (.03) .31 (.02) .35 - ------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.03) (.14) (.14) (.15) (.18) Distributions from realized gains -- -- (.01) (.02) -- -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.08) (.03) (.15) (.16) (.15) (.18) - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.30 $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 - ------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 27 $ 29 $ 34 $ 49 $ 59 $ 68 - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c) 1.55%(d),(e) 1.55%(d),(e) 1.57%(d) 1.60% 1.59% 1.59% - ------------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.74%(d),(e) 1.74%(d),(e) 1.72%(d) 1.70% 1.65% 1.71% - ------------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.87%(e) 2.81%(e) 2.75% 2.62% 2.85% 3.48% - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 3% 13% 15% 23% 73% - ------------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.07%(h) 2.42%(h) (.47%) 5.94% (.44%) 6.97% - ------------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.59%, excluding interest and fee expense, and 1.78%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.62%, excluding interest and fee expense, and 1.81%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.62%, excluding interest and fee expense, and 1.77%, including interest and fee expense, for the year ended June 30, 2006. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 81 RiverSource Minnesota Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG.31 YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .03 .14 .14 .15 .18 Net gains (losses) (both realized and unrealized) .04 .10 (.17) .17 (.17) .17 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .11 .13 (.03) .31 (.02) .35 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.08) (.03) (.14) (.14) (.15) (.18) Distributions from realized gains -- -- (.01) (.02) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.08) (.03) (.15) (.16) (.15) (.18) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 5.30 $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 8 $ 8 $ 8 $ 9 $ 9 $ 9 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets, excluding interest and fee expense(c) 1.55%(d),(e) 1.55%(d),(e) 1.57%(d) 1.61% 1.60% 1.60% - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.74%(d),(e) 1.74%(d),(e) 1.72%(d) 1.71% 1.66% 1.72% - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 2.87%(e) 2.84%(e) 2.76% 2.62% 2.84% 3.44% - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 9% 3% 13% 15% 23% 73% - ------------------------------------------------------------------------------------------------------------------------------------ Total return(g) 2.07%(h) 2.42%(h) (.47%) 5.94% (.44%) 6.96% - ------------------------------------------------------------------------------------------------------------------------------------ (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.59%, excluding interest and fee expense, and 1.78%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.63%, excluding interest and fee expense, and 1.82%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.62%, excluding interest and fee expense, and 1.77%, including interest and fee expense, for the year ended June 30, 2006. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 82 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource New York Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG.31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.05 $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16 - -------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .03 .19 .18 .18 .20 Net gains (losses) (both realized and unrealized) .04 .10 (.18) .17 (.18) .22 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations .13 .13 .01 .35 - .42 - -------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.03) (.19) (.18) (.18) (.20) Distributions from realized gains (.01) - (.05) (.06) (.11) (.02) - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.10) (.03) (.24) (.24) (.29) (.22) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.08 $ 5.05 $ 4.95 $ 5.18 $ 5.07 $ 5.36 - -------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 61 $ 63 $ 63 $ 73 $ 79 $ 97 - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) .79%(e) .79%(e) .81% .88% .88% .88% - -------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) .99%(e) .98%(e) .98% .98% .95% 1.00% - -------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.76%(e) 3.77%(e) 3.75% 3.47% 3.44% 3.88% - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 8% 7% 17% 30% 36% 91% - -------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.60%(h) 2.67%(h) .20% 7.04% (.02%) 8.43% - -------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) The Investment Manager and its affiliates waived/reimbursed the Fund for certain expenses. Had they not done so, the annual ratios of expenses for Class A would have been 0.95%, excluding interest and fee expense, and 1.15%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.01%, excluding interest and fee expense, and 1.20%, including interest and fee expense, for the period ended Aug. 31, 2006 and 0.96%, 0.92%, 0.93% and 0.90%, excluding interest and fee expense, and 1.13%, 1.02%, 1.00% and 1.02%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 83 RiverSource New York Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.05 $4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .03 .15 .14 .14 .16 Net gains (losses) (both realized and unrealized) .04 .10 (.18) .17 (.18) .22 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .11 .13 (.03) .31 (.04) .38 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.03) (.15) (.14) (.14) (.16) Distributions from realized gains (.01) -- (.05) (.06) (.11) (.02) - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.08) (.03) (.20) (.20) (.25) (.18) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 5.08 $5.05 $ 4.95 $ 5.18 $ 5.07 $ 5.36 - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 6 $ 7 $ 8 $ 11 $ 15 $ 18 - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) 1.55%(e) 1.55%(e) 1.58% 1.64% 1.63% 1.63% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.75%(e) 1.74%(e) 1.75% 1.74% 1.70% 1.75% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 3.00%(e) 2.98%(e) 2.98% 2.70% 2.69% 3.13% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 8% 7% 17% 30% 36% 91% - ------------------------------------------------------------------------------------------------------------------------------ Total return(g) 2.21%(h) 2.54%(h) (.55%) 6.23% (.78%) 7.61% - ------------------------------------------------------------------------------------------------------------------------------ (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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%, excluding interest and fee expense, and 1.91%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.76%, excluding interest and fee expense, and 1.95%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.71%, 1.67%, 1.69% and 1.66%, excluding interest and fee expense, and 1.88%, 1.77%, 1.76% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 84 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource New York Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.05 $4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16 - ------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .03 .15 .14 .14 .16 Net gains (losses) (both realized and unrealized) .04 .10 (.18) .17 (.18) .22 - ------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .11 .13 (.03) .31 (.04) .38 - ------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.03) (.15) (.14) (.14) (.16) Distributions from realized gains (.01) -- (.05) (.06) (.11) (.02) - ------------------------------------------------------------------------------------------------------------------------------ Total distributions (.08) (.03) (.20) (.20) (.25) (.18) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 5.08 $5.05 $ 4.95 $ 5.18 $ 5.07 $ 5.36 - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1 $ 1 $ 1 $ 1 $ 2 $ 2 - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) 1.55%(e) 1.55%(e) 1.58% 1.64% 1.63% 1.64% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.75%(e) 1.74%(e) 1.75% 1.74% 1.70% 1.76% - ------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income (loss) to average daily net assets 3.00%(e) 3.01%(e) 2.99% 2.70% 2.68% 3.07% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (excluding short-term securities) 8% 7% 17% 30% 36% 91% - ------------------------------------------------------------------------------------------------------------------------------ Total return(g) 2.21%(h) 2.54%(h) (.55%) 6.23% (.78%) 7.60% - ------------------------------------------------------------------------------------------------------------------------------ (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.71%, excluding interest and fee expense, and 1.91%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.78%, excluding interest and fee expense, and 1.97%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.72%, 1.68%, 1.69% and 1.66%, excluding interest and fee expense, and 1.89%, 1.78%, 1.76% and 1.78%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 85 RiverSource Ohio Tax-Exempt Fund CLASS A
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.26 $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.35 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .09 .03 .17 .16 .17 .18 Net gains (losses) (both realized and unrealized) .04 .11 (.19) .19 (.20) .19 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations .13 .14 (.02) .35 (.03) .37 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.09) (.03) (.18) (.16) (.17) (.18) Distributions from realized gains -- -- -- -- (.07) (.11) - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.09) (.03) (.18) (.16) (.24) (.29) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.30 $ 5.26 $ 5.15 $ 5.35 $ 5.16 $ 5.43 - ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 40 $ 42 $ 42 $ 51 $ 56 $ 67 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) .79%(e) .79%(e) .81% .88% .88% .88% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) .81%(e) .81%(e) .81% .89% .90% .96% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 3.42%(e) 3.45%(e) 3.31% 3.07% 3.13% 3.40% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 7% 18% 33% 17% 194% - ----------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.48%(h) 2.73%(h) (.41%) 6.90% (.67%) 7.08% - ----------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.01%, excluding interest and fee expense, and 1.03%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.10%, excluding interest and fee expense, and 1.12%, including interest and fee expense, for the period ended Aug. 31, 2006 and 0.99%, 0.95%, 0.95% and 0.92%, excluding interest and fee expense, and 0.99%, 0.96%, 0.97% and 1.00%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 86 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT RiverSource Ohio Tax-Exempt Fund CLASS B
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.26 $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.34 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .02 .13 .12 .13 .14 Net gains (losses) (both realized and unrealized) .04 .11 (.19) .19 (.20) .20 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations .11 .13 (.06) .31 (.07) .34 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.02) (.14) (.12) (.13) (.14) Distributions from realized gains -- -- -- -- (.07) (.11) - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.07) (.02) (.14) (.12) (.20) (.25) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.30 $ 5.26 $ 5.15 $ 5.35 $ 5.16 $ 5.43 - ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 5 $ 5 $ 5 $ 8 $ 10 $ 13 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) 1.55%(e) 1.55%(e) 1.58% 1.64% 1.63% 1.63% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.57%(e) 1.57%(e) 1.58% 1.65% 1.65% 1.71% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.66%(e) 2.67%(e) 2.54% 2.31% 2.38% 2.62% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 7% 18% 33% 17% 194% - ----------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.09%(h) 2.60%(h) (1.17%) 6.10% (1.43%) 6.47% - ----------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.76%, excluding interest and fee expense, and 1.78%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.85%, excluding interest and fee expense, and 1.87%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.74%, 1.70%, 1.71% and 1.68%, excluding interest and fee expense, and 1.74%, 1.71%, 1.73% and 1.76%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 87 RiverSource Ohio Tax-Exempt Fund CLASS C
PER SHARE INCOME AND CAPITAL CHANGES(a) SIX MONTHS ENDED PERIOD ENDED FEB. 28, 2007 AUG. 31, YEAR ENDED JUNE 30, (UNAUDITED) 2006(b) 2006 2005 2004 2003 Net asset value, beginning of period $ 5.26 $ 5.16 $ 5.35 $ 5.16 $ 5.43 $ 5.35 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) .07 .02 .13 .12 .13 .14 Net gains (losses) (both realized and unrealized) .04 .10 (.18) .19 (.20) .19 - ----------------------------------------------------------------------------------------------------------------------------- Total from investment operations .11 .12 (.05) .31 (.07) .33 - ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends from net investment income (.07) (.02) (.14) (.12) (.13) (.14) Distributions from realized gains -- -- -- -- (.07) (.11) - ----------------------------------------------------------------------------------------------------------------------------- Total distributions (.07) (.02) (.14) (.12) (.20) (.25) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.30 $ 5.26 $ 5.16 $ 5.35 $ 5.16 $ 5.43 - ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 1 $ 1 $ 2 $ 2 $ 2 $ 3 - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, excluding interest and fee expense(c),(d) 1.55%(e) 1.55%(e) 1.58% 1.64% 1.63% 1.63% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of expenses to average daily net assets, including interest and fee expense(f) 1.57%(e) 1.57%(e) 1.58% 1.65% 1.65% 1.71% - ----------------------------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average daily net assets 2.65%(e) 2.69%(e) 2.55% 2.31% 2.38% 2.54% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate (excluding short-term securities) 9% 7% 18% 33% 17% 194% - ----------------------------------------------------------------------------------------------------------------------------- Total return(g) 2.09%(h) 2.40%(h) (.98%) 6.10% (1.44%) 6.26% - ----------------------------------------------------------------------------------------------------------------------------- (a) For a share outstanding throughout the period. Rounded to the nearest cent. (b) For the period from July 1, 2006 to Aug. 31, 2006. (c) Expense ratio is based on total expenses of the Fund before reduction of earnings and bank fee credits on cash balances. (d) 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 1.77%, excluding interest and fee expense, and 1.79%, including interest and fee expense, for the six months ended Feb. 28, 2007 and 1.86%, excluding interest and fee expense, and 1.88%, including interest and fee expense, for the period ended Aug. 31, 2006 and 1.75%, 1.71%, 1.71% and 1.68%, excluding interest and fee expense, and 1.75%, 1.72%, 1.73% and 1.76%, including interest and fee expense, for the years ended June 30, 2006, 2005, 2004 and 2003, respectively. (e) Adjusted to an annual basis. (f) Ratios include interest and fee expense related to the Fund's participation in certain inverse floater programs. Due to an equal increase in interest income from fixed rate municipal bonds held in trust, there is no impact on the Fund's net assets, net asset value per share, total return or net investment income. See Note 1 to the financial statements. (g) Total return does not reflect payment of a sales charge. (h) Not annualized.
- ------------------------------------------------------------------------------ 88 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT PROXY VOTING The policy of the Board is to vote all proxies of the companies in which the Fund holds investments. The procedures are stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling RiverSource Funds at (888) 791-3380; contacting your financial institution; visiting riversource.com/funds; or searching the website of the Securities and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006 is available without charge by visiting riversource.com/funds; or searching the website of the SEC at www.sec.gov. - ------------------------------------------------------------------------------ RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2007 SEMIANNUAL REPORT 89 RIVERSOURCE [LOGO](R) INVESTMENTS RIVERSOURCE(R) STATE TAX-EXEMPT FUNDS 734 AMERIPRISE FINANCIAL CENTER MINNEAPOLIS, MN 55474 riversource.com/funds This report must be accompanied or preceded by the Fund's current prospectus. RiverSource(R)mutual funds are distributed by RiverSource Distributors, Inc. and Ameriprise Financial Services, Inc., Members NASD, and managed by RiverSource Investments, LLC. These companies are part of Ameriprise Financial, Inc. S-6329 X (4/07) Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of matters to a vote of security holders. Not applicable. Item 11. Controls and Procedures. (a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's Principal Financial Officer and Principal Executive Officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. (b) There were no changes in the registrant's internal controls over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Not applicable for semi-annual reports. (a)(2) Separate certification for the Registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX.99.CERT. (a)(3) Not applicable. (b) A certification by the Registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX.99.906 CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) RiverSource California Tax-Exempt Trust By /s/ Patrick T. Bannigan ----------------------- Patrick T. Bannigan President and Principal Executive Officer Date May 2, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ Patrick T. Bannigan ----------------------- Patrick T. Bannigan President and Principal Executive Officer Date May 2, 2007 By /s/ Jeffrey P. Fox ----------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer Date May 2, 2007 EX-99.CERT 2 california_cert.txt CERTIFICATION PURSUANT TO 270.30A-2 OF THE INVESTMENT COMPANY ACT OF 1940 Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Patrick T. Bannigan, 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: April 24, 2007 /s/ Patrick T. Bannigan --------------------------------------------- Name: Patrick T. Bannigan Title: President and Principal Executive Officer Certification Pursuant to 270.30a-2 of the Investment Company Act of 1940 I, Jeffrey P. Fox, certify that: 1. I have reviewed this report on Form N-CSR of RiverSource 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: April 24, 2007 /s/ Jeffrey P. Fox -------------------------------------------- Name: Jeffrey P. Fox Title: Treasurer and Principal Financial Officer EX-99.CERT 3 california_cert906.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: April 24, 2007 /s/ Patrick T. Bannigan ----------------- --------------------------------------------- Patrick T. Bannigan President and Principal Executive Officer Date: April 24, 2007 /s/ Jeffrey P. Fox ----------------- --------------------------------------------- Jeffrey P. Fox Treasurer and Principal Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO THE REGISTRANT AND WILL BE RETAINED BY THE REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----