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
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AXP CALIFORNIA TAX-EXEMPT TRUST
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(Exact name of registrant as specified in charter)
50606 AXP Financial Center, Minneapolis, Minnesota 55474
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(Address of principal executive offices) (Zip code)
Leslie L. Ogg - 901 S. Marquette Avenue, Suite 2810, Minneapolis, MN 55402-3268
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(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 330-9283
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Date of fiscal year end: 6/30
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Date of reporting period: 12/31
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<Page>
SEMIANNUAL REPORT
[RIVERSOURCE(SM) INVESTMENTS LOGO]
RIVERSOURCE(SM) CALIFORNIA TAX-EXEMPT FUND
RIVERSOURCE(SM) MASSACHUSETTS TAX-EXEMPT FUND
RIVERSOURCE(SM) MICHIGAN TAX-EXEMPT FUND
RIVERSOURCE(SM) MINNESOTA TAX-EXEMPT FUND
RIVERSOURCE(SM) NEW YORK TAX-EXEMPT FUND
RIVERSOURCE(SM) OHIO TAX-EXEMPT FUND
SEMIANNUAL REPORT FOR THE PERIOD ENDED DEC. 31, 2005
- - EACH FUND SEEKS TO PROVIDE SHAREHOLDERS WITH A HIGH LEVEL OF INCOME GENERALLY
EXEMPT FROM FEDERAL INCOME TAX AS WELL AS FROM THE RESPECTIVE STATE AND LOCAL
INCOME TAX.
<Page>
TABLE OF CONTENTS
Fund Snapshot 3-9
AXP California Tax-Exempt Fund 3
AXP Massachusetts Tax-Exempt Fund 4
AXP Michigan Tax-Exempt Fund 5
AXP Minnesota Tax-Exempt Fund 6
AXP New York Tax-Exempt Fund 7
AXP Ohio Tax-Exempt Fund 8
Performance Summary 10-21
AXP California Tax-Exempt Fund 10
AXP Massachusetts Tax-Exempt Fund 12
AXP Michigan Tax-Exempt Fund 14
AXP Minnesota Tax-Exempt Fund 16
AXP New York Tax-Exempt Fund 18
AXP Ohio Tax-Exempt Fund 20
Questions & Answers with Portfolio Management 22
Investments in Securities 26-60
AXP California Tax-Exempt Fund 26
AXP Massachusetts Tax-Exempt Fund 33
AXP Michigan Tax-Exempt Fund 37
AXP Minnesota Tax-Exempt Fund 42
AXP New York Tax-Exempt Fund 50
AXP Ohio Tax-Exempt Fund 56
Financial Statements 61
Notes to Financial Statements 68
Fund Expenses Example 97
Approval of Investment Management Services Agreement 104
Proxy Voting 109
[DALBAR RATED FOR COMMUNICATION 2005 LOGO]
American Express(R) Funds'* reports to shareholders have been awarded the
Communications Seal from Dalbar Inc., an independent financial services research
firm. The Seal recognizes communications demonstrating a level of excellence in
the industry.
* As of Oct. 1, 2005, the RiverSource brand replaced "American Express" as the
name of the American Express Funds.
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2 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
FUND SNAPSHOT AT DEC. 31, 2005
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
PORTFOLIO MANAGER
<Table>
<Caption>
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
David Kerwin, CFA* 8/04 20
</Table>
* The Fund is managed by a team of portfolio managers led by David Kerwin.
FUND OBJECTIVE
For California investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
Inception dates by class
A: 8/18/86 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: ICALX B: ACABX C: --
<Table>
Total net assets $192.8 million
Number of holdings 108
Effective maturity(1) 14.6 years
Effective duration(2) 6.7 years
Weighted average bond rating(3) AA
</Table>
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
STYLE MATRIX
<Table>
<Caption>
DURATION
QUALITY SHORT INT. LONG
HIGH X
MEDIUM
LOW
</Table>
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY
INVESTS.
CREDIT QUALITY SUMMARY
PERCENTAGE OF BOND PORTFOLIO ASSETS
<Table>
AAA bonds 60.2%
AA bonds 9.7
A bonds 21.3
BBB bonds 6.6
Non-investment grade bonds 2.2
</Table>
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 3.4% of the portfolio
rating above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including the
impact of interest rates, credit and inflation. In general, bond prices rise
when interest rates fall and vice versa. This effect is usually more pronounced
for longer-term securities.
Income from tax-exempt funds may be subject and local taxes and a portion of
income may be subject to federal and/or state alternative minimum tax for
certain investors. Federal income tax rules will apply to any capital gains
distribution.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 3
<Page>
FUND SNAPSHOT AT DEC. 31, 2005
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
PORTFOLIO MANAGER
<Table>
<Caption>
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
David Kerwin, CFA* 8/04 20
</Table>
* The Fund is managed by a team of portfolio managers led by David Kerwin.
FUND OBJECTIVE
For Massachusetts investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from respective state and
local tax.
Inception dates by class
A: 7/2/87 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: IDMAX B: AXMBX C: --
<Table>
Total net assets $68.3 million
Number of holdings 52
Effective maturity(1) 11.7 years
Effective duration(2) 6.7 years
Weighted average bond rating(3) AA+
</Table>
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
STYLE MATRIX
<Table>
<Caption>
DURATION
QUALITY SHORT INT. LONG
HIGH X
MEDIUM
LOW
</Table>
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY
INVESTS.
CREDIT QUALITY SUMMARY
PERCENTAGE OF BOND PORTFOLIO ASSETS
<Table>
AAA bonds 72.1%
AA bonds 23.9
A bonds 1.6
BBB bonds 2.4
Non-investment grade bonds --
</Table>
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 1.4% of the portfolio
rating above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including the
impact of interest rates, credit and inflation. In general, bond prices rise
when interest rates fall and vice versa. This effect is usually more pronounced
for longer-term securities.
Income from tax-exempt funds may be subject and local taxes and a portion of
income may be subject to federal and/or state alternative minimum tax for
certain investors. Federal income tax rules will apply to any capital gains
distribution.
Fund holdings are subject to change.
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4 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
FUND SNAPSHOT AT DEC. 31, 2005
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
PORTFOLIO MANAGER
<Table>
<Caption>
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
David Kerwin, CFA* 8/04 20
</Table>
* The Fund is managed by a team of portfolio managers led by David Kerwin.
FUND OBJECTIVE
For Michigan investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local tax.
Inception dates by class
A: 7/2/87 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: INMIX B: -- C: --
<Table>
Total net assets $56.0 million
Number of holdings 57
Effective maturity(1) 11.6 years
Effective duration(2) 6.2 years
Weighted average bond rating(3) AA+
</Table>
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
STYLE MATRIX
<Table>
<Caption>
DURATION
QUALITY SHORT INT. LONG
HIGH X
MEDIUM
LOW
</Table>
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY
INVESTS.
CREDIT QUALITY SUMMARY
PERCENTAGE OF BOND PORTFOLIO ASSETS
<Table>
AAA bonds 65.1%
AA bonds 28.0
A bonds 5.9
BBB bonds 1.0
Non-investment grade bonds --
</Table>
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 1.0% of the portfolio
above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including the
impact of interest rates, credit and inflation. In general, bond prices rise
when interest rates fall and vice versa. This effect is usually more pronounced
for longer-term securities.
Income from tax-exempt funds may be subject and local taxes and a portion of
income may be subject to federal and/or state alternative minimum tax for
certain investors. Federal income tax rules will apply to any capital gains
distribution.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 5
<Page>
FUND SNAPSHOT AT DEC. 31, 2005
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
PORTFOLIO MANAGER
<Table>
<Caption>
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
David Kerwin, CFA* 8/04 20
</Table>
* The Fund is managed by a team of portfolio managers led by David Kerwin.
FUND OBJECTIVE
For Minnesota investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local tax.
Inception dates by class
A: 8/18/86 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: IMNTX B: IDSMX C: --
<Table>
Total net assets $375.5 million
Number of holdings 136
Effective maturity(1) 11.7 years
Effective duration(2) 6.4 years
Weighted average bond rating(3) AA+
</Table>
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
STYLE MATRIX
<Table>
<Caption>
DURATION
QUALITY SHORT INT. LONG
HIGH X
MEDIUM
LOW
</Table>
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY
INVESTS.
CREDIT QUALITY SUMMARY
PERCENTAGE OF BOND PORTFOLIO ASSETS
<Table>
AAA bonds 65.2%
AA bonds 16.5
A bonds 9.8
BBB bonds 3.8
Non-investment grade bonds 2.7
Non-rated bonds 2.0
</Table>
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 2.2% of the portfolio
rating above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including the
impact of interest rates, credit and inflation. In general, bond prices rise
when interest rates fall and vice versa. This effect is usually more pronounced
for longer-term securities.
Income from tax-exempt funds may be subject and local taxes and a portion of
income may be subject to federal and/or state alternative minimum tax for
certain investors. Federal income tax rules will apply to any capital gains
distribution.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
6 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
FUND SNAPSHOT AT DEC. 31, 2005
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
PORTFOLIO MANAGER
<Table>
<Caption>
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
David Kerwin, CFA* 8/04 20
</Table>
* The Fund is managed by a team of portfolio managers led by David Kerwin.
FUND OBJECTIVE
For New York investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
Inception dates by class
A: 8/18/86 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: INYKX B: -- C: --
<Table>
Total net assets $78.8 million
Number of holdings 78
Effective maturity(1) 13.8 years
Effective duration(2) 7.0 years
Weighted average bond rating(3) AA
</Table>
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
STYLE MATRIX
<Table>
<Caption>
DURATION
QUALITY SHORT INT. LONG
HIGH X
MEDIUM
LOW
</Table>
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY
INVESTS.
CREDIT QUALITY SUMMARY
PERCENTAGE OF BOND PORTFOLIO ASSETS
<Table>
AAA bonds 55.7%
AA bonds 23.5
A bonds 12.1
BBB bonds 3.2
Non-investment grade bonds 4.1
Non-rated bonds 1.4
</Table>
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including the
impact of interest rates, credit and inflation. In general, bond prices rise
when interest rates fall and vice versa. This effect is usually more pronounced
for longer-term securities.
Income from tax-exempt funds may be subject and local taxes and a portion of
income may be subject to federal and/or state alternative minimum tax for
certain investors. Federal income tax rules will apply to any capital gains
distribution.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 7
<Page>
FUND SNAPSHOT AT DEC. 31, 2005
RIVERSOURCE OHIO TAX-EXEMPT FUND
PORTFOLIO MANAGER
<Table>
<Caption>
PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
David Kerwin, CFA* 8/04 20
</Table>
* The Fund is managed by a team of portfolio managers led by David Kerwin.
FUND OBJECTIVE
For Ohio investors, this Fund seeks to provide a high level of income generally
exempt from federal income tax as well as from the respective state and local
taxes.
Inception dates by class
A: 7/2/87 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: IOHIX B: -- C: --
<Table>
Total net assets $56.6 million
Number of holdings 58
Effective maturity(1) 12.8 years
Effective duration(2) 6.7 years
Weighted average bond rating(3) AA+
</Table>
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
STYLE MATRIX
<Table>
<Caption>
DURATION
QUALITY SHORT INT. LONG
HIGH X
MEDIUM
LOW
</Table>
SHADING WITHIN THE STYLE MATRIX INDICATES AREAS IN WHICH THE FUND GENERALLY
INVESTS.
CREDIT QUALITY SUMMARY
PERCENTAGE OF BOND PORTFOLIO ASSETS
<Table>
AAA bonds 63.2%
AA bonds 30.0
A bonds 4.2
BBB bonds 2.6
Non-investment grade bonds --
</Table>
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including the
impact of interest rates, credit and inflation. In general, bond prices rise
when interest rates fall and vice versa. This effect is usually more pronounced
for longer-term securities.
Income from tax-exempt funds may be subject and local taxes and a portion of
income may be subject to federal and/or state alternative minimum tax for
certain investors. Federal income tax rules will apply to any capital gains
distribution.
Fund holdings are subject to change.
- --------------------------------------------------------------------------------
8 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
YIELD SNAPSHOT
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
SEC YIELDS
At Dec. 30, 2005* by class
A: 3.26% B: 2.66% C: 2.66%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 11 for additional
performance information.
*The last business day of the period.
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
SEC YIELDS
At Dec. 30, 2005* by class
A: 3.13% B: 2.54% C: 2.54%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 13 for additional
performance information.
*The last business day of the period.
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
SEC YIELDS
At Dec. 30, 2005* by class
A: 3.05% B: 2.44% C: 2.44%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 15 for additional
performance information.
*The last business day of the period.
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
SEC YIELDS
At Dec. 30, 2005* by class
A: 3.18% B: 2.58% C: 2.58%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 17 for additional
performance information.
*The last business day of the period.
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
SEC YIELDS
At Dec. 30, 2005* by class
A: 3.36% B: 2.77% C: 2.77%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 19 for additional
performance information.
*The last business day of the period.
RIVERSOURCE OHIO TAX-EXEMPT FUND
SEC YIELDS
At Dec. 30, 2005* by class
A: 3.08% B: 2.48% C: 2.48%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 21 for additional
performance information.
*The last business day of the period.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 9
<Page>
PERFORMANCE SUMMARY
[CHART]
RIVERSOURCE
CALIFORNIA TAX-EXEMPT FUND
PERFORMANCE COMPARISON
FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005
<Table>
+0.68% RiverSource California Tax-Exempt Fund Class A (excluding sales charge)
+0.85% Lehman Brothers California 2 Plus Year Municipal Bond Index(1) (unmanaged)
+0.84% Lehman Brothers California Municipal Bond Index(2) (unmanaged)
+0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged)
+0.78% Lipper California Municipal Debt Funds Index(4)
</Table>
THE PERFORMANCE INFORMATION SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT A
GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF YOUR
INVESTMENT WILL FLUCTUATE SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE INFORMATION SHOWN. YOU MAY OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH-END BY CALLING (800) 862-7919 OR VISITING
www.riversource.com/funds.
(1) The Lehman Brothers California 2 Plus Year Municipal Bond Index, an
unmanaged index, is a market value-weighted index of California
investment-grade fixed-rate municipal bonds with maturities of two years or
more.
(2) The Lehman Brothers California Municipal Bond Index, an unmanaged index, is
a subset of the Lehman Brothers Municipal Bond Index. The index is made up
of investment-grade, tax-exempt, and fixed-rate bonds issued in the state
of California. All securities have effective maturities greater than one
year and are selected from issues larger than $50 million.
(3) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of
a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The Lehman Brothers indexes reflect
reinvestment of all distributions and changes in market prices, but exclude
brokerage commissions or other fees.
(4) The Lipper California Municipal Debt Funds Index includes the 30 largest
municipal debt funds in California tracked by Lipper Inc. The Lipper
indexes' returns include net reinvested dividends.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
10 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
CLASS A CLASS B CLASS C
(8/18/86) (3/20/95) (6/26/00)
(INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT DEC. 31, 2005
6 months* +0.68% -4.11% +0.30% -4.59% +0.30% -0.68%
1 year +3.78% -1.16% +3.00% -1.94% +3.20% +2.21%
3 years +4.13% +2.45% +3.35% +2.12% +3.34% +3.34%
5 years +4.58% +3.57% +3.80% +3.46% +3.84% +3.84%
10 years +4.80% +4.29% +4.02% +4.02% N/A N/A
Since inception +5.98% +5.71% +4.44% +4.44% +4.76% +4.76%
</Table>
(1) EXCLUDING SALES CHARGE.
(2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%.
(3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS
FOLLOWS:
FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%;
SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER.
(4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE.
* NOT ANNUALIZED.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 11
<Page>
PERFORMANCE SUMMARY
[CHART]
RIVERSOURCE
MASSACHUSETTS TAX-EXEMPT FUND
PERFORMANCE COMPARISON
FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005
<Table>
- -0.14% RiverSource Massachusetts Tax-Exempt Fund Class A (excluding sales charge)
+0.36% Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index(1) (unmanaged)
+0.32% Lehman Brothers Massachusetts Municipal Bond Index(2) (unmanaged)
+0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged)
+0.43% Lipper Massachusetts Municipal Debt Funds Index(4)
</Table>
THE PERFORMANCE INFORMATION SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT A
GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF YOUR
INVESTMENT WILL FLUCTUATE SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE INFORMATION SHOWN. YOU MAY OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH-END BY CALLING (800) 862-7919 OR VISITING
www.riversource.com/funds.
(1) The Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond
Index, an unmanaged index, is a market value-weighted index of
Massachusetts investment-grade fixed-rate municipal bonds with maturities
of three years or more.
(2) The Lehman Brothers Massachusetts Municipal Bond Index, an unmanaged index,
is a subset of the Lehman Brothers Municipal Bond Index. The index is made
up of investment-grade, tax-exempt, and fixed-rate bonds issued in the
state of Massachusetts. All securities have effective maturities greater
than one year and are selected from issues larger than $50 million.
(3) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of
a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The Lehman Brothers indexes reflect
reinvestment of all distributions and changes in market prices, but exclude
brokerage commissions or other fees.
(4) The Lipper Massachusetts Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Massachusetts tracked by Lipper Inc. The Lipper
indexes' returns include net reinvested dividends.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
12 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
CLASS A CLASS B CLASS C
(7/2/87) (3/20/95) (6/26/00)
(INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT DEC. 31, 2005
6 months* -0.14% -4.89% -0.52% -5.40% -0.34% -1.32%
1 year +2.19% -2.66% +1.42% -3.49% +1.43% +0.44%
3 years +3.27% +1.61% +2.49% +1.24% +2.50% +2.50%
5 years +4.36% +3.35% +3.58% +3.23% +3.58% +3.58%
10 years +4.41% +3.91% +3.63% +3.63% N/A N/A
Since inception +5.86% +5.58% +4.10% +4.10% +4.36% +4.36%
</Table>
(1) EXCLUDING SALES CHARGE.
(2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%.
(3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS
FOLLOWS:
FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%;
SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER.
(4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE.
* NOT ANNUALIZED.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 13
<Page>
PERFORMANCE SUMMARY
[CHART]
RIVERSOURCE
MICHIGAN TAX-EXEMPT FUND
PERFORMANCE COMPARISON
FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005
<Table>
+0.42% RiverSource Michigan Tax-Exempt Fund Class A (excluding sales charge)
+0.55% Lehman Brothers Michigan Municipal Bond Index(1) (unmanaged)
+0.60% Lehman Brothers Municipal Bond Index(2) (unmanaged)
+0.44% Lipper Michigan Municipal Debt Funds Index(3)
</Table>
THE PERFORMANCE INFORMATION SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT A
GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF YOUR
INVESTMENT WILL FLUCTUATE SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE INFORMATION SHOWN. YOU MAY OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH-END BY CALLING (800) 862-7919 OR VISITING
www.riversource.com/funds.
(1) The Lehman Brothers Michigan Municipal Bond Index, an unmanaged index, is a
subset of the Lehman Brothers Municipal Bond Index. The index is made up of
investment-grade, tax-exempt, and fixed-rate bonds issued in the state of
Michigan. All securities have effective maturities greater than one year
and are selected from issues larger than $50 million.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of
a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The Lehman Brothers indexes reflect
reinvestment of all distributions and changes in market prices, but exclude
brokerage commissions or other fees.
(3) The Lipper Michigan Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Michigan tracked by Lipper Inc. The Lipper indexes'
returns include net reinvested dividends.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
14 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
CLASS A CLASS B CLASS C
(7/2/87) (3/20/95) (6/26/00)
(INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT DEC. 31, 2005
6 months* +0.42% -4.36% +0.04% -4.86% +0.04% -0.94%
1 year +2.71% -2.17% +1.93% -2.99% +1.93% +0.95%
3 years +3.63% +1.97% +2.85% +1.61% +2.85% +2.85%
5 years +4.80% +3.78% +4.01% +3.67% +4.01% +4.01%
10 years +4.45% +3.94% +3.66% +3.66% N/A N/A
Since inception +6.03% +5.75% +4.18% +4.18% +4.66% +4.66%
</Table>
(1) EXCLUDING SALES CHARGE.
(2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%.
(3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS
FOLLOWS:
FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%;
SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER.
(4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE.
* NOT ANNUALIZED.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 15
<Page>
PERFORMANCE SUMMARY
[CHART]
RIVERSOURCE
MINNESOTA TAX-EXEMPT FUND
PERFORMANCE COMPARISON
FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005
<Table>
+0.24% RiverSource Minnesota Tax-Exempt Fund Class A (excluding sales charge)
+0.67% Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index(1) (unmanaged)
+0.59% Lehman Brothers Minnesota Municipal Bond Index(2) (unmanaged)
+0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged)
+0.62% Lipper Minnesota Municipal Debt Funds Index(4)
</Table>
THE PERFORMANCE INFORMATION SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT A
GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF YOUR
INVESTMENT WILL FLUCTUATE SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE INFORMATION SHOWN. YOU MAY OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH-END BY CALLING (800) 862-7919 OR VISITING
www.riversource.com/funds.
(1) The Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, an
unmanaged index, is a market value-weighted index of Minnesota
investment-grade fixed-rate municipal bonds with maturities of three years
or more.
(2) The Lehman Brothers Minnesota Municipal Bond Index, an unmanaged index, is
a subset of the Lehman Brothers Municipal Bond Index. The index is made up
of investment-grade, tax-exempt, and fixed-rate bonds issued in the state
of Minnesota. All securities have effective maturities greater than one
year and are selected from issues larger than $50 million.
(3) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of
a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The Lehman Brothers indexes reflect
reinvestment of all distributions and changes in market prices, but exclude
brokerage commissions or other fees.
(4) The Lipper Minnesota Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Minnesota tracked by Lipper Inc. The Lipper
indexes' returns include net reinvested dividends.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
16 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
CLASS A CLASS B CLASS C
(8/18/86) (3/20/95) (6/26/00)
(INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT DEC. 31, 2005
6 months* +0.24% -4.53% +0.05% -4.88% +0.04% -0.94%
1 year +2.30% -2.56% +1.73% -3.21% +1.72% +0.74%
3 years +3.64% +1.97% +2.93% +1.66% +2.92% +2.92%
5 years +4.71% +3.69% +3.96% +3.62% +3.96% +3.96%
10 years +4.73% +4.22% +3.96% +3.96% N/A N/A
Since inception +6.04% +5.77% +4.40% +4.40% +4.65% +4.65%
</Table>
(1) EXCLUDING SALES CHARGE.
(2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%.
(3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS
FOLLOWS:
FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%;
SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER.
(4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE.
* NOT ANNUALIZED.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 17
<Page>
PERFORMANCE SUMMARY
[CHART]
RIVERSOURCE
NEW YORK TAX-EXEMPT FUND
PERFORMANCE COMPARISON
FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005
<Table>
+0.10% RiverSource New York Tax-Exempt Fund Class A (excluding sales charge)
+0.56% Lehman Brothers New York 4 Plus Year Municipal Bond Index(1) (unmanaged)
+0.56% Lehman Brothers New York Municipal Bond Index(2) (unmanaged)
+0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged)
+0.42% Lipper New York Municipal Debt Funds Index(4)
</Table>
THE PERFORMANCE INFORMATION SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT A
GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF YOUR
INVESTMENT WILL FLUCTUATE SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE INFORMATION SHOWN. YOU MAY OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH-END BY CALLING (800) 862-7919 OR VISITING
www.riversource.com/funds.
(1) The Lehman Brothers New York 4 Plus Year Municipal Bond Index, an unmanaged
index, is a market value-weighted index of New York investment-grade
fixed-rate municipal bonds with maturities of four years or more.
(2) The Lehman Brothers New York Municipal Bond Index, an unmanaged index, is a
subset of the Lehman Brothers Municipal Bond Index. The index is made up of
investment-grade, tax-exempt, and fixed-rate bonds issued in the state of
New York. All securities have effective maturities greater than one year
and are selected from issues larger than $50 million.
(3) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of
a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The Lehman Brothers indexes reflect
reinvestment of all distributions and changes in market prices, but exclude
brokerage commissions or other fees.
(4) The Lipper New York Municipal Debt Funds Index includes the 30 largest
municipal debt funds in New York tracked by Lipper Inc. The Lipper indexes'
returns include net reinvested dividends.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
18 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
CLASS A CLASS B CLASS C
(8/18/86) (3/20/95) (6/26/00)
(INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT DEC. 31, 2005
6 months* +0.10% -4.65% -0.27% -5.14% -0.27% -1.24%
1 year +2.66% -2.21% +1.89% -3.01% +1.90% +0.92%
3 years +3.38% +1.71% +2.60% +1.38% +2.60% +2.60%
5 years +4.59% +3.58% +3.81% +3.47% +3.81% +3.81%
10 years +4.66% +4.15% +3.87% +3.87% N/A N/A
Since inception +5.81% +5.54% +4.23% +4.23% +4.66% +4.66%
</Table>
(1) EXCLUDING SALES CHARGE.
(2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%.
(3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS
FOLLOWS:
FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%;
SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER.
(4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE.
* NOT ANNUALIZED.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 19
<Page>
PERFORMANCE SUMMARY
[CHART]
RIVERSOURCE
OHIO TAX-EXEMPT FUND
PERFORMANCE COMPARISON
FOR THE SIX-MONTH PERIOD ENDED DEC. 31, 2005
<Table>
- -0.20% RiverSource Ohio Tax-Exempt Fund Class A (excluding sales charge)
+0.52% Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index(1) (unmanaged)
+0.52% Lehman Brothers Ohio Municipal Bond Index(2) (unmanaged)
+0.60% Lehman Brothers Municipal Bond Index(3) (unmanaged)
+0.33% Lipper Ohio Municipal Debt Funds Index(4)
</Table>
THE PERFORMANCE INFORMATION SHOWN REPRESENTS PAST PERFORMANCE AND IS NOT A
GUARANTEE OF FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF YOUR
INVESTMENT WILL FLUCTUATE SO THAT YOUR SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER
THAN THE PERFORMANCE INFORMATION SHOWN. YOU MAY OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH-END BY CALLING (800) 862-7919 OR VISITING
www.riversource.com/funds.
(1) The Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, an
unmanaged index, is a market value-weighted index of Ohio investment-grade
fixed-rate municipal bonds with maturities of four years or more.
(2) The Lehman Brothers Ohio Municipal Bond Index, an unmanaged index, is a
subset of the Lehman Brothers Municipal Bond Index. The index is made up of
investment-grade, tax-exempt, and fixed-rate bonds issued in the state of
Ohio. All securities have effective maturities greater than one year and
are selected from issues larger than $50 million.
(3) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of
a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The Lehman Brothers indexes reflect
reinvestment of all distributions and changes in market prices, but exclude
brokerage commissions or other fees.
(4) The Lipper Ohio Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Ohio tracked by Lipper Inc. The Lipper indexes'
returns include net reinvested dividends.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
- --------------------------------------------------------------------------------
20 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
PERFORMANCE SUMMARY
RIVERSOURCE OHIO TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
CLASS A CLASS B CLASS C
(7/2/87) (3/20/95) (6/26/00)
(INCEPTION DATES) NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT DEC. 31, 2005
6 months* -0.20% -4.94% -0.58% -5.49% -0.39% -1.37%
1 year +2.07% -2.78% +1.29% -3.65% +1.49% +0.50%
3 years +3.11% +1.45% +2.33% +1.06% +2.32% +2.32%
5 years +4.20% +3.19% +3.41% +3.06% +3.45% +3.45%
10 years +4.37% +3.86% +3.59% +3.59% N/A N/A
Since inception +5.83% +5.55% +4.00% +4.00% +4.11% +4.11%
</Table>
(1) EXCLUDING SALES CHARGE.
(2) RETURNS AT PUBLIC OFFERING PRICE (POP) REFLECT A SALES CHARGE OF 4.75%.
(3) RETURNS AT MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC). CDSC APPLIES AS
FOLLOWS:
FIRST YEAR 5%; SECOND AND THIRD YEAR 4%; FOURTH YEAR 3%; FIFTH YEAR 2%;
SIXTH YEAR 1%; NO SALES CHARGE THEREAFTER.
(4) 1% CDSC APPLIES TO REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE.
* NOT ANNUALIZED.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 21
<Page>
QUESTIONS & ANSWERS
WITH PORTFOLIO MANAGEMENT
BELOW, PORTFOLIO MANAGER DAVID KERWIN DISCUSSES THE FUNDS' POSITIONING AND
RESULTS FOR THE FIRST HALF OF THE FISCAL YEAR.
Q: How did the RiverSource State Tax-Exempt Funds perform for the first half
of the fiscal year?
A: All Fund returns are for Class A shares, excluding sales charge. All
returns are for the six months ended Dec. 31, 2005. Recently, the Fund's
investment manager recommended to the Board of Trustees that the Funds
change their comparative indexes from the Lehman Brothers California
Municipal Bond Index, Lehman Brothers Massachusetts Municipal Bond Index,
Lehman Brothers Minnesota Municipal Bond Index, Lehman Brothers New York
Municipal Bond Index and Lehman Brothers Ohio Municipal Bond Index to the
Lehman Brothers California 2 Plus Year Municipal Bond Index, Lehman
Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index, Lehman
Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index, Lehman
Brothers New York 4 Plus Year Municipal Bond Index and Lehman Brothers Ohio
4 Plus Year Enhanced Municipal Bond Index, respectively. The investment
manager made these recommendations because the new indexes more closely
represent the Funds' holdings. Both indexes are shown in this transition
year. In the future, however, only the Lehman Brothers California 2 Plus
Year Municipal Bond Index, Lehman Brothers Massachusetts 3 Plus Year
Enhanced Municipal Bond Index, Lehman Brothers Minnesota 3 Plus Year
Enhanced Municipal Bond Index, Lehman Brothers New York 4 Plus Year
Municipal Bond Index and Lehman Brothers Ohio 4 Plus Year Enhanced
Municipal Bond Index will be included.
All Lipper categories represent the respective Fund's peer group.
- RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND gained 0.68%. The Fund
underperformed the Lehman Brothers California 2 Plus Year Municipal
Bond Index, which returned 0.85%, and the Lehman Brothers California
Municipal Bond Index, which returned 0.84%. The Lipper California
Municipal Debt Funds Index rose 0.78% for the same period.
- RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND fell 0.14%. The Fund
underperformed the Lehman Brothers Massachusetts 3 Plus Year Enhanced
Municipal Bond Index, which rose 0.36%, and the Lehman Brothers
Massachusetts Municipal Bond Index, which gained 0.32%. The Lipper
Massachusetts Municipal Debt Funds Index rose 0.43% for the same
period.
- RIVERSOURCE MICHIGAN TAX-EXEMPT FUND gained 0.42%. The Fund
underperformed the Lehman Brothers Michigan Municipal Bond Index,
which advanced 0.55%. The Lipper Michigan Municipal Debt Funds Index
produced a total return of 0.44% for the same period.
- RIVERSOURCE MINNESOTA TAX-EXEMPT FUND increased 0.24%. The Fund
underperformed the Lehman Brothers Minnesota 3 Plus Year Municipal
Bond Index, which rose 0.67%, and the Lehman Brothers Minnesota
Municipal
- --------------------------------------------------------------------------------
22 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
- - EACH OF THE FUNDS UNDERPERFORMED DUE PRIMARILY TO YIELD CURVE POSITIONING,
THAT IS, THE WAY THE FUNDS WERE POSITIONED TO RESPOND TO CHANGES IN
SHORT-TERM VS. LONG-TERM INTEREST RATES.
Bond Index, which gained 0.59%. The Lipper Minnesota Municipal Debt
Funds Index rose 0.62% for the same period.
- RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 0.10%. The Fund
underperformed the Lehman Brothers New York 4 Plus Year Municipal Bond
Index, which rose 0.56%, and the Lehman Brothers New York Municipal
Bond Index, which gained 0.56% as well. The Lipper New York Municipal
Debt Funds Index increased 0.42% for the same period.
- RIVERSOURCE OHIO TAX-EXEMPT FUND declined 0.20%. The Fund
underperformed the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal
Bond Index, which gained 0.52%, and the Lehman Brothers Ohio Municipal
Bond Index, which returned 0.52% as well. The Lipper Ohio Municipal
Debt Funds Index gained 0.33% for the same period.
A broad barometer applicable to each of the Funds, the Lehman Brothers
Municipal Bond Index, gained 0.60% for the same six-month period.
Q: What factors most significantly affected performance during the semiannual
period?
A: The tax-exempt bond market overall had a relatively strong period, despite
four additional interest rate hikes by the Federal Reserve Board (the Fed)
during the six months, bringing the targeted federal funds rate to 4.25% by
the end of December.
The Funds benefited modestly during the period from their duration
positioning, a measure of the Funds' sensitivity to changes in interest
rates. In each Fund, we maintained a duration shorter than that of their
respective Lehman benchmark index in anticipation of rising rates. Indeed,
rates did rise across the municipal yield curve. The Funds also benefited
from their positions in health care municipal bonds, a sector that
performed well and is a large sector within the Lehman Brothers Municipal
Bond Index.
Significant positions in bonds rated BBB contributed positively to the
returns of RiverSource Massachusetts Tax-Exempt Fund and RiverSource Ohio
Tax-Exempt Fund, as these bonds overall outperformed higher quality bonds
during the semiannual period. However, a comparatively lower exposure to
bonds rated BBB than their respective Lehman benchmarks detracted from the
performance of the other four RiverSource state tax-exempt funds.
Similarly, positions in select non-investment grade or non-rated bonds
produced mixed results. These positions helped the RiverSource state
tax-exempt funds of California,
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 23
<Page>
QUESTIONS & ANSWERS
- - WE INTEND TO POSITION THE FUNDS FOR ONGOING U.S. ECONOMIC RECOVERY AND
STILL HIGHER INTEREST RATES, AS THESE THEMES ARE LIKELY TO CONTINUE TO
WEIGH ON THE FIXED INCOME MARKETS THROUGH EARLY 2006.
Massachusetts, Michigan and Minnesota. These bonds had a rather neutral
effect on RiverSource Ohio Tax-Exempt Fund and detracted from RiverSource
New York Tax-Exempt Fund.
Detracting from the RiverSource state tax-exempt funds of California,
Michigan and New York was exposure to municipal bonds from Puerto Rico.
Puerto Rico has been experiencing significant fiscal distress, and the
fundamentals of its municipal bond market deteriorated somewhat during the
period.
Each of the Funds underperformed due primarily to yield curve positioning,
that is, the way the Funds were positioned to respond to changes in
short-term vs. long-term interest rates. Specifically, the Funds began the
period with a significant exposure to the intermediate segment of the
municipal yield curve and a modest position in long-term bonds. As in the
taxable bond market, the municipal yield curve flattened, as the difference
in yields between short- and long-term securities narrowed. This flattening
of the yield curve had a greater positive price impact on longer-term bonds
than on intermediate bonds. During the period, the longer the maturity of
the municipal bond, the better the performance.
Q: What changes did you make to the Funds and how are they currently
positioned?
A: We made several strategic moves within the Funds during the semiannual
period. We reduced the Funds' exposure to bonds with maturities of ten
years and shorter and increased their allocation to bonds with maturities
of 15 years and longer.
In our ongoing effort to upgrade the quality of what we call the Funds'
"credit baskets," we reduced the Funds' positions in below investment grade
securities and non-rated securities. We also moved the Funds toward neutral
positions in bonds rated BBB, as valuations of these bonds appeared fair to
us, and redeployed assets into bonds rated A.
In the RiverSource state tax-exempt funds of Massachusetts, Minnesota and
Ohio, we increased exposure to Puerto Rico municipal bonds, adding to
positions on market weakness.
We focused on further diversifying the portfolios by bond holding,
maturity, coupon and call dates. We believe this disciplined approach to
portfolio diversification -- across multiple parameters -- should help
reduce the volatility and risks associated with interest rate movements and
produce more consistent returns for the Funds over the
- --------------------------------------------------------------------------------
24 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
QUESTIONS & ANSWERS
long term. At the same time, we sought opportunities to carry out tactical
strategies wherever and whenever possible.
Q: How do you intend to manage the Funds in the coming months?
A: We intend to position the Funds for ongoing U.S. economic recovery and
still higher interest rates, as these themes are likely to continue to
weigh on the fixed income markets through early 2006. We believe the Fed
will ultimately continue its gradualist approach, raising the targeted
federal rate from its current 4.25% to a 4.75% or 5.00% rate. Typically,
rising rates are negative for the bond market. However, municipal bonds
have historically weathered this environment better than taxable bonds.
Given this view, we intend to maintain the Funds' durations moderately
shorter than that of their respective benchmark indices for the near term.
At the same time, we intend to further reduce the Funds' exposure to the
intermediate segment of the yield curve (i.e., 10-year municipal bonds) and
redeploy assets into bonds with 15- to 20-year maturities.
We intend to monitor opportunities to enhance the Funds' holdings in
uninsured essential service revenue bonds, such as public power and water
and sewer issues. We feel these two sectors may enable the Funds to
potentially pick up incremental yield without taking on significant risk.
We are also watching closely for opportunities to increase the Funds'
allocation to Puerto Rico municipal bonds. Puerto Rico's government is
currently working on the introduction of a local sales tax to raise
revenues. Should this potential fiscal remedy be enacted, Puerto Rico
municipal bonds may be increasingly attractive to investors, given the
triple-tax-exemption (i.e., federal, state and local) they offer.
We intend to maintain our focus on seeking higher-quality securities with
good structure and on further diversifying the portfolios. Each Fund's
emphasis continues to be on generating a high level of income generally
exempt from federal income tax as well as from the respective state and
local taxes.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 25
<Page>
INVESTMENTS IN SECURITIES
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
DEC. 31, 2005 (UNAUDITED)
(PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
MUNICIPAL BONDS (95.6%)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Abag Finance Authority for Nonprofit Corporations
Certificate of Participation
National Center for International Schools Project
Series 1996
05-01-26 7.38% $2,200,000 $2,252,184
Abag Finance Authority for Nonprofit Corporations
Revenue Bonds
San Diego Hospital Association
Series 2001A
08-15-20 6.13 2,500,000 2,723,725
Alhambra City Elementary School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999A (FSA)
09-01-22 5.95 1,055,000(f) 489,826
Anaheim Union High School District
Prerefunded Unlimited General Obligation Bonds
Series 2002A (FSA)
08-01-16 5.38 1,550,000 1,719,276
Beaumont Financing Authority
Revenue Bonds
Series 2000A
09-01-32 7.38 1,955,000 2,090,990
Beverly Hills Public Financing Authority
Revenue Bonds
Capital Improvements Project
Series 1998A
06-01-23 5.00 3,000,000 3,088,350
California Educational Facilities Authority
Revenue Bonds
Stanford University
Series 1997N
12-01-27 5.20 1,000,000 1,037,580
California Educational Facilities Authority
Revenue Bonds
University of Southern California
Series 2003A
10-01-33 5.00 2,000,000 2,086,160
California Health Facilities Financing Authority
Revenue Bonds
Catholic Healthcare West
Series 2004G
07-01-23 5.25% $3,500,000 $3,653,369
California Health Facilities Financing Authority
Revenue Bonds
Sutter Health
Series 1999A (MBIA)
08-15-28 5.35 2,500,000 2,656,325
California Infrastructure & Economic Development Bank
Revenue Bonds
Bay Area Toll Bridges
1st Lien
Series 2003A (AMBAC)
07-01-36 5.00 200,000 208,816
California Rural Home Mortgage Finance Authority
Revenue Bonds
Mortgage-backed Securities Program
Series 1997A-2 (GNMA/FNMA/FHLMC) A.M.T.
09-01-29 7.00 75,000 75,917
California Rural Home Mortgage Finance Authority
Revenue Bonds
Mortgage-backed Securities Program
Series 1998B-5 (GNMA/FNMA/FHLMC) A.M.T.
12-01-29 6.35 65,000 65,417
California State Department of Water Resources
Revenue Bonds
Series 2002A (MBIA)
05-01-09 5.25 3,200,000 3,388,479
05-01-10 5.25 3,000,000 3,216,210
05-01-15 6.00 2,000,000 2,296,100
California State Public Works Board
Revenue Bonds
Department of General Services
Capital East End
Series 2002A
12-01-06 5.00 1,000,000 1,013,580
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
26 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
California Statewide Communities Development Authority
Prerefunded Revenue Bonds
Thomas Jefferson School of Law Project
Series 2001
10-01-31 7.75% $2,500,000 $3,002,600
California Statewide Communities Development Authority
Revenue Bonds
Daughters of Charity Health
Series 2005G
07-01-13 5.25 200,000 212,844
California Statewide Communities Development Authority
Revenue Bonds
Kaiser Permanente
Series 2004E
04-01-32 3.88 750,000 745,763
City of Chula Vista
Revenue Bonds
San Diego Gas
Series 2005B A.M.T.
12-01-27 5.00 2,000,000 2,034,040
City of Los Angeles
Revenue Bonds
Series 2003A (FSA)
02-01-13 5.00 2,000,000 2,172,100
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2004A
07-01-24 5.00 1,000,000(c) 1,019,390
Contra Costa County
Revenue Bonds
Cypress Meadows Project
Series 1998E A.M.T.
09-01-28 7.00 236,638(b),(g) 70,992
Contra Costa Water District
Refunding Revenue Bonds
Series 2003M (FSA)
10-01-16 5.00 1,500,000 1,619,625
Coronado Community Development Agency
Tax Allocation Bonds
Coronado Community Development Project
Series 2005 (AMBAC)
09-01-35 5.00 2,000,000 2,077,820
County of Riverside
Certificate of Participation
Series 1998 (MBIA)
12-01-21 5.00% $1,530,000 $1,591,996
County of San Diego
Certificate of Participation
Series 1993 Inverse Floater (AMBAC)
09-01-07 8.13 3,200,000(h) 3,440,447
Desert Sands Unified School District
Refunding Certificate of Participation
Series 2003 (MBIA)
03-01-17 5.25 1,135,000 1,240,930
Encinitas Union School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1996 (MBIA)
08-01-15 5.85 2,500,000(f) 1,674,650
Fontana Unified School District
Unlimited General Obligation Bonds
Convertible Capital Appreciation
Series 1997D (FGIC)
05-01-22 5.75 2,000,000 2,174,860
Golden State Tobacco Securitization Corporation
Enhanced Asset-backed Revenue Bonds
Series 2005A
06-01-19 5.00 1,500,000 1,551,120
06-01-45 5.00 1,200,000 1,207,404
Golden State Tobacco Securitization Corporation
Prerefunded Enhanced Asset-backed Revenue Bonds
Series 2003B (FSA)
06-01-43 5.00 110,000 118,594
Golden State Tobacco Securitization Corporation
Revenue Bonds
Series 2003A-1
06-01-33 6.25 2,490,000 2,707,925
06-01-39 6.75 1,250,000 1,397,950
06-01-40 6.63 750,000 830,528
Grossmont-Cuyamaca Community College District
Unlimited General Obligation Bonds
Election of 2002
Series 2005B (FGIC)
08-01-26 5.00 3,000,000 3,170,520
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 27
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Inglewood Redevelopment Agency
Refunding Tax Allocation Bonds
Merged Redevelopment Project
Series 1998A (AMBAC)
05-01-23 5.25% $1,100,000 $1,228,832
Lake Elsinore Public Financing Authority
Revenue Bonds
Series 1997F
09-01-20 7.10 800,000 851,352
Lancaster Redevelopment Agency
Refunding Tax Allocation Bonds
Combined Redevelopment Project Areas
Series 2003 (MBIA)
08-01-17 5.13 1,840,000 2,030,201
Los Angeles County Sanitation Districts Financing Authority
Revenue Bonds
Capital Project
Series 2003A (FSA)
10-01-13 5.00 2,000,000 2,179,080
Los Angeles Department of Water & Power
Revenue Bonds
Power System
Series 2003B (FSA)
07-01-16 5.13 1,460,000 1,585,049
07-01-17 5.13 2,315,000 2,505,432
Los Angeles Harbor Department
Revenue Bonds
Series 1988 Escrowed to Maturity
10-01-18 7.60 925,000 1,144,780
Los Angeles Unified School District
Certificate of Participation
Multiple Properties Project
Series 2002B (FSA)
10-01-08 5.00 1,000,000 1,044,650
Menlo Park
Unlimited General Obligation Bonds
Series 2002
08-01-32 5.30 1,900,000 2,034,482
Metropolitan Water District of Southern California
Prerefunded Revenue Bonds
Series 1997A
07-01-26 5.00 645,000 673,509
07-01-26 5.00 1,090,000 1,138,178
Oxnard School District
Unlimited General Obligation Refunding Bonds
Series 2001A (MBIA)
08-01-30 5.75% $2,575,000 $3,033,968
Palomar Pomerado Health
Unlimited General Obligation Bonds
Election of 2004
Series 2005A (AMBAC)
08-01-29 4.50 2,500,000 2,478,400
Pittsburg Redevelopment Agency
Tax Allocation Bonds
Los Medanos Community Development Project
Zero Coupon
Series 1999 (AMBAC)
08-01-24 6.05 2,100,000(f) 870,219
Port of Oakland
Revenue Bonds
Series 1997G (MBIA) A.M.T.
11-01-25 5.38 3,080,000 3,221,957
Port of Oakland
Revenue Bonds
Series 2000K (FGIC) A.M.T.
11-01-18 5.63 1,000,000 1,061,410
Puerto Rico Public Finance Corporation
Revenue Bonds
Commonwealth Appropriation
Series 2004A (MBIA)
08-01-29 5.25 1,000,000(c) 1,081,880
Sacramento Municipal Utility District
Refunding Revenue Bonds
Series 2003S (FSA)
11-15-10 5.00 2,500,000 2,678,900
Sacramento Municipal Utility District
Revenue Bonds
Series 2001N (MBIA)
08-15-28 5.00 350,000 362,789
San Diego Public Water Facilities Financing Authority
Revenue Bonds
Series 2002 (MBIA)
08-01-26 5.00 2,500,000 2,603,550
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
28 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
San Diego Unified School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999A (FGIC)
07-01-12 3.70% $3,420,000(f) $2,661,820
San Francisco Bay Area Transit Financing Authority
Revenue Bonds
Series 2001 (AMBAC)
07-01-36 5.13 2,000,000 2,070,020
San Francisco City & County Airports Commission
Refunding Revenue Bonds
2nd Series 2001B-27 (FGIC)
05-01-16 5.25 2,170,000 2,325,611
San Francisco City & County Public Utilities Commission
Revenue Bonds
Series 2002A (MBIA)
11-01-25 5.00 2,000,000 2,093,940
San Francisco State Building Authority
Prerefunded Revenue Bonds
San Francisco Civic Center Complex
Series 1996A (AMBAC)
12-01-16 5.25 1,750,000 1,817,008
San Jose Redevelopment Agency
Refunding Tax Allocation Bonds
Merged Area Redevelopment Project
Series 2004A (MBIA)
08-01-18 4.54 2,000,000 2,047,740
San Jose Redevelopment Agency
Tax Allocation Bonds
Merged Area Redevelopment Project
Series 2003 (FGIC)
08-01-33 4.90 2,395,000 2,446,564
San Juan Unified School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999 (FSA)
08-01-21 5.68 820,000(f) 402,645
08-01-24 5.70 1,810,000(f) 756,888
San Mateo County Community College District
Unlimited General Obligation Bonds
Election of 2001
Series 2002A (FGIC)
09-01-18 5.38 1,000,000 1,094,880
Santa Maria Joint Union High School District
Unlimited General Obligation Bonds
Election of 2000
Series 2003B (FSA)
08-01-27 5.00% $3,000,000 $3,163,260
Semitropic Improvement District
Revenue Bonds
Series 2004A (XLCA)
12-01-28 5.00 2,000,000 2,066,700
State of California
Prerefunded Unlimited General Obligation Bonds
Series 2000
10-01-25 5.38 2,060,000 2,234,688
State of California
Revenue Bonds
Series 2004A
01-01-11 5.25 3,000,000 3,227,039
07-01-14 5.25 1,000,000 1,099,040
State of California
Unlimited General Obligation Bonds
Series 2000 (MBIA)
09-01-13 5.25 1,500,000 1,625,205
State of California
Unlimited General Obligation Bonds
Series 2001
03-01-31 5.13 2,500,000 2,583,800
06-01-31 5.13 2,500,000 2,587,475
State of California
Unlimited General Obligation Bonds
Series 2002
02-01-15 6.00 1,000,000 1,148,420
State of California
Unlimited General Obligation Bonds
Series 2003
02-01-10 5.00 1,000,000 1,054,890
02-01-21 5.25 2,500,000 2,673,700
02-01-29 5.25 2,500,000 2,640,300
02-01-32 5.00 2,500,000 2,579,375
State of California
Unlimited General Obligation Bonds
Series 2003 (FGIC)
11-01-20 5.25 1,000,000 1,083,890
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 29
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
State of California
Unlimited General Obligation Bonds
Series 2004
03-01-14 5.25% $2,000,000 $2,195,760
02-01-33 5.00 1,000,000 1,032,810
State of California
Unlimited General Obligation Bonds
Series 2004 (FGIC)
02-01-33 5.00 2,500,000 2,600,900
State of California
Unlimited General Obligation Bonds
Series 2004A (FGIC)
07-01-17 5.00 2,000,000 2,138,320
State of California
Unlimited General Obligation Bonds
Various Purpose
Series 2003
11-01-22 5.00 2,000,000 2,089,340
11-01-23 5.13 2,500,000 2,635,625
11-01-24 5.13 2,000,000 2,104,420
State of California
Unlimited General Obligation Bonds
Veterans
Series 2000B A.M.T.
12-01-12 4.95 2,250,000 2,321,303
12-01-13 5.05 1,435,000 1,480,332
12-01-14 5.15 2,535,000 2,612,191
State of California
Unlimited General Obligation Refunding Bonds
Series 2000
05-01-19 5.63 3,000,000 3,259,169
State of California
Unrefunded Unlimited General Obligation Bonds
Series 2000
10-01-25 5.38 440,000 467,808
Stockton
Revenue Bonds
Mortgage-backed Securities Program
Series 1990A (GNMA/FNMA/FHLMC) A.M.T.
02-01-23 7.50 30,000 30,597
Tobacco Securitization Authority of Northern California
Prerefunded Asset-backed Revenue Bonds
Series 2001A
06-01-41 5.38 255,000 277,437
Tobacco Securitization Authority of Southern California
Asset-backed Revenue Bonds
Series 2002A
06-01-43 5.63% $1,000,000 $1,023,790
University of California
Revenue Bonds
Multiple Purpose Projects
Series 2003Q (FSA)
09-01-18 5.00 2,000,000 2,126,660
University of California
Revenue Bonds
Multiple Purpose
Series 2000K (FGIC)
09-01-20 5.00 1,010,000 1,055,955
Walnut Energy Center Authority
Revenue Bonds
Series 2004A (AMBAC)
01-01-29 5.00 2,500,000 2,596,700
01-01-34 5.00 1,000,000 1,036,630
Western Hills Water District
Special Tax Bonds
Diablo Grande Community Facilities #1
Series 2001
09-01-31 6.88 1,000,000 1,051,080
Whittier Union High School District
Prerefunded Unlimited General Obligation Bonds
Election of 1999
Series 2003D (FSA)
08-01-28 5.00 2,615,000 2,866,249
- ------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $177,899,679) $184,420,994
- ------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
30 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
MUNICIPAL NOTES (3.1%)
<Table>
<Caption>
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(d),(e),(i) YIELD MATURITY VALUE(a)
California Housing Finance Agency
Revenue Bonds
Home Mortgage
V.R.D.N. Series 2001J FSA A.M.T.
02-01-32 3.78% $ 300,000 $ 300,000
California Housing Finance Agency
Revenue Bonds
Home Mortgage
V.R.D.N. Series 2002J
(Lloyds TSB Bank) MBIA A.M.T.
02-01-33 3.78 2,400,000 2,400,000
California Housing Finance Agency
Revenue Bonds
Home Mortgage
V.R.D.N. Series 2003U FSA A.M.T.
02-01-31 3.78 200,000 200,000
Irvine
Special Assessment Bonds
V.R.D.N. Series 2004A
(Bank of New York)
09-02-29 3.62% $ 900,000 $ 900,000
Regional Airports Improvement Corporation
Revenue Bonds
Los Angeles International Airport
V.R.D.N. Series 1989 A.M.T.
12-01-25 3.84 2,200,000 2,200,000
- -----------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $6,000,000) $ 6,000,000
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $183,899,679)(j) $190,420,994
=====================================================================================================
</Table>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
1.1% of net assets at Dec. 31, 2005.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 31
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- At Dec. 31, 2005, the value of
securities subject to alternative minimum tax represented
9.4% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(f) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(g) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). These securities may be valued at fair
value according to methods selected in good faith by the Fund's Board of
Directors. Information concerning such security holdings at Dec. 31, 2005,
is as follows:
<Table>
<Caption>
SECURITY ACQUISITION DATE COST
-------------------------------------------------------------------------
Contra Costa County
Revenue Bonds
Cypress Meadows Project
Series 1998E A.M.T.
7.00% 2028 09-21-98 $236,638
</Table>
(h) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in the LIBOR (London InterBank Offering Rate) Index.
Interest rate disclosed is the rate in effect on Dec. 31, 2005. At Dec. 31,
2005, the value of inverse floaters represented 1.8% of net assets.
(i) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate varies
to reflect current market conditions; rate shown is the effective rate on
Dec. 31, 2005.
(j) At Dec. 31, 2005, the cost of securities for federal income tax purposes
was approximately $183,900,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $7,137,000
Unrealized depreciation (616,000)
-------------------------------------------------------------------------
Net unrealized appreciation $6,521,000
-------------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
32 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
INVESTMENTS IN SECURITIES
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
DEC. 31, 2005 (UNAUDITED)
(PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
MUNICIPAL BONDS (97.1%)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Boston Metropolitan District
Unlimited General Obligation Refunding Bonds
Series 2002A
12-01-11 5.13% $2,050,000 $2,209,265
City of Boston
Revenue Bonds
Series 2004A
11-01-22 5.00 1,000,000 1,060,680
City of Boston
Unlimited General Obligation Bonds
Series 2005A
01-01-14 5.00 1,000,000 1,087,040
City of Boston
Unlimited General Obligation Refunding Bonds
Series 2003A (MBIA)
02-01-23 5.00 1,000,000 1,047,860
City of Springfield
Limited General Obligation Bonds
State Qualified
Series 2003 (MBIA)
01-15-20 5.25 1,405,000 1,521,489
Commonwealth of Massachusetts
Limited General Obligation Bonds
Consolidated Loan
Series 2002C (FSA)
11-01-15 5.50 2,500,000 2,823,650
Commonwealth of Massachusetts
Limited General Obligation Bonds
Consolidated Loan
Series 2002E
01-01-10 5.50 3,000,000 3,222,719
Commonwealth of Massachusetts
Limited General Obligation Refunding Bonds
Series 1997A (AMBAC)
08-01-10 5.75 2,185,000 2,392,925
Commonwealth of Massachusetts
Prerefunded Limited General Obligation Bonds
Consolidated Loan
Series 2002A (FGIC)
01-01-14 5.00 2,500,000 2,611,325
Commonwealth of Massachusetts
Prerefunded Limited General Obligation Bonds
Consolidated Loan
Series 2002C
11-01-30 5.25% $2,000,000 $2,167,740
Commonwealth of Massachusetts
Prerefunded Unlimited General Obligation Bonds
Consolidated Loan
Series 2003D
10-01-22 5.25 1,000,000 1,094,270
Commonwealth of Massachusetts
Revenue Bonds
Grant Anticipation Notes
Series 1998A (FSA)
06-15-09 5.25 1,500,000 1,587,945
Commonwealth of Massachusetts
Special Obligation Refunding Bonds
Federal Highway Grant Anticipation Notes
Series 2003A (FSA)
12-15-14 5.00 1,000,000 1,079,230
Commonwealth of Massachusetts
Unlimited General Obligation Bonds
Consolidated Loan
Series 2005B
08-01-14 5.00 750,000 811,305
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2001 (FSA)
07-01-16 5.50 500,000(c) 567,865
Freetown Lakeville Regional School District
Unlimited General Obligation Bonds
Series 2003 (MBIA)
01-01-13 5.00 1,865,000 2,022,667
Massachusetts Bay Transportation Authority
Refunding Revenue Bonds
Series 1992B
03-01-16 6.20 1,500,000 1,741,545
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 33
<Page>
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Massachusetts Bay Transportation Authority
Special Assessment Bonds
Series 2005A
07-01-25 5.00% $ 250,000 $ 264,115
07-01-26 5.00 250,000 263,715
07-01-31 5.00 500,000 523,460
Massachusetts Development Finance Agency
Prerefunded Revenue Bonds
Briarwood
Series 2001B
12-01-30 8.25 750,000 909,165
Massachusetts Development Finance Agency
Revenue Bonds
1st Mortgage Berkshire Retirement
Series 1999
07-01-29 5.63 1,250,000 1,254,188
Massachusetts Development Finance Agency
Revenue Bonds
Devens Electric System
Series 2001
12-01-30 6.00 1,000,000 1,074,360
Massachusetts Development Finance Agency
Revenue Bonds
May Institute
Series 1999 (Radian Group Financial Guaranty)
09-01-29 5.75 1,000,000 1,058,630
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Boston College
Series 2003N
06-01-21 5.25 1,000,000 1,081,400
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Harvard University
Series 2002FF
07-15-37 5.13 3,000,000 3,134,309
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Massachusetts Institute of Technology
Series 2003L
07-01-13 5.00 1,000,000 1,087,080
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Massachusetts Institute of Technology
Series 2004M
07-01-25 5.25% $1,000,000 $1,144,570
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Williams College
Series 2003H
07-01-33 5.00 1,750,000 1,819,755
Massachusetts Housing Finance Agency
Revenue Bonds
Single Family
Series 2003-98 A.M.T.
06-01-23 4.88 985,000 978,676
Massachusetts Industrial Finance Agency
Revenue Bonds
Tufts University
Series 1998H (MBIA)
02-15-28 4.75 1,000,000 1,010,900
Massachusetts Municipal Wholesale Electric Company
Revenue Bonds
Nuclear Project #5
Series 2001A (MBIA)
07-01-10 5.00 1,000,000 1,059,680
Massachusetts Port Authority
Revenue Bonds
Series 2003A (MBIA)
07-01-18 5.00 1,000,000 1,059,510
Massachusetts School Building Authority
Revenue Bonds
Series 2005A (FSA)
08-15-22 5.00 1,000,000 1,061,870
08-15-24 5.00 1,000,000 1,057,010
08-15-30 5.00 750,000 787,328
Massachusetts State Water Pollution Abatement
Prerefunded Revenue Bonds
Pool Program
Series 2002-8
08-01-20 5.00 1,475,000 1,581,480
Massachusetts State Water Pollution Abatement
Revenue Bonds
Pool Program
Series 2004-10
08-01-34 5.00 1,000,000 1,041,700
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
34 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Massachusetts State Water Pollution Abatement
Unrefunded Revenue Bonds
Pool Program
Series 2002-8
08-01-20 5.00% $ 25,000 $ 26,447
Massachusetts Water Resources Authority
Refunding Revenue Bonds
Series 1998B (FSA)
08-01-11 5.50 1,930,000 2,118,696
Massachusetts Water Resources Authority
Revenue Bonds
Series 1992A (FGIC)
07-15-19 6.50 2,000,000 2,418,520
Massachusetts Water Resources Authority
Revenue Bonds
Series 2004D (MBIA)
08-01-27 4.75 1,000,000 1,025,540
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 1,000,000(c) 1,059,810
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002A Inverse Floater (MBIA)
07-01-17 5.79 1,500,000(b),(c) 1,923,120
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25 300,000(c) 340,608
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 625,000(c) 670,000
University of Massachusetts Building Authority
Refunding Revenue Bonds
Series 2003-1 (AMBAC)
11-01-21 5.25 1,000,000 1,091,610
University of Massachusetts Building Authority
Revenue Bonds
Series 1976 Escrowed to Maturity
05-01-11 7.50 60,000 66,424
Westfield
Limited General Obligation Refunding Bonds
Series 2003 (MBIA)
09-01-17 5.00% $ 940,000 $ 1,004,465
Woods Hole Martha's Vineyard & Nantucket Steamship
Authority
Revenue Bonds
Series 2004B
03-01-20 5.00 750,000 800,468
Worcester
Limited General Obligation Bonds
Series 2001A (FGIC)
08-15-12 5.50 1,400,000 1,531,026
- ----------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $64,993,453) $66,379,155
- ----------------------------------------------------------------------------------------------------------
</Table>
MUNICIPAL NOTE (1.3%)
<Table>
<Caption>
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(e),(f) YIELD MATURITY VALUE(a)
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Capital Asset Program
V.R.D.N. Series 1985E (Fleet National Bank)
01-01-35 3.75% $860,000 $ 860,000
- ----------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTE
(Cost: $860,000) $ 860,000
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $65,853,453)(g) $67,239,155
==========================================================================================================
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 35
<Page>
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on Dec. 31, 2005. At Dec. 31, 2005, the value of inverse
floaters represented 2.8% of net assets.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
6.7% of net assets at Dec. 31, 2005.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At Dec. 31, 2005, the value of
securities subject to alternative minimum tax represented 1.4%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(f) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate varies
to reflect current market conditions; rate shown is the effective rate on
Dec. 31, 2005.
(g) At Dec. 31, 2005, the cost of securities for federal income tax purposes
was approximately $65,853,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $1,633,000
Unrealized depreciation (247,000)
-------------------------------------------------------------------------
Net unrealized appreciation $1,386,000
-------------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
36 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
INVESTMENTS IN SECURITIES
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
DEC. 31, 2005 (UNAUDITED)
(PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
MUNICIPAL BONDS (94.3%)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d) RATE AMOUNT VALUE(a)
Allen Park Public School District
Unlimited General Obligation Bonds
School Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-12 5.00% $1,000,000 $1,073,220
05-01-18 5.00 1,000,000 1,060,270
Anchor Bay School District
Unlimited General Obligation Bonds
School Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-29 5.00 1,000,000 1,041,300
Chippewa Valley Schools
Unlimited General Obligation Refunding Bonds
Series 2003
(Qualified School Bond Loan Fund)
05-01-21 5.00 745,000 785,550
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2001 (FSA)
07-01-16 5.50 500,000(c) 567,865
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2004A
07-01-24 5.00 500,000(c) 509,695
Detroit City School District
Unlimited General Obligation Bonds
School Building & Site Improvement
Series 2003B (FGIC)
(Qualified School Bond Loan Fund)
05-01-11 5.25 1,000,000 1,084,760
Detroit
Revenue Bonds
Second Lien
Series 2005A (MBIA)
07-01-30 5.00 500,000 521,490
Detroit
Revenue Bonds
Senior Lien
Series 2003A (MBIA)
07-01-34 5.00% $1,375,000 $1,427,140
Detroit
Revenue Bonds
Series 2003B (MBIA)
07-01-32 5.25 1,500,000 1,589,430
Detroit
Unlimited General Obligation Bonds
Series 2001A-1 (MBIA)
04-01-15 5.38 1,000,000 1,087,450
Eastern Michigan University
Refunding Revenue Bonds
Series 2003A (FGIC)
06-01-28 5.00 1,000,000 1,038,810
Goodrich Area School District
Unlimited General Obligation Bonds
Series 2003B
(Qualified School Bond Loan Fund)
05-01-27 5.00 1,000,000 1,044,670
Grand Rapids Building Authority
Prerefunded Revenue Bonds
Series 2002A (AMBAC)
10-01-17 5.50 505,000 561,934
Grand Rapids Building Authority
Unrefunded Revenue Bonds
Series 2002A (AMBAC)
10-01-17 5.50 765,000 839,718
Howell Public Schools
Unlimited General Obligation Bonds
School Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-29 5.00 1,000,000 1,041,300
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 37
<Page>
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d) RATE AMOUNT VALUE(a)
Jackson
Limited General Obligation Bonds
Capital Appreciation
Downtown Development
Zero Coupon
Series 2001 (FSA)
06-01-21 5.58% $1,450,000(b) $720,679
L'Anse Creuse Public Schools
Unlimited General Obligation Refunding Bonds
Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-11 4.00 1,000,000 1,019,660
Lansing Community College
Limited General Obligation Bonds
Series 2002 (FGIC)
05-01-12 5.00 1,000,000 1,080,240
Lawton Community Schools
Unlimited General Obligation Bonds
Series 2001
(Qualified School Bond Loan Fund)
05-01-31 5.00 1,000,000 1,029,430
Manchester Community Schools
Unlimited General Obligation Refunding Bonds
Building & Site
Series 2001
(Qualified School Bond Loan Fund)
05-01-26 5.00 1,400,000 1,453,522
Michigan Municipal Bond Authority
Refunding Revenue Bonds
Clean Water State Revolving Fund
Series 2005
10-01-15 5.00 500,000 545,875
Michigan Municipal Bond Authority
Revenue Bonds
Clean Water Revolving Fund
Series 2001
10-01-14 5.00 500,000 531,710
10-01-20 5.00 1,000,000 1,053,910
Michigan Municipal Bond Authority
Revenue Bonds
Clean Water State Revolving Fund
Series 2002
10-01-07 5.25% $1,000,000 $1,032,980
10-01-20 5.38 1,000,000 1,093,420
10-01-21 5.38 1,000,000 1,094,670
Michigan Municipal Bond Authority
Revenue Bonds
School District City of Detroit
Series 2005 (FSA)
06-01-19 5.00 500,000 531,995
Michigan Public Power Agency
Refunding Revenue Bonds
Belle River Project
Series 2002A (MBIA)
01-01-09 5.25 2,000,000 2,107,219
01-01-13 5.25 500,000 547,340
01-01-14 5.25 500,000 550,275
Michigan State Building Authority
Refunding Revenue Bonds
Facilities Program
Series 2003 II (MBIA)
10-15-29 5.00 1,000,000 1,041,770
Michigan State Building Authority
Revenue Bonds
State Police Communications System
Series 2002 Escrowed to Maturity
10-01-07 4.00 1,000,000 1,011,690
Michigan State Building Authority
Revenue Bonds
State Police Communications System
Series 2004 (MBIA)
10-01-13 5.38 500,000 554,110
Michigan State Hospital Finance Authority
Revenue Bonds
McLaren Health Care
Series 2005C
08-01-35 5.00 1,000,000 1,019,790
Michigan State Hospital Finance Authority
Revenue Bonds
Oakwood Obligated Group
Series 2003
11-01-18 5.50 1,000,000 1,073,780
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
38 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d) RATE AMOUNT VALUE(a)
Michigan Strategic Fund
Refunding Revenue Bonds
Detroit Edison
Series 1990BB (MBIA)
07-15-08 7.00% $1,000,000 $ 1,086,730
Plymouth-Canton Community School District
Unlimited General Obligation Refunding Bonds
Series 2003
(Qualified School Bond Loan Fund)
05-01-15 5.25 600,000 655,926
Pontiac Tax Increment Finance Authority
Refunding Revenue Bonds
Tax Increment
Development Area #2
Series 2002 (ACA)
06-01-22 5.63 1,000,000 1,048,950
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2002C (XLCA)
07-01-13 5.50 1,000,000(c) 1,117,490
Saline Area Schools
Unlimited General Obligation Bonds
Series 2000A
(Qualified School Bond Loan Fund)
05-01-09 4.75 1,000,000 1,041,070
South Lyon Community Schools
Unlimited General Obligation Bonds
School Building & Site
Series 2003 (FGIC)
05-01-28 5.00 1,000,000 1,039,150
Southfield Public Schools
Unlimited General Obligation Bonds
School Building & Site
Series 2003A
(Qualified School Bond Loan Fund)
05-01-22 5.25 1,025,000 1,104,222
State of Michigan
Certificate of Participation
Series 2004A (MBIA)
09-01-31 4.25 750,000 765,465
State of Michigan
Unlimited General Obligation Bonds
Environmental Programs
Series 2003A
05-01-10 5.00 1,000,000 1,061,700
Summit Academy North
Prerefunded Certificate of Participation
Series 2001
07-01-30 7.38% $ 750,000 $ 869,078
Summit Academy
Prerefunded Certificate of Participation
Full Term
Series 1998
09-01-18 7.00 480,000 521,126
Warren Consolidated School District
Unlimited General Obligation Bonds
School Building & Site
Series 2003 (FGIC)
05-01-13 5.00 875,000 949,673
Waverly Community School
Prerefunded Unlimited General Obligation Bonds
Series 2000 (FGIC)
05-01-17 5.25 1,000,000 1,074,150
Wayne State University
Revenue Bonds
Series 1999 (FGIC)
11-15-19 5.25 1,000,000 1,060,590
Western Michigan University
Refunding Revenue Bonds
Series 2003 (MBIA)
11-15-23 4.25 1,000,000 987,620
Western Township Utilities Authority
Limited General Obligation Bonds
Series 2002 (FGIC)
01-01-08 5.00 1,500,000 1,548,690
Williamston Community School District
Unlimited General Obligation Bonds
Series 1996 (MBIA)
(Qualified School Bond Loan Fund)
05-01-25 5.50 1,000,000 1,143,740
Wyandotte City School District
Unlimited General Obligation Refunding Bonds
Building & Site
Series 2002
(Qualified School Bond Loan Fund)
05-01-14 5.38 1,250,000 1,377,363
- ------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $51,601,168) $ 52,821,400
- ------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 39
<Page>
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
MUNICIPAL NOTES (5.5%)
<Table>
<Caption>
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(d),(e),(f) YIELD MATURITY VALUE(a)
Detroit
Revenue Bonds
Senior Lien
V.R.D.N. Series 2003B
(Dexia Credit Local) FSA
07-01-33 3.70% $1,400,000 $ 1,400,000
Michigan State University
Revenue Bonds V.R.D.N. Series 2002A
(Depfa Bank)
08-15-32 3.70 1,500,000 1,500,000
University of Michigan
Refunding Revenue Bonds
University of Michigan Hospitals
V.R.D.N. Series 1992A
12-01-19 3.75 200,000 200,000
- ------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $3,100,000) $ 3,100,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $54,701,168)(g) $55,921,400
============================================================================================================
</Table>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
3.9% of net assets at Dec. 31, 2005.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
- --------------------------------------------------------------------------------
40 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(f) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate varies
to reflect current market conditions; rate shown is the effective rate on
Dec. 31, 2005.
(g) At Dec. 31, 2005, the cost of securities for federal income tax purposes
was approximately $54,701,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $1,309,000
Unrealized depreciation (89,000)
-------------------------------------------------------------------------
Net unrealized appreciation $1,220,000
-------------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 41
<Page>
INVESTMENTS IN SECURITIES
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
DEC. 31, 2005 (UNAUDITED)
(PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
MUNICIPAL BONDS (93.4%)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Anoka County Housing & Redevelopment Authority
Unlimited General Obligation Bonds
Housing Development
Series 2004 (AMBAC)
02-01-34 5.00% $1,355,000 $1,404,105
Anoka-Hennepin Independent School District #11
Unlimited General Obligation Bonds
Series 2001A
(School District Credit Enhancement Program)
02-01-09 5.00 2,415,000 2,528,191
02-01-10 5.00 1,000,000 1,058,000
02-01-13 5.00 4,175,000 4,423,788
02-01-15 5.00 1,990,000 2,097,301
02-01-16 5.00 2,000,000 2,105,940
Austin Housing & Redevelopment Authority
Revenue Bonds
Courtyard Residence Project
Series 2000A
01-01-32 7.25 2,000,000 2,115,040
Bloomington Independent School District #271
Unlimited General Obligation Bonds
Building
Series 1999B
(School District Credit Enhancement Program)
02-01-15 5.00 1,500,000 1,573,050
Bloomington Independent School District #271
Unlimited General Obligation Bonds
Series 2001A (FSA)
(School District Credit Enhancement Program)
02-01-24 5.13 2,000,000 2,109,140
City of Breckenridge
Revenue Bonds
Catholic Health Initiatives
Series 2004A
05-01-30 5.00 5,000,000 5,192,750
City of Chaska
Refunding Revenue Bonds
Generating Facilities
Series 2005A
10-01-20 5.25% $1,165,000 $1,248,391
10-01-30 5.00 3,800,000 3,890,972
City of Maple Grove
Revenue Bonds
North Memorial Health Care
Series 2005
09-01-29 5.00 2,000,000 2,046,020
City of Minneapolis
Revenue Bonds
Fairview Health Services
Series 2002B (MBIA)
05-15-14 5.50 2,050,000 2,268,674
05-15-15 5.50 2,160,000 2,382,653
05-15-16 5.50 2,200,000 2,425,478
05-15-17 5.50 1,295,000 1,423,101
City of Minneapolis
Unlimited General Obligation Bonds
Convention Center
Series 2002
12-01-12 5.00 1,500,000 1,592,925
City of Minneapolis
Unlimited General Obligation Bonds
Various Purpose
Series 2001
12-01-11 5.00 3,035,000 3,269,181
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2001 (FSA)
07-01-16 5.50 1,500,000(c) 1,703,595
County of Anoka
Limited General Obligation Refunding Bonds
Capital Improvement
Series 2001C (MBIA)
02-01-09 4.60 2,960,000 3,072,362
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
42 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
County of Ramsey
Unlimited General Obligation Refunding Bonds
Capital Improvement Plan
Series 2002B
02-01-10 5.25% $2,150,000 $2,303,403
02-01-14 5.25 3,840,000 4,118,362
County of Washington
Unlimited General Obligation Bonds
Capital Improvement Plan
Series 2000A
02-01-20 5.50 1,000,000 1,072,440
Edina Independent School District #273
Unlimited General Obligation Bonds
Series 2004
02-01-12 4.00 3,700,000 3,784,064
02-01-22 4.25 3,000,000 2,975,760
02-01-23 4.50 3,000,000 3,054,480
02-01-24 4.50 3,400,000 3,476,364
Elk River Independent School District #728
Unlimited General Obligation Bonds
Series 2002 II Inverse Floater (FSA)
(School District Credit Enhancement Program)
02-01-18 6.12 1,200,000(h) 1,509,348
02-01-19 6.12 1,150,000(h) 1,437,558
02-01-20 6.12 950,000(h) 1,180,223
02-01-21 6.12 1,285,000(h) 1,587,322
Elk River Independent School District #728
Unlimited General Obligation Bonds
Series 2002A (FSA)
(School District Credit Enhancement Program)
02-01-16 5.00 3,000,000 3,211,740
Hennepin County
Unlimited General Obligation Bonds
Series 2003
12-01-06 4.00 2,000,000 2,014,300
12-01-23 4.75 2,000,000 2,062,200
Hopkins Independent School District #270
Unlimited General Obligation Refunding Bonds
Series 2002B
(School District Credit Enhancement Program)
02-01-09 4.00 2,925,000 2,977,445
Lake Superior Independent School District #381
Unlimited General Obligation Bonds
Building
Series 2002A (FSA)
(School District Credit Enhancement Program)
04-01-13 5.00% $1,795,000 $1,941,903
Lakeville Independent School District #194
Unlimited General Obligation Bonds
Series 1997A
(School District Credit Enhancement Program)
02-01-22 5.13 2,400,000 2,481,624
Maplewood
Revenue Bonds
Care Institute
Series 1994
01-01-24 7.75 3,775,000(b),(i) 2,265,000
Marshall Independent School District #413
Unlimited General Obligation Bonds
Series 2003A (FSA)
(School District Credit Enhancement Program)
02-01-19 4.13 1,560,000 1,549,829
Metropolitan Council Minneapolis-St. Paul
Metropolitan Area
Unlimited General Obligation Bonds
Transportation
Series 2002C
02-01-09 5.00 3,240,000 3,400,574
Minneapolis & St. Paul
Housing & Redevelopment Authority
Revenue Bonds
HealthPartners Obligation Group Project
Series 2003
12-01-12 5.25 1,000,000 1,064,800
12-01-15 5.13 1,500,000 1,569,855
12-01-16 5.25 1,250,000 1,316,838
Minneapolis & St. Paul
Housing & Redevelopment Authority
Revenue Bonds
HealthSpan
Series 1993A (AMBAC)
11-15-18 4.75 10,500,000 10,511,759
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 43
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Minneapolis Community Development Agency
Revenue Bonds
Limited Tax - Common Bond Fund
Series 1996-1
06-01-11 6.00% $ 980,000 $989,918
Minneapolis Community Development Agency
Revenue Bonds
Limited Tax - Common Bond Fund
Series 1997A-7
06-01-12 5.50 250,000 258,943
Minneapolis Community Development Agency
Revenue Bonds
Limited Tax - Common Bond Fund
Series 2001A-2 A.M.T.
06-01-19 5.88 1,000,000 1,069,730
Minneapolis Special School District #1
Refunding Certificate of Participation
Series 2002B (FSA)
(School District Credit Enhancement Program)
02-01-10 5.00 1,000,000 1,060,730
02-01-11 5.00 1,040,000 1,112,394
Minneapolis Special School District #1
Unlimited General Obligation Bonds
Series 2001 (FSA)
(School District Credit Enhancement Program)
02-01-09 5.00 1,325,000 1,390,667
Minneapolis-St. Paul Metropolitan Airports Commission
Refunding Subordinated Revenue Bonds
Series 2005C (FGIC)
01-01-25 5.00 4,000,000 4,200,840
01-01-26 5.00 4,000,000 4,194,760
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Series 1998A (AMBAC)
01-01-24 5.20 4,000,000 4,150,440
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Series 1999B (FGIC) A.M.T.
01-01-16 5.63 2,920,000 3,102,120
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Series 2001B (FGIC) A.M.T.
01-01-16 5.75 4,875,000 5,230,046
Minneapolis-St. Paul Metropolitan Airports Commission
Subordinated Revenue Bonds
Series 2001C (FGIC)
01-01-18 5.50% $2,000,000 $2,158,840
01-01-32 5.25 7,000,000 7,337,329
Minneapolis-St. Paul Metropolitan Airports Commission
Subordinated Revenue Bonds
Series 2005 (AMBAC)
01-01-29 5.00 1,900,000 1,982,441
Minnesota Agricultural & Economic Development Board
Prerefunded Revenue Bonds
Health Care System
Series 2000A
11-15-22 6.38 4,845,000 5,498,736
11-15-29 6.38 2,910,000 3,302,646
Minnesota Agricultural & Economic Development Board
Revenue Bonds
Health Care System - Benedictine Health
Series 1999A (MBIA)
02-15-16 4.75 1,000,000 1,038,540
Minnesota Agricultural & Economic Development Board
Unrefunded Revenue Bonds
Health Care System
Series 2000A
11-15-22 6.38 155,000 172,822
11-15-29 6.38 90,000 100,306
Minnesota Higher Education Facilities Authority
Revenue Bonds
Macalester College
6th Series 2004B
03-01-17 5.00 2,395,000 2,554,986
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. John's University
6th Series 2005G
10-01-22 5.00 2,000,000 2,090,860
Minnesota Higher Education Facilities Authority
Revenue Bonds
University of St. Thomas
5th Series 2004Y
10-01-34 5.25 2,800,000 2,937,760
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
44 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Minnesota Housing Finance Agency
Revenue Bonds
Series 2002R II Inverse Floater A.M.T.
07-01-33 6.96% $1,200,000(h) $ 1,284,960
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1996J A.M.T.
07-01-21 5.60 115,000 117,259
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1997K A.M.T.
01-01-26 5.75 1,130,000 1,150,306
Minnesota Public Facilities Authority
Prerefunded Revenue Bonds
Series 2001A
03-01-20 5.00 4,000,000 4,247,480
Minnesota Public Facilities Authority
Revenue Bonds
Series 1998A
03-01-11 5.00 2,500,000 2,585,525
Minnesota Public Facilities Authority
Revenue Bonds
Series 2002B
03-01-10 5.00 2,500,000 2,654,675
03-01-13 5.25 2,500,000 2,753,075
03-01-14 5.25 2,500,000 2,772,400
Minnesota Public Facilities Authority
Revenue Bonds
Series 2005C
03-01-25 5.00 2,000,000 2,117,340
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2004A
10-01-29 5.13 3,500,000 3,625,650
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2005
10-01-30 5.00 2,000,000 2,047,880
Monticello Big Lake Community Hospital District
Revenue Bonds
Health Care Facilities
Series 1998A
(Radian Group Financial Guaranty)
12-01-19 5.75% $1,600,000 $ 1,703,232
Northern Municipal Power Agency
Refunding Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1989A (AMBAC)
01-01-10 3.80 2,000,000(g) 1,723,180
Northern Municipal Power Agency
Refunding Revenue Bonds
Series 1998B (AMBAC)
01-01-20 4.75 5,000,000 5,148,150
Osseo Independent School District #279
Unlimited General Obligation Bonds
School Building
Series 2000A
(School District Credit Enhancement Program)
02-01-13 5.75 3,200,000 3,486,400
02-01-14 5.75 1,100,000 1,198,450
Osseo Independent School District #279
Unlimited General Obligation Bonds
Series 2002A (FSA)
(School District Credit Enhancement Program)
02-01-11 5.00 1,570,000 1,680,041
02-01-12 5.00 3,455,000 3,722,486
02-01-15 5.25 3,585,000 3,886,642
Osseo Independent School District #279
Unlimited General Obligation Refunding Bonds
Series 2001B
(School District Credit Enhancement Program)
02-01-09 5.00 2,860,000 2,994,048
Plymouth Housing & Redevelopment Authority
Unlimited General Obligation Bonds
Governmental Housing Project
Series 2005
02-01-35 5.00 2,135,000 2,239,679
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 3,000,000(c) 3,179,430
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 45
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2003NN (MBIA)
07-01-32 5.00% $2,820,000(c) $ 2,934,238
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25 1,650,000(c) 1,873,344
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 2,250,000(c) 2,443,545
Puerto Rico Public Finance Corporation
Revenue Bonds
Commonwealth Appropriation
Series 2004A (MBIA)
08-01-29 5.25 2,000,000(c) 2,163,760
Shakopee
Revenue Bonds
St. Francis Regional Medical Center
Series 2004
09-01-25 5.10 3,300,000 3,397,515
Southern Minnesota Municipal Power Agency
Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1994A (MBIA)
01-01-19 6.67 17,000,000(g) 9,561,309
Southern Minnesota Municipal Power Agency
Revenue Bonds
Series 2002A (AMBAC)
01-01-17 5.25 6,000,000 6,667,259
Southern Minnesota Municipal Power Agency
Revenue Bonds
Series 2003A (MBIA)
01-01-11 5.00 5,500,000 5,864,264
St. Cloud Housing & Redevelopment Authority
Revenue Bonds
State University Foundation Project
Series 2002
05-01-18 5.13 3,000,000 3,188,430
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Community of Peace Academy Project
Series 2001A
12-01-30 7.88% $2,390,000 $ 2,569,513
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Healtheast Project
Series 2005
11-15-25 6.00 1,250,000 1,337,125
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Lyngblomsten Care Center Housing Project
Series 1993
11-01-06 7.13 265,000 268,729
11-01-17 7.13 1,480,000 1,494,756
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Rental - Lyngblomsten Housing Project
Series 1993
11-01-24 7.00 1,680,000 1,695,372
St. Paul Port Authority
Revenue Bonds
Office Building at Cedar Street
Series 2003
12-01-23 5.00 5,000,000 5,242,500
12-01-27 5.13 5,350,000 5,635,637
State of Minnesota
Unlimited General Obligation Bonds
Series 2001
10-01-10 5.00 5,000,000 5,347,150
10-01-14 5.00 4,000,000 4,279,240
10-01-15 5.00 4,455,000 4,751,748
State of Minnesota
Unlimited General Obligation Bonds
Series 2002
08-01-10 5.00 4,075,000 4,350,633
11-01-15 5.25 3,575,000 3,924,278
State of Minnesota
Unlimited General Obligation Bonds
Series 2004
11-01-24 5.00 3,500,000 3,715,040
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
46 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(d),(e) RATE AMOUNT VALUE(a)
State of Minnesota
Unlimited General Obligation Bonds
Series 2005
10-01-19 5.00% $3,500,000 $ 3,785,670
Steele County
Revenue Bonds
Elderly Housing Project
Series 2000
06-01-30 6.88 2,205,000 2,486,248
Stillwater
Revenue Bonds
Health System Obligation Group
Series 2005
06-01-19 5.00 2,505,000 2,607,880
06-01-25 5.00 1,750,000 1,797,495
06-01-35 5.00 3,145,000 3,182,520
Todd Morrison Cass & Wadena Counties
United Hospital District
Unlimited General Obligation Bonds
Health Care Facilities-Lakewood
Series 2004
12-01-34 5.00 2,500,000 2,541,225
University of Minnesota
Revenue Bonds
Residual
Inverse Floater Series 2002
07-01-21 7.06 2,830,000(h) 4,092,718
Virginia Housing & Redevelopment Authority
Revenue Bonds
Series 2005
10-01-20 5.13 1,350,000 1,385,829
Western Minnesota Municipal Power Agency
Revenue Bonds
Series 2003A (MBIA)
01-01-26 5.00 7,250,000 7,602,567
01-01-30 5.00 5,000,000 5,209,350
White Bear Lake Independent School District #624
Unlimited General Obligation Refunding Bonds
School Building
Series 2002C (FSA)
(School District Credit Enhancement Program)
02-01-09 5.00 1,375,000 1,443,145
White Bear Lake Independent School District #624
Unlimited General Obligation Refunding Bonds
Series 2002B (FGIC)
(School District Credit Enhancement Program)
02-01-13 5.00% $1,405,000 $ 1,507,439
02-01-14 5.00 1,480,000 1,581,247
Willmar
Unlimited General Obligation Bonds
Rice Memorial Hospital Project
Series 2002 (FSA)
02-01-11 5.00 1,025,000 1,091,451
02-01-12 5.00 1,120,000 1,199,766
02-01-13 5.00 1,200,000 1,291,620
- ------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $340,215,627) $350,563,545
- ------------------------------------------------------------------------------------------------------------
</Table>
MUNICIPAL NOTES (4.9%)
<Table>
<Caption>
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(e),(f) YIELD MATURITY VALUE(a)
Center City
Revenue Bonds
Hazelden Foundation Project
V.R.D.N. Series 2005
(Bank of New York)
11-01-35 3.75% $5,800,000 $ 5,800,000
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Olaf Collage
V.R.D.N. 5th Series 2002M2
(Harris Trust & Savings Bank)
10-01-20 3.75 1,700,000 1,700,000
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Olaf College
V.R.D.N. 5th Series 2000H
(Harris Trust & Savings Bank)
10-01-30 3.75 850,000 850,000
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Olaf College
V.R.D.N. 5th Series 2002M1
(Harris Trust & Savings Bank)
10-01-32 3.75 400,000 400,000
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 47
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
MUNICIPAL NOTES (CONTINUED)
<Table>
<Caption>
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(e),(f) YIELD MATURITY VALUE(a)
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
V.R.D.N. Series 2005M A.M.T
01-01-36 3.45% $2,000,000 $ 2,000,000
Oak Park Heights
Refunding Revenue Bonds
Boutwells Landing
V.R.D.N. Series 2005 Freddie Mac
11-01-35 3.55 1,700,000 1,700,000
Robbinsdale
Revenue Bonds
North Memorial Healthcare-Tranche II
V.R.D.N Series 2003 AMBAC
05-15-33 3.20 1,950,000 1,950,000
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Minnesota Public Radio Project
V.R.D.N. Series 2005
(Allied Irish Bank)
10-01-25 3.75% $1,470,000 $ 1,470,000
St. Paul Port Authority
Revenue Bonds
Minnesota Public Radio Project
V.R.D.N. 7th Series 2005
(Allied Irish Bank)
05-01-25 3.75 2,400,000 2,400,000
- ------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $18,270,000) $ 18,270,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $358,485,627)(j) $368,833,545
============================================================================================================
</Table>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
3.8% of net assets at Dec. 31, 2005.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
- --------------------------------------------------------------------------------
48 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax-- At Dec. 31, 2005, the value of
securities subject to alternative minimum tax represented 3.7%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(f) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate varies
to reflect current market conditions; rate shown is the effective rate on
Dec. 31, 2005.
(g) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(h) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on Dec. 31, 2005. At Dec. 31, 2005, the value of inverse
floaters represented 3.0% of net assets.
(i) Identifies issues considered to be illiquid as to their marketability (see
Note 1 to the financial statements). These securities may be valued at fair
value according to methods selected in good faith by the Fund's Board of
Directors. Information concerning such security holdings at Dec. 31, 2005,
is as follows:
<Table>
<Caption>
SECURITY ACQUISITION DATE COST
--------------------------------------------------------------------------
Maplewood
Revenue Bonds
Care Institute
Series 1994
7.75% 2024 03-02-94 $3,677,432
</Table>
(j) At Dec. 31, 2005, the cost of securities for federal income tax purposes
was approximately $358,486,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $12,653,000
Unrealized depreciation (2,305,000)
Net unrealized appreciation $10,348,000
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 49
<Page>
INVESTMENTS IN SECURITIES
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
DEC. 31, 2005 (UNAUDITED)
(PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
MUNICIPAL BONDS (96.1%)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b),(c) RATE AMOUNT VALUE(a)
City of New York
Unlimited General Obligation Bonds
Series 2000 Inverse Floater (FGIC)
05-15-16 7.78% $ 830,000(g) $ 1,106,100
City of New York
Unlimited General Obligation Bonds
Series 2002C (XLCA)
03-15-12 5.00 1,000,000 1,069,040
City of New York
Unlimited General Obligation Bonds
Series 2002E
08-01-16 5.75 2,000,000 2,204,099
City of New York
Unlimited General Obligation Bonds
Series 2003I
03-01-27 5.38 2,000,000 2,141,280
City of New York
Unlimited General Obligation Bonds
Series 2003J
06-01-18 5.50 2,000,000 2,177,199
06-01-20 5.50 2,000,000 2,173,199
City of New York
Unlimited General Obligation Bonds
Series 2004D
11-01-34 5.00 1,000,000 1,027,940
City of New York
Unlimited General Obligation Bonds
Series 2004E (FSA)
11-01-22 5.00 750,000 793,245
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2004A
07-01-24 5.00 500,000(d) 509,695
County of Erie
Prerefunded Unlimited General Obligation Bonds
Series 1995B (FGIC)
06-15-25 5.50 700,000 710,416
County of Monroe
Unlimited General Obligation Refunding Bonds
Public Improvement
Series 1996 (MBIA)
03-01-15 6.00% $1,250,000 $ 1,444,163
Long Island Power Authority
Revenue Bonds
Series 1998-8 (AMBAC)
04-01-09 5.25 1,000,000 1,057,810
Metropolitan Transportation Authority
Prerefunded Revenue Bonds
Series 1998A (FGIC)
04-01-28 4.75 1,000,000 1,079,210
Metropolitan Transportation Authority
Refunding Revenue Bonds
Series 2002A
01-01-16 5.75 500,000 567,060
Metropolitan Transportation Authority
Refunding Revenue Bonds
Series 2002A (AMBAC)
11-15-19 5.50 1,000,000 1,101,140
Metropolitan Transportation Authority
Revenue Bonds
Series 2002A (FSA)
11-15-26 5.50 750,000 820,650
Metropolitan Transportation Authority
Revenue Bonds
Series 2005F
11-15-12 5.00 560,000 599,878
11-15-35 5.00 500,000 517,290
New York City Housing Development Corporation
Revenue Bonds
Capital Funding Program
New York City Housing Authority Program
Series 2005A (FGIC)
07-01-25 5.00 1,500,000 1,571,565
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
50 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b),(c) RATE AMOUNT VALUE(a)
New York City Industrial Development Agency
Revenue Bonds
Terminal One Group Association Project
Series 2005 A.M.T
01-01-24 5.50% $ 500,000 $ 529,955
New York City Municipal Water Finance Authority
Refunding Revenue Bonds
Series 1996B (MBIA)
06-15-26 5.75 320,000 326,515
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2002A
06-15-29 5.00 1,000,000 1,037,870
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2004A
06-15-39 5.00 1,000,000 1,033,360
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2005D (AMBAC)
06-15-39 5.00 750,000 780,330
New York City Transitional Finance Authority
Prerefunded Revenue Bonds
Future Tax
Series 1999C
05-01-25 5.50 220,000 237,290
New York City Transitional Finance Authority
Refunding Revenue Bonds
Future Tax Secured
Series 2005A-1
11-01-20 5.00 750,000 800,018
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2003D
02-01-23 5.00 500,000 524,240
02-01-31 5.00 1,000,000 1,034,250
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2004C
02-01-33 5.00 1,000,000 1,035,550
New York City Trust for Cultural Resources
Revenue Bonds
Museum of American Folk Art
Series 2000 (ACA)
07-01-22 6.00% $1,000,000 $ 1,082,090
New York Counties Tobacco Trust II
Revenue Bonds
Tobacco Settlement Pass Thru Bonds
Series 2001
06-01-35 5.63 500,000 511,895
New York Local Government Assistance Corporation
Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1993C (MBIA)
04-01-14 3.65 1,000,000(f) 720,420
New York Mortgage Agency
Revenue Bonds
Series 2002B
Inverse Floater A.M.T
04-01-32 6.43 1,000,000(g) 1,081,570
New York Power Authority
Revenue Bonds
Series 2000A
11-15-30 5.25 1,000,000 1,059,210
New York State Dormitory Authority
Prerefunded Revenue Bonds
Series 1990B
05-15-11 7.50 415,000 473,702
New York State Dormitory Authority
Revenue Bonds
Brooklyn Law School
Series 2003B (XLCA)
07-01-30 5.13 1,000,000 1,055,620
New York State Dormitory Authority
Revenue Bonds
Consolidated City University System
Series 1993A
07-01-13 5.75 3,000,000 3,299,339
New York State Dormitory Authority
Revenue Bonds
Education
Series 2005F
03-15-23 5.00 250,000 263,353
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 51
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b),(c) RATE AMOUNT VALUE(a)
New York State Dormitory Authority
Revenue Bonds
Hospital
Series 2004A (FHA/FSA)
08-15-13 5.25% $ 500,000 $ 546,815
New York State Dormitory Authority
Revenue Bonds
Memorial Sloan-Kettering Center
Series 2003-1 (MBIA)
07-01-21 5.00 1,000,000 1,052,260
New York State Dormitory Authority
Revenue Bonds
Mental Health Services Facilities Improvement
Series 2005E (FGIC)
02-15-22 5.00 750,000 792,675
New York State Dormitory Authority
Revenue Bonds
Montefiore Hospital
Series 2004 (FGIC/FHA)
08-01-19 5.00 735,000 785,245
New York State Dormitory Authority
Revenue Bonds
Pratt Institute
Series 1999
(Radian Group Financial Guaranty)
07-01-20 6.00 1,500,000 1,640,415
New York State Dormitory Authority
Revenue Bonds
Series 2002B (AMBAC)
11-15-26 5.25 1,000,000 1,082,380
New York State Dormitory Authority
Unrefunded Revenue Bonds
Series 1990B
05-15-11 7.50 1,200,000 1,334,148
New York State Energy Research & Development Authority
Revenue Bonds
New York State Electric & Gas
Series 1985B (MBIA)
10-15-15 4.00 1,000,000 999,950
New York State Energy Research & Development Authority
Revenue Bonds
Residual Certificates
Series 2000 Inverse Floater (MBIA)
01-01-21 7.05 330,000(g) 351,879
New York State Environmental Facilities Corporation
Revenue Bonds
New York City Municipal Water Financing Project
Series 2004
06-15-26 5.00% $1,000,000 $ 1,055,630
New York State Environmental Facilities Corporation
Revenue Bonds
Revolving Funds
New York City Municipal Water Project
Series 2002B
06-15-31 5.00 1,000,000 1,038,440
New York State Environmental Facilities Corporation
Revenue Bonds
Revolving Funds
New York City Municipal Water Project
Series 2002K
06-15-28 5.00 1,000,000 1,043,590
New York State Environmental Facilities Corporation
Revenue Bonds
Revolving Funds
Series 2003
06-15-32 5.00 1,000,000 1,042,220
New York State Thruway Authority
Revenue Bonds
Second General Resolution
Series 2003B (FSA)
04-01-21 4.75 835,000 864,417
New York State Thruway Authority
Revenue Bonds
Second General Resolution
Series 2005B (AMBAC)
04-01-22 5.00 500,000 532,085
New York State Thruway Authority
Revenue Bonds
Series 2004A (AMBAC)
03-15-12 5.25 750,000 818,993
New York State Thruway Authority
Revenue Bonds
Series 2004A (MBIA)
04-01-19 5.00 1,000,000 1,065,210
New York State Thruway Authority
Revenue Bonds
Series 2005G (FSA)
01-01-24 5.00 1,000,000 1,058,860
01-01-28 5.00 750,000 794,145
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
52 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b),(c) RATE AMOUNT VALUE(a)
New York State Thruway Authority
Revenue Bonds
Transportation
Series 2003A (MBIA)
03-15-22 5.00% $1,000,000 $ 1,049,800
New York State Urban Development Corporation
Refunding Revenue Bonds
Service Contract
Series 2005 (FSA)
01-01-17 5.00 1,000,000 1,079,950
New York State Urban Development Corporation
Revenue Bonds
Series 2002A (XLCA)
01-01-11 5.25 1,000,000 1,077,100
Niagara Falls Public Water Authority
Prerefunded Revenue Bonds
Series 2003A (MBIA)
07-15-28 5.50 1,000,000 1,011,830
Port Authority of New York & New Jersey
Revenue Bonds
5th Installment Special Project
Series 1996-4 A.M.T
10-01-19 6.75 1,500,000 1,496,550
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 134th
Series 2004
07-15-34 5.00 1,000,000 1,038,350
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 1,000,000(d) 1,086,020
Puerto Rico Public Finance Corporation
Revenue Bonds
Commonwealth Appropriation
Series 2004A (MBIA)
08-01-29 5.25 1,000,000(d) 1,081,880
Sales Tax Asset Receivables Corporation
Revenue Bonds
Series 2004A (MBIA)
10-15-23 5.00 750,000 796,455
Suffolk County Industrial Development Agency
Revenue Bonds
1st Mortgage Jeffersons Ferry
Series 1999A
11-01-28 7.25% $1,500,000 $ 1,614,135
Tobacco Settlement Financing Authority
Asset-backed Revenue Bonds
Series 2003A-1
06-01-16 5.50 500,000 536,260
Tobacco Settlement Financing Authority
Revenue Bonds
Series 2003C-1
06-01-14 5.50 500,000 530,505
06-01-15 5.50 500,000 536,470
Triborough Bridge & Tunnel Authority
Refunding Revenue Bonds
Series 2002B
11-15-10 5.00 2,000,000 2,132,960
11-15-29 5.13 1,000,000 1,056,420
Triborough Bridge & Tunnel Authority
Revenue Bonds
Convention Center Project
Series 1990E
01-01-11 6.00 1,145,000 1,266,164
Westchester Tobacco Asset Securitization
Revenue Bonds
Series 2005
06-01-26 5.00 875,000 845,609
- -----------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $73,291,476) $75,693,371
- -----------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 53
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
MUNICIPAL NOTES (2.7%)
<Table>
<Caption>
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(b),(c),(e) YIELD MATURITY VALUE(a)
City of New York
Unlimited General Obligation Bonds
V.R.D.N. Series 1994H-2
(Wachovia Bank) MBIA
08-01-13 3.75% $1,200,000 $ 1,200,000
City of New York
Unlimited General Obligation Bonds
V.R.D.N. Series 1994H-3
(State Street B&T) FSA
08-01-20 3.65 500,000 500,000
City of New York
Unlimited General Obligation Bonds
V.R.D.N. Series 2005E-2 (Bank of America)
08-01-34 3.70 300,000 300,000
New York City Municipal Water Finance Authority
Revenue Bonds
V.R.D.N. Series 2002C-3
(Bank of New York)
06-15-18 3.65% $ 100,000 $ 100,000
- -----------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $2,100,000) $ 2,100,000
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $75,391,476)(h) $77,793,371
===========================================================================================================
</Table>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(c) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At Dec. 31, 2005, the value of
securities subject to alternative minimum tax represented 3.9%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
- --------------------------------------------------------------------------------
54 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(d) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
3.4% of net assets at Dec. 31, 2005.
(e) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate varies
to reflect current market conditions; rate shown is the effective rate on
Dec. 31, 2005.
(f) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(g) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on Dec. 31, 2005. At Dec. 31, 2005, the value of inverse
floaters represented 3.2% of net assets.
(h) At Dec. 31, 2005, the cost of securities for federal income tax purposes
was approximately $75,391,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $2,566,000
Unrealized depreciation (164,000)
-------------------------------------------------------------------
Net unrealized appreciation $2,402,000
-------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 55
<Page>
INVESTMENTS IN SECURITIES
RIVERSOURCE OHIO TAX-EXEMPT FUND
DEC. 31, 2005 (UNAUDITED)
(PERCENTAGES REPRESENT VALUE OF INVESTMENTS COMPARED TO NET ASSETS)
MUNICIPAL BONDS (95.2%)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b) RATE AMOUNT VALUE(a)
Bowling Green State University
Revenue Bonds
Series 2003 (AMBAC)
06-01-12 5.00% $1,145,000 $ 1,234,573
Brookville Local School District
Unlimited General Obligation Bonds
Series 2003 (FSA)
12-01-18 5.25 1,000,000 1,088,210
Canal Winchester Local School District
Unlimited General Obligation Bonds
Series 2005 (MBIA)
12-01-25 5.00 500,000 528,010
Cincinnati City School District
Limited General Obligation Bonds
School Improvement
Series 2002 (FSA)
06-01-21 5.25 1,000,000 1,077,240
Cincinnati City School District
Unlimited General Obligation Bonds
Classroom Facilities Construction & Improvement
Series 2003 (FSA)
12-01-31 5.00 500,000 521,185
City of Cincinnati
Unlimited General Obligation Bonds
Series 2000
12-01-16 5.25 1,000,000 1,076,820
City of Cleveland
Revenue Bonds
Series 2002K (FGIC)
01-01-10 5.00 2,000,000 2,118,419
City of Columbus
Prerefunded Unlimited General Obligation Bonds
Series 1999-2
06-15-15 5.75 1,000,000 1,103,890
City of Hamilton
Refunding Revenue Bonds
Series 2002A (FSA)
10-15-25 4.70 1,500,000 1,520,235
Cleveland State University
Revenue Bonds
Series 2003A (FGIC)
06-01-15 5.00% $1,000,000 $ 1,072,120
Cleveland State University
Revenue Bonds
Series 2004 (FGIC)
06-01-24 5.25 500,000 536,105
Columbus City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2003 (FGIC)
12-01-11 5.00 1,000,000 1,077,160
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2001 (FSA)
07-01-16 5.50 500,000(d) 567,865
County of Cuyahoga
Limited General Obligation Bonds
Series 1993
05-15-13 5.60 500,000 533,935
County of Cuyahoga
Refunding Revenue Bonds
Series 2003A
01-01-17 6.00 1,000,000 1,133,860
01-01-32 6.00 1,000,000 1,101,810
County of Cuyahoga
Revenue Bonds
Canton Incorporated Project
Series 2000
01-01-30 7.50 1,000,000 1,114,240
County of Montgomery
Revenue Bonds
Catholic Health Initiatives
Series 2004A
05-01-30 5.00 750,000 775,215
05-01-32 5.00 500,000 516,110
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
56 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE OHIO TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b) RATE AMOUNT VALUE(a)
Dayton City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2003A (FGIC)
12-01-27 5.00% $1,250,000 $ 1,304,138
12-01-31 5.00 1,000,000 1,038,810
Dayton City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2003D (FGIC)
12-01-17 5.00 1,000,000 1,064,170
Franklin County
Refunding Revenue Bonds
OhioHealth Corporation
Series 2003C
05-15-24 5.25 1,000,000 1,060,640
Franklin County
Refunding Revenue Bonds
Trinity Health Credit
Series 2005A
06-01-20 5.00 500,000 525,240
Hamilton County Convention Facilities Authority
Revenue Bonds
First Lien
Series 2004 (FGIC)
12-01-33 5.00 1,000,000 1,038,180
Jackson
Prerefunded Revenue Bonds
Consolidated Health System - Jackson Hospital
Series 1999
(Radian Group Financial Guaranty)
10-01-20 6.13 1,000,000 1,105,530
Kenston Local School District
Unlimited General Obligation Bonds
School Improvement
Series 2003 (MBIA)
12-01-16 5.00 1,000,000 1,067,480
Lakewood
Limited General Obligation Bonds
Series 2003
12-01-19 5.00 1,515,000 1,598,825
Licking Heights Local School District
Unlimited General Obligation Bonds
Series 2004 (FGIC)
12-01-28 5.00 1,000,000 1,045,310
Miami University
Refunding Revenue Bonds
Series 2005 (AMBAC)
09-01-23 4.75% $ 500,000 $ 519,605
Ohio Air Quality Development Authority
Refunding Revenue Bonds
Pollution Control - Dayton Power
Series 2005B (FGIC)
01-01-34 4.80 500,000 506,465
Ohio Municipal Electric Generation Agency
Refunding Revenue Bonds
Joint Venture 5
Series 2004 (AMBAC)
02-15-24 4.75 750,000 770,805
Ohio State Building Authority
Refunding Revenue Bonds
State Facilities Adult Correction
Series 2001A (FSA)
10-01-14 5.50 1,000,000 1,091,700
Ohio State Building Authority
Revenue Bonds
State Facilities Adult Correction
Series 2005A (FSA)
04-01-22 5.00 750,000 794,325
Ohio State Higher Educational Facility Commission
Refunding Revenue Bonds
Oberlin College
Series 1999
10-01-29 5.00 1,000,000 1,033,990
Ohio State University
Revenue Bonds
Series 2005A
06-01-30 4.75 500,000 510,250
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 1,000,000(d) 1,059,810
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25 250,000(d) 283,840
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 750,000(d) 814,515
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 57
<Page>
RIVERSOURCE OHIO TAX-EXEMPT FUND
MUNICIPAL BONDS (CONTINUED)
<Table>
<Caption>
NAME OF
ISSUER AND
TITLE OF COUPON PRINCIPAL
ISSUE(b) RATE AMOUNT VALUE(a)
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00% $ 500,000(d) $ 536,000
State of Ohio
Revenue Bonds
Case Western Reserve University Project
Series 2004A (AMBAC)
12-01-27 5.00 1,000,000 1,045,770
State of Ohio
Unlimited General Obligation Bonds
Common Schools Capital Facilities
Series 2001A
06-15-13 5.00 1,500,000 1,590,570
State of Ohio
Unlimited General Obligation Bonds
Common Schools Capital Facilities
Series 2001B
09-15-20 5.00 1,000,000 1,058,250
State of Ohio
Unlimited General Obligation Bonds
Common Schools
Series 2003C
03-15-10 5.00 1,000,000 1,060,800
State of Ohio
Unlimited General Obligation Bonds
Conservation Projects
Series 2005A
03-01-20 5.00 500,000 529,225
State of Ohio
Unlimited General Obligation Bonds
Higher Education
Series 2003A
05-01-11 5.00 1,000,000 1,071,210
State of Ohio
Unlimited General Obligation Bonds
Higher Education
Series 2005B
05-01-23 5.00 500,000 530,565
State of Ohio
Unlimited General Obligation Bonds
Highway Capital Improvement
Series 2002G
05-01-12 5.25 750,000 818,490
State of Ohio
Unlimited General Obligation Bonds
Highway Capital Improvement
Series 2005I
05-01-14 5.00% $1,000,000 $ 1,087,110
State of Ohio
Unlimited General Obligation Bonds
Infrastructure Improvement
Series 2005A
09-01-21 5.00 500,000 532,855
Summit County
Limited General Obligation Bonds
Series 2003
12-01-18 5.25 1,490,000 1,645,929
Toledo City School District
Unlimited General Obligation Bonds
School Facilities Improvement
Series 2003 (FSA)
(School District Credit Enhancement Program)
12-01-15 5.00 1,000,000 1,077,000
University of Akron
Revenue Bonds
Series 2003A (AMBAC)
01-01-22 5.00 1,595,000 1,674,543
University of Cincinnati
Revenue Bonds
Series 2001A (FGIC)
06-01-14 5.50 1,000,000 1,093,050
University of Cincinnati
Revenue Bonds
Series 2005A (AMBAC)
06-01-19 5.00 1,000,000 1,072,040
Warren County
Limited General Obligation Bonds
Series 1992
12-01-12 6.10 500,000 543,490
- -----------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $53,130,754) $53,897,527
- -----------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
58 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE OHIO TAX-EXEMPT FUND
MUNICIPAL NOTES (4.0%)
<Table>
<Caption>
AMOUNT
EFFECTIVE PAYABLE AT
ISSUE(c),(e) YIELD MATURITY VALUE(a)
Ohio Air Quality Development Authority
Revenue Bonds
Pollution Control - Ohio Edison Company
V.R.D.N. Series 1988
(Wachovia Bank) A.M.T
09-01-18 3.85% $2,100,000 $ 2,100,000
State of Ohio
Revenue Bonds
BP Exploration & Oil Project
V.R.D.N. Series 1999 A.M.T
08-01-34 3.85 150,000 150,000
- -----------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $2,250,000) $ 2,250,000
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $55,380,754)(f) $56,147,527
===========================================================================================================
</Table>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(c) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At Dec. 31, 2005, the value of
securities subject to alternative minimum tax represented 4.0%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 59
<Page>
RIVERSOURCE OHIO TAX-EXEMPT FUND
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
(d) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
5.8% of net assets at Dec. 31, 2005.
(e) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate varies
to reflect current market conditions; rate shown is the effective rate on
Dec. 31, 2005.
(f) At Dec. 31, 2005, the cost of securities for federal income tax purposes
was approximately $55,381,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
<Table>
Unrealized appreciation $ 952,000
Unrealized depreciation (185,000)
------------------------------------------------------------------
Net unrealized appreciation $ 767,000
------------------------------------------------------------------
</Table>
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
60 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
RIVERSOURCE STATE TAX-EXEMPT FUNDS
<Table>
<Caption>
CALIFORNIA MASSACHUSETTS MICHIGAN
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
DEC. 31, 2005 (UNAUDITED) FUND FUND FUND
ASSETS
Investments in securities, at value (Note 1)
(identified cost $183,899,679, $65,853,453
and $54,701,168) $190,420,994 $67,239,155 $55,921,400
Cash in bank on demand deposit 75,324 36,305 55,121
Capital shares receivable -- 500 191
Accrued interest receivable 2,624,382 1,181,269 690,386
- ---------------------------------------------------------------------------------------------------------------------
Total assets 193,120,700 68,457,229 56,667,098
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 156,244 48,482 41,616
Capital shares payable 17,765 5,107 500
Payable for investment securities purchased -- -- 552,843
Accrued investment management services fee 2,484 881 722
Accrued distribution fee 85,059 30,065 24,439
Accrued transfer agency fee 236 60 53
Accrued administrative services fee 370 131 107
Other accrued expenses 49,062 29,789 35,135
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 311,220 114,515 655,415
- ---------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares $192,809,480 $68,342,714 $56,011,683
=====================================================================================================================
REPRESENTED BY
Shares of beneficial interest -- $.01 par value (Note 1) $ 374,363 $ 128,452 $ 106,865
Additional paid-in capital 185,989,645 66,918,660 54,789,653
Undistributed net investment income 23,566 2,223 --
Accumulated net realized gain (loss) (99,409) (92,323) (105,067)
Unrealized appreciation (depreciation) on investments 6,521,315 1,385,702 1,220,232
- ---------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding shares $192,809,480 $68,342,714 $56,011,683
=====================================================================================================================
Net assets applicable to outstanding shares: Class A $178,182,022 $52,733,905 $49,886,925
Class B $ 12,218,938 $14,373,532 $ 4,171,608
Class C $ 2,408,520 $ 1,235,277 $ 1,953,150
Outstanding shares of beneficial interest: Class A shares 34,595,574 9,911,473 9,518,261
Class B shares 2,373,687 2,701,446 795,597
Class C shares 467,065 232,266 372,626
Net asset value per share: Class A $ 5.15 $ 5.32 $ 5.24
Class B $ 5.15 $ 5.32 $ 5.24
Class C $ 5.16 $ 5.32 $ 5.24
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 61
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
RIVERSOURCE STATE TAX-EXEMPT FUNDS
<Table>
<Caption>
MINNESOTA NEW YORK OHIO
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
DEC. 31, 2005 (UNAUDITED) FUND FUND FUND
ASSETS
Investments in securities, at value (Note 1)
(identified cost $358,485,627, $75,391,476
and $55,380,754) $368,833,545 $77,793,371 $56,147,527
Cash in bank on demand deposit -- 55,959 30,141
Capital shares receivable 11,180 19,436 619
Accrued interest receivable 5,601,001 1,027,151 550,063
Receivable for investment securities sold 1,756,649 -- --
- ---------------------------------------------------------------------------------------------------------------------
Total assets 376,202,375 78,895,917 56,728,350
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES
Disbursements in excess of cash on demand deposit 115,565 -- --
Dividends payable to shareholders 277,658 63,851 41,430
Capital shares payable 95,134 -- --
Accrued investment management services fee 4,749 1,014 729
Accrued distribution fee 164,512 34,294 24,367
Accrued transfer agency fee 217 141 103
Accrued administrative services fee 720 151 109
Other accrued expenses 48,855 28,504 23,083
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 707,410 127,955 89,821
- ---------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares $375,494,965 $78,767,962 $56,638,529
=====================================================================================================================
REPRESENTED BY
Shares of beneficial interest -- $.01 par value (Note 1) $ 713,222 $ 156,227 $ 107,795
Additional paid-in capital 365,760,546 76,402,644 55,839,634
Undistributed net investment income 402,404 10,156 --
Accumulated net realized gain (loss) (Note 6) (1,729,125) (202,960) (75,673)
Unrealized appreciation (depreciation) on investments 10,347,918 2,401,895 766,773
- ---------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding shares $375,494,965 $78,767,962 $56,638,529
=====================================================================================================================
Net assets applicable to outstanding shares: Class A $326,108,441 $68,489,854 $47,915,639
Class B $ 40,967,488 $ 8,977,332 $ 6,999,089
Class C $ 8,419,036 $ 1,300,776 $ 1,723,801
Outstanding shares of beneficial interest: Class A shares 61,942,825 13,584,077 9,119,371
Class B shares 7,780,402 1,780,585 1,332,113
Class C shares 1,599,013 257,993 327,967
Net asset value per share: Class A $ 5.26 $ 5.04 $ 5.25
Class B $ 5.27 $ 5.04 $ 5.25
Class C $ 5.27 $ 5.04 $ 5.26
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
62 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
STATEMENTS OF OPERATIONS
RIVERSOURCE STATE TAX-EXEMPT FUNDS
<Table>
<Caption>
CALIFORNIA MASSACHUSETTS MICHIGAN
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
SIX MONTHS ENDED DEC. 31, 2005 (UNAUDITED) FUND FUND FUND
INVESTMENT INCOME
Income:
Interest $ 4,462,335 $ 1,474,184 $1,213,398
- ---------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 472,726 168,315 136,675
Distribution fee
Class A 231,036 68,495 64,315
Class B 67,591 77,761 24,002
Class C 14,059 6,368 9,526
Transfer agency fee 39,985 22,746 16,193
Incremental transfer agency fee
Class A 3,468 1,711 1,325
Class B 648 773 290
Class C 224 108 154
Administrative services fees and expenses 63,866 19,263 15,323
Compensation of board members 5,094 5,094 5,094
Custodian fees 15,555 5,336 4,575
Printing and postage 16,470 5,691 3,660
Registration fees 18,300 15,840 18,300
Audit fees 10,250 9,500 9,500
Other 2,272 2,382 1,666
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 961,544 409,383 310,598
Expenses waived/reimbursed by the
Investment Manager and its affiliates (Note 2) (61,851) (45,932) (41,930)
- ---------------------------------------------------------------------------------------------------------------------
899,693 363,451 268,668
Earnings credits on cash balances (Note 2) (7,654) (2,026) (2,581)
- ---------------------------------------------------------------------------------------------------------------------
Total net expenses 892,039 361,425 266,087
- ---------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 3,570,296 1,112,759 947,311
- ---------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on security transactions (Note 3) 459,396 154,454 203,790
Net change in unrealized appreciation (depreciation) on investments (2,757,323) (1,431,441) (959,029)
- ---------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (2,297,927) (1,276,987) (755,239)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,272,369 $ (164,228) $ 192,072
=====================================================================================================================
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 63
<Page>
STATEMENTS OF OPERATIONS
RIVERSOURCE STATE TAX-EXEMPT FUNDS
<Table>
<Caption>
MINNESOTA NEW YORK OHIO
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
SIX MONTHS ENDED DEC. 31, 2005 (UNAUDITED) FUND FUND FUND
INVESTMENT INCOME
Income:
Interest $ 8,343,101 $ 1,850,734 $ 1,188,324
- ---------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 895,701 191,414 137,647
Distribution fee
Class A 419,694 88,121 61,543
Class B 219,429 48,102 37,516
Class C 44,183 6,669 9,171
Transfer agency fee 96,972 24,023 17,570
Incremental transfer agency fee
Class A 8,075 1,976 1,392
Class B 2,084 555 407
Class C 617 121 172
Administrative services fees and expenses 110,168 22,354 15,410
Compensation of board members 5,861 5,094 5,094
Custodian fees 17,175 6,090 4,490
Printing and postage 43,365 4,140 4,575
Registration fees 21,396 18,300 16,470
Audit fees 11,000 9,750 9,500
Other 5,743 3,320 1,807
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 1,901,463 430,029 322,764
Expenses waived/reimbursed by the
Investment Manager and its affiliates (Note 2) (98,956) (47,875) (42,285)
- ---------------------------------------------------------------------------------------------------------------------
1,802,507 382,154 280,479
Earnings credits on cash balances (Note 2) (14,054) (2,982) (2,531)
- ---------------------------------------------------------------------------------------------------------------------
Total net expenses 1,788,453 379,172 277,948
- ---------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 6,554,648 1,471,562 910,376
- ---------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on security transactions (Note 3) (1,666,165) 328,767 17,690
Net change in unrealized appreciation (depreciation) on investments (4,271,579) (1,772,319) (1,032,083)
- ---------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (5,937,744) (1,443,552) (1,014,393)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 616,904 $ 28,010 $ (104,017)
=====================================================================================================================
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
64 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE STATE TAX-EXEMPT FUNDS
<Table>
<Caption>
CALIFORNIA TAX-EXEMPT FUND MASSACHUSETTS TAX-EXEMPT FUND
DEC. 31, 2005 JUNE 30, 2005 DEC. 31, 2005 JUNE 30, 2005
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
(UNAUDITED) (UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 3,570,296 $ 7,820,739 $ 1,112,759 $ 2,366,050
Net realized gain (loss) on investments 459,396 2,843,277 154,454 522,273
Net change in unrealized appreciation
(depreciation) on investments (2,757,323) 6,675,883 (1,431,441) 2,650,326
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,272,369 17,339,899 (164,228) 5,538,649
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net Investment income
Class A (3,344,979) (7,236,425) (971,902) (1,880,881)
Class B (192,544) (544,611) (215,183) (449,620)
Class C (40,164) (100,096) (17,734) (35,315)
Net realized gain
Class A (2,060,963) (2,650,310) (260,911) (266,380)
Class B (141,135) (248,451) (70,980) (82,558)
Class C (28,036) (42,061) (6,115) (6,105)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (5,807,821) (10,821,954) (1,542,825) (2,720,859)
- ------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 11,360,780 18,129,921 3,838,309 5,250,331
Class B shares 542,783 964,281 618,436 643,022
Class C shares 97,886 755,510 90,790 265,254
Reinvestment of distributions at net asset value
Class A shares 3,989,265 7,334,232 987,976 1,789,144
Class B shares 288,037 670,599 221,218 419,010
Class C shares 63,100 132,696 21,292 38,737
Payments for redemptions
Class A shares (22,689,336) (35,789,588) (6,867,959) (12,453,873)
Class B shares (Note 2) (4,463,710) (7,417,183) (3,613,489) (4,843,199)
Class C shares (Note 2) (744,307) (1,664,249) (215,506) (600,562)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (11,555,502) (16,883,781) (4,918,933) (9,492,136)
- ------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (16,090,954) (10,365,836) (6,625,986) (6,674,346)
Net assets at beginning of period 208,900,434 219,266,270 74,968,700 81,643,046
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $192,809,480 $208,900,434 $68,342,714 $ 74,968,700
==============================================================================================================================
Undistributed net investment income $ 23,566 $ 30,957 $ 2,223 $ 94,283
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 65
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE STATE TAX-EXEMPT FUNDS
<Table>
<Caption>
MICHIGAN TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND
DEC. 31, 2005 JUNE 30, 2005 DEC. 31, 2005 JUNE 30, 2005
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
(UNAUDITED) (UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 947,311 $ 2,102,624 $ 6,554,648 $ 13,459,781
Net realized gain (loss) on investments 203,790 545,582 (1,666,165) 1,307,808
Net change in unrealized appreciation
(depreciation) on investments (959,029) 1,522,358 (4,271,579) 11,874,424
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 192,072 4,170,564 616,904 26,642,013
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net Investment income
Class A (860,775) (1,891,829) (5,821,506) (11,812,371)
Class B (61,932) (159,945) (593,733) (1,350,479)
Class C (24,604) (50,776) (119,392) (240,632)
Net realized gain
Class A (405,309) (261,330) (630,199) (1,142,029)
Class B (33,837) (28,921) (79,985) (166,188)
Class C (15,842) (9,068) (16,239) (29,796)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (1,402,299) (2,401,869) (7,261,054) (14,741,495)
- ------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 2,439,562 5,810,522 15,858,013 40,052,864
Class B shares 60,108 294,638 1,052,731 2,238,758
Class C shares 373,061 335,521 878,700 2,013,530
Reinvestment of distributions at net asset value
Class A shares 1,000,390 1,756,355 5,143,430 10,737,021
Class B shares 65,012 131,427 549,271 1,294,698
Class C shares 35,903 53,472 115,439 234,993
Payments for redemptions
Class A shares (5,757,171) (11,580,469) (30,569,225) (66,760,048)
Class B shares (Note 2) (1,329,322) (2,230,452) (8,520,308) (15,765,912)
Class C shares (Note 2) (257,729) (559,800) (1,426,963) (2,730,362)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (3,370,186) (5,988,786) (16,918,912) (28,684,458)
- ------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (4,580,413) (4,220,091) (23,563,062) (16,783,940)
Net assets at beginning of period 60,592,096 64,812,187 399,058,027 415,841,967
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $56,011,683 $ 60,592,096 $375,494,965 $399,058,027
==============================================================================================================================
Undistributed net investment income $ -- $ -- $ 402,404 $ 382,387
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
66 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
RIVERSOURCE STATE TAX-EXEMPT FUNDS
<Table>
<Caption>
NEW YORK TAX-EXEMPT FUND OHIO TAX-EXEMPT FUND
DEC. 31, 2005 JUNE 30, 2005 DEC. 31, 2005 JUNE 30, 2005
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
(UNAUDITED) (UNAUDITED)
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 1,471,562 $ 3,103,932 $ 910,376 $ 1,931,489
Net realized gain (loss) on investments 328,767 571,057 17,690 618,488
Net change in unrealized appreciation
(depreciation) on investments (1,772,319) 2,623,197 (1,032,083) 1,820,601
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 28,010 6,298,186 (104,017) 4,370,578
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net Investment income
Class A (1,308,470) (2,732,716) (829,476) (1,682,964)
Class B (142,254) (325,543) (97,230) (196,329)
Class C (19,863) (43,807) (23,876) (49,329)
Net realized gain
Class A (665,060) (958,527) -- --
Class B (87,026) (144,685) -- --
Class C (12,789) (18,926) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (2,235,462) (4,224,204) (950,582) (1,928,622)
- ------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 4,579,715 6,562,422 3,409,606 3,342,352
Class B shares 403,974 609,622 95,224 444,801
Class C shares 175,945 300,146 49,781 251,354
Reinvestment of distributions at net asset value
Class A shares 1,617,127 3,143,127 604,696 1,306,745
Class B shares 184,329 374,395 73,750 152,859
Class C shares 30,610 61,961 21,093 47,057
Payments for redemptions
Class A shares (8,387,728) (17,872,425) (6,260,937) (12,063,570)
Class B shares (Note 2) (2,257,799) (5,445,727) (1,182,074) (2,673,642)
Class C shares (Note 2) (242,435) (999,298) (227,232) (755,439)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (3,896,262) (13,265,777) (3,416,093) (9,947,483)
- ------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (6,103,714) (11,191,795) (4,470,692) (7,505,527)
Net assets at beginning of period 84,871,676 96,063,471 61,109,221 68,614,748
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $78,767,962 $ 84,871,676 $56,638,529 $ 61,109,221
==============================================================================================================================
Undistributed net investment income $ 10,156 $ 9,181 $ -- $ 40,206
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 67
<Page>
NOTES TO FINANCIAL STATEMENTS
RIVERSOURCE STATE TAX-EXEMPT FUNDS (FORMERLY AXP STATE TAX-EXEMPT FUNDS)
(UNAUDITED AS TO DEC. 31, 2005)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AXP California Tax-Exempt Trust and AXP Special Tax-Exempt Series Trust were
organized as Massachusetts business trusts. AXP California Tax-Exempt Trust
includes only RiverSource California Tax-Exempt Fund. AXP Special Tax-Exempt
Series Trust is a "series fund" that is currently composed of individual state
tax-exempt funds and one insured national tax-exempt fund, including RiverSource
Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource
Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource
Ohio Tax-Exempt Fund (the Funds). The Funds are non-diversified, open-end
management investment companies as defined in the Investment Company Act of 1940
(as amended). Each Fund has unlimited authorized shares of beneficial interest.
Each Fund's goal is to provide a high level of income generally exempt from
federal income tax as well as from the respective state and local income tax. A
portion of each Fund's assets may be invested in bonds whose interest is subject
to the alternative minimum tax computation. The Funds concentrate their
investments in a single state and therefore may have more credit risk related to
the economic conditions of the respective state than Funds that have a broader
geographical diversification.
Each Fund offers Class A, Class B and Class C shares.
- - Class A shares are sold with a front-end sales charge.
- - Class B shares may be subject to a contingent deferred sales charge (CDSC) and
automatically convert to Class A shares during the ninth year of ownership.
- - Class C shares may be subject to a CDSC.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee and transfer agency fees (class specific expenses) differ
among classes. Income, expenses (other than class-specific expenses) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based upon its relative net assets.
Each Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
68 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sale price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the Board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
ILLIQUID SECURITIES
At Dec. 31, 2005, investments in securities for California Tax-Exempt Fund and
Minnesota Tax-Exempt Fund include issues that are illiquid which the Funds
currently limit to 10% of net assets, at market value, at the time of purchase.
The aggregate value of such securities at Dec. 31, 2005, was $70,992 and
$2,265,000 representing 0.04% and 0.60% of net assets for California Tax-Exempt
Fund and Minnesota Tax-Exempt Fund, respectively. These securities are valued at
fair value according to methods selected in good faith by the Board. According
to board guidelines, certain unregistered securities are determined to be liquid
and are not included within the 10% limitation specified above. Assets are
liquid if they can be sold or disposed of in the ordinary course of business
within seven days at approximately the value at which the asset is valued by the
Fund.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 69
<Page>
OPTION TRANSACTIONS
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Funds may buy and sell put and call options
and write covered call options on portfolio securities as well as write
cash-secured put options. The risk in writing a call option is that the Funds
give up the opportunity for profit if the market price of the security
increases. The risk in writing a put option is that the Funds may incur a loss
if the market price of the security decreases and the option is exercised. The
risk in buying an option is that the Funds pay a premium whether or not the
option is exercised. The Funds also have the additional risk of being unable to
enter into a closing transaction if a liquid secondary market does not exist.
The Funds also may write over-the-counter options where completing the
obligation depends upon the credit standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Funds
will realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Funds will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of the
premium received or paid.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Funds may buy and
sell financial futures contracts. Risks of entering into futures contracts and
related options include the possibility of an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
Upon entering into a futures contract, the Funds are required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Funds each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Funds recognize a realized gain or loss when the contract is closed
or expires.
SWAP TRANSACTIONS
To produce incremental earnings, to gain exposure to or protect itself from
market changes, the Funds may enter into swap agreements. Swaps are an agreement
between two parties to exchange periodic cash flows based on a specified amount
of principal. The net cash flow is generally the difference between a floating
market interest rate versus a fixed interest rate. The Funds may employ swaps to
synthetically add or subtract principal exposure to the municipal market.
- --------------------------------------------------------------------------------
70 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
Risks of entering into a swap include a lack of correlation between swaps and
the portfolio of municipal bonds the swaps are designed to hedge or replicate. A
lack of correlation may cause the swap to experience adverse changes in value
relative to expectations. In addition, swaps are subject to the risk of default
of a counterparty, and the risk of adverse movements in market interest rates
relative to the swap positions entered.
Swaps are valued daily and unrealized appreciation and depreciation is recorded.
The Funds will realize a gain or a loss when the swap is terminated. The Funds
did not enter into any swap agreements for the six months ended Dec. 31, 2005.
GUARANTEES AND INDEMNIFICATIONS
Under each Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to each Fund. In addition, certain of each Fund's contracts with its
service providers contain general indemnification clauses. Each Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against each Fund cannot be determined and each Fund has
no historical basis for predicting the likelihood of any such claims.
FEDERAL TAXES
Each Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required. Each Fund is treated as a separate entity for federal
income tax purposes.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts and losses deferred due to "wash sale" transactions.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Funds.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and paid monthly, are
reinvested in additional shares of each Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 71
<Page>
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, RiverSource Investments, LLC
(the Investment Manager) determines which securities will be purchased, held or
sold. Prior to Oct. 1, 2005, investment management services were provided by
Ameriprise Financial, Inc. (Ameriprise Financial). The management fee is a
percentage of each Fund's average daily net assets that declines from 0.47% to
0.38% annually as each Fund's assets increase. On Feb. 15, 2006, shareholders
approved a change to the Investment Management Services Agreement. Effective
March 1, 2006, the management fee percentage of each Fund's average daily net
assets will decline from 0.41% to 0.25% annually as each Fund's assets increase.
Under the current Administrative Services Agreement, each Fund pays Ameriprise
Financial a fee for administration and accounting services at a percentage of
each Fund's average daily net assets that declines from 0.07% to 0.04% annually
as each Fund's assets increase. Prior to Oct. 1, 2005, the fee percentage of
each Fund's average daily net assets declined from 0.04% to 0.02% annually as
each Fund's assets increased. A minor portion of additional administrative
service expenses paid by the Funds are consultants' fees and fund office
expenses. Under this agreement, the Funds also pay taxes, audit and certain
legal fees, registration fees for shares, compensation of board members,
corporate filing fees and any other expenses properly payable by the Funds and
approved by the Board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of each Fund or other
RiverSource funds. Each Fund's liability for these amounts is adjusted for
market value changes and remains in each Fund until distributed in accordance
with the Plan.
Under a separate Transfer Agency Agreement, RiverSource Service Corporation (the
Transfer Agent) maintains shareholder accounts and records. Each Fund pays the
Transfer Agent an annual fee per shareholder account for this service as
follows:
- - Class A $20.50
- - Class B $21.50
- - Class C $21.00
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the base fee of $18.50.
The Transfer Agent charges an annual closed account fee of $5 per inactive
account, charged on a pro rata basis for 12 months from the date the account
becomes inactive. These fees are included in the transfer agency fees on the
statement of operations.
Each Fund has agreements with Ameriprise Financial Services, Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution pursuant to Rule 12b-1, each Fund pays a fee at an
annual rate up to 0.25% of each Fund's average daily net assets attributable to
Class A shares and up to 1.00% for Class B and Class C shares.
- --------------------------------------------------------------------------------
72 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
For the six months ended Dec. 31, 2005, the Investment Manager and its
affiliates waived certain fees and expenses as follows:
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
California Tax-Exempt Fund 0.83% 1.59% 1.60%
Massachusetts Tax-Exempt Fund 0.84 1.60 1.60
Michigan Tax-Exempt Fund 0.84 1.60 1.59
Minnesota Tax-Exempt Fund 0.83 1.58 1.59
New York Tax-Exempt Fund 0.83 1.60 1.60
Ohio Tax-Exempt Fund 0.84 1.60 1.60
</Table>
Of these waived fees and expenses, the transfer agency fees waived are as
follows:
<Table>
<Caption>
FUND AMOUNT
- ---------------------------------------------------------------------------------
California Tax-Exempt Fund
Class A $19,855
Class B 1,227
Class C 308
The management fees waived at the Fund level were $40,461.
Massachusetts Tax-Exempt Fund
Class A $16,322
Class B 4,102
Class C 384
The management fees waived at the Fund level were $25,124.
Michigan Tax-Exempt Fund
Class A $13,012
Class B 1,128
Class C 496
The management fees waived at the Fund level were $27,294.
Minnesota Tax-Exempt Fund
Class A $45,391
Class B 5,182
Class C 1,172
The management fees waived at the Fund level were $47,211.
New York Tax-Exempt Fund
Class A $19,173
Class B 2,400
Class C 378
The management fees waived at the Fund level were $25,924.
Ohio Tax-Exempt Fund
Class A $13,619
Class B 1,889
Class C 536
The management fees waived at the Fund level were $26,241.
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 73
<Page>
Under an agreement which was effective until Sept. 30, 2005, net expenses would
not exceed 0.88% for Class A, 1.64% for Class B and 1.64% for Class C of the
Fund's average daily net assets for Massachusetts Tax-Exempt Fund, Michigan
Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt Fund. Beginning
Oct. 1, 2005, a new agreement to waive certain fees and expenses is effective
until June 30, 2006, such that net expenses will not exceed 0.79% for Class A,
1.55% for Class B and 1.55% for Class C of the Fund's average daily net assets
for California Tax-Exempt Fund, Massachusetts Tax-Exempt Fund, Michigan
Tax-Exempt Fund, Minnesota Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio
Tax-Exempt Fund.
Sales charges received by the Distributor for distributing the Funds' shares for
the six months ended Dec. 31, 2005, are as follows:
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------
California Tax-Exempt Fund $ 95,817 $16,545 $304
Massachusetts Tax-Exempt Fund 34,279 14,230 45
Michigan Tax-Exempt Fund 18,631 3,955 525
Minnesota Tax-Exempt Fund 183,009 37,211 779
New York Tax-Exempt Fund 37,290 8,741 938
Ohio Tax-Exempt Fund 24,913 4,084 121
</Table>
During the six months ended Dec. 31, 2005, the Funds' custodian and transfer
agency fees were reduced as a result of earnings credits from overnight cash
balances as follows:
<Table>
<Caption>
FUND REDUCTION
- ----------------------------------------------------------------------------
California Tax-Exempt Fund $ 7,654
Massachusetts Tax-Exempt Fund 2,026
Michigan Tax-Exempt Fund 2,581
Minnesota Tax-Exempt Fund 14,054
New York Tax-Exempt Fund 2,982
Ohio Tax-Exempt Fund 2,531
</Table>
3. SECURITIES TRANSACTIONS
For the six months ended Dec. 31, 2005, cost of purchases and proceeds from
sales (other than short-term obligations) aggregated for each Fund are as
follows:
<Table>
<Caption>
FUND PURCHASES PROCEEDS
- -------------------------------------------------------------------------
California Tax-Exempt Fund $20,402,261 $34,203,332
Massachusetts Tax-Exempt Fund 6,160,949 8,671,489
Michigan Tax-Exempt Fund 3,584,374 8,828,906
Minnesota Tax-Exempt Fund 30,453,217 61,845,861
New York Tax-Exempt Fund 8,638,708 14,463,017
Ohio Tax-Exempt Fund 5,351,830 10,713,047
</Table>
Realized gains and losses are determined on an identified cost basis.
- --------------------------------------------------------------------------------
74 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
4. SHARE TRANSACTIONS
Transactions in shares for each Fund for the periods indicated are as follows:
<Table>
<Caption>
CALIFORNIA TAX-EXEMPT FUND
SIX MONTHS ENDED DEC. 31, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 2,182,675 104,243 18,735
Issued for reinvested distributions 771,350 55,720 12,174
Redeemed (4,353,669) (854,376) (143,089)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (1,399,644) (694,413) (112,180)
- ----------------------------------------------------------------------------------------------
<Caption>
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 3,470,204 184,660 144,458
Issued for reinvested distributions 1,403,867 128,452 25,370
Redeemed (6,850,880) (1,423,411) (317,324)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (1,976,809) (1,110,299) (147,496)
- ----------------------------------------------------------------------------------------------
<Caption>
MASSACHUSETTS TAX-EXEMPT FUND
SIX MONTHS ENDED DEC. 31, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 713,720 115,729 17,084
Issued for reinvested distributions 184,950 41,422 3,988
Redeemed (1,283,784) (672,998) (40,265)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (385,114) (515,847) (19,193)
- ----------------------------------------------------------------------------------------------
<Caption>
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 973,442 118,798 49,187
Issued for reinvested distributions 330,855 77,493 7,167
Redeemed (2,306,644) (898,813) (111,173)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (1,002,347) (702,522) (54,819)
- ----------------------------------------------------------------------------------------------
<Caption>
MICHIGAN TAX-EXEMPT FUND
SIX MONTHS ENDED DEC. 31, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 461,588 11,374 70,564
Issued for reinvested distributions 190,043 12,354 6,827
Redeemed (1,088,418) (251,201) (48,759)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (436,787) (227,473) 28,632
- ----------------------------------------------------------------------------------------------
<Caption>
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 1,092,631 55,503 63,091
Issued for reinvested distributions 329,971 24,678 10,044
Redeemed (2,177,836) (420,994) (105,325)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (755,234) (340,813) (32,190)
- ----------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 75
<Page>
<Table>
<Caption>
MINNESOTA TAX-EXEMPT FUND
SIX MONTHS ENDED DEC. 31, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 2,998,700 199,282 165,665
Issued for reinvested distributions 975,129 104,137 21,889
Redeemed (5,795,008) (1,610,335) (270,324)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (1,821,179) (1,306,916) (82,770)
- ----------------------------------------------------------------------------------------------
<Caption>
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 7,546,438 419,686 378,689
Issued for reinvested distributions 2,015,244 243,032 44,107
Redeemed (12,549,607) (2,978,564) (513,275)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (2,987,925) (2,315,846) (90,479)
- ----------------------------------------------------------------------------------------------
<Caption>
NEW YORK TAX-EXEMPT FUND
SIX MONTHS ENDED DEC. 31, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 895,129 78,935 34,319
Issued for reinvested distributions 318,774 36,353 6,037
Redeemed (1,643,221) (440,698) (47,376)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (429,318) (325,410) (7,020)
- ----------------------------------------------------------------------------------------------
<Caption>
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 1,273,990 118,256 58,049
Issued for reinvested distributions 609,569 72,640 12,015
Redeemed (3,468,592) (1,058,818) (193,383)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (1,585,033) (867,922) (123,319)
- ----------------------------------------------------------------------------------------------
<Caption>
OHIO TAX-EXEMPT FUND
SIX MONTHS ENDED DEC. 31, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 648,662 18,104 9,460
Issued for reinvested distributions 114,822 14,004 4,005
Redeemed (1,191,449) (223,973) (43,229)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (427,965) (191,865) (29,764)
- ----------------------------------------------------------------------------------------------
<Caption>
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------------------
Sold 634,596 83,991 47,441
Issued for reinvested distributions 246,552 28,844 8,876
Redeemed (2,278,127) (509,146) (142,885)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (1,396,979) (396,311) (86,568)
- ----------------------------------------------------------------------------------------------
</Table>
- --------------------------------------------------------------------------------
76 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
5. BANK BORROWINGS
Each Fund has a revolving credit agreement with a syndicate of banks headed by
JPMorgan Chase Bank, N.A. (JPMCB), whereby each Fund may borrow for the
temporary funding of shareholder redemptions or for other temporary or emergency
purposes. The agreement went into effect Sept. 20, 2005. Each Fund must maintain
asset coverage for borrowings of at least 300%. The agreement, which enables the
Fund to participate with other RiverSource funds, permits borrowings up to $500
million, collectively. Interest is charged to each Fund based on its borrowings
at a rate equal to either the higher of the Federal Funds Effective Rate plus
0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are payable within
60 days after such loan is executed. Each Fund also pays a commitment fee equal
to its pro rata share of the amount of the credit facility at a rate of 0.07%
per annum. Prior to this agreement, each Fund had a revolving credit agreement
that permitted borrowings up to $500 million with The Bank of New York. Each
Fund had no borrowings outstanding during the six months ended Dec. 31, 2005.
6. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, capital loss carry-overs at June 30, 2005 are
as follows:
<Table>
<Caption>
FUND CARRY-OVER EXPIRATION DATE
- ----------------------------------------------------------------------------------
Ohio Tax-Exempt Fund $87,465 2013
</Table>
It is unlikely the Board will authorize a distribution of any net realized
capital gains for a Fund until the respective capital loss carry-over has been
offset or expires.
7. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), the parent company of RiverSource Investments, LLC
(RiverSource Investments), entered into settlement agreements with the
Securities and Exchange Commission (SEC) and Minnesota Department of Commerce
(MDOC) related to market timing activities. In connection with these matters,
the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain
provisions of the federal and Minnesota securities laws by failing to adequately
disclose market timing activities by allowing certain identified market timers
to continue to market time contrary to disclosures in mutual fund and variable
annuity product prospectuses. The Orders also alleged that AEFC failed to
implement procedures to detect and prevent market timing in 401(k) plans for
employees of AEFC and related companies and failed to adequately disclose that
there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged
that AEFC allowed inappropriate market timing to occur by failing to have
written policies and procedures and failing to properly supervise its employees.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 77
<Page>
As a result of the Orders, AEFC was censured and ordered to cease and desist
from committing or causing any violations of certain provisions of the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and various
Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to make presentations at least annually to its board of directors and the
relevant mutual funds' board that include an overview of policies and procedures
to prevent market timing, material changes to these policies and procedures and
whether disclosures related to market timing are consistent with the SEC order
and federal securities laws. AEFC also agreed to retain an independent
distribution consultant to assist in developing a plan for distribution of all
disgorgement and civil penalties ordered by the SEC in accordance with various
undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In
addition, AEFC agreed to complete and submit to the MDOC a compliance review of
its procedures regarding market timing within one year of the MDOC Order,
including a summary of actions taken to ensure compliance with applicable laws
and regulations and certification by a senior officer regarding compliance and
supervisory procedures.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Funds' Boards of Directors/Trustees.
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal or arbitration proceedings, including routine
litigation, class actions, and governmental actions, concerning matters arising
in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal or arbitration proceedings that are likely to have a material
adverse effect on the Funds or the ability of Ameriprise Financial or its
affiliates to perform under their contracts with the Funds. Ameriprise Financial
is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds.
- --------------------------------------------------------------------------------
78 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
8. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating
each Fund's results.
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
CLASS A
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.27 $5.11 $5.37 $5.23 $5.18
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .20 .21 .23 .24
Net gains (losses) (both realized and unrealized) (.06) .23 (.20) .14 .05
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .03 .43 .01 .37 .29
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.20) (.21) (.23) (.24)
Distributions from realized gains (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.27) (.27) (.23) (.24)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.15 $5.27 $5.11 $5.37 $5.23
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 178 $ 190 $ 194 $ 237 $ 234
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .83%(c),(d) .86% .86% .85% .84%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.61%(d) 3.71% 4.03% 4.34% 4.56%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 11% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .68%(f) 8.53% .25% 7.26% 5.66%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class A would have been 0.90% for the six months ended Dec. 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 79
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
CLASS B
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.27 $5.11 $5.37 $5.23 $5.17
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .16 .17 .19 .20
Net gains (losses) (both realized and unrealized) (.06) .23 (.20) .14 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .39 (.03) .33 .26
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.16) (.17) (.19) (.20)
Distributions from realized gains (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.23) (.23) (.19) (.20)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.15 $5.27 $5.11 $5.37 $5.23
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 12 $ 16 $ 21 $ 27 $ 27
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.59%(c),(d) 1.61% 1.61% 1.60% 1.59%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.84%(d) 2.95% 3.28% 3.58% 3.81%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 11% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .30%(f) 7.72% (.50%) 6.44% 5.07%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class B would have been 1.65% for the six months ended Dec. 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
80 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
CLASS C
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.28 $5.12 $5.38 $5.24 $5.18
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .16 .17 .19 .20
Net gains (losses) (both realized and unrealized) (.06) .23 (.20) .14 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .39 (.03) .33 .26
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.16) (.17) (.19) (.20)
Distributions from realized gains (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.23) (.23) (.19) (.20)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.16 $5.28 $5.12 $5.38 $5.24
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 2 $ 3 $ 4 $ 5 $ 3
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.62% 1.62% 1.61% 1.60%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.85%(d) 2.94% 3.27% 3.56% 3.86%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 11% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .30%(f) 7.71% (.50%) 6.43% 5.07%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class C would have been 1.66% for the six months ended Dec. 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 81
<Page>
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
CLASS A
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.45 $5.26 $5.51 $5.37 $5.28
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08 .17 .18 .19 .22
Net gains (losses) (both realized and unrealized) (.09) .22 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .39 (.01) .35 .31
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.17) (.18) (.19) (.22)
Distributions from realized gains (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.20) (.24) (.21) (.22)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.32 $5.45 $5.26 $5.51 $5.37
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 53 $ 56 $ 59 $ 73 $ 66
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .84%(c),(d) .88%(c) .88%(c) .88%(c) .91%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.29%(d) 3.17% 3.35% 3.57% 4.11%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 9% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) (.14%)(f) 7.42% (.24%) 6.73% 5.94%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.97% for the six months ended Dec. 31, 2005 and
0.94%, 0.93% and 0.92% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
82 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
CLASS B
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.45 $5.26 $5.51 $5.37 $5.28
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .13 .14 .15 .18
Net gains (losses) (both realized and unrealized) (.10) .22 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) .35 (.05) .31 .27
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.13) (.14) (.15) (.18)
Distributions from realized gains (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.16) (.20) (.17) (.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.32 $5.45 $5.26 $5.51 $5.37
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 14 $ 18 $ 21 $ 24 $ 24
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.60%(c),d) 1.64%(c) 1.64%(c) 1.63%(c) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.52%(d) 2.41% 2.59% 2.81% 3.34%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 9% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) (.52%)(f) 6.61% (.99%) 5.92% 5.15%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.72% for the six months ended Dec. 31, 2005 and
1.69%, 1.69% and 1.68% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 83
<Page>
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
CLASS C
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.44 $5.26 $5.51 $5.37 $5.28
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .13 .14 .15 .18
Net gains (losses) (both realized and unrealized) (.09) .21 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .34 (.05) .31 .27
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.13) (.14) (.15) (.18)
Distributions from realized gains (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.16) (.20) (.17) (.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.32 $5.44 $5.26 $5.51 $5.37
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 1 $ 1 $ 2 $ 2 $ 2
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.64%(c) 1.64%(c) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.54%(d) 2.41% 2.58% 2.88% 3.32%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 9% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) (.34%)(f) 6.41% (.97%) 5.91% 5.16%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.73% for the six months ended Dec. 31, 2005 and
1.70%, 1.69% and 1.68% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
84 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
CLASS A
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.21 $5.47 $5.33 $5.27
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .18 .19 .22 .24
Net gains (losses) (both realized and unrealized) (.07) .17 (.18) .19 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .02 .35 .01 .41 .30
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.18) (.19) (.22) (.24)
Distributions from realized gains (.04) (.03) (.08) (.05) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.21) (.27) (.27) (.24)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.24 $5.35 $5.21 $5.47 $5.33
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 50 $ 53 $ 56 $ 70 $ 70
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .84%(c),(d) .88%(c) .88%(c) .88%(c) .92%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.35%(d) 3.45% 3.55% 4.06% 4.57%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 6% 9% 32% 113% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .42%(f) 6.80% .19% 8.00% 5.83%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.98% for the six months ended Dec. 31, 2005 and
0.96%, 0.94% and 0.93% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 85
<Page>
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
CLASS B
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.21 $5.47 $5.33 $5.27
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .14 .15 .18 .20
Net gains (losses) (both realized and unrealized) (.07) .17 (.18) .19 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .31 (.03) .37 .26
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.14) (.15) (.18) (.20)
Distributions from realized gains (.04) (.03) (.08) (.05) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.17) (.23) (.23) (.20)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.24 $5.35 $5.21 $5.47 $5.33
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 4 $ 5 $ 7 $ 9 $ 8
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.63%(c) 1.67%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.58%(d) 2.69% 2.79% 3.28% 3.82%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 6% 9% 32% 113% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .04%(f) 5.99% (.56%) 7.18% 5.04%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.74% for the six months ended Dec. 31, 2005 and
1.71%, 1.70% and 1.69% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
86 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
CLASS C
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.21 $5.47 $5.33 $5.27
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .14 .15 .18 .20
Net gains (losses) (both realized and unrealized) (.07) .17 (.18) .19 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .31 (.03) .37 .26
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.14) (.15) (.18) (.20)
Distributions from realized gains (.04) (.03) (.08) (.05) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.11) (.17) (.23) (.23) (.20)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.24 $5.35 $5.21 $5.47 $5.33
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 2 $ 2 $ 2 $ 2 $ 1
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.59%(c),(d) 1.64%(c) 1.64%(c) 1.63%(c) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.58%(d) 2.70% 2.80% 3.27% 3.80%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 6% 9% 32% 113% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) 0.04%(f) 5.99% (.57%) 7.18% 5.05%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.74% for the six months ended Dec. 31, 2005 and
1.72%, 1.70% and 1.69% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 87
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
CLASS A
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.20 $5.37 $5.20 $5.14
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .18 .19 .22 .25
Net gains (losses) (both realized and unrealized) (.08) .17 (.17) .17 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .35 .02 .39 .31
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.18) (.19) (.22) (.25)
Distributions from realized gains (.01) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.20) (.19) (.22) (.25)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.26 $5.35 $5.20 $5.37 $5.20
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in millions) $ 326 $ 341 $ 347 $ 393 $ 375
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .83%(c),(d) .85% .84% .84% .83%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.48%(d) 3.37% 3.60% 4.26% 4.82%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 8% 15% 23% 73% 36%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .24%(f) 6.73% .32% 7.78% 6.15%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class A would have been 0.88% for the six months ended Dec. 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
88 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
CLASS B
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.20 $5.37 $5.20 $5.14
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .14 .15 .18 .21
Net gains (losses) (both realized and unrealized) (.07) .17 (.17) .17 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .31 (.02) .35 .27
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.14) (.15) (.18) (.21)
Distributions from realized gains (.01) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.16) (.15) (.18) (.21)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.27 $5.35 $5.20 $5.37 $5.20
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 41 $ 49 $ 59 $ 68 $ 64
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c),(d) 1.60% 1.59% 1.59% 1.59%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.71%(d) 2.62% 2.85% 3.48% 4.02%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 8% 15% 23% 73% 36%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .05%(f) 5.94% (.44%) 6.97% 5.36%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class B would have been 1.63% for the six months ended Dec. 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 89
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
CLASS C
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.20 $5.37 $5.20 $5.14
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .14 .15 .18 .21
Net gains (losses) (both realized and unrealized) (.07) .17 (.17) .17 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .31 (.02) .35 .27
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.14) (.15) (.18) (.21)
Distributions from realized gains (.01) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.08) (.16) (.15) (.18) (.21)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.27 $5.35 $5.20 $5.37 $5.20
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 8 $ 9 $ 9 $ 9 $ 5
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.59%(c),(d) 1.61% 1.60% 1.60% 1.59%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.72%(d) 2.62% 2.84% 3.44% 4.04%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 8% 15% 23% 73% 36%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .04%(f) 5.94% (.44%) 6.96% 5.36%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class C would have been 1.64% for the six months ended Dec. 31, 2005.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
90 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
CLASS A
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.18 $5.07 $5.36 $5.16 $5.12
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .09 .18 .18 .20 .22
Net gains (losses) (both realized and unrealized) (.09) .17 (.18) .22 .04
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .35 -- .42 .26
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.18) (.18) (.20) (.22)
Distributions from realized gains (.05) (.06) (.11) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.24) (.29) (.22) (.22)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.04 $5.18 $5.07 $5.36 $5.16
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 68 $ 73 $ 79 $ 97 $ 92
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .83%(c),(d) .88%(c) .88%(c) .88%(c) .90%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.72%(d) 3.47% 3.44% 3.88% 4.38%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 11% 30% 36% 91% 44%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) .10%(f) 7.04% (.02%) 8.43% 5.26%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.95% for the six months ended Dec. 31, 2005 and
0.92%, 0.93% and 0.90% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 91
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
CLASS B
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.18 $5.07 $5.36 $5.16 $5.12
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .14 .14 .16 .19
Net gains (losses) (both realized and unrealized) (.09) .17 (.18) .22 .04
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .31 (.04) .38 .23
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.14) (.14) (.16) (.19)
Distributions from realized gains (.05) (.06) (.11) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.20) (.25) (.18) (.19)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.04 $5.18 $5.07 $5.36 $5.16
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 9 $ 11 $ 15 $ 18 $ 18
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.63%(c) 1.65%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.95%(d) 2.70% 2.69% 3.13% 3.60%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 11% 30% 36% 91% 44%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) (.27%)(f) 6.23% (.78%) 7.61% 4.48%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.71% for the six months ended Dec. 31, 2005 and
1.67%, 1.69% and 1.66% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
92 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
CLASS C
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.18 $5.07 $5.36 $5.16 $5.11
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .07 .14 .14 .16 .19
Net gains (losses) (both realized and unrealized) (.09) .17 (.18) .22 .05
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .31 (.04) .38 .24
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.14) (.14) (.16) (.19)
Distributions from realized gains (.05) (.06) (.11) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.20) (.25) (.18) (.19)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.04 $5.18 $5.07 $5.36 $5.16
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 1 $ 1 $ 2 $ 2 $ 1
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.64%(c) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.96%(d) 2.70% 2.68% 3.07% 3.69%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 11% 30% 36% 91% 44%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) (.27%)(f) 6.23% (.78%) 7.60% 4.68%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.72% for the six months ended Dec. 31, 2005 and
1.68%, 1.69% and 1.66% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 93
<Page>
RIVERSOURCE OHIO TAX-EXEMPT FUND
CLASS A
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.16 $5.43 $5.35 $5.27
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .08 .16 .17 .18 .22
Net gains (losses) (both realized and unrealized) (.09) .19 (.20) .19 .08
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .35 (.03) .37 .30
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.09) (.16) (.17) (.18) (.22)
Distributions from realized gains -- -- (.07) (.11) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.09) (.16) (.24) (.29) (.22)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.25 $5.35 $5.16 $5.43 $5.35
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 48 $ 51 $ 56 $ 67 $ 69
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .84%(c),(d) .88%(c) .88%(c) .88%(c) .91%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.23%(d) 3.07% 3.13% 3.40% 4.22%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 10% 33% 17% 194% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) (.20%)(f) 6.90% (.67%) 7.08% 5.87%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.98% for the six months ended Dec. 31, 2005 and
0.95%, 0.95% and 0.92% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
94 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE OHIO TAX-EXEMPT FUND
CLASS B
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.16 $5.43 $5.34 $5.27
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06 .12 .13 .14 .18
Net gains (losses) (both realized and unrealized) (.09) .19 (.20) .20 .07
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) .31 (.07) .34 .25
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.12) (.13) (.14) (.18)
Distributions from realized gains -- -- (.07) (.11) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.12) (.20) (.25) (.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.25 $5.35 $5.16 $5.43 $5.34
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 7 $ 8 $ 10 $ 13 $ 12
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.63%(c) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.47%(d) 2.31% 2.38% 2.62% 3.46%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 10% 33% 17% 194% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) (.58%)(f) 6.10% (1.43%) 6.47% 4.89%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.74% for the six months ended Dec. 31, 2005 and
1.70%, 1.71% and 1.68% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 95
<Page>
RIVERSOURCE OHIO TAX-EXEMPT FUND
CLASS C
<Table>
<Caption>
FISCAL PERIOD ENDED JUNE 30, 2005(g) 2005 2004 2003 2002
PER SHARE INCOME AND CAPITAL CHANGES(a)
Net asset value, beginning of period $5.35 $5.16 $5.43 $5.35 $5.28
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .06 .12 .13 .14 .18
Net gains (losses) (both realized and unrealized) (.08) .19 (.20) .19 .07
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .31 (.07) .33 .25
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.12) (.13) (.14) (.18)
Distributions from realized gains -- -- (.07) (.11) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07) (.12) (.20) (.25) (.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.26 $5.35 $5.16 $5.43 $5.35
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 2 $ 2 $ 2 $ 3 $ 1
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.60%(c),(d) 1.64%(c) 1.63%(c) 1.63%(c) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.47%(d) 2.31% 2.38% 2.54% 3.45%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 10% 33% 17% 194% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(e) (.39%)(f) 6.10% (1.44%) 6.26% 4.89%
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.75% for the six months ended Dec. 31, 2005 and
1.71%, 1.71% and 1.68% for the years ended June 30, 2005, 2004 and 2003,
respectively.
(d) Adjusted to an annual basis.
(e) Total return does not reflect payment of a sales charge.
(f) Not annualized.
(g) Six months ended Dec. 31, 2005 (Unaudited).
- --------------------------------------------------------------------------------
96 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
FUND EXPENSES EXAMPLE
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in each Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of
the period and held for the six months ended Dec. 31, 2005.
ACTUAL EXPENSES
The first line of each table provides information about actual account values
and actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of each table provides information about hypothetical account
values and hypothetical expenses based on each Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare each 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in each table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of each table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 97
<Page>
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO
Class A
Actual(b) $1,000 $1,006.80 $4.18(c) .83%
Hypothetical (5% return before expenses) $1,000 $1,020.91 $4.20(c) .83%
Class B
Actual(b) $1,000 $1,003.00 $7.98(c) 1.59%
Hypothetical (5% return before expenses) $1,000 $1,017.10 $8.04(c) 1.59%
Class C
Actual(b) $1,000 $1,003.00 $8.03(c) 1.60%
Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Dec. 31, 2005: +0.68%
for Class A, +0.30% for Class B and +0.30% for Class C.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. The Investment Manager and its
affiliates have contractually agreed to waive certain fees and to absorb
certain expenses until June 30, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for
Class C. In addition, on Feb. 15, 2006, shareholders approved a change to
the Investment Management Services Agreement. If the revised fee schedules
under the Administrative Services Agreement, the Investment Management
Services Agreement and the cap/fee waiver agreement had been in place for
the entire six-month period ended Dec. 31, 2005, the actual expenses paid
would have been $3.97 for Class A, $7.78 for Class B and $7.78 for Class C;
the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for
Class B and $7.84 for Class C.
- --------------------------------------------------------------------------------
98 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO
Class A
Actual(b) $1,000 $ 998.60 $4.21(c) .84%
Hypothetical (5% return before expenses) $1,000 $1,020.86 $4.26(c) .84%
Class B
Actual(b) $1,000 $ 994.80 $8.00(c) 1.60%
Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
Class C
Actual(b) $1,000 $ 996.60 $8.01(c) 1.60%
Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Dec. 31, 2005: -0.14%
for Class A, -0.52% for Class B, and -0.34% for Class C.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. The Investment Manager and its
affiliates have contractually agreed to waive certain fees and to absorb
certain expenses until June 30, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for
Class C. In addition, on Feb. 15, 2006, shareholders approved a change to
the Investment Management Services Agreement. If the revised fee schedules
under the Administrative Services Agreement, the Investment Management
Services Agreement and the cap/fee waiver agreement had been in place for
the entire six-month period ended Dec. 31, 2005, the actual expenses paid
would have been $3.96 for Class A, $7.75 for Class B and $7.76 for Class C;
the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for
Class B and $7.84 for Class C.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 99
<Page>
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO
Class A
Actual(b) $1,000 $1,004.20 $4.22(c) .84%
Hypothetical (5% return before expenses) $1,000 $1,020.86 $4.26(c) .84%
Class B
Actual(b) $1,000 $1,000.40 $8.02(c) 1.60%
Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
Class C
Actual(b) $1,000 $1,000.40 $7.97(c) 1.59%
Hypothetical (5% return before expenses) $1,000 $1,017.10 $8.04(c) 1.59%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Dec. 31, 2005: +0.42%
for Class A, +0.04% for Class B and +0.04% for Class C.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. The Investment Manager and its
affiliates have contractually agreed to waive certain fees and to absorb
certain expenses until June 30, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for
Class C. In addition, on Feb. 15, 2006, shareholders approved a change to
the Investment Management Services Agreement. If the revised fee schedules
under the Administrative Services Agreement, the Investment Management
Services Agreement and the cap/fee waiver agreement had been in place for
the entire six-month period ended Dec. 31, 2005, the actual expenses paid
would have been $3.97 for Class A, $7.77 for Class B and $7.77 for Class C;
the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for
Class B and $7.84 for Class C.
- --------------------------------------------------------------------------------
100 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO
Class A
Actual(b) $1,000 $1,002.40 $4.17(c) .83%
Hypothetical (5% return before expenses) $1,000 $1,020.91 $4.20(c) .83%
Class B
Actual(b) $1,000 $1,000.50 $7.92(c) 1.58%
Hypothetical (5% return before expenses) $1,000 $1,017.15 $7.99(c) 1.58%
Class C
Actual(b) $1,000 $1,000.40 $7.97(c) 1.59%
Hypothetical (5% return before expenses) $1,000 $1,017.10 $8.04(c) 1.59%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Dec. 31, 2005: +0.24%
for Class A, +0.05% for Class B and +0.04% for Class C.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. The Investment Manager and its
affiliates have contractually agreed to waive certain fees and to absorb
certain expenses until June 30, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for
Class C. In addition, on Feb. 15, 2006, shareholders approved a change to
the Investment Management Services Agreement. If the revised fee schedules
under the Administrative Services Agreement, the Investment Management
Services Agreement and the cap/fee waiver agreement had been in place for
the entire six-month period ended Dec. 31, 2005, the actual expenses paid
would have been $3.97 for Class A, $7.77 for Class B and $7.77 for Class C;
the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for
Class B and $7.84 for Class C.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 101
<Page>
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO
Class A
Actual(b) $1,000 $1,001.00 $4.16(c) .83%
Hypothetical (5% return before expenses) $1,000 $1,020.91 $4.20(c) .83%
Class B
Actual(b) $1,000 $ 997.30 $8.01(c) 1.60%
Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
Class C
Actual(b) $1,000 $ 997.30 $8.01(c) 1.60%
Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Dec. 31, 2005: +0.10%
for Class A, -0.27% for Class B and -0.27% for Class C.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. The Investment Manager and its
affiliates have contractually agreed to waive certain fees and to absorb
certain expenses until June 30, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for
Class C. In addition, on Feb. 15, 2006, shareholders approved a change to
the Investment Management Services Agreement. If the revised fee schedules
under the Administrative Services Agreement, the Investment Management
Services Agreement and the cap/fee waiver agreement had been in place for
the entire six-month period ended Dec. 31, 2005, the actual expenses paid
would have been $3.96 for Class A, $7.76 for Class B and $7.76 for Class C;
the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for
Class B and $7.84 for Class C.
- --------------------------------------------------------------------------------
102 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
RIVERSOURCE OHIO TAX-EXEMPT FUND
<Table>
<Caption>
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JULY 1, 2005 DEC. 31, 2005 THE PERIOD(a) EXPENSE RATIO
Class A
Actual(b) $1,000 $ 998.00 $4.21(c) .84%
Hypothetical (5% return before expenses) $1,000 $1,020.86 $4.26(c) .84%
Class B
Actual(b) $1,000 $ 994.20 $8.00(c) 1.60%
Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
Class C
Actual(b) $1,000 $ 996.10 $8.01(c) 1.60%
Hypothetical (5% return before expenses) $1,000 $1,017.05 $8.09(c) 1.60%
</Table>
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Dec. 31, 2005: -0.20%
for Class A, -0.58% for Class B, and -0.39% for Class C.
(c) Effective Oct. 1, 2005, the Fund's Board of Directors approved a change to
the fee schedule under the Administrative Services Agreement between
Ameriprise Financial and the Fund. The Investment Manager and its
affiliates have contractually agreed to waive certain fees and to absorb
certain expenses until June 30, 2006, unless sooner terminated at the
discretion of the Board. Under this expense cap/fee waiver agreement, net
expenses will not exceed 0.79% for Class A; 1.55% for Class B and 1.55% for
Class C. In addition, on Feb. 15, 2006, shareholders approved a change to
the Investment Management Services Agreement. If the revised fee schedules
under the Administrative Services Agreement, the Investment Management
Services Agreement and the cap/fee waiver agreement had been in place for
the entire six-month period ended Dec. 31, 2005, the actual expenses paid
would have been $3.96 for Class A, $7.75 for Class B and $7.76 for Class C;
the hypothetical expenses paid would have been $4.00 for Class A, $7.84 for
Class B and $7.84 for Class C.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 103
<Page>
APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
RIVERSOURCE OHIO TAX-EXEMPT FUND
RiverSource Investments, LLC (RiverSource), a wholly-owned subsidiary of
Ameriprise Financial, Inc. (Ameriprise Financial, formerly American Express
Financial Corporation), serves as the investment manager to the Fund. Under an
investment management services agreement (the IMS Agreement), the investment
manager provides investment advice and other services to the Fund. Throughout
the year, the Fund's Board of Directors (the Board) and the Board's Investment
Review and Contracts Committees monitor these services.
Ameriprise Financial had served as investment manager to the Fund until Sept.
29, 2005. On that date, and pursuant to the consent of the Board, Ameriprise
Financial transferred its rights, title, and interest and its burdens and
obligations under the IMS Agreement to RiverSource, its wholly-owned subsidiary.
Each year, the Board determines whether to continue the IMS Agreement by
evaluating the quality and level of services received and the costs associated
with those services. To assist the Board in making this determination, the
investment manager prepares detailed reports for the Board and its Contracts
Committee in March and April and provides data prepared by independent
organizations. The Board gives considerable weight to the work, deliberations
and conclusions of the Contracts and Investment Review Committees in determining
whether to continue the IMS Agreement.
BACKGROUND
This past year, prior to the Board's annual review process, on Feb. 1, 2005,
American Express Company, the former parent of Ameriprise Financial, announced
its intention to pursue a spin-off of Ameriprise Financial by distributing
shares of the common stock of Ameriprise Financial to shareholders of American
Express Company. Following this announcement, the Board determined to proceed
with its annual review process and, after thorough review of the reports and
data provided, at a meeting held in person on April 14, 2005, the Board,
including all of its independent members, determined that the quality and level
of advisory services provided pursuant to the IMS Agreement were satisfactory
and that fees were fair and reasonable. However, in light of the announced plans
of the spin-off, the Board approved continuation of the IMS Agreement with
Ameriprise Financial for only an interim period ending on the later of (i) the
effective date of the spin-off; or (ii) the approval of a new IMS Agreement with
Ameriprise Financial (or its subsidiary) by the shareholders of the Fund, but in
no event for a period longer than one year.
- --------------------------------------------------------------------------------
104 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
During the course of the six-month period following the April 2005 meeting, the
Board evaluated whether to approve new investment management services agreements
for each of the funds within the Ameriprise Financial fund complex (together,
the Funds) with post-spin Ameriprise Financial (or RiverSource). Independent
counsel, Schulte Roth & Zabel LLP (Schulte), assisted the Boards in fulfilling
their statutory and other responsibilities associated with the spin-off and the
resulting consideration of new contracts, including the new IMS Agreement. The
Board and its committees were provided with a wealth of written and oral
information in this regard. Furthermore, in connection with the Board's
considerations as to whether post-spin Ameriprise Financial, as an entity
independent from American Express Company, would be capable of continuing to
provide a high quality of services to the Funds, the Board's independent members
retained their own financial adviser, Credit Suisse First Boston LLC (CSFB), to
assist them in analyzing the capital adequacy of post-spin Ameriprise Financial.
(The costs of independent counsel and CSFB and of additional meetings of the
Boards were borne by Ameriprise Financial as part of the commitment of the
American Express Company to ensure a complete and thorough review of the
proposed spin-off and its effect on the services provided by Ameriprise
Financial and its subsidiaries.) At a meeting of the Board held on Sept. 8,
2005, the Board, including all of its independent members, approved, and
recommended that shareholders approve, a proposed new IMS Agreement with
RiverSource (the New IMS Agreement). At a meeting of the Fund's shareholders
held on Feb. 15, 2006, shareholders approved the New IMS Agreement. The
following section, "Board Considerations Related to the New IMS Agreement,"
provides a detailed discussion of the Board's considerations and determinations
respecting the New IMS Agreement.
BOARD CONSIDERATIONS RELATED TO THE NEW IMS AGREEMENT
In carrying out its legal responsibilities associated with the consideration of
the New IMS Agreement, the Board evaluated the following factors:
NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY POST-SPIN AMERIPRISE
FINANCIAL (AND ITS SUBSIDIARIES)
The Board recognized that only a few months had passed since its April 2005
conclusion that the nature, extent and quality of services provided by
Ameriprise Financial were satisfactory and consistent with those that would be
expected for a fund family of the size of the Funds and its determination to
renew the IMS Agreement for the interim period. However, the Board also
recognized the need to supplement this assessment with an evaluation of whether
the spin-off or other factors would result in changes to the advisory services
being provided under the current IMS Agreement.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 105
<Page>
The Board focused its evaluation on the following factors potentially impacting
the nature, extent and quality of advisory services to be provided by Ameriprise
Financial: (i) Ameriprise Financial's projected capital structure and capital
adequacy as a stand-alone entity; (ii) its legal and regulatory risks; (iii) its
ability to retain and attract personnel; and (iv) its ability to successfully
re-brand its products and services. Based on extensive presentations and reports
by Ameriprise Financial, CSFB and Schulte, the Board concluded that the proposed
capital structure (which includes certain indemnification commitments made by
American Express Company) should enable RiverSource to continue to provide a
high quality and level of advisory services to the Fund. In making this
determination, the Board took into account representations by management of
Ameriprise Financial that projected capital levels would allow Ameriprise
Financial and RiverSource to meet legal and compliance responsibilities, build
their distribution network, pursue technological upgrades, make capital
commitments necessary to retain and attract key personnel devoted to legal and
compliance responsibilities, portfolio management and distribution, and pursue
smaller asset management acquisitions to help grow the asset management
business. The Board accorded significant weight to CSFB's confirmation as to the
reasonableness of the proposed capital structure. The Board also considered the
fact that there were no expected departures of key personnel involved in the
portfolio management, operations and marketing of the Funds as a result of the
announcement of the spin-off.
The Board concluded that, based on all of the materials and information
provided, post-spin Ameriprise Financial (including RiverSource) would be in a
position to continue to provide a high quality and level of advisory services to
the Fund.
INVESTMENT PERFORMANCE
The Board next focused on investment performance. The Board reviewed reports
documenting the Fund's performance over one-, three- and/or five-year periods,
as well as the entire period during which its current portfolio manager has
managed the Fund, and compared to relevant Lipper and market indices.
FOR RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
The Board took into account its determination in April 2005 that investment
performance in 2004 approximated the median.
FOR RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
The Board took into account its determination in April 2005 that investment
performance in 2004 was below median. The Board also considered the fact that
Ameriprise Financial had implemented a new fixed income sector team approach to
managing the Fund and performance has begun to improve.
FOR RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
The Board took into account its determination in April 2005 that investment
performance in 2004 exceeded the median.
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106 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
FOR RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
The Board took into account its determination in April 2005 that investment
performance in 2004 was below median. The Board also considered the fact that
Ameriprise Financial had implemented a new fixed income sector team approach to
managing the Fund and performance has begun to improve.
FOR RIVERSOURCE NEW YORK TAX-EXEMPT FUND
The Board took into account its determination in April 2005 that investment
performance in 2004 approximated the median. The Board also considered the fact
that Ameriprise Financial had implemented a new fixed income sector team
approach to managing the Fund and performance has begun to improve.
RIVERSOURCE OHIO TAX-EXEMPT FUND
The Board took into account its determination in April 2005 that investment
performance in 2004 was below median. The Board also considered the fact that
Ameriprise Financial had implemented a new fixed income sector team approach to
managing the Fund and performance has begun to improve.
The Board also considered that it had been receiving monthly performance reports
for the Fund and that there had been no significant deviations from April's
overall performance data.
COST OF SERVICES PROVIDED
The Board evaluated comparative fees and the costs of services under the current
IMS Agreement and the New IMS Agreement, including fees charged by Ameriprise
Financial (including RiverSource and other subsidiaries) to institutional
clients. The Board observed that the proposed advisory fee changes are designed
to work in tandem with proposed changes to administrative services fees and that
advisory fees under the New IMS Agreement for RiverSource California Tax-Exempt
Fund, RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt
Fund, RiverSource Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt Fund,
RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund would
decrease. The Board studied RiverSource's effort (i.e., its "pricing
philosophy") to set substantially all Funds' total expense ratios at or below
the median expense ratio of comparable mutual funds (as compiled by Lipper). It
also noted that RiverSource has agreed to voluntarily impose expense caps or
waivers to achieve this pricing objective whenever the expense ratio exceeded
the median expense ratio by more than three basis points.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 107
<Page>
The Board next considered the expected profitability to Ameriprise Financial and
RiverSource derived from their relationship with the Fund, recalling the April
2005 determination that the profitability level was appropriate. The Board noted
that projected profitability of Ameriprise Financial would allow it to operate
effectively and, at the same time, reinvest in RiverSource and its other asset
management businesses. The Board also considered that the proposed changes in
advisory fees and the mergers of certain other Funds would result in revenue
gains to Ameriprise Financial, but that these increases would not materially
alter profit margins due to expected increases in costs associated with the
spin-off, particularly re-branding and separation. CSFB also reported that
Ameriprise Financial's projected level of return on equity was generally
reasonable in light of the returns on equity of its industry competitors. In
evaluating profitability, the Board also considered the benefits Ameriprise
Financial obtains through the use of commission dollars paid on portfolio
transactions for the Fund and from other business relationships that result from
managing the Fund. The Board also considered the fees charged by Ameriprise
Financial (and its subsidiaries) to institutional clients as well as the fees
paid to, and charged by, subadvisers, noting the differences in services
provided in each case. In light of these considerations, the Board concluded
that projected profitability levels were appropriate.
ECONOMIES OF SCALE
The Board also considered the "breakpoints" in fees that would be triggered as
Fund net asset levels grew and the extent to which shareholders would benefit
from such growth. The Board observed that the revised fee schedules under the
proposed New IMS Agreement would continue to provide breakpoints similar to
those in place pursuant to the current IMS Agreement. Accordingly, the Board
concluded that the proposed New IMS Agreement provides adequate opportunity for
shareholders to realize benefits as Fund assets grow.
OTHER CONSIDERATIONS
In addition, the Board accorded weight to the fact that, under the New IMS
Agreement, RiverSource Investments is held to a higher standard of care than
under the current IMS Agreement. The Board also noted Ameriprise Financial's
commitment to a culture that adheres to ethical business practice, assigns
accountability to senior management and seeks to identify conflicts and propose
appropriate action to minimize the risks posed by the conflicts.
Furthermore, the Board recognized that it was not limited to considering
management's proposed New IMS Agreement. In this regard, the Board evaluated the
circumstances under which it would consider the retention of an investment
adviser different from RiverSource Investments. The Board concluded, based on
its consultation with independent counsel, that pursuing the retention of a
different adviser was not necessary, primarily because, in its best judgment,
Ameriprise Financial continues to be basically the same organization (from a
functional and managerial standpoint) as it was prior to the spin-off. The Board
reasoned that shareholders purchased shares of the Fund with an expectation that
the current investment advisory organization would be servicing the Fund.
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108 -- RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT
<Page>
PROXY VOTING
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
(800) 862-7919; by looking at the website www.riversource.com/funds; or by
searching the website of the Securities and Exchange Commission (SEC) at
http://www.sec.gov. Information regarding how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available without charge by calling the Fund's administrator, Board Services
Corporation, collect at (612) 330-9283; by looking at the website
www.riversource.com/funds; or by searching the website of the SEC at
www.sec.gov.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 109
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RIVERSOURCE STATE TAX-EXEMPT FUNDS -- 2005 SEMIANNUAL REPORT -- 111
<Page>
[RIVERSOURCE(SM) INVESTMENTS LOGO]
RIVERSOURCE INVESTMENTS
200 AMERIPRISE FINANCIAL CENTER
MINNEAPOLIS, MN 55474
This report must be accompanied or preceded by the Fund's current prospectus.
RiverSource Funds are managed by RiverSource Investments, LLC
and distributed by Ameriprise Financial Services, Inc., Member NASD.
Both companies are part of Ameriprise Financial, Inc.
Item 2. Code of Ethics. Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert. Not applicable for semi-annual
reports.
Item 4. Principal Accountant Fees and Services. Not applicable for
semi-annual reports.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing
date of this Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance
that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable for semi-annual reports.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) AXP California Tax-Exempt Trust
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date March 7, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Paula R. Meyer
------------------
Paula R. Meyer
President and Principal Executive Officer
Date March 7, 2006
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date March 7, 2006