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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RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST
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(Exact name of registrant as specified in charter)
50606 Ameriprise 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: 6/30
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Annual Report
RIVERSOURCE [LOGO] (SM)
INVESTMENTS
RIVERSOURCE (SM) CALIFORNIA TAX-EXEMPT FUND
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
RIVERSOURCE OHIO TAX-EXEMPT FUND
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ANNUAL REPORT FOR THE
PERIOD ENDED JUNE 30, 2006
> EACH FUND SEEKS TO PROVIDE SHAREHOLDERS WITH A HIGH LEVEL OF INCOME
GENERALLY EXEMPT FROM FEDERAL INCOME TAX AS WELL AS FROM THE RESPECTIVE
STATE AND LOCAL INCOME TAX.
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TABLE OF CONTENTS
Fund Snapshot ...............................................................2-8
RiverSource California Tax-Exempt Fund .....................................2
RiverSource Massachusetts Tax-Exempt Fund ..................................3
RiverSource Michigan Tax-Exempt Fund .......................................4
RiverSource Minnesota Tax-Exempt Fund ......................................5
RiverSource New York Tax-Exempt Fund .......................................6
RiverSource Ohio Tax-Exempt Fund ...........................................7
Performance Summary ........................................................9-14
RiverSource California Tax-Exempt Fund .....................................9
RiverSource Massachusetts Tax-Exempt Fund .................................10
RiverSource Michigan Tax-Exempt Fund ......................................11
RiverSource Minnesota Tax-Exempt Fund .....................................12
RiverSource New York Tax-Exempt Fund ......................................13
RiverSource Ohio Tax-Exempt Fund ..........................................14
Questions & Answers
with Portfolio Management .................................................15
The Fund's Long-term Performance ..........................................20-31
RiverSource California Tax-Exempt Fund ....................................20
RiverSource Massachusetts Tax-Exempt Fund .................................22
RiverSource Michigan Tax-Exempt Fund ......................................24
RiverSource Minnesota Tax-Exempt Fund .....................................26
RiverSource New York Tax-Exempt Fund ......................................28
RiverSource Ohio Tax-Exempt Fund ..........................................30
Investments in Securities .................................................32-66
RiverSource California Tax-Exempt Fund ....................................32
RiverSource Massachusetts Tax-Exempt Fund .................................39
RiverSource Michigan Tax-Exempt Fund ......................................43
RiverSource Minnesota Tax-Exempt Fund .....................................48
RiverSource New York Tax-Exempt Fund ......................................56
RiverSource Ohio Tax-Exempt Fund ..........................................62
Financial Statements .........................................................67
Notes to Financial Statements ................................................74
Report of Independent Registered
Public Accounting Firm ...................................................105
Federal Income Tax Information ..............................................106
Fund Expenses Example .......................................................118
Board Members and Officers ..................................................125
Approval of Investment Management
Services Agreement .......................................................128
Proxy Voting ................................................................128
Results of Meeting of Shareholders ......................................129-134
RiverSource California Tax-Exempt Fund ...................................129
RiverSource Massachusetts Tax-Exempt Fund ................................130
RiverSource Michigan Tax-Exempt Fund .....................................131
RiverSource Minnesota Tax-Exempt Fund ....................................132
RiverSource New York Tax-Exempt Fund .....................................133
RiverSource Ohio Tax-Exempt Fund .........................................134
DALBAR [LOGO] RATED
2006
FOR COMMUNICATION
RiverSource Funds' shareholder reports have been awarded the Communications Seal
from Dalbar Inc., an independent financial services research firm. The Seal
recognizes communications demonstrating a level of excellence in the industry.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 1
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FUND SNAPSHOT AT JUNE 30, 2006
RiverSource California Tax-Exempt Fund
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PORTFOLIO MANAGER <
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PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
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FUND OBJECTIVE <
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For California investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
Inception dates by class
A: 8/18/86 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: ICALX B: ACABX C: --
Total net assets $183.4 million
Number of holdings 107
Effective maturity(1) 14.5 years
Effective duration(2) 6.6 years
Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
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STYLE MATRIX <
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- -----------------------------
DURATION
SHORT INT. LONG
- -----------------------------
X HIGH
- -----------------------------
MEDIUM QUALITY
- -----------------------------
LOW
- -----------------------------
Shading within the style matrix indicates areas in which the Fund generally
invests.
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CREDIT QUALITY SUMMARY <
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Percentage of bond portfolio assets
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AAA Bonds 57.9%
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AA Bonds 8.2
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A Bonds 24.8
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BBB Bonds 7.3
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Non-Investment Grade Bonds 1.8
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Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 3.5% of the portfolio
rating above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is usually more pronounced for longer-term securities. Non-investment grade
securities, commonly called "high-yield" or "junk" bonds, generally have more
volatile prices and carry more risk to principal and income than investment
grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distribution.
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
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2 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
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FUND SNAPSHOT AT JUNE 30, 2006
RiverSource Massachusetts Tax-Exempt Fund
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PORTFOLIO MANAGER <
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PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
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FUND OBJECTIVE <
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For Massachusetts investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from respective state and
local taxes.
Inception dates by class
A: 7/2/87 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: IDMAX B: AXMBX C: --
Total net assets $60.0 million
Number of holdings 54
Effective maturity(1) 11.8 years
Effective duration(2) 6.6 years
Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
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STYLE MATRIX <
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- -----------------------------
DURATION
SHORT INT. LONG
- -----------------------------
X HIGH
- -----------------------------
MEDIUM QUALITY
- -----------------------------
LOW
- -----------------------------
Shading within the style matrix indicates areas in which the Fund generally
invests.
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CREDIT QUALITY SUMMARY <
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Percentage of bond portfolio assets
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AAA bonds 69.7%
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AA bonds 27.9
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A bonds 1.8
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BBB bonds 0.6
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Non-investment grade bonds --
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Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is usually more pronounced for longer-term securities. Non-investment grade
securities, commonly called "high-yield" or "junk" bonds, generally have more
volatile prices and carry more risk to principal and income than investment
grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distribution.
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 3
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FUND SNAPSHOT AT JUNE 30, 2006
RiverSource Michigan Tax-Exempt Fund
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PORTFOLIO MANAGER <
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PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
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FUND OBJECTIVE <
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For Michigan investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
Inception dates by class
A: 7/2/87 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: INMIX B: -- C: --
Total net assets $49.9 million
Number of holdings 58
Effective maturity(1) 11.1 years
Effective duration(2) 6.2 years
Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
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STYLE MATRIX <
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- -----------------------------
DURATION
SHORT INT. LONG
- -----------------------------
X HIGH
- -----------------------------
MEDIUM QUALITY
- -----------------------------
LOW
- -----------------------------
Shading within the style matrix indicates areas in which the Fund generally
invests.
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CREDIT QUALITY SUMMARY <
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Percentage of bond portfolio assets
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AAA bonds 74.4%
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AA bonds 19.3
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A bonds 5.3
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BBB bonds 1.0
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Non-investment grade bonds --
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Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 1.0% of the portfolio
rating above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is usually more pronounced for longer-term securities. Non-investment grade
securities, commonly called "high-yield" or "junk" bonds, generally have more
volatile prices and carry more risk to principal and income than investment
grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distribution.
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
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4 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
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FUND SNAPSHOT AT JUNE 30, 2006
RiverSource Minnesota Tax-Exempt Fund
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PORTFOLIO MANAGER <
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PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
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FUND OBJECTIVE <
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For Minnesota investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
Inception dates by class
A: 8/18/86 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: IMNTX B: IDSMX C: --
Total net assets $345.8 million
Number of holdings 133
Effective maturity(1) 11.5 years
Effective duration(2) 6.4 years
Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
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STYLE MATRIX <
- --------------------------------------------------------------------------------
- -----------------------------
DURATION
SHORT INT. LONG
- -----------------------------
X HIGH
- -----------------------------
MEDIUM QUALITY
- -----------------------------
LOW
- -----------------------------
Shading within the style matrix indicates areas in which the Fund generally
invests.
- --------------------------------------------------------------------------------
CREDIT QUALITY SUMMARY <
- --------------------------------------------------------------------------------
Percentage of bond portfolio assets
- --------------------------------------------------------------------------------
AAA bonds 65.5%
- --------------------------------------------------------------------------------
AA bonds 18.1
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A bonds 10.3
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BBB bonds 3.9
- --------------------------------------------------------------------------------
Non-investment grade bonds 2.2
- --------------------------------------------------------------------------------
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 1.7% of the portfolio
rating above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is usually more pronounced for longer-term securities. Non-investment grade
securities, commonly called "high-yield" or "junk" bonds, generally have more
volatile prices and carry more risk to principal and income than investment
grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distribution.
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 5
- --------------------------------------------------------------------------------
FUND SNAPSHOT AT JUNE 30, 2006
RiverSource New York Tax-Exempt Fund
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PORTFOLIO MANAGER <
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PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
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FUND OBJECTIVE <
- --------------------------------------------------------------------------------
For New York investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
Inception dates by class
A: 8/18/86 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: INYKX B: -- C: --
Total net assets $71.4 million
Number of holdings 76
Effective maturity(1) 14.3 years
Effective duration(2) 7.2 years
Weighted average bond rating(3) AA
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
- --------------------------------------------------------------------------------
STYLE MATRIX <
- --------------------------------------------------------------------------------
- -----------------------------
DURATION
SHORT INT. LONG
- -----------------------------
X HIGH
- -----------------------------
MEDIUM QUALITY
- -----------------------------
LOW
- -----------------------------
Shading within the style matrix indicates areas in which the Fund generally
invests.
- --------------------------------------------------------------------------------
CREDIT QUALITY SUMMARY <
- --------------------------------------------------------------------------------
Percentage of bond portfolio assets
- --------------------------------------------------------------------------------
AAA bonds 54.1%
- --------------------------------------------------------------------------------
AA bonds 36.3
- --------------------------------------------------------------------------------
A bonds 4.7
- --------------------------------------------------------------------------------
BBB bonds 4.9
- --------------------------------------------------------------------------------
Non-investment grade bonds --
- --------------------------------------------------------------------------------
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 1.1% of the portfolio
rating above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is usually more pronounced for longer-term securities. Non-investment grade
securities, commonly called "high-yield" or "junk" bonds, generally have more
volatile prices and carry more risk to principal and income than investment
grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distribution.
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
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6 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
FUND SNAPSHOT AT JUNE 30, 2006
RiverSource Ohio Tax-Exempt Fund
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PORTFOLIO MANAGER <
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PORTFOLIO MANAGER SINCE YEARS IN INDUSTRY
Rick LaCoff* 7/06 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
- --------------------------------------------------------------------------------
FUND OBJECTIVE <
- --------------------------------------------------------------------------------
For Ohio investors, this Fund seeks to provide a high level of income generally
exempt from federal income tax as well as from the respective state and local
taxes.
Inception dates by class
A: 7/2/87 B: 3/20/95 C: 6/26/00
Ticker symbols by class
A: IOHIX B: -- C: --
Total net assets $49.1 million
Number of holdings 58
Effective maturity(1) 12.6 years
Effective duration(2) 6.6 years
Weighted average bond rating(3) AA+
(1) EFFECTIVE MATURITY measures a bond's maturity, which takes into
consideration the possibility that the issuer may call the bond before its
maturity date.
(2) EFFECTIVE DURATION measures the sensitivity of a security's price to
parallel shifts in the yield curve (the graphical depiction of the levels
of interest rates from two years out to 30 years). Positive duration means
that as rates rise, the price decreases, and negative duration means that
as rates rise, the price increases.
(3) WEIGHTED AVERAGE BOND RATING represents the average credit quality of the
underlying bonds in the portfolio.
- --------------------------------------------------------------------------------
STYLE MATRIX <
- --------------------------------------------------------------------------------
- -----------------------------
DURATION
SHORT INT. LONG
- -----------------------------
X HIGH
- -----------------------------
MEDIUM QUALITY
- -----------------------------
LOW
- -----------------------------
Shading within the style matrix indicates areas in which the Fund generally
invests.
- --------------------------------------------------------------------------------
CREDIT QUALITY SUMMARY <
- --------------------------------------------------------------------------------
Percentage of bond portfolio assets
- --------------------------------------------------------------------------------
AAA bonds 61.1%
- --------------------------------------------------------------------------------
AA bonds 30.0
- --------------------------------------------------------------------------------
A bonds 6.1
- --------------------------------------------------------------------------------
BBB bonds 2.8
- --------------------------------------------------------------------------------
Non-investment grade bonds --
- --------------------------------------------------------------------------------
Individual security ratings are based on information from Standard & Poor's
Corp. and Moody's Investors Service. If a rating is unavailable, the rating is
determined through an internal analysis, if appropriate. 1.1% of the portfolio
rating above was determined through internal analysis.
Investment products, including shares of mutual funds, involve investment risks
including possible loss of principal and fluctuation in value.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund. In
general, bond prices rise when interest rates fall and vice versa. This effect
is usually more pronounced for longer-term securities. Non-investment grade
securities, commonly called "high-yield" or "junk" bonds, generally have more
volatile prices and carry more risk to principal and income than investment
grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative minimum
tax for certain investors. Federal income tax rules will apply to any capital
gains distribution.
Fund holdings are as of the date given, are subject to change at any time, and
are not recommendations to buy or sell any security.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 7
- --------------------------------------------------------------------------------
YIELD SNAPSHOT
RiverSource California Tax-Exempt Fund
- --------------------------------------------------------------------------------
SEC YIELDS <
- --------------------------------------------------------------------------------
At June 30, 2006 by class
A: 3.48% B: 2.89% C: 2.88%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 9 for additional
performance information.
RiverSource Massachusetts Tax-Exempt Fund
- --------------------------------------------------------------------------------
SEC YIELDS <
- --------------------------------------------------------------------------------
At June 30, 2006 by class
A: 3.36% B: 2.76% C: 2.77%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 10 for additional
performance information.
RiverSource Michigan Tax-Exempt Fund
- --------------------------------------------------------------------------------
SEC YIELDS <
- --------------------------------------------------------------------------------
At June 30, 2006 by class
A: 3.29% B: 2.69% C: 2.70%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 11 for additional
performance information.
RiverSource Minnesota Tax-Exempt Fund
- --------------------------------------------------------------------------------
SEC YIELDS <
- --------------------------------------------------------------------------------
At June 30, 2006 by class
A: 3.45% B: 2.85% C: 2.86%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 12 for additional
performance information.
RiverSource New York Tax-Exempt Fund
- --------------------------------------------------------------------------------
SEC YIELDS <
- --------------------------------------------------------------------------------
At June 30, 2006 by class
A: 3.44% B: 2.86% C: 2.85%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 13 for additional
performance information.
RiverSource Ohio Tax-Exempt Fund
- --------------------------------------------------------------------------------
SEC YIELDS <
- --------------------------------------------------------------------------------
At June 30, 2006 by class
A: 3.38% B: 2.78% C: 2.78%
The Securities and Exchange Commission (SEC) yield is calculated by dividing
anticipated net investment income during a 31-day period by the public offering
price (POP) per share on the last day of the period, and converting the results
to yearly figures. See Average Annual Total Returns on page 14 for additional
performance information.
- --------------------------------------------------------------------------------
8 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
RiverSource California Tax-Exempt Fund
RIVERSOURCE
CALIFORNIA TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended June 30, 2006
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
RiverSource California Tax-Exempt Fund Class A (excluding sales charge) +0.81%
Lehman Brothers California 2 Plus Year Municipal Bond Index (unmanaged) +1.18%
Lehman Brothers Municipal Bond Index (unmanaged) +0.89%
Lipper California Municipal Debt Funds Index +1.17%
(see "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS <
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
(INCEPTION DATES) (8/18/86) (3/20/95) (6/26/00)
NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT JUNE 30, 2006
- --------------------------------------------------------------------------------------------
1 year +0.81% -3.98% +0.05% -4.75% +0.06% -0.91%
- --------------------------------------------------------------------------------------------
3 years +3.13% +1.47% +2.36% +1.14% +2.35% +2.35%
- --------------------------------------------------------------------------------------------
5 years +4.45% +3.44% +3.70% +3.36% +3.70% +3.70%
- --------------------------------------------------------------------------------------------
10 years +4.96% +4.45% +4.17% +4.17% N/A N/A
- --------------------------------------------------------------------------------------------
Since inception +5.83% +5.57% +4.22% +4.22% +4.31% +4.31%
- --------------------------------------------------------------------------------------------
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 4.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies
as follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 9
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
RiverSource Massachusetts Tax-Exempt Fund
RIVERSOURCE
MASSACHUSETTS TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended June 30, 2006
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
RiverSource Massachusetts Tax-Exempt Fund Class A (excluding sales charge) -0.29%
Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +0.31%
Lehman Brothers Municipal Bond Index (unmanaged) +0.89%
Lipper Massachusetts Municipal Debt Funds Index +0.31%
(see "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS <
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
(INCEPTION DATES) (7/2/87) (3/20/95) (6/26/00)
NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT JUNE 30, 2006
- --------------------------------------------------------------------------------------------
1 year -0.29% -5.03% -1.05% -5.84% -1.05% -2.01%
- --------------------------------------------------------------------------------------------
3 years +2.23% +0.59% +1.46% +0.22% +1.40% +1.40%
- --------------------------------------------------------------------------------------------
5 years +3.86% +2.85% +3.07% +2.72% +3.04% +3.04%
- --------------------------------------------------------------------------------------------
10 years +4.54% +4.04% +3.76% +3.76% N/A N/A
- --------------------------------------------------------------------------------------------
Since inception +5.69% +5.42% +3.86% +3.86% +3.87% +3.87%
- --------------------------------------------------------------------------------------------
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 4.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies
as follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
- --------------------------------------------------------------------------------
10 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
RiverSource Michigan Tax-Exempt Fund
RIVERSOURCE
MICHIGAN TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended June 30, 2006
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
RiverSource Michigan Tax-Exempt Fund Class A (excluding sales charge) +0.40%
Lehman Brothers Michigan Municipal Bond Index (unmanaged) +0.77%
Lehman Brothers Municipal Bond Index (unmanaged) +0.89%
Lipper Michigan Municipal Debt Funds Index +0.50%
(see "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS <
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
(INCEPTION DATES) (7/2/87) (3/20/95) (6/26/00)
NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT JUNE 30, 2006
- --------------------------------------------------------------------------------------------
1 year +0.40% -4.37% -0.17% -4.99% -0.36% -1.32%
- --------------------------------------------------------------------------------------------
3 years +2.42% +0.77% +1.71% +0.48% +1.64% +1.64%
- --------------------------------------------------------------------------------------------
5 years +4.19% +3.18% +3.45% +3.10% +3.41% +3.41%
- --------------------------------------------------------------------------------------------
10 years +4.62% +4.11% +3.85% +3.85% N/A N/A
- --------------------------------------------------------------------------------------------
Since inception +5.87% +5.60% +3.97% +3.97% +4.20% +4.20%
- --------------------------------------------------------------------------------------------
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 4.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies
as follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 11
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
RiverSource Minnesota Tax-Exempt Fund
RIVERSOURCE
MINNESOTA TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended June 30, 2006
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
RiverSource Minnesota Tax-Exempt Fund Class A (excluding sales charge) +0.29%
Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index (unmanaged) +0.82%
Lehman Brothers Municipal Bond Index (unmanaged) +0.89%
Lipper Minnesota Municipal Debt Funds Index +0.86%
(see "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS <
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
(INCEPTION DATES) (8/18/86) (3/20/95) (6/26/00)
NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT JUNE 30, 2006
- --------------------------------------------------------------------------------------------
1 year +0.29% -4.47% -0.47% -5.30% -0.47% -1.44%
- --------------------------------------------------------------------------------------------
3 years +2.40% +0.75% +1.64% +0.38% +1.63% +1.63%
- --------------------------------------------------------------------------------------------
5 years +4.20% +3.19% +3.42% +3.07% +3.42% +3.42%
- --------------------------------------------------------------------------------------------
10 years +4.86% +4.35% +4.07% +4.07% N/A N/A
- --------------------------------------------------------------------------------------------
Since inception +5.89% +5.63% +4.15% +4.15% +4.17% +4.17%
- --------------------------------------------------------------------------------------------
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 4.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies
as follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
- --------------------------------------------------------------------------------
12 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
RiverSource New York Tax-Exempt Fund
RIVERSOURCE
NEW YORK TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended June 30, 2006
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
RiverSource New York Tax-Exempt Fund Class A (excluding sales charge) +0.20%
Lehman Brothers New York 4 Plus Year Municipal Bond Index (unmanaged) +0.78%
Lehman Brothers Municipal Bond Index (unmanaged) +0.89%
Lipper New York Municipal Debt Funds Index +0.71%
(see "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS <
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
(INCEPTION DATES) (8/18/86) (3/20/95) (6/26/00)
NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT JUNE 30, 2006
- --------------------------------------------------------------------------------------------
1 year +0.20% -4.55% -0.55% -5.33% -0.55% -1.50%
- --------------------------------------------------------------------------------------------
3 years +2.36% +0.71% +1.58% +0.37% +1.59% +1.59%
- --------------------------------------------------------------------------------------------
5 years +4.12% +3.12% +3.34% +3.00% +3.38% +3.38%
- --------------------------------------------------------------------------------------------
10 years +4.84% +4.33% +4.05% +4.05% N/A N/A
- --------------------------------------------------------------------------------------------
Since inception +5.66% +5.41% +4.01% +4.01% +4.22% +4.22%
- --------------------------------------------------------------------------------------------
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 4.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies
as follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 13
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
RiverSource Ohio Tax-Exempt Fund
RIVERSOURCE
OHIO TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended June 30, 2006
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL.]
RiverSource Ohio Tax-Exempt Fund Class A (excluding sales charge) -0.41%
Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index (unmanaged) +0.60%
Lehman Brothers Municipal Bond Index (unmanaged) +0.89%
Lipper Ohio Municipal Debt Funds Index +0.30%
(see "The Fund's Long-term Performance" for Index descriptions)
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds.
The 4.75% sales charge applicable to Class A shares of the Fund is not reflected
in the bar chart. If reflected, returns would be lower than those shown. The
performance of other classes may vary from that shown because of differences in
expenses.
The indices do not reflect the effects of sales charges, expenses (excluding
Lipper) and taxes.
It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS <
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
(INCEPTION DATES) (7/2/87) (3/20/95) (6/26/00)
NAV(1) POP(2) NAV(1) AFTER CDSC(3) NAV(1) AFTER CDSC(4)
AT JUNE 30, 2006
- --------------------------------------------------------------------------------------------
1 year -0.41% -5.15% -1.17% -5.99% -0.98% -1.94%
- --------------------------------------------------------------------------------------------
3 years +1.88% +0.24% +1.11% -0.14% +1.17% +1.17%
- --------------------------------------------------------------------------------------------
5 years +3.69% +2.69% +2.91% +2.56% +2.91% +2.91%
- --------------------------------------------------------------------------------------------
10 years +4.49% +3.98% +3.71% +3.71% N/A N/A
- --------------------------------------------------------------------------------------------
Since inception +5.66% +5.39% +3.77% +3.77% +3.67% +3.67%
- --------------------------------------------------------------------------------------------
(1) Excluding sales charge.
(2) Returns at public offering price (POP) reflect a sales charge of 4.75%.
(3) Returns at maximum contingent deferred sales charge (CDSC). CDSC applies
as follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.
(4) 1% CDSC applies to redemptions made within the first year of purchase.
- --------------------------------------------------------------------------------
14 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager David Kerwin discusses the Funds' positioning and
results for the fiscal year. Effective July 24, 2006, Rick LaCoff replaced David
Kerwin as portfolio manager of the Funds.
Q: How did the RiverSource State Tax-Exempt Funds perform for the fiscal
year?
A: All Fund returns are for Class A shares, excluding sales charge. All
returns are for the 12 months ended June 30, 2006. All Lipper categories
represent the respective Fund's peer group.
o RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND gained 0.81%. The Fund
underperformed the Lehman Brothers California 2 Plus Year Municipal
Bond Index, which returned 1.18%. The Lipper California Municipal
Debt Funds Index rose 1.17% for the same period.
o RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND fell 0.29%. The Fund
underperformed the Lehman Brothers Massachusetts 3 Plus Year
Enhanced Municipal Bond Index, which rose 0.31%. The Lipper
Massachusetts Municipal Debt Funds Index rose 0.31% for the same
period.
o RIVERSOURCE MICHIGAN TAX-EXEMPT FUND gained 0.40%. The Fund
underperformed the Lehman Brothers Michigan Municipal Bond Index,
which advanced 0.77%. The Lipper Michigan Municipal Debt Funds Index
produced a total return of 0.50% for the same period.
o RIVERSOURCE MINNESOTA TAX-EXEMPT FUND increased 0.29%. The Fund
underperformed the Lehman Brothers Minnesota 3 Plus Year Enhanced
Municipal Bond Index, which rose 0.82%. The Lipper Minnesota
Municipal Debt Funds Index rose 0.86% for the same period.
o RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 0.20%. The Fund
underperformed the Lehman Brother New York 4 Plus Year Municipal
Bond Index, which rose 0.78%. The Lipper New York Municipal Debt
Funds Index increased 0.71% for the same period.
o RIVERSOURCE OHIO TAX-EXEMPT FUND declined 0.41%. The Fund
underperformed the Lehman Brothers Ohio 4 Plus Year Enhanced
Municipal Bond Index, which gained 0.60%. The Lipper Ohio Municipal
Debt Funds Index gained 0.30% for the same period.
A broad barometer applicable to each of the Funds, the Lehman Brothers
Municipal Bond Index gained 0.89% for the same period.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 15
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS
> EACH OF THE FUNDS UNDERPERFORMED THEIR RESPECTIVE LEHMAN BENCHMARK INDICES
DUE PRIMARILY TO YIELD CURVE POSITIONING, THAT IS, THE WAY THE FUNDS WERE
POSITIONED TO RESPOND TO CHANGES IN SHORT-TERM VS. LONG-TERM INTEREST
RATES.
Q: What factors most significantly affected performance during the annual
period?
A: The tax-exempt fixed income market produced modest but positive
performance during the period, as a result of sharply rising rates across
the spectrum of maturities, or yield curve. While tax-exempt yields moved
higher across the yield curve, they did so more significantly at the
short-term end than at the long-term end of the curve, causing a
significant yield curve flattening. Interest rates rose largely in
reaction to continued policy tightening by the Federal Reserve Board (the
Fed), which hiked interest rates eight more times, bringing the targeted
federal funds rate to 5.25% by the end of June 2006.
Each of the Funds underperformed their respective Lehman benchmark indices
due primarily to yield curve positioning, that is, the way the Funds were
positioned to respond to changes in short-term vs. long-term interest
rates. As mentioned earlier, the municipal yield curve flattened, as the
difference in yields between short- and long-term securities narrowed.
This flattening of the yield curve had a greater positive price impact on
longer-term bonds than on shorter-term bonds. Thus, while the Funds'
moderate exposure to the short-term segment of the municipal yield curve
proved prudent, it was not enough to offset the detracting effect of the
Funds' modest position in long-term bonds, which performed best over the
annual period.
A positive contributing factor to the annual performance of RiverSource
New York Tax-Exempt Fund and RiverSource California Tax-Exempt Fund were
their allocations to non-enhanced municipal tobacco bonds, which was a
strong performing sector for the 12-month period. All six of the
RiverSource state tax-exempt funds benefited from their positions in
health care municipal bonds, which also performed well.
- --------------------------------------------------------------------------------
16 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS
> GOING FORWARD, WE BELIEVE THE MAJOR FACTOR AFFECTING THE MUNICIPAL MARKET
MAY WELL BE THE UNEXPECTED SLOWDOWN IN NEW ISSUE SUPPLY SEEN DURING THE
FIRST SIX MONTHS OF 2006.
Producing mixed results was exposure to bonds that were advance refunded
during the 12 months ended June 30, 2006. Advance refunded bonds boosted
the respective returns of RiverSource California Tax-Exempt Fund and
RiverSource Michigan Tax-Exempt Fund and had a rather neutral effect on
RiverSource Minnesota Tax-Exempt Fund and RiverSource Ohio Tax-Exempt
Fund. However, the modest exposure of RiverSource Massachusetts Tax-Exempt
Fund and RiverSource New York Tax-Exempt Fund to these strongly performing
advance refunded bonds hurt performance. Advance refunding is a procedure
in which a bond issuer floats a second bond at a lower interest rate, and
the proceeds from the sale of the second bond are safely invested, usually
in Treasury securities, which in turn, are held in escrow collateralizing
the first bond. Given that the advance refunded bonds become, essentially,
fully tax-exempt U.S. Treasury securities and no longer represent the
credit risk profile of the original borrower, they often increase in value
-- sometimes significantly.
Detracting modestly from the RiverSource state-exempt funds of California,
Michigan and New York was exposure to municipal bonds from Puerto Rico.
Puerto Rico has been experiencing some fiscal distress, and the
fundamentals of its municipal bond market deteriorated somewhat during the
period.
The primary reason the Funds underperformed their respective Lipper
Municipal Debt Funds Index was their moderate exposure to bonds rated BBB
compared to their peers. Bonds rated BBB generally outperformed higher
quality bonds during the period.
Q: What changes did you make to the Funds and how are they currently
positioned?
A: We increased holdings in single-family housing bonds in all of the
RiverSource state tax-exempt funds but RiverSource Michigan Tax-Exempt
Fund, as this sector offered an attractive yield during the period. In the
RiverSource state tax-exempt funds of Massachusetts, Minnesota and Ohio,
we established exposure to Commonwealth of
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 17
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS
Puerto Rico municipal bonds, adding to positions on market weakness.
Puerto Rico's government is currently working on the introduction of a
local sales tax to raise revenues and reforms that would cut expenses.
Should these potential fiscal remedies be enacted, Puerto Rico municipal
bonds may be increasingly attractive to investors, given the
triple-tax-exemption (i.e., federal, state and local) they offer.
We increased exposure to non-enhanced municipal tobacco bonds in
RiverSource California Tax-Exempt Fund and RiverSource New York Tax-Exempt
Fund. We believe the litigation risks this sector has faced have been
reduced, given the number of cases already heard, and thus we expect these
bonds to continue to perform well going forward. We added to each of the
RiverSource state tax-exempt funds' exposure to bonds rated BBB on a
highly selective basis. Given anticipated technical conditions within the
municipal bond market, we expect these bonds to continue to perform well
and provide attractive income during the coming months.
We added exposure to bonds with maturities at the long-term end of the
yield curve, (i.e., 20 years or longer), in the RiverSource state
tax-exempt funds of California, Massachusetts, New York and Ohio. Toward
the end of the period, we extended all six of the RiverSource state
tax-exempt funds' duration a bit to bring it toward a neutral position
relative to its respective Lehman benchmark index. In anticipation of the
Fed nearing an end of its current tightening cycle, we believed it would
be appropriate to add some interest rate sensitivity to the Funds.
We focused on further diversifying the portfolios by bond holding,
maturity, coupon and call dates. We believe this disciplined approach to
portfolio diversification -- across multiple parameters -- should help
reduce the volatility and risks associated with interest rate movements
and produce more consistent returns for the Funds over the long term. At
the same time, we sought opportunities to carry out tactical strategies
wherever and whenever possible.
- --------------------------------------------------------------------------------
18 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
QUESTIONS & ANSWERS
Q: How do you intend to manage the Funds in the coming months?
A: Going forward, we believe the major factor affecting the municipal market
may well be the unexpected slowdown in new issue supply seen during the
first six months of 2006. We expect the slowdown to continue through much
of the year. As a result, municipal bonds are expensive, but, as interest
rates have risen, so, too, has retail buyer demand. Given this technical
condition within the supply/demand balance of municipal bonds, we believe
the tax-exempt bond market may well continue to outperform the taxable
bond market through 2006.
From a broader perspective, we intend to position the Funds based on our
belief that U.S. interest rates across the range of maturities, or yield
curve, have risen to levels that seem reasonable given our economic view.
We believe the most likely scenario is for inflation to be nudged higher
but also for a modest economic slowdown to become apparent toward the end
of 2006, with a slowdown in the housing sector the likely catalyst. We
thus believe the Fed may soon pause in its current tightening cycle.
Given this view, we intend to maintain the Funds' current neutral duration
positioning compared to their respective Lehman benchmark index for the
near term. We further intend to reduce the Funds' exposure to insured
bonds and increase their allocation to uninsured bonds, with a bias toward
health care bonds, particularly bonds for large health care systems, and
essential service revenue bonds, such as public power and water and sewer
issues. We feel these sectors may enable the Funds to potentially pick up
incremental yield without taking on significant risk. Finally, we are
watching closely for opportunities to modestly increase the Funds'
exposure to bonds rated BBB, including those in the tobacco and health
care sectors.
We intend to maintain our focus on seeking higher quality securities with
good structure and on further diversifying the portfolios. Each Fund's
emphasis continues to be on generating a high level of income generally
exempt from federal income tax as well as from the respective state and
local taxes.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 19
- --------------------------------------------------------------------------------
THE FUND'S LONG-TERM PERFORMANCE
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource California Tax-Exempt Fund Class A shares (from 7/1/96
to 6/30/06) as compared to the performance of three widely cited performance
indices, the Lehman Brothers California 2 Plus Year Municipal Bond Index, the
Lehman Brothers Municipal Bond Index, and the Lipper California Municipal Debt
Funds Index. In comparing the Fund's Class A shares to these indices, you should
take into account the fact that the Fund's performance reflects the maximum
sales charge of 4.75%, while such charges are not reflected in the performance
of the indices. Returns for the Fund include the reinvestment of any
distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's
current prospectus.
COMPARATIVE RESULTS
Results at June 30, 2006
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4)
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND (INCLUDES SALES CHARGE)
- -------------------------------------------------------------------------------------------------------------
Class A Cumulative value of $10,000 $ 9,602 $10,448 $11,842 $15,460 $29,353
- -------------------------------------------------------------------------------------------------------------
Average annual total return -3.98% +1.47% +3.44% +4.45% +5.57%
- -------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS CALIFORNIA 2 PLUS YEAR MUNICIPAL BOND INDEX(1)
- -------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $10,118 $11,223 $13,020 $18,001 N/A
- -------------------------------------------------------------------------------------------------------------
Average annual total return +1.18% +3.92% +5.42% +6.06% N/A
- -------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- -------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $10,089 $11,001 $12,793 $17,560 $79,917
- -------------------------------------------------------------------------------------------------------------
Average annual total return +0.89% +3.23% +5.05% +5.79% +11.05%
- -------------------------------------------------------------------------------------------------------------
LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS INDEX(3)
- -------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $10,117 $11,087 $12,666 $16,941 $33,212
- -------------------------------------------------------------------------------------------------------------
Average annual total return +1.17% +3.50% +4.84% +5.41% +6.24%
- -------------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 9.
- --------------------------------------------------------------------------------
20 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper
California California 2 Municipal Bond California
Tax-Exempt Plus Year Index(2) Municipal
Fund Class A Municipal Debt Funds
(includes Bond Index(1) Index(3)
sales charge)
96 9525 10000 10000 10000
97 10265 10873 10825 10837
98 11066 11872 11762 11797
99 11270 12233 12087 12041
00 11517 12656 12480 12278
01 12438 13828 13726 13378
02 13142 14828 14676 14202
03 14096 16041 15959 15280
04 14131 16240 16080 15375
05 15336 17791 17405 16745
06 15460 18001 17560 16941
(1) The Lehman Brothers California 2 Plus Year Municipal Bond Index, an
unmanaged index, is a market value-weighted index of California
investment-grade fixed-rate municipal bonds with maturities of two years
or more.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up
of a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The index reflects reinvestment of all
distributions and changes in market prices, but exclude brokerage
commissions or other fees.
(3) The Lipper California Municipal Debt Funds Index includes the 30 largest
municipal debt funds in California tracked by Lipper Inc. The index's
returns include net reinvested dividends. The index's returns include net
reinvested dividends.
(4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index and
Lipper peer group data is from Sept. 1, 1986. The Fund began operating
before the inception of the Lehman Brothers California 2 Plus Year
Municipal Bond Index.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 21
- --------------------------------------------------------------------------------
THE FUND'S LONG-TERM PERFORMANCE
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Massachusetts Tax-Exempt Fund Class A shares (from
7/1/96 to 6/30/06) as compared to the performance of three widely cited
performance indices, the Lehman Brothers Massachusetts 3 Plus Year Enhanced
Municipal Bond Index, the Lehman Brothers Municipal Bond Index, and the Lipper
Massachusetts Municipal Debt Funds Index. In comparing the Fund's Class A shares
to these indices, you should take into account the fact that the Fund's
performance reflects the maximum sales charge of 4.75%, while such charges are
not reflected in the performance of the indices. Returns for the Fund include
the reinvestment of any distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's
current prospectus.
COMPARATIVE RESULTS
Results at June 30, 2006
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4)
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND (INCLUDES SALES CHARGE)
- ----------------------------------------------------------------------------------------------------------
Class A Cumulative value of $10,000 $ 9,497 $ 10,178 $ 11,509 $ 14,855 $ 27,257
- ----------------------------------------------------------------------------------------------------------
Average annual total return -5.03% +0.59% +2.85% +4.04% +5.42%
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MASSACHUSETTS 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,031 $ 10,937 $ 12,879 $ 17,767 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.31% +3.03% +5.19% +5.92% N/A
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,560 $ 35,592
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.89% +3.23% +5.05% +5.79% +6.91%
- ----------------------------------------------------------------------------------------------------------
LIPPER MASSACHUSETTS MUNICIPAL DEBT FUNDS INDEX(3)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,031 $ 10,845 $ 12,516 $ 16,536 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.31% +2.74% +4.59% +5.16% N/A
- ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 10.
- --------------------------------------------------------------------------------
22 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper
Massachusetts Massachusetts Municipal Bond Massachusetts
Tax-Exempt 3 Plus Year Index(2) Municipal Debt
Fund Class A Enhanced Funds Index(3)
(includes Municipal Bond
sales charge) Index(1)
96 9525 10000 10000 10000
97 10269 10847 10825 10775
98 11111 11799 11762 11676
99 11312 12082 12087 11872
00 11317 12454 12480 12029
01 12295 13794 13726 13211
02 13025 14813 14676 14043
03 13902 16245 15959 15245
04 13869 16321 16080 15268
05 14898 17712 17405 16485
06 14855 17767 17560 16536
(1) The Lehman Brothers Massachusetts 3 Plus Year Enhanced Municipal Bond
Index, an unmanaged index, is a market value-weighted index of
Massachusetts investment-grade fixed-rate municipal bonds with maturities
of three years or more.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up
of a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The index reflects reinvestment of all
distributions and changes in market prices, but exclude brokerage
commissions or other fees.
(3) The Lipper Massachusetts Municipal Debt Funds Index includes the 10
largest municipal debt funds in Massachusetts tracked by Lipper Inc. The
index's returns include net reinvested dividends.
(4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is
from July 1, 1987. The Fund began operating before the inception of the
Lehman Brothers Massachusetts 3 Plus Enhanced Municipal Bond Index and
Lipper peer group.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 23
- --------------------------------------------------------------------------------
THE FUND'S LONG-TERM PERFORMANCE
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Michigan Tax-Exempt Fund Class A shares (from 7/1/96
to 6/30/06) as compared to the performance of three widely cited performance
indices, the Lehman Brothers Michigan Municipal Bond Index, the Lehman Brothers
Municipal Bond Index, and the Lipper Michigan Municipal Debt Funds Index. In
comparing the Fund's Class A shares to these indices, you should take into
account the fact that the Fund's performance reflects the maximum sales charge
of 4.75%, while such charges are not reflected in the performance of the
indices. Returns for the Fund include the reinvestment of any distribution paid
during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's
current prospectus.
COMPARATIVE RESULTS
Results at June 30, 2006
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4)
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND (INCLUDES SALES CHARGE)
- ----------------------------------------------------------------------------------------------------------
Class A Cumulative value of $10,000 $ 9,563 $ 10,233 $ 11,694 $ 14,965 $ 28,155
- ----------------------------------------------------------------------------------------------------------
Average annual total return -4.37% +0.77% +3.18% +4.11% +5.60%
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MICHIGAN MUNICIPAL BOND INDEX(1)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,077 $ 10,905 $ 12,781 $ 17,604 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.77% +2.93% +5.03% +5.82% N/A
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,560 $ 35,592
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.89% +3.23% +5.05% +5.79% +6.91%
- ----------------------------------------------------------------------------------------------------------
LIPPER MICHIGAN MUNICIPAL DEBT FUNDS INDEX(3)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,050 $ 10,750 $ 12,308 $ 16,037 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.50% +2.44% + 4.24% +4.84% N/A
- ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 11.
- --------------------------------------------------------------------------------
24 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper
Michigan Michigan Municipal Bond Michigan
Tax-Exempt Municipal Bond Index(2) Municipal Debt
Fund Class A Index(1) Funds Index(3)
(includes
sales charge)
96 9525 10000 10000 10000
97 10203 10840 10825 10748
98 10993 11804 11762 11590
99 11207 12098 12087 11766
00 11191 12461 12480 11914
01 12187 13777 13726 13034
02 12898 14746 14676 13826
03 13930 16148 15959 14918
04 13956 16217 16080 14887
05 14905 17469 17405 15957
06 14965 17604 17560 16037
(1) The Lehman Brothers Michigan Municipal Bond Index, an unmanaged index, is
a subset of the Lehman Brothers Municipal Bond Index. The index is made up
of investment-grade, tax-exempt, and fixed-rate bonds issued in the state
of Michigan. All securities have effective maturities greater than one
year and are selected from issues larger than $50 million.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up
of a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The index reflects reinvestment of all
distributions and changes in market prices, but exclude brokerage
commissions or other fees.
(3) The Lipper Michigan Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Michigan tracked by Lipper Inc. The index's
returns include net reinvested dividends.
(4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is
from July 1, 1987. The Fund began operating before the inception of the
Lehman Brothers Michigan Municipal Bond Index and Lipper peer group.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 25
- --------------------------------------------------------------------------------
THE FUND'S LONG-TERM PERFORMANCE
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Minnesota Tax-Exempt Fund Class A shares (from 7/1/96
to 6/30/06) as compared to the performance of three widely cited performance
indices, the Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond
Index, the Lehman Brothers Municipal Bond Index, and the Lipper Minnesota
Municipal Debt Funds Index. In comparing the Fund's Class A shares to these
indices, you should take into account the fact that the Fund's performance
reflects the maximum sales charge of 4.75%, while such charges are not reflected
in the performance of the indices. Returns for the Fund include the reinvestment
of any distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's
current prospectus.
COMPARATIVE RESULTS
Results at June 30, 2006
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4)
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND (INCLUDES SALES CHARGE)
- ----------------------------------------------------------------------------------------------------------
Class A Cumulative value of $10,000 $ 9,553 $ 10,227 $ 11,700 $ 15,310 $ 29,686
- ----------------------------------------------------------------------------------------------------------
Average annual total return -4.47% +0.75% +3.19% +4.35% +5.63%
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MINNESOTA 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,082 $ 10,991 $ 12,793 $ 17,470 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.82% +3.20% +5.05% +5.74% N/A
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,560 $ 36,793
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.89% +3.23% +5.05% +5.79% +6.79%
- ----------------------------------------------------------------------------------------------------------
LIPPER MINNESOTA MUNICIPAL DEBT FUNDS INDEX(3)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,086 $ 10,921 $ 12,510 $ 16,279 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.86% +2.98% +4.58% +4.99% N/A
- ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 12.
- --------------------------------------------------------------------------------
26 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper
Minnesota Minnesota Municipal Bond Minnesota
Tax-Exempt 3 Plus Year Index(2) Municipal Debt
Fund Class A Enhanced Funds Index(3)
(includes Municipal Bond
sales charge) Index(1)
96 9525 10000 10000 10000
97 10293 10817 10825 10734
98 11121 11755 11762 11578
99 11415 12050 12087 11839
00 11483 12402 12480 11931
01 12462 13655 13726 13010
02 13228 14590 14676 13800
03 14257 15894 15959 14907
04 14303 16058 16080 15029
05 15266 17328 17405 16140
06 15310 17470 17560 16279
(1) The Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index,
an unmanaged index, is a market value-weighted index of Minnesota
investment-grade fixed-rate municipal bonds with maturities of three years
or more.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up
of a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The index reflects reinvestment of all
distributions and changes in market prices, but exclude brokerage
commissions or other fees.
(3) The Lipper Minnesota Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Minnesota tracked by Lipper Inc. The index's
returns include net reinvested dividends.
(4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index is
from Sept. 1, 1986. The Fund began operating before the inception of the
Lehman Brothers Minnesota 3 Plus Year Enhanced Municipal Bond Index and
Lipper peer group.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 27
- --------------------------------------------------------------------------------
THE FUND'S LONG-TERM PERFORMANCE
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource New York Tax-Exempt Fund Class A shares (from 7/1/96
to 6/30/06) as compared to the performance of three widely cited performance
indices, the Lehman Brothers New York 4 Plus Year Municipal Bond Index, the
Lehman Brothers Municipal Bond Index, and the Lipper New York Municipal Debt
Funds Index. In comparing the Fund's Class A shares to these indices, you should
take into account the fact that the Fund's performance reflects the maximum
sales charge of 4.75%, while such charges are not reflected in the performance
of the indices. Returns for the Fund include the reinvestment of any
distribution paid during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's
current prospectus.
COMPARATIVE RESULTS
Results at June 30, 2006
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4)
RIVERSOURCE NEW YORK TAX-EXEMPT FUND (INCLUDES SALES CHARGE)
- ----------------------------------------------------------------------------------------------------------
Class A Cumulative value of $10,000 $ 9,545 $ 10,215 $ 11,660 $ 15,277 $ 28,482
- ----------------------------------------------------------------------------------------------------------
Average annual total return -4.55% +0.71% +3.12% +4.33% +5.41%
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS NEW YORK 4 PLUS YEAR MUNICIPAL BOND INDEX(1)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,078 $ 11,074 $ 12,952 $ 18,284 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.78% +3.46% +5.31% +6.22% N/A
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,560 $ 36,793
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.89% +3.23% +5.05% +5.79% +6.79%
- ----------------------------------------------------------------------------------------------------------
LIPPER NEW YORK MUNICIPAL DEBT FUNDS INDEX(3)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,071 $ 10,902 $ 12,432 $ 16,461 $ 32,054
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.71% +2.92% +4.45% +5.11% +6.05%
- ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 13.
- --------------------------------------------------------------------------------
28 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN RIVERSOURCE NEW YORK TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper
New York New York Municipal Bond New York
Tax-Exempt 4 Plus Year Index(2) Municipal Debt
Fund Class A Municipal Bond Funds Index(3)
(includes Index(1)
sales charge)
96 9525 10000 10000 10000
97 10249 10943 10825 10784
98 11092 12009 11762 11711
99 11335 12322 12087 11882
00 11422 12726 12480 12006
01 12482 14119 13726 13240
02 13139 15062 14676 13992
03 14247 16511 15959 15103
04 14244 16633 16080 15157
05 15247 18142 17405 16345
06 15277 18284 17560 16461
(1) The Lehman Brothers New York 4 Plus Year Municipal Bond Index, an
unmanaged index, is a market value-weighted index of New York
investment-grade fixed-rate municipal bonds with maturities of four years
or more.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up
of a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The index reflects reinvestment of all
distributions and changes in market prices, but exclude brokerage
commissions or other fees.
(3) The Lipper New York Municipal Debt Funds Index includes the 30 largest
municipal debt funds in New York tracked by Lipper Inc. The index's
returns include net reinvested dividends.
(4) Fund data is from Aug. 18, 1986. Lehman Brothers Municipal Bond Index and
Lipper peer group is from Sept. 1, 1986. The Fund began operating before
the inception of the Lehman Brothers New York 4 Plus Year Municipal Bond
Index.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 29
- --------------------------------------------------------------------------------
THE FUND'S LONG-TERM PERFORMANCE
The chart on the facing page illustrates the total value of an assumed $10,000
investment in RiverSource Ohio Tax-Exempt Fund Class A shares (from 7/1/96 to
6/30/06) as compared to the performance of three widely cited performance
indices, the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, the
Lehman Brothers Municipal Bond Index, and the Lipper Ohio Municipal Debt Funds
Index. In comparing the Fund's Class A shares to these indices, you should take
into account the fact that the Fund's performance reflects the maximum sales
charge of 4.75%, while such charges are not reflected in the performance of the
indices. Returns for the Fund include the reinvestment of any distribution paid
during each period.
The performance information shown represents past performance and is not a
guarantee of future results. The investment return and principal value of your
investment will fluctuate so that your shares, when redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance information shown. You may obtain performance information
current to the most recent month-end by contacting your financial institution or
visiting www.riversource.com/funds. Also see "Past Performance" in the Fund's
current prospectus.
COMPARATIVE RESULTS
Results at June 30, 2006
SINCE
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(4)
RIVERSOURCE OHIO TAX-EXEMPT FUND (INCLUDES SALES CHARGE)
- ----------------------------------------------------------------------------------------------------------
Class A Cumulative value of $10,000 $ 9,485 $ 10,072 $ 11,419 $ 14,708 $ 27,110
- ----------------------------------------------------------------------------------------------------------
Average annual total return -5.15% +0.24% +2.69% +3.98% +5.39%
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS OHIO 4 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,060 $ 10,978 $ 12,934 $ 17,621 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.60% +3.16% +5.28% +5.83% N/A
- ----------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,089 $ 11,001 $ 12,793 $ 17,558 $ 35,592
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.89% +3.23% +5.05% +5.79% +6.91%
- ----------------------------------------------------------------------------------------------------------
LIPPER OHIO MUNICIPAL DEBT FUNDS INDEX(3)
- ----------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,030 $ 10,832 $ 12,432 $ 16,382 N/A
- ----------------------------------------------------------------------------------------------------------
Average annual total return +0.30% +2.70% +4.45% +5.04% N/A
- ----------------------------------------------------------------------------------------------------------
Results for other share classes can be found on page 14.
- --------------------------------------------------------------------------------
30 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN RIVERSOURCE OHIO TAX-EXEMPT FUND
RiverSource Lehman Brothers Lehman Brothers Lipper
Ohio Ohio Municipal Bond Ohio
Tax-Exempt 4 Plus Year Index(2) Municipal Debt
Fund Class A Municipal Bond Funds Index(3)
(includes Index(1)
sales charge)
96 9525 10000 10000 10000
97 10275 10813 10866 10800
98 10536 11733 11166 11012
99 10632 12029 11529 11173
00 11477 12373 12680 12232
01 12151 13623 13557 12993
02 13011 14631 14742 14036
03 12924 16049 14854 14068
04 13816 16123 16078 15158
05 14769 17516 17403 16333
06 14708 17621 17558 16382
(1) The Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index, an
unmanaged index, is a market value-weighted index of Ohio investment-grade
fixed-rate municipal bonds with maturities of four years or more.
(2) The Lehman Brothers Municipal Bond Index, an unmanaged index, is made up
of a representative list of general obligation, revenue, insured and
pre-refunded bonds. The index is frequently used as a general measure of
tax-exempt bond market performance. The index reflects reinvestment of all
distributions and changes in market prices, but exclude brokerage
commissions or other fees.
(3) The Lipper Ohio Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Ohio tracked by Lipper Inc. The index's returns
include net reinvested dividends.
(4) Fund data is from July 2, 1987. Lehman Brothers Municipal Bond Index is
from July 1, 1987. The Fund began operating before the inception of the
Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index and Lipper
peer group.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 31
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
RiverSource California Tax-Exempt Fund
JUNE 30, 2006
(Percentages represent value of investments compared to net assets)
- -------------------------------------------------------------------------
MUNICIPAL BONDS (95.8%)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Abag Finance Authority for Nonprofit Corporations
Certificate of Participation
National Center for International Schools Project
Series 1996
05-01-26 7.38% $ 2,200,000 $ 2,244,836
Abag Finance Authority for Nonprofit Corporations
Revenue Bonds
San Diego Hospital Association
Series 2001A
08-15-20 6.13 2,500,000 2,677,050
Alhambra City Elementary School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999A (FSA)
09-01-22 5.95 1,055,000(b) 484,962
Anaheim Union High School District
Prerefunded Unlimited General Obligation Bonds
Series 2002A (FSA)
08-01-16 5.38 1,550,000 1,671,598
Beaumont Financing Authority
Revenue Bonds
Series 2000A
09-01-32 7.38 1,955,000 2,081,567
Beverly Hills Public Financing Authority
Revenue Bonds
Capital Improvements Project
Series 1998A
06-01-23 5.00 3,000,000 3,059,460
California County Tobacco Securitization Agency
Asset-backed Revenue Bonds
Alameda County
Series 2002
06-01-29 5.75 785,000 814,971
06-01-42 6.00 240,000 249,708
California Educational Facilities Authority
Revenue Bonds
Stanford University
Series 1997N
12-01-27 5.20 1,000,000 1,026,180
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
California Educational Facilities Authority
Revenue Bonds
University of Southern California
Series 2003A
10-01-33 5.00% $ 2,000,000 $ 2,027,240
California Educational Facilities Authority
Revenue Bonds
University of the Pacific
Series 2006
11-01-25 5.00 1,685,000 1,703,653
California Health Facilities Financing Authority
Refunding Revenue Bonds
Cedars-Sinai Medical Center
Series 2005
11-15-18 5.00 1,500,000 1,540,530
11-15-34 5.00 1,525,000 1,524,909
California Health Facilities Financing Authority
Revenue Bonds
Catholic Healthcare West
Series 2004G
07-01-23 5.25 3,500,000 3,587,114
California Health Facilities Financing Authority
Revenue Bonds
Kaiser Permanente
Series 2006A
04-01-39 5.25 2,000,000 2,045,760
California Health Facilities Financing Authority
Revenue Bonds
Sutter Health
Series 1999A (MBIA)
08-15-28 5.35 2,500,000 2,615,225
California Infrastructure & Economic Development Bank
Prerefunded Revenue Bonds
Bay Area Toll Bridges
1st Lien
Series 2003A (AMBAC)
07-01-36 5.00 225,000 239,427
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
32 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
California Rural Home Mortgage Finance Authority
Revenue Bonds
Mortgage-backed Securities Program
Series 1998B-5 (GNMA/FNMA/FHLMC) A.M.T.
12-01-29 6.35% $ 50,000 $ 50,132
California State Department of Water Resources
Prerefunded Revenue Bonds
Series 2002A (MBIA)
05-01-15 6.00 2,000,000 2,234,840
California State Department of Water Resources
Revenue Bonds
Series 2002A (MBIA)
05-01-09 5.25 3,200,000 3,314,975
05-01-10 5.25 3,000,000 3,136,830
California State Public Works Board
Revenue Bonds
Department of General Services
Capital East End
Series 2002A
12-01-06 5.00 1,000,000 1,004,210
California Statewide Communities Development Authority
Prerefunded Revenue Bonds
Thomas Jefferson School of Law Project
Series 2001
10-01-31 7.75 2,500,000 2,900,500
California Statewide Communities Development Authority
Revenue Bonds
Kaiser Permanente
Series 2004E
04-01-32 3.88 750,000 745,973
California Statewide Communities Development Authority
Revenue Bonds
Kaiser Permanente
Series 2006B
03-01-45 5.25 1,000,000 1,015,060
City of Los Angeles
Revenue Bonds
Series 2003A (FSA)
02-01-13 5.00 2,000,000 2,109,760
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2004A
07-01-24 5.00 1,000,000(c) 1,009,830
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Contra Costa Water District
Refunding Revenue Bonds
Series 2003M (FSA)
10-01-16 5.00% $ 1,500,000 $ 1,572,210
County of Riverside
Certificate of Participation
Series 1998 (MBIA)
12-01-21 5.00 1,530,000 1,569,719
County of San Diego
Certificate of Participation
Series 1993 Inverse Floater (AMBAC)
09-01-07 7.32 3,200,000(g) 3,329,983
Desert Sands Unified School District
Refunding Certificate of Participation
Series 2003 (MBIA)
03-01-17 5.25 1,135,000 1,208,230
Encinitas Union School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1996 (MBIA)
08-01-15 5.85 2,500,000(b) 1,662,400
Fontana Unified School District
Unlimited General Obligation Bonds
Convertible Capital Appreciation
Series 1997D (FGIC)
05-01-22 5.75 2,000,000 2,126,980
Golden State Tobacco Securitization Corporation
Enhanced Asset-backed Revenue Bonds
Series 2005A
06-01-19 5.00 1,500,000 1,524,615
06-01-45 5.00 1,200,000 1,196,400
Golden State Tobacco Securitization Corporation
Enhanced Asset-backed Revenue Bonds
Series 2005A (FGIC)
06-01-35 5.00 2,000,000 2,024,280
Golden State Tobacco Securitization Corporation
Prerefunded Enhanced Asset-backed Revenue Bonds
Series 2003B (FSA)
06-01-43 5.00 110,000 116,167
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 33
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Golden State Tobacco Securitization Corporation
Revenue Bonds
Series 2003A-1
06-01-33 6.25% $ 2,490,000 $ 2,712,033
06-01-39 6.75 1,250,000 1,397,938
06-01-40 6.63 750,000 833,288
Inglewood Redevelopment Agency
Refunding Tax Allocation Bonds
Merged Redevelopment Project
Series 1998A (AMBAC)
05-01-23 5.25 1,100,000 1,187,802
Lake Elsinore Public Financing Authority
Revenue Bonds
Series 1997F
09-01-20 7.10 800,000 838,720
Lancaster Redevelopment Agency
Refunding Tax Allocation Bonds
Combined Redevelopment Project Areas
Series 2003 (MBIA)
08-01-17 5.13 1,840,000 1,967,512
Los Angeles Department of Water & Power
Revenue Bonds
Power System
Series 2003B (FSA)
07-01-16 5.13 1,460,000 1,543,746
07-01-17 5.13 2,315,000 2,439,177
Los Angeles Harbor Department
Refunding Revenue Bonds
Series 2006A (MBIA) A.M.T.
08-01-13 5.00 2,000,000 2,091,940
Los Angeles Harbor Department
Revenue Bonds
Series 1988 Escrowed to Maturity
10-01-18 7.60 925,000 1,106,642
Los Angeles Unified School District
Certificate of Participation
Multiple Properties Project
Series 2002B Escrowed to Maturity (FSA)
10-01-08 5.00 1,000,000 1,026,950
Menlo Park
Unlimited General Obligation Bonds
Series 2002
08-01-32 5.30 1,900,000 1,990,269
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Metropolitan Water District of Southern California
Prerefunded Revenue Bonds
Series 1997A
07-01-26 5.00% $ 1,090,000 $ 1,120,139
07-01-26 5.00 645,000 662,834
Oxnard School District
Unlimited General Obligation Refunding Bonds
Series 2001A (MBIA)
08-01-30 5.75 2,575,000 2,933,363
Pittsburg Redevelopment Agency
Tax Allocation Bonds
Los Medanos Community Development Project
Zero Coupon
Series 1999 (AMBAC)
08-01-24 6.05 2,100,000(b) 871,017
Port of Oakland
Revenue Bonds
Series 1997G (MBIA) A.M.T.
11-01-25 5.38 3,080,000 3,188,138
Port of Oakland
Revenue Bonds
Series 2000K (FGIC) A.M.T.
11-01-18 5.63 1,000,000 1,046,860
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 1,000,000(c) 1,048,420
Puerto Rico Public Finance Corporation
Revenue Bonds
Commonwealth Appropriation
Series 2004A (MBIA)
08-01-29 5.25 1,000,000(c) 1,057,220
Sacramento Municipal Utility District
Revenue Bonds
Series 2001N (MBIA)
08-15-28 5.00 350,000 357,410
San Diego Public Water Facilities Financing Authority
Revenue Bonds
Series 2002 (MBIA)
08-01-26 5.00 2,500,000 2,552,350
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
34 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
San Diego Unified School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999A (FGIC)
07-01-12 3.70% $ 3,420,000(b) $ 2,657,306
San Francisco Bay Area Transit Financing Authority
Revenue Bonds
Series 2001 (AMBAC)
07-01-36 5.13 2,000,000 2,034,720
San Francisco City & County Airports Commission
Refunding Revenue Bonds
2nd Series 2001-27B (FGIC)
05-01-16 5.25 2,170,000 2,285,770
San Francisco City & County Public Utilities Commission
Revenue Bonds
Series 2002A (MBIA)
11-01-25 5.00 2,000,000 2,047,720
San Jose Redevelopment Agency
Refunding Tax Allocation Bonds
Merged Area Redevelopment Project
Series 2004A (MBIA)
08-01-18 4.54 2,000,000 1,999,940
San Jose Redevelopment Agency
Tax Allocation Bonds
Merged Area Redevelopment Project
Series 2003 (FGIC)
08-01-33 4.90 2,395,000 2,407,694
San Juan Unified School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999 (FSA)
08-01-21 5.68 820,000(b) 398,864
08-01-24 5.70 1,810,000(b) 750,734
San Mateo County Community College District
Unlimited General Obligation Bonds
Election of 2001
Series 2002A (FGIC)
09-01-18 5.38 1,000,000 1,069,780
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
San Ysidro School District
Unlimited General Obligation Bonds
Capital Appreciation
Election 1997
Zero Coupon
Series 2005D (FGIC)
08-01-27 4.91% $ 2,500,000(b) $ 879,550
Santa Maria Joint Union High School District
Prerefunded Unlimited General Obligation Bonds
Election of 2000
Series 2003B (FSA)
08-01-27 5.00 3,000,000 3,193,349
Semitropic Improvement District
Revenue Bonds
Series 2004A (XLCA)
12-01-28 5.00 2,000,000 2,023,160
State of California
Prerefunded Unlimited General Obligation Bonds
Series 2000
05-01-19 5.63 2,155,000 2,304,847
10-01-25 5.38 2,500,000 2,647,133
State of California
Unlimited General Obligation Bonds
Series 2001
03-01-31 5.13 2,500,000 2,539,600
06-01-31 5.13 2,500,000 2,541,550
State of California
Unlimited General Obligation Bonds
Series 2002
02-01-15 6.00 1,000,000 1,116,950
State of California
Unlimited General Obligation Bonds
Series 2003
02-01-10 5.00 1,000,000 1,033,940
02-01-21 5.25 2,500,000 2,612,375
02-01-29 5.25 2,500,000 2,576,850
02-01-32 5.00 2,500,000 2,522,125
State of California
Unlimited General Obligation Bonds
Series 2003 (FGIC)
11-01-20 5.25 1,000,000 1,054,560
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 35
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
State of California
Unlimited General Obligation Bonds
Series 2004
03-01-14 5.25% $ 2,000,000 $ 2,133,420
04-01-29 5.30 2,000,000 2,083,520
02-01-33 5.00 1,000,000 1,008,740
State of California
Unlimited General Obligation Bonds
Series 2004 (FGIC)
02-01-33 5.00 2,500,000 2,537,675
State of California
Unlimited General Obligation Bonds
Series 2004A
01-01-11 5.25 1,000,000 1,052,120
State of California
Unlimited General Obligation Bonds
Series 2004A (FGIC)
07-01-17 5.00 2,000,000 2,073,120
State of California
Unlimited General Obligation Bonds
Various Purpose
Series 2003
11-01-22 5.00 2,000,000 2,045,360
11-01-23 5.13 2,500,000 2,579,050
11-01-24 5.13 2,000,000 2,060,740
State of California
Unlimited General Obligation Bonds
Veterans
Series 2000B A.M.T.
12-01-12 4.95 2,250,000 2,291,895
12-01-13 5.05 1,435,000 1,460,945
12-01-14 5.15 2,535,000 2,578,272
State of California
Unlimited General Obligation Refunding Bonds
Series 2000
05-01-19 5.63 845,000 896,393
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Stockton
Revenue Bonds
Mortgage-backed Securities Program
Series 1990A (GNMA/FNMA/FHLMC) A.M.T.
02-01-23 7.50% $ 30,000 $ 30,295
Tobacco Securitization Authority of Northern California
Prerefunded Asset-backed Revenue Bonds
Series 2001A
06-01-41 5.38 255,000 271,629
University of California
Revenue Bonds
Multiple Purpose Projects
Series 2003Q (FSA)
09-01-18 5.00 2,000,000 2,081,920
University of California
Revenue Bonds
Multiple Purpose
Series 2000K (FGIC)
09-01-20 5.00 1,010,000 1,038,381
Walnut Energy Center Authority
Revenue Bonds
Series 2004A (AMBAC)
01-01-29 5.00 2,500,000 2,538,975
01-01-34 5.00 1,000,000 1,011,190
Western Hills Water District
Special Tax Bonds
Diablo Grande Community Facilities #1
Series 2001
09-01-31 6.88 1,000,000 1,037,480
Whittier Union High School District
Prerefunded Unlimited General Obligation Bonds
Election of 1999
Series 2003D (FSA)
08-01-28 5.00 2,615,000 2,795,330
- -------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $172,126,569) $ 175,726,019
- -------------------------------------------------------------------------
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
36 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL NOTES (2.9%)
- -------------------------------------------------------------------------
ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
California Health Facilities Financing Authority
Revenue Bonds
Sutter Health
V.R.D.N. Series 1996B
(KBC Bank) AMBAC
07-01-12 3.88% $ 2,800,000 $ 2,800,000
California Infrastructure & Economic Development Bank
Revenue Bonds
Rand Corporation
V.R.D.N. Series 2002B
(JPMorgan Chase Bank) AMBAC
04-01-42 3.89 600,000 600,000
- -------------------------------------------------------------------------
MUNICIPAL NOTES (CONTINUED)
- -------------------------------------------------------------------------
ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
California State Department of Water Resources
Revenue Bonds
V.R.D.N. Series 2002B-3
(Bank of New York)
05-01-22 3.91% $ 2,000,000 $ 2,000,000
- -------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $5,400,000) $ 5,400,000
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $177,526,569)(h) $ 181,126,019
=========================================================================
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
1.7% of net assets at June 30, 2006.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At June 30, 2006, the value of
securities subject to alternative minimum tax represented
6.9% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 37
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
(f) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on June 30, 2006.
(g) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on June 30, 2006. At June 30, 2006, the value of
inverse floaters represented 1.8% of net assets.
(h) At June 30, 2006, the cost of securities for federal income tax purposes
was $177,497,138 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 4,796,453
Unrealized depreciation (1,167,572)
-------------------------------------------------------------------------
Net unrealized appreciation $ 3,628,881
-------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
38 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
RiverSource Massachusetts Tax-Exempt Fund
JUNE 30, 2006
(Percentages represent value of investments compared to net assets)
- -------------------------------------------------------------------------
MUNICIPAL BONDS (97.0%)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE (d,e)
Boston Metropolitan District
Unlimited General Obligation Refunding Bonds
Series 2002A
12-01-11 5.13% $ 2,050,000 $ 2,156,908
City of Boston
Revenue Bonds
Series 2004A
11-01-22 5.00 1,000,000 1,035,020
City of Boston
Unlimited General Obligation Bonds
Series 2005A
01-01-14 5.00 1,000,000 1,058,170
City of Boston
Unlimited General Obligation Refunding Bonds
Series 2003A (MBIA)
02-01-23 5.00 1,000,000 1,025,270
City of Springfield
Limited General Obligation Bonds
State Qualified
Series 2003 (MBIA)
01-15-20 5.25 1,405,000 1,485,141
Commonwealth of Massachusetts
Limited General Obligation Bonds
Consolidated Loan
Series 2002C (FSA)
11-01-15 5.50 2,500,000 2,740,274
Commonwealth of Massachusetts
Limited General Obligation Bonds
Consolidated Loan
Series 2002E
01-01-10 5.50 2,000,000 2,101,360
Commonwealth of Massachusetts
Limited General Obligation Refunding Bonds
Series 1997A (AMBAC)
08-01-10 5.75 2,185,000 2,336,530
Commonwealth of Massachusetts
Limited General Obligation Refunding Bonds
Series 2004B
08-01-22 5.25 500,000 539,575
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE (d,e)
Commonwealth of Massachusetts
Prerefunded Limited General Obligation Bonds
Consolidated Loan
Series 2002A (FGIC)
01-01-14 5.00% $ 2,500,000 $ 2,562,149
Commonwealth of Massachusetts
Prerefunded Limited General Obligation Bonds
Consolidated Loan
Series 2002C
11-01-30 5.25 2,000,000 2,131,360
Commonwealth of Massachusetts
Prerefunded Unlimited General Obligation Bonds
Consolidated Loan
Series 2003D
10-01-22 5.25 1,000,000 1,064,870
Commonwealth of Massachusetts
Revenue Bonds
Grant Anticipation Notes
Series 1998A (FSA)
06-15-09 5.25 1,500,000 1,550,670
Commonwealth of Massachusetts
Special Obligation Refunding Bonds
Federal Highway Grant Anticipation Notes
Series 2003A (FSA)
12-15-14 5.00 1,000,000 1,051,260
Commonwealth of Massachusetts
Unlimited General Obligation Bonds
Consolidated Loan
Series 2005B
08-01-14 5.00 750,000 790,163
Commonwealth of Massachusetts
Unlimited General Obligation Refunding Bonds
Series 2004A (FSA)
08-01-20 5.25 500,000 542,025
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2001 (FSA)
07-01-16 5.50 500,000(c) 548,295
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 39
- --------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE (d,e)
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2001A (FGIC)
07-01-29 5.50% $ 375,000(c) $ 419,149
Massachusetts Bay Transportation Authority
Refunding Revenue Bonds
Series 1992B
03-01-16 6.20 1,500,000 1,686,930
Massachusetts Bay Transportation Authority
Revenue Bonds
Series 2005A
07-01-30 5.00 450,000 468,635
07-01-31 5.00 500,000 519,660
Massachusetts Bay Transportation Authority
Special Assessment Bonds
Series 2005A
07-01-25 5.00 250,000 258,035
07-01-26 5.00 250,000 257,478
Massachusetts Development Finance Agency
Prerefunded Revenue Bonds
Briarwood
Series 2001B
12-01-30 8.25 750,000 881,775
Massachusetts Development Finance Agency
Revenue Bonds
Devens Electric System
Series 2001
12-01-30 6.00 1,000,000 1,056,220
Massachusetts Development Finance Agency
Revenue Bonds
May Institute
Series 1999 (Radian Group Financial Guaranty)
09-01-29 5.75 1,000,000 1,037,760
Massachusetts Development Finance Agency
Revenue Bonds
Smith College
Series 2005
07-01-35 5.00 500,000 505,045
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Boston College
Series 2003N
06-01-21 5.25 1,000,000 1,056,180
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE (d,e)
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Harvard University
Series 2002FF
07-15-37 5.13% $ 2,500,000 $ 2,576,299
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Massachusetts Institute of Technology
Series 2003L
07-01-13 5.00 1,000,000 1,057,920
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Massachusetts Institute of Technology
Series 2004M
07-01-25 5.25 1,000,000 1,100,460
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Williams College
Series 2003H
07-01-33 5.00 1,750,000 1,784,073
Massachusetts Housing Finance Agency
Revenue Bonds
Single Family
Series 2003-98 A.M.T.
06-01-23 4.88 985,000 986,202
Massachusetts Housing Finance Agency
Revenue Bonds
Single Family
Series 2006-122 A.M.T.
12-01-31 4.85 750,000 738,548
Massachusetts Industrial Finance Agency
Revenue Bonds
Tufts University
Series 1998H (MBIA)
02-15-28 4.75 1,000,000 1,001,900
Massachusetts Municipal Wholesale Electric Company
Revenue Bonds
Nuclear Project #5
Series 2001A (MBIA)
07-01-10 5.00 1,000,000 1,035,390
Massachusetts Port Authority
Revenue Bonds
Series 2003A (MBIA)
07-01-18 5.00 1,000,000 1,036,350
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
40 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE (d,e)
Massachusetts School Building Authority
Revenue Bonds
Series 2005A (FSA)
08-15-24 5.00% $ 1,000,000 $ 1,031,700
Massachusetts State Water Pollution Abatement
Revenue Bonds
Pool Program
Series 2004-10
08-01-34 5.00 1,000,000 1,021,940
Massachusetts State Water Pollution Abatement
Unrefunded Revenue Bonds
Pool Program
Series 2002-8
08-01-20 5.00 25,000 25,871
Massachusetts Water Resources Authority
Refunding Revenue Bonds
Series 1998B (FSA)
08-01-11 5.50 1,430,000 1,529,528
Massachusetts Water Resources Authority
Refunding Revenue Bonds
Series 2005A (MBIA)
08-01-22 5.00 500,000 520,265
Massachusetts Water Resources Authority
Revenue Bonds
Series 1992A (FGIC)
07-15-19 6.50 2,000,000 2,341,099
Massachusetts Water Resources Authority
Revenue Bonds
Series 2004D (MBIA)
08-01-27 4.75 1,000,000 1,006,530
Massachusetts Water Resources Authority
Revenue Bonds
Series 2006A (AMBAC)
08-01-31 5.00 500,000 513,120
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 1,000,000(c) 1,040,989
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002A Inverse Floater (MBIA)
07-01-17 6.93 500,000(b,c) 596,840
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE (d,e)
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25% $ 300,000(c) $ 331,740
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 625,000(c) 655,263
University of Massachusetts Building Authority
Prerefunded Revenue Bonds
Series 2003-1 (AMBAC)
11-01-21 5.25 1,000,000 1,072,020
University of Massachusetts Building Authority
Revenue Bonds
Series 1976 Escrowed to Maturity
05-01-11 7.50 50,000 54,505
Woods Hole Martha's Vineyard &
Nantucket Steamship Authority
Revenue Bonds
Series 2004B
03-01-20 5.00 750,000 780,953
Worcester
Limited General Obligation Bonds
Series 2001A (FGIC)
08-15-12 5.50 1,400,000 1,492,106
- -------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $57,987,449) $ 58,197,518
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
MUNICIPAL NOTES (1.5%)
- -------------------------------------------------------------------------
ISSUE (d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Capital Assets Program
V.R.D.N. Series 1985D (State Street B&T) MBIA
01-01-35 3.93% $ 900,000 $ 900,000
- -------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $900,000) $ 900,000
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $58,887,449)(g) $ 59,097,518
=========================================================================
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 41
- --------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on June 30, 2006. At June 30, 2006, the value of
inverse floaters represented 1.0% of net assets.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
6.0% of net assets at June 30, 2006.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At June 30, 2006, the value of
securities subject to alternative minimum tax represented
2.9% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(f) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on June 30, 2006.
(g) At June 30, 2006, the cost of securities for federal income tax purposes
was $58,885,498 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 881,447
Unrealized depreciation (669,427)
--------------------------------------------------------------------------
Net unrealized appreciation $ 212,020
--------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
42 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
RiverSource Michigan Tax-Exempt Fund
JUNE 30, 2006
(Percentages represent value of investments compared to net assets)
- -------------------------------------------------------------------------
MUNICIPAL BONDS (97.9%)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d)
Allen Park Public School District
Unlimited General Obligation Bonds
School Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-18 5.00% $ 1,000,000 $ 1,037,940
Anchor Bay School District
Unlimited General Obligation Bonds
School Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-29 5.00 1,000,000 1,022,680
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2001 (FSA)
07-01-16 5.50 500,000(c) 548,295
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2004A
07-01-24 5.00 500,000(c) 504,915
Detroit City School District
Unlimited General Obligation Bonds
School Building & Site Improvement
Series 2003B (FGIC)
(Qualified School Bond Loan Fund)
05-01-11 5.25 1,000,000 1,056,040
Detroit
Revenue Bonds
Second Lien
Series 2005A (MBIA)
07-01-30 5.00 500,000 508,320
Detroit
Revenue Bonds
Senior Lien
Series 2003A (MBIA)
07-01-34 5.00 1,375,000 1,396,038
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d)
Detroit
Revenue Bonds
Series 2003B (MBIA)
07-01-32 5.25% $ 1,500,000 $ 1,554,960
Detroit
Unlimited General Obligation Bonds
Series 2001A-1 (MBIA)
04-01-15 5.38 1,000,000 1,057,540
Eastern Michigan University
Prerefunded Revenue Bonds
Series 2003A (FGIC)
06-01-28 5.00 1,000,000 1,056,060
Goodrich Area School District
Prerefunded Unlimited General Obligation Bonds
Series 2003B
(Qualified School Bond Loan Fund)
05-01-27 5.00 505,000 533,462
Goodrich Area School District
Unrefunded Unlimited General Obligation Bonds
Series 2003B
(Qualified School Bond Loan Fund)
05-01-27 5.00 495,000 507,464
Grand Rapids Building Authority
Prerefunded Revenue Bonds
Series 2002A (AMBAC)
10-01-17 5.50 505,000 546,122
Grand Rapids Building Authority
Unrefunded Revenue Bonds
Series 2002A (AMBAC)
10-01-17 5.50 765,000 816,760
Howell Public Schools
Unlimited General Obligation Bonds
School Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-29 5.00 1,000,000 1,022,680
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 43
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d)
Jackson
Limited General Obligation Bonds
Capital Appreciation
Downtown Development
Zero Coupon
Series 2001 (FSA)
06-01-21 5.58% $ 1,450,000(b) $ 709,920
L'Anse Creuse Public Schools
Unlimited General Obligation Refunding Bonds
Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-11 4.00 1,000,000 999,520
Lansing Community College
Limited General Obligation Bonds
Series 2002 (FGIC)
05-01-12 5.00 1,000,000 1,050,350
Lawton Community Schools
Unlimited General Obligation Refunding Bonds
Series 2001
(Qualified School Bond Loan Fund)
05-01-31 5.00 1,000,000 1,037,490
Manchester Community Schools
Prerefunded Unlimited General Obligation Bonds
Building & Site
Series 2001
(Qualified School Bond Loan Fund)
05-01-26 5.00 1,400,000 1,463,854
Michigan Municipal Bond Authority
Refunding Revenue Bonds
Clean Water State Revolving Fund
Series 2005
10-01-15 5.00 500,000 530,725
Michigan Municipal Bond Authority
Revenue Bonds
Clean Water State Revolving Fund
Series 2001
10-01-14 5.00 500,000 520,265
10-01-20 5.00 1,000,000 1,033,390
Michigan Municipal Bond Authority
Revenue Bonds
Clean Water State Revolving Fund
Series 2002
10-01-07 5.25 1,000,000 1,017,530
10-01-20 5.38 1,000,000 1,067,770
10-01-21 5.38 1,000,000 1,069,470
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d)
Michigan Municipal Bond Authority
Revenue Bonds
School District City of Detroit
Series 2005 (FSA)
06-01-19 5.00% $ 500,000 $ 516,670
Michigan Public Power Agency
Refunding Revenue Bonds
Belle River Project
Series 2002A (MBIA)
01-01-09 5.25 2,000,000 2,062,899
01-01-13 5.25 500,000 532,160
01-01-14 5.25 500,000 533,420
Michigan State Building Authority
Refunding Revenue Bonds
Facilities Program
Series 2003 II (MBIA)
10-15-29 5.00 1,000,000 1,019,470
Michigan State Building Authority
Revenue Bonds
State Police Communications System
Series 2002 Escrowed to Maturity
10-01-07 4.00 1,000,000 1,002,830
Michigan State Building Authority
Revenue Bonds
State Police Communications System
Series 2004 (MBIA)
10-01-13 5.38 500,000 537,270
Michigan State Hospital Finance Authority
Refunding Revenue Bonds
Henry Ford Health System
Series 2006A
11-15-26 5.00 500,000 504,400
11-15-46 5.25 500,000 508,360
Michigan State Hospital Finance Authority
Refunding Revenue Bonds
Sparrow Obligated Group
Series 2005 (MBIA)
11-15-36 5.00 500,000 505,680
Michigan State Hospital Finance Authority
Revenue Bonds
Oakwood Obligated Group
Series 2003
11-01-18 5.50 1,000,000 1,054,060
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
44 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d)
Michigan Strategic Fund
Refunding Revenue Bonds
Detroit Edison
Series 1990BB (MBIA)
07-15-08 7.00% $ 1,000,000 $ 1,059,390
Plymouth-Canton Community School District
Unlimited General Obligation Refunding Bonds
Series 2003
(Qualified School Bond Loan Fund)
05-01-15 5.25 600,000 639,918
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002 Inverse Floater (MBIA)
07-01-17 6.93 250,000(c,g) 298,420
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2002C (XLCA)
07-01-13 5.50 1,000,000(c) 1,084,290
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 500,000(c) 524,210
Roseville School District
Refunding Unlimited General Obligation Bonds
School Building & Site
Series 2006 (FSA)
(Qualified School Bond Loan Fund)
05-01-23 5.00 500,000 515,230
Saginaw Hospital Finance Authority
Refunding Revenue Bonds
Covenant Medical Center
Series 2004G
07-01-22 5.13 500,000 509,340
Saline Area Schools
Unlimited General Obligation Bonds
Series 2000A
(Qualified School Bond Loan Fund)
05-01-09 4.75 1,000,000 1,022,170
South Lyon Community Schools
Unlimited General Obligation Bonds
School Building & Site
Series 2003 (FGIC)
05-01-28 5.00 1,000,000 1,018,910
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d)
Southfield Public Schools
Unlimited General Obligation Bonds
School Building & Site
Series 2003A
(Qualified School Bond Loan Fund)
05-01-22 5.25% $ 1,025,000 $ 1,080,719
State of Michigan
Certificate of Participation
Series 2004A (MBIA)
09-01-31 4.25 750,000 750,998
State of Michigan
Unlimited General Obligation Bonds
Environmental Programs
Series 2003A
05-01-10 5.00 1,000,000 1,038,630
Summit Academy North
Prerefunded Certificate of Participation
Series 2001
07-01-30 7.38 750,000 842,115
Summit Academy
Prerefunded Certificate of Participation
Full Term
Series 1998
09-01-18 7.00 480,000 508,363
Troy City School District
Unlimited General Obligation Bonds
School Building & Site
Series 2006 (MBIA)
(Qualified School Board Loan Fund)
05-01-24 5.00 500,000 514,430
Waverly Community School
Prerefunded Unlimited General Obligation Bonds
Series 2000 (FGIC)
05-01-17 5.25 1,000,000 1,047,060
Western Township Utilities Authority
Limited General Obligation Bonds
Series 2002 (FGIC)
01-01-08 5.00 1,500,000 1,524,675
Williamston Community School District
Unlimited General Obligation Bonds
Series 1996 (MBIA)
(Qualified School Bond Loan Fund)
05-01-25 5.50 1,000,000 1,100,280
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 45
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d)
Wyandotte City School District
Prerefunded Unlimited General Obligation Bonds
Building & Site
Series 2002
(Qualified School Bond Loan Fund)
05-01-14 5.38% $ 1,250,000 $ 1,339,713
- -------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $48,572,826) $ 48,865,640
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
MUNICIPAL NOTES (0.8%)
- -------------------------------------------------------------------------
ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
Detroit
Revenue Bonds
Senior Lien
V.R.D.N. Series 2003B
(Dexia Credit Local) FSA
07-01-33 3.99% $ 200,000 $ 200,000
University of Michigan
Refunding Revenue Bonds
University of Michigan Hospitals
V.R.D.N. Series 1992A
12-01-19 3.95 200,000 200,000
- -------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $400,000) $ 400,000
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $48,972,826)(h) $ 49,265,640
=========================================================================
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
5.9% of net assets at June 30, 2006.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
- --------------------------------------------------------------------------------
46 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(f) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on June 30, 2006.
(g) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on June 30, 2006. At June 30, 2006, the value of
inverse floaters represented 0.6% of net assets.
(h) At June 30, 2006, the cost of securities for federal income tax purposes
was $48,972,826 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 707,890
Unrealized depreciation (415,076)
--------------------------------------------------------------------------
Net unrealized appreciation $ 292,814
--------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 47
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
RiverSource Minnesota Tax-Exempt Fund
JUNE 30, 2006
(Percentages represent value of investments compared to net assets)
- -------------------------------------------------------------------------
MUNICIPAL BONDS (94.7%)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Anoka County Housing & Redevelopment Authority
Unlimited General Obligation Bonds
Housing Development
Series 2004 (AMBAC)
02-01-34 5.00% $ 1,355,000 $ 1,378,008
Anoka-Hennepin Independent School District #11
Unlimited General Obligation Bonds
Series 2001A
(School District Credit Enhancement Program)
02-01-09 5.00 2,415,000 2,481,654
02-01-10 5.00 1,000,000 1,036,300
02-01-13 5.00 4,175,000 4,340,581
02-01-15 5.00 1,990,000 2,058,018
02-01-16 5.00 2,000,000 2,067,520
Austin Housing & Redevelopment Authority
Revenue Bonds
Courtyard Residence Project
Series 2000A
01-01-32 7.25 2,000,000 2,087,120
Bloomington Independent School District #271
Unlimited General Obligation Bonds
Series 2001A (FSA)
(School District Credit Enhancement Program)
02-01-24 5.13 2,000,000 2,070,880
Bloomington Independent School District #271
Unlimited General Obligation Refunding Bonds
Building
Series 1999B
(School District Credit Enhancement Program)
02-01-15 5.00 1,500,000 1,547,880
City of Breckenridge
Revenue Bonds
Catholic Health Initiatives
Series 2004A
05-01-30 5.00 3,335,000 3,408,370
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
City of Chaska
Refunding Revenue Bonds
Generating Facilities
Series 2005A
10-01-20 5.25% $ 1,165,000 $ 1,223,168
10-01-30 5.00 3,800,000 3,836,100
City of Maple Grove
Revenue Bonds
North Memorial Health Care
Series 2005
09-01-29 5.00 2,000,000 2,017,560
City of Minneapolis
Revenue Bonds
Fairview Health Services
Series 2002B (MBIA)
05-15-14 5.50 2,050,000 2,211,950
05-15-15 5.50 2,160,000 2,324,808
05-15-16 5.50 2,200,000 2,364,296
05-15-17 5.50 1,295,000 1,392,410
City of Minneapolis
Unlimited General Obligation Bonds
Convention Center
Series 2002
12-01-12 5.00 1,500,000 1,561,785
City of Minneapolis
Unlimited General Obligation Bonds
Various Purpose
Series 2001
12-01-11 5.00 3,035,000 3,191,576
City of Stillwater
Revenue Bonds
Health System Obligation Group
Series 2005
06-01-19 5.00 2,505,000 2,537,214
06-01-25 5.00 1,750,000 1,758,663
06-01-35 5.00 3,145,000 3,149,340
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
48 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2001 (FSA)
07-01-16 5.50% $ 1,500,000(c) $ 1,644,885
County of Anoka
Limited General Obligation Refunding Bonds
Capital Improvement
Series 2001C (MBIA)
02-01-09 4.60 2,960,000 3,017,365
County of Ramsey
Unlimited General Obligation Refunding Bonds
Capital Improvement Plan
Series 2002B
02-01-10 5.25 2,150,000 2,251,631
02-01-14 5.25 3,840,000 4,036,877
County of Washington
Unlimited General Obligation Refunding Bonds
Capital Improvement Plan
Series 2000A
02-01-20 5.50 1,000,000 1,048,390
Edina Independent School District #273
Unlimited General Obligation Bonds
Series 2004
02-01-12 4.00 3,700,000 3,709,065
02-01-22 4.25 3,000,000 2,852,910
02-01-23 4.50 3,000,000 3,001,590
02-01-24 4.50 3,400,000 3,419,108
Elk River Independent School District #728
Unlimited General Obligation Bonds
Series 2002 Inverse Floater (FSA)
(School District Credit Enhancement Program)
02-01-18 7.50 1,200,000(g) 1,419,168
02-01-19 7.50 1,150,000(g) 1,349,893
02-01-20 7.50 950,000(g) 1,108,432
02-01-21 7.51 1,285,000(g) 1,495,329
Elk River Independent School District #728
Unlimited General Obligation Bonds
Series 2002A (FSA)
(School District Credit Enhancement Program)
02-01-16 5.00 3,000,000 3,129,450
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Farmington Independent School District #192
Unlimited General Obligation Bonds
School Building
Series 2005B (FSA)
(School District Credit Enhancement Program)
02-01-21 5.00% $ 3,615,000 $ 3,742,248
Hennepin County
Unlimited General Obligation Bonds
Series 2003
12-01-06 4.00 2,000,000 2,002,500
12-01-23 4.75 2,000,000 2,029,420
Lake Superior Independent School District #381
Unlimited General Obligation Bonds
Building
Series 2002A (FSA)
(School District Credit Enhancement Program)
04-01-13 5.00 1,795,000 1,891,302
Lakeville Independent School District #194
Unlimited General Obligation Refunding Bonds
Series 1997A
(School District Credit Enhancement Program)
02-01-22 5.13 2,400,000 2,443,896
Marshall Independent School District #413
Unlimited General Obligation Bonds
Series 2003A (FSA)
(School District Credit Enhancement Program)
02-01-19 4.13 1,560,000 1,490,252
Metropolitan Council Minneapolis-St. Paul
Metropolitan Area
Unlimited General Obligation Bonds
Transportation
Series 2002C
02-01-09 5.00 3,240,000 3,335,029
Minneapolis & St. Paul
Housing & Redevelopment Authority
Revenue Bonds
HealthPartners Obligation Group Project
Series 2003
12-01-12 5.25 1,000,000 1,036,770
12-01-15 5.13 1,500,000 1,531,875
12-01-16 5.25 1,250,000 1,284,638
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 49
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Minneapolis & St. Paul
Housing & Redevelopment Authority
Revenue Bonds
HealthSpan
Series 1993A (AMBAC)
11-15-18 4.75% $ 5,000,000 $ 5,019,000
Minneapolis Community Development Agency
Revenue Bonds
Limited Tax - Common Bond Fund
Series 1996-1
06-01-11 6.00 980,000 987,997
Minneapolis Community Development Agency
Revenue Bonds
Limited Tax - Common Bond Fund
Series 1997-7A
06-01-12 5.50 250,000 255,158
Minneapolis Community Development Agency
Revenue Bonds
Limited Tax - Common Bond Fund
Series 2001-2-A A.M.T.
06-01-19 5.88 1,000,000 1,055,340
Minneapolis Special School District #1
Refunding Certificate of Participation
Series 2002B (FSA)
(School District Credit Enhancement Program)
02-01-10 5.00 1,000,000 1,036,970
02-01-11 5.00 1,040,000 1,084,772
Minneapolis/St. Paul Housing Finance Board
Revenue Bonds
Single Family Housing
Series 2005-A-4 (GNMA/FNMA/FHLMC) A.M.T.
12-01-37 4.70 109,828 104,798
Minneapolis-St. Paul Metropolitan Airports Commission
Refunding Revenue Bonds
Sub Series 2005C (FGIC)
01-01-25 5.00 4,000,000 4,114,160
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Series 1998A (AMBAC)
01-01-24 5.20 4,000,000 4,108,040
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Series 1999B (FGIC) A.M.T.
01-01-16 5.63 2,920,000 3,044,275
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Series 2001B (FGIC) A.M.T.
01-01-16 5.75% $ 4,875,000 $ 5,134,155
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Sub Series 2001C (FGIC)
01-01-18 5.50 2,000,000 2,115,340
01-01-32 5.25 7,000,000 7,231,139
Minneapolis-St. Paul Metropolitan Airports Commission Revenue Bonds
Sub Series 2005A (AMBAC)
01-01-29 5.00 1,900,000 1,946,170
Minnesota Agricultural & Economic Development Board
Prerefunded Revenue Bonds
Health Care System
Series 2000A
11-15-22 6.38 4,845,000 5,349,704
11-15-29 6.38 2,910,000 3,213,135
Minnesota Agricultural & Economic Development Board
Revenue Bonds
Health Care System - Benedictine Health
Series 1999A (MBIA)
02-15-16 4.75 1,000,000 1,018,590
Minnesota Agricultural & Economic Development Board
Unrefunded Revenue Bonds
Health Care System
Series 2000A
11-15-22 6.38 155,000 169,195
11-15-29 6.38 90,000 98,393
Minnesota Higher Education Facilities Authority
Revenue Bonds
Macalester College
6th Series 2004B
03-01-17 5.00 2,395,000 2,495,279
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. John's University
6th Series 2005G
10-01-22 5.00 2,000,000 2,053,440
Minnesota Higher Education Facilities Authority
Revenue Bonds
University of St. Thomas
5th Series 2004Y
10-01-34 5.25 2,800,000 2,890,440
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
50 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2006B A.M.T.
07-01-26 4.75% $ 1,905,000 $ 1,868,824
07-01-31 4.85 2,570,000 2,526,130
07-01-37 4.90 5,000,000 4,883,100
Minnesota Housing Finance Agency
Revenue Bonds
Series 2002 Inverse Floater A.M.T.
07-01-33 8.48 1,075,000(g) 1,120,505
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1996J A.M.T.
07-01-21 5.60 90,000 90,962
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1997K A.M.T.
01-01-26 5.75 975,000 985,091
Minnesota Public Facilities Authority
Prerefunded Revenue Bonds
Series 2001A
03-01-20 5.00 4,000,000 4,146,880
Minnesota Public Facilities Authority
Revenue Bonds
Series 2002B
03-01-10 5.00 2,500,000 2,598,700
03-01-13 5.25 2,500,000 2,674,800
03-01-14 5.25 2,500,000 2,685,375
Minnesota Public Facilities Authority
Revenue Bonds
Series 2005C
03-01-25 5.00 2,000,000 2,066,560
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2004A
10-01-29 5.13 3,500,000 3,552,570
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2005
10-01-30 5.00 2,000,000 2,004,240
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Monticello Big Lake Community Hospital District
Revenue Bonds
Health Care Facilities
Series 1998A
(Radian Group Financial Guaranty)
12-01-19 5.75% $ 1,600,000 $ 1,674,704
Northern Municipal Power Agency
Refunding Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1989A (AMBAC)
01-01-10 3.80 2,000,000(b) 1,727,860
Northern Municipal Power Agency
Refunding Revenue Bonds
Series 1998B (AMBAC)
01-01-20 4.75 5,000,000 5,059,200
Osseo Independent School District #279
Unlimited General Obligation Bonds
Series 2002A (FSA)
(School District Credit Enhancement Program)
02-01-11 5.00 1,570,000 1,638,264
02-01-12 5.00 3,455,000 3,625,884
02-01-15 5.25 3,585,000 3,791,962
Osseo Independent School District #279
Unlimited General Obligation Refunding Bonds
School Building
Series 2000A
(School District Credit Enhancement Program)
02-01-13 5.75 3,200,000 3,401,824
02-01-14 5.75 1,100,000 1,167,672
Plymouth Housing & Redevelopment Authority
Unlimited General Obligation Bonds
Governmental Housing Project
Series 2005
02-01-35 5.00 2,135,000 2,197,897
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 3,000,000(c) 3,122,970
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2003NN (MBIA)
07-01-32 5.00 2,820,000(c) 2,873,213
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 51
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25% $ 1,650,000(c) $ 1,824,570
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 2,250,000(c) 2,386,485
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 1,500,000(c) 1,572,630
Puerto Rico Public Finance Corporation
Revenue Bonds
Commonwealth Appropriation
Series 2004A (MBIA)
08-01-29 5.25 2,000,000(c) 2,114,440
Shakopee
Revenue Bonds
St. Francis Regional Medical Center
Series 2004
09-01-25 5.10 3,300,000 3,339,270
Southern Minnesota Municipal Power Agency
Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1994A (MBIA)
01-01-19 6.67 17,000,000(b) 9,402,359
Southern Minnesota Municipal Power Agency
Revenue Bonds
Series 2002A (AMBAC)
01-01-17 5.25 6,000,000 6,455,999
Southern Minnesota Municipal Power Agency
Revenue Bonds
Series 2003A (MBIA)
01-01-11 5.00 5,500,000 5,732,979
St. Cloud Housing & Redevelopment Authority
Revenue Bonds
State University Foundation Project
Series 2002
05-01-18 5.13 3,000,000 3,122,910
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Community of Peace Academy Project
Series 2001A
12-01-30 7.88% $ 2,390,000 $ 2,535,455
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Healtheast Project
Series 2005
11-15-25 6.00 1,250,000 1,339,300
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Lyngblomsten Care Center Housing Project
Series 1993
11-01-06 7.13 265,000 266,529
11-01-17 7.13 1,480,000 1,485,520
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Rental - Lyngblomsten Housing Project
Series 1993
11-01-24 7.00 1,680,000 1,684,553
St. Paul Port Authority
Revenue Bonds
Office Building at Cedar Street
Series 2003
12-01-23 5.00 5,000,000 5,120,900
12-01-27 5.13 5,350,000 5,504,027
State of Minnesota
Unlimited General Obligation Bonds
Series 2001
10-01-10 5.00 5,000,000 5,222,500
10-01-14 5.00 4,000,000 4,190,880
10-01-15 5.00 4,455,000 4,654,762
State of Minnesota
Unlimited General Obligation Bonds
Series 2002
08-01-10 5.00 4,075,000 4,251,407
11-01-15 5.25 3,575,000 3,805,731
State of Minnesota
Unlimited General Obligation Bonds
Series 2003
08-01-12 5.00 2,000,000 2,115,620
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
52 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
State of Minnesota
Unlimited General Obligation Bonds
Series 2004
11-01-24 5.00% $ 3,500,000 $ 3,637,340
Steele County
Refunding Revenue Bonds
Elderly Housing Project
Series 2000
06-01-30 6.88 2,205,000 2,418,510
Todd Morrison Cass & Wadena Counties
United Hospital District
Unlimited General Obligation Bonds
Health Care Facilities-Lakewood
Series 2004
12-01-34 5.00 2,500,000 2,496,125
University of Minnesota
Revenue Bonds
Residual Certificates
Series 2002 Inverse Floater
07-01-21 8.27 2,830,000(g) 3,771,711
Virginia Housing & Redevelopment Authority
Revenue Bonds
Series 2005
10-01-20 5.13 1,350,000 1,349,217
Western Minnesota Municipal Power Agency
Revenue Bonds
Series 2003A (MBIA)
01-01-26 5.00 7,250,000 7,431,394
White Bear Lake Independent School District #624
Unlimited General Obligation Refunding Bonds
School Building
Series 2002C (FSA)
(School District Credit Enhancement Program)
02-01-09 5.00 1,375,000 1,414,999
White Bear Lake Independent School District #624
Unlimited General Obligation Refunding Bonds
Series 2002B (FGIC)
(School District Credit Enhancement Program)
02-01-13 5.00 1,405,000 1,472,342
02-01-14 5.00 1,480,000 1,544,928
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Willmar
Unlimited General Obligation Bonds
Rice Memorial Hospital Project
Series 2002 (FSA)
02-01-11 5.00% $ 1,025,000 $ 1,066,953
02-01-12 5.00 1,120,000 1,171,979
02-01-13 5.00 1,200,000 1,258,800
- -------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $323,021,191) $ 327,491,025
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
MUNICIPAL NOTES (2.7%)
- -------------------------------------------------------------------------
ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
City of Minneapolis
Refunding Revenue Bonds
Fairview Health Services
V.R.D.N. Series 2005B
(Royal Bank of Canada) AMBAC
11-15-29 3.96% $ 1,700,000 $ 1,700,000
City of Minneapolis
Revenue Bonds
Guthrie Theater Project
V.R.D.N. Series 2003A (Wells Fargo Bank)
10-01-23 3.97 1,800,000 1,800,000
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Olaf College
V.R.D.N. 5th Series 2000H
(Harris Trust & Savings Bank)
10-01-30 4.04 750,000 750,000
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. Olaf College
V.R.D.N. 5th Series 2002M2
(Harris Trust & Savings Bank)
10-01-20 4.04 1,100,000 1,100,000
Robbinsdale
Revenue Bonds
North Memorial Healthcare-Tranche II
V.R.D.N. Series 2003 AMBAC
05-15-33 3.45 2,875,000 2,875,000
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 53
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL NOTES (CONTINUED)
- -------------------------------------------------------------------------
ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Minnesota Public Radio Project
V.R.D.N. Series 2005
(Allied Irish Bank)
10-01-25 4.04% $ 1,020,000 $ 1,020,000
- -------------------------------------------------------------------------
MUNICIPAL NOTES (CONTINUED)
- -------------------------------------------------------------------------
ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
St. Paul Port Authority
Revenue Bonds
Minnesota Public Radio Project
V.R.D.N. 7th Series 2005
(Allied Irish Bank)
05-01-25 4.04% $ 100,000 $ 100,000
- -------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $9,345,000) $ 9,345,000
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $332,366,191)(h) $ 336,836,025
=========================================================================
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
4.5% of net assets at June 30, 2006.
(d) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At June 30, 2006, the value of
securities subject toalternative minimum tax represented 6.0%
of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
- --------------------------------------------------------------------------------
54 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
(f) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on June 30, 2006.
(g) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on June 30, 2006. At June 30, 2006, the value of
inverse floaters represented 3.0% of net assets.
(h) At June 30, 2006, the cost of securities for federal income tax purposes
was $332,161,195 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 7,223,474
Unrealized depreciation (2,548,644)
-------------------------------------------------------------------
Net unrealized appreciation $ 4,674,830
-------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 55
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
RiverSource New York Tax-Exempt Fund
JUNE 30, 2006
(Percentages represent value of investments compared to net assets)
- -------------------------------------------------------------------------
MUNICIPAL BONDS (95.9%)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
City of New York
Unlimited General Obligation Bonds
Series 2000 Inverse Floater (FGIC)
05-15-16 9.41% $ 830,000(f) $ 1,027,167
City of New York
Unlimited General Obligation Bonds
Series 2002C (XLCA)
03-15-12 5.00 1,000,000 1,045,730
City of New York
Unlimited General Obligation Bonds
Series 2002E
08-01-16 5.75 2,000,000 2,158,939
City of New York
Unlimited General Obligation Bonds
Series 2003I
03-01-27 5.38 2,000,000 2,101,880
City of New York
Unlimited General Obligation Bonds
Series 2003J
06-01-18 5.50 2,000,000 2,129,659
06-01-20 5.50 2,000,000 2,119,879
City of New York
Unlimited General Obligation Bonds
Series 2004D
11-01-34 5.00 1,000,000 1,011,470
City of New York
Unlimited General Obligation Bonds
Series 2004E (FSA)
11-01-22 5.00 750,000 773,108
Commonwealth of Puerto Rico
Unlimited General Obligation Bonds
Public Improvement
Series 2004A
07-01-24 5.00 500,000(d) 504,915
County of Monroe
Unlimited General Obligation Refunding Bonds
Public Improvement
Series 1996 (MBIA)
03-01-15 6.00 1,250,000 1,401,150
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Liberty Development Corporation
Revenue Bonds
Goldman Sachs Headquarters
Series 2005
10-01-35 5.25% $ 500,000 $ 531,850
Long Island Power Authority
Revenue Bonds
Series 1998-8 (AMBAC)
04-01-09 5.25 1,000,000 1,035,970
Long Island Power Authority
Revenue Bonds
Series 2003C (CIFG)
09-01-33 5.00 20,000 20,372
Metropolitan Transportation Authority
Prerefunded Revenue Bonds
Series 1998A (FGIC)
04-01-28 4.75 1,000,000 1,044,020
Metropolitan Transportation Authority
Refunding Revenue Bonds
Series 2002A
01-01-16 5.75 500,000 552,295
Metropolitan Transportation Authority
Refunding Revenue Bonds
Series 2002A (AMBAC)
11-15-19 5.50 1,000,000 1,074,710
Metropolitan Transportation Authority
Revenue Bonds
Series 2002A (FSA)
11-15-26 5.50 750,000 803,438
Metropolitan Transportation Authority
Revenue Bonds
Series 2005F
11-15-12 5.00 560,000 587,289
11-15-35 5.00 500,000 504,810
Nassau County Tobacco Settlement Corporation
Asset-backed Revenue Bonds
Series 2006A-3
06-01-46 5.13 500,000 480,880
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
56 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
New York City Housing Development Corporation
Revenue Bonds
Capital Funding Program
New York City Housing Authority Program
Series 2005A (FGIC)
07-01-25 5.00% $ 1,500,000 $ 1,542,630
New York City Industrial Development Agency
Revenue Bonds
Terminal One Group Association Project
Series 2005 A.M.T.
01-01-24 5.50 500,000 521,000
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2002A
06-15-29 5.00 1,000,000 1,020,560
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2004A
06-15-39 5.00 1,000,000 1,011,730
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2005D (AMBAC)
06-15-39 5.00 750,000 766,800
New York City Transitional Finance Authority
Prerefunded Revenue Bonds
Future Tax
Series 1999C
05-01-25 5.50 220,000 231,453
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2003D
02-01-23 5.00 500,000 514,925
02-01-31 5.00 1,000,000 1,020,150
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2004C
02-01-33 5.00 1,000,000 1,018,250
New York City Trust for Cultural Resources
Revenue Bonds
Museum of American Folk Art
Series 2000 (ACA)
07-01-22 6.00 1,000,000 1,070,860
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
New York Counties Tobacco Trust II
Revenue Bonds
Tobacco Settlement Pass Thru Bonds
Series 2001
06-01-35 5.63% $ 500,000 $ 509,775
New York Mortgage Agency
Revenue Bonds
Series 2002 Inverse Floater A.M.T.
04-01-32 7.88 400,000(f) 420,112
New York Power Authority
Revenue Bonds
Series 2000A
11-15-30 5.25 1,000,000 1,040,560
New York State Dormitory Authority
Prerefunded Revenue Bonds
Series 1990B
05-15-11 7.50 415,000 459,853
New York State Dormitory Authority
Revenue Bonds
Brooklyn Law School
Series 2003B (XLCA)
07-01-30 5.13 1,000,000 1,035,290
New York State Dormitory Authority
Revenue Bonds
Consolidated City University System
Series 1993A
07-01-13 5.75 3,000,000 3,211,289
New York State Dormitory Authority
Revenue Bonds
Education
Series 2005F
03-15-23 5.00 250,000 257,805
New York State Dormitory Authority
Revenue Bonds
Hospital
Series 2004A (FHA/FSA)
08-15-13 5.25 500,000 533,220
New York State Dormitory Authority
Revenue Bonds
Memorial Sloan-Kettering Center
Series 2003-1 (MBIA)
07-01-21 5.00 1,000,000 1,029,080
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 57
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
New York State Dormitory Authority
Revenue Bonds
Memorial Sloan-Kettering Center
Series 2006-1
07-01-35 5.00% $ 500,000 $ 510,245
New York State Dormitory Authority
Revenue Bonds
Mental Health Services Facilities Improvement
Series 2005E (FGIC)
02-15-22 5.00 750,000 772,703
New York State Dormitory Authority
Revenue Bonds
Montefiore Hospital
Series 2004 (FGIC/FHA)
08-01-19 5.00 735,000 762,460
New York State Dormitory Authority
Revenue Bonds
Pratt Institute
Series 1999
(Radian Group Financial Guaranty)
07-01-20 6.00 1,500,000 1,607,220
New York State Dormitory Authority
Revenue Bonds
Series 2002B (AMBAC)
11-15-26 5.25 1,000,000 1,063,050
New York State Dormitory Authority
Unrefunded Revenue Bonds
Series 1990B
05-15-11 7.50 970,000 1,071,055
New York State Energy Research & Development Authority
Revenue Bonds
New York State Electric & Gas
Series 1985B (MBIA)
10-15-15 4.00 1,000,000 980,200
New York State Energy Research & Development Authority
Revenue Bonds
Residual Certificates
Series 2000 Inverse Floater (MBIA)
01-01-21 8.30 330,000(f) 348,464
New York State Environmental Facilities Corporation
Revenue Bonds
New York City Municipal Water Financing Project
Series 2004
06-15-26 5.00 1,000,000 1,031,700
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
New York State Environmental Facilities Corporation
Revenue Bonds
Revolving Funds
New York City Municipal Water Project
Series 2002B
06-15-31 5.00% $ 1,000,000 $ 1,021,080
New York State Environmental Facilities Corporation
Revenue Bonds
Revolving Funds
New York City Municipal Water Project
Series 2002K
06-15-28 5.00 1,000,000 1,025,260
New York State Environmental Facilities Corporation
Revenue Bonds
Revolving Funds
Series 2003
06-15-32 5.00 1,000,000 1,022,320
New York State Thruway Authority
Revenue Bonds
Second General Resolution
Series 2003B (FSA)
04-01-21 4.75 835,000 846,473
New York State Thruway Authority
Revenue Bonds
Series 2005G (FSA)
01-01-24 5.00 1,000,000 1,033,630
01-01-28 5.00 750,000 769,095
New York State Thruway Authority
Revenue Bonds
Transportation
Series 2003A (MBIA)
03-15-22 5.00 1,000,000 1,027,970
New York State Thruway Authority
Revenue Bonds
Transportation
Series 2004A (AMBAC)
03-15-12 5.25 750,000 798,825
New York State Urban Development Corporation
Refunding Revenue Bonds
Service Contract
Series 2005 (FSA)
01-01-17 5.00 1,000,000 1,050,190
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
58 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
New York State Urban Development Corporation
Revenue Bonds
Series 2002A (XLCA)
01-01-11 5.25% $ 1,000,000 $ 1,052,120
Niagara Falls Public Water Authority
Prerefunded Revenue Bonds
Series 2003A (MBIA)
07-15-28 5.50 1,000,000 1,000,440
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 134th
Series 2004
07-15-34 5.00 1,000,000 1,017,430
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 143rd
Series 2006 FSA A.M.T.
10-01-21 5.00 1,000,000 1,026,300
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002 Inverse Floater (MBIA)
07-01-17 6.93 500,000(d,f) 596,840
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 1,000,000(d) 1,060,660
Puerto Rico Public Finance Corporation
Revenue Bonds
Commonwealth Appropriation
Series 2004A (MBIA)
08-01-29 5.25 1,000,000(d) 1,057,220
Rensselaer County Industrial Development Agency
Revenue Bonds
Rensselaer Polytechnic Institute
Series 2006
03-01-36 5.00 500,000 506,465
Sales Tax Asset Receivables Corporation
Revenue Bonds
Series 2004A (MBIA)
10-15-23 5.00 750,000 777,195
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Suffolk County Industrial Development Agency
Prerefunded Revenue Bonds
1st Mortgage Jeffersons Ferry
Series 1999A
11-01-28 7.25% $ 250,000 $ 279,635
Tobacco Settlement Financing Authority
Asset-backed Revenue Bonds
Series 2003A-1
06-01-16 5.50 500,000 524,255
Tobacco Settlement Financing Authority
Revenue Bonds
Series 2003B-1C
06-01-14 5.50 500,000 519,510
06-01-15 5.50 500,000 524,435
Triborough Bridge & Tunnel Authority
Refunding Revenue Bonds
Series 2002B
11-15-29 5.13 1,000,000 1,036,970
Triborough Bridge & Tunnel Authority
Revenue Bonds
Convention Center Project
Series 1990E
01-01-11 6.00 1,145,000 1,236,234
TSASC Incorporated
Revenue Bonds
1st Series 2006
06-01-34 5.00 500,000 483,995
Westchester Tobacco Asset Securitization
Revenue Bonds
Series 2005
06-01-26 5.00 875,000 858,708
- -------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $67,585,507) $ 68,425,225
- -------------------------------------------------------------------------
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 59
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL NOTES (2.8%)
- -------------------------------------------------------------------------
ISSUE(b,c,e) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
City of New York
Unlimited General Obligation Bonds
V.R.D.N. Series 2005E-2
(Bank of America)
08-01-34 4.03% $ 200,000 $ 200,000
New York City Municipal Water Finance Authority
Revenue Bonds
V.R.D.N. Series 1993C FGIC
06-15-23 3.93 1,800,000 1,800,000
- -------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $2,000,000) $ 2,000,000
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $69,585,507)(g) $ 70,425,225
=========================================================================
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
CIFG -- IXIS Financial Guaranty
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(c) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At June 30, 2006, the value of
securities subject to alternative minimum tax represented
2.8% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
- --------------------------------------------------------------------------------
60 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
(d) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
4.5% of net assets at June 30, 2006.
(e) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on June 30, 2006.
(f) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on June 30, 2006. At June 30, 2006, the value of
inverse floaters represented 3.4% of net assets.
(g) At June 30, 2006, the cost of securities for federal income tax purposes
was $69,574,341 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $1,475,044
Unrealized depreciation (624,160)
--------------------------------------------------------------------------
Net unrealized appreciation $ 850,884
--------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 61
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES
RiverSource Ohio Tax-Exempt Fund
JUNE 30, 2006
(Percentages represent value of investments compared to net assets)
- -------------------------------------------------------------------------
MUNICIPAL BONDS (97.5%)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Bowling Green State University
Revenue Bonds
Series 2003 (AMBAC)
06-01-12 5.00% $ 1,145,000 $ 1,203,395
Brookville Local School District
Unlimited General Obligation Bonds
Series 2003 (FSA)
12-01-18 5.25 1,000,000 1,060,300
Cincinnati City School District
Limited General Obligation Bonds
School Improvement
Series 2002 (FSA)
06-01-21 5.25 1,000,000 1,053,210
Cincinnati City School District
Unlimited General Obligation Bonds
Classroom Facilities Construction & Improvement
Series 2003 (FSA)
12-01-31 5.00 500,000 508,640
City of Cincinnati
Unlimited General Obligation Bonds
Series 2000
12-01-16 5.25 1,000,000 1,047,500
City of Cleveland
Revenue Bonds
Series 2002K (FGIC)
01-01-10 5.00 2,000,000 2,071,719
City of Columbus
Prerefunded Unlimited General Obligation Bonds
Series 1999-2
06-15-15 5.75 1,000,000 1,075,170
Cleveland State University
Revenue Bonds
Series 2003A (FGIC)
06-01-15 5.00 1,000,000 1,045,030
Cleveland State University
Revenue Bonds
Series 2004 (FGIC)
06-01-24 5.25 500,000 526,045
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Columbus City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2003 (FGIC)
12-01-11 5.00% $ 1,000,000 $ 1,048,620
Columbus City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2004 (FSA)
12-01-29 5.25 500,000 522,770
County of Cuyahoga
Limited General Obligation Bonds
Series 1993
05-15-13 5.60 450,000 471,420
County of Cuyahoga
Refunding Revenue Bonds
Series 2003A
01-01-17 6.00 1,000,000 1,094,700
01-01-32 6.00 1,000,000 1,071,730
County of Cuyahoga
Revenue Bonds
Canton Incorporated Project
Series 2000
01-01-30 7.50 500,000 554,120
County of Erie
Revenue Bonds
Firelands Regional Medical Center
Series 2002A
08-15-32 5.63 245,000 254,496
County of Montgomery
Revenue Bonds
Catholic Health Initiatives
Series 2004A
05-01-30 5.00 750,000 761,588
05-01-32 5.00 500,000 507,400
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
62 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Dayton City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2003A (FGIC)
12-01-27 5.00% $ 1,250,000 $ 1,277,750
12-01-31 5.00 1,000,000 1,016,880
Dayton City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2003D (FGIC)
12-01-17 5.00 1,000,000 1,038,960
Franklin County
Refunding Revenue Bonds
OhioHealth Corporation
Series 2003C
05-15-24 5.25 1,000,000 1,038,990
Franklin County
Refunding Revenue Bonds
Trinity Health Credit
Series 2005A
06-01-20 5.00 500,000 511,155
Hamilton County Convention Facilities Authority
Revenue Bonds
First Lien
Series 2004 (FGIC)
12-01-33 5.00 1,000,000 1,014,290
Jackson
Prerefunded Revenue Bonds
Consolidated Health System - Jackson Hospital
Series 1999
(Radian Group Financial Guaranty)
10-01-20 6.13 1,000,000 1,076,100
Kenston Local School District
Unlimited General Obligation Bonds
School Improvement
Series 2003 (MBIA)
12-01-16 5.00 1,000,000 1,041,990
Lakewood
Limited General Obligation Bonds
Series 2003
12-01-19 5.00 1,515,000 1,568,540
Licking Heights Local School District
Unlimited General Obligation Bonds
Series 2004 (FGIC)
12-01-28 5.00 1,000,000 1,018,250
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Miami County Refunding & Improvement
Revenue Bonds
Upper Valley Medical Center
Series 2006
05-15-26 5.25% $ 500,000 $ 511,560
Miami University
Refunding Revenue Bonds
Series 2005 (AMBAC)
09-01-23 4.75 500,000 507,015
Ohio Housing Finance Agency
Revenue Bonds
Residential Mortgage-backed Securities
Series 2006A (GNMA) A.M.T.
09-01-26 4.75 500,000 492,320
09-01-36 4.90 500,000 490,695
Ohio Housing Finance Agency
Revenue Bonds
Residential Mortgage-backed Securities
Series 2006E (GNMA/FNMA) A.M.T.
09-01-36 5.00 500,000 492,690
Ohio Municipal Electric Generation Agency
Refunding Revenue Bonds
Joint Venture 5
Series 2004 (AMBAC)
02-15-24 4.75 750,000 755,205
Ohio State Building Authority
State Facilities Refunding Revenue Bonds
Adult Correctional Building Fund Projects
Series 2001A (FSA)
10-01-14 5.50 1,000,000 1,065,300
Ohio State Building Authority
State Facilities Revenue Bonds
Adult Correctional Building Fund Projects
Series 2005A (FSA)
04-01-22 5.00 750,000 774,053
Ohio State Higher Educational Facility Commission
Unrefunded Revenue Bonds
Oberlin
Series 1999
10-01-29 5.00 85,000 86,486
Ohio University
Revenue Bonds
Sub Series 2006B (FSA)
12-01-31 5.00 500,000 511,795
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 63
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Port of Greater Cincinnati Development Authority
Revenue Bonds
Sisters of Mercy
Series 2006
10-01-25 5.00% $ 500,000 $ 503,550
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 1,000,000(d) 1,040,990
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002 Inverse Floater (MBIA)
07-01-17 6.93 250,000(d,e) 298,420
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25 250,000(d) 276,450
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 750,000(d) 795,495
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 500,000(d) 524,210
State of Ohio
Unlimited General Obligation Bonds
Common Schools Capital Facilities
Series 2001A
06-15-13 5.00 1,500,000 1,560,825
State of Ohio
Unlimited General Obligation Bonds
Common Schools Capital Facilities
Series 2001B
09-15-20 5.00 1,000,000 1,036,440
State of Ohio
Unlimited General Obligation Bonds
Common Schools
Series 2003C
03-15-10 5.00 1,000,000 1,037,770
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
State of Ohio
Unlimited General Obligation Bonds
Conservation Projects
Series 2005A
03-01-20 5.00% $ 500,000 $ 517,985
State of Ohio
Unlimited General Obligation Bonds
Higher Education
Series 2003A
05-01-11 5.00 1,000,000 1,046,060
State of Ohio
Unlimited General Obligation Bonds
Higher Education
Series 2005B
05-01-23 5.00 500,000 517,265
State of Ohio
Unlimited General Obligation Bonds
Highway Capital Improvements
Series 2002G
05-01-12 5.25 750,000 799,005
State of Ohio
Unlimited General Obligation Bonds
Infrastructure Improvement
Series 2005A
09-01-21 5.00 500,000 519,180
Summit County
Limited General Obligation Bonds
Series 2003
12-01-18 5.25 1,490,000 1,590,545
Toledo City School District
Unlimited General Obligation Bonds
School Facilities Improvement
Series 2003 (FSA)
(School District Credit Enhancement Program)
12-01-15 5.00 1,000,000 1,048,460
University of Akron
Revenue Bonds
Series 2003A (AMBAC)
01-01-22 5.00 1,000,000 1,027,850
University of Cincinnati
Revenue Bonds
Series 2001A (FGIC)
06-01-14 5.50 1,000,000 1,065,180
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
64 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
- -------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- -------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Warren County
Limited General Obligation Bonds
Series 1992
12-01-12 6.10% $ 500,000 $ 530,720
- -------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $48,152,790) $ 47,904,277
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
MUNICIPAL NOTES (1.4%)
- -------------------------------------------------------------------------
ISSUE(c,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
Ohio State Water Development Authority
Refunding Revenue Bonds
FirstEnergy Generation
V.R.D.N. Series 2006A
(Barclays Bank)
05-15-19 4.04% $ 700,000 $ 700,000
- -------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $700,000) $ 700,000
- -------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $48,852,790)(g) $ 48,604,277
=========================================================================
- -------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- -------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) The following abbreviations may be used in the portfolio security
descriptions to identify the insurer of the issue:
ACA -- ACA Financial Guaranty Corporation
AMBAC -- Ambac Assurance Corporation
BIG -- Bond Investors Guarantee
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(c) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At June 30, 2006, the value of
securities subject to alternative minimum tax represented
3.0% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(d) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
6.0% of net assets at June 30, 2006.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 65
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
(e) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on June 30, 2006. At June 30, 2006, the value of
inverse floaters represented 0.6% of net assets.
(f) The Fund is entitled to receive principal and interest from the party
within parentheses after a day or a week's notice or upon maturity. The
maturity date disclosed represents the final maturity. Interest rate
varies to reflect current market conditions; rate shown is the effective
rate on June 30, 2006.
(g) At June 30, 2006, the cost of securities for federal income tax purposes
was $48,852,790 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 413,793
Unrealized depreciation (662,306)
--------------------------------------------------------------------------
Net unrealized depreciation $ (248,513)
--------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC (information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330); and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form N-Q,
can be found at www.riversource.com/funds.
- --------------------------------------------------------------------------------
66 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
RiverSource State Tax-Exempt Funds
CALIFORNIA MASSACHUSETTS MICHIGAN
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
JUNE 30, 2006 FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 1)
(identified cost $177,526,569, $58,887,449 and $48,972,826) $ 181,126,019 $ 59,097,518 $ 49,265,640
Cash in bank on demand deposit 51,339 -- 88,209
Capital shares receivable 2,000 500 --
Accrued interest receivable 2,393,987 1,021,044 662,770
Receivable for investment securities sold 300,608 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total assets 183,873,953 60,119,062 50,016,619
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------------------------------
Disbursements in excess of cash on demand deposit -- 4,738 --
Dividends payable to shareholders 77,677 22,471 20,219
Capital shares payable 297,459 800 --
Accrued investment management services fee 2,059 673 560
Accrued distribution fee 81,828 27,103 22,398
Accrued transfer agency fee 221 120 87
Accrued administrative services fee 352 115 96
Other accrued expenses 47,989 35,215 40,933
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 507,585 91,235 84,293
- -------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares $ 183,366,368 $ 60,027,827 $ 49,932,326
===============================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
REPRESENTED BY
- -------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest -- $.01 par value (Note 1) $ 362,090 $ 115,086 $ 96,886
Additional paid-in capital 179,753,910 59,866,846 49,598,429
Undistributed net investment income 29,431 2,332 --
Accumulated net realized gain (loss) (Note 6) (378,513) (166,506) (55,803)
Unrealized appreciation (depreciation) on investments 3,599,450 210,069 292,814
- -------------------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding shares $ 183,366,368 $ 60,027,827 $ 49,932,326
===============================================================================================================================
Net assets applicable to outstanding shares: Class A $ 170,581,612 $ 47,709,676 $ 45,147,756
Class B $ 10,638,143 $ 11,501,053 $ 3,297,235
Class C $ 2,146,613 $ 817,098 $ 1,487,335
Outstanding shares of beneficial interest: Class A shares 33,683,750 9,147,002 8,760,496
Class B shares 2,101,900 2,204,884 639,567
Class C shares 423,362 156,742 288,563
Net asset value per share: Class A $ 5.06 $ 5.22 $ 5.15
Class B $ 5.06 $ 5.22 $ 5.16
Class C $ 5.07 $ 5.21 $ 5.15
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 67
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
RiverSource State Tax-Exempt Funds
MINNESOTA NEW YORK OHIO
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
JUNE 30, 2006 FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 1)
(identified cost $332,366,191, $69,585,507 and $48,852,790) $ 336,836,025 $ 70,425,225 $ 48,604,277
Cash in bank on demand deposit 71,233 25,932 81,959
Capital shares receivable 69,135 4,195 4,554
Accrued interest receivable 5,271,989 1,004,748 502,100
Receivable for investment securities sold 3,935,903 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total assets 346,184,285 71,460,100 49,192,890
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------------------------------
Dividends payable to shareholders 133,937 29,214 19,270
Capital shares payable 52,056 -- --
Accrued investment management services fee 3,812 800 551
Accrued distribution fee 155,512 32,090 22,367
Accrued transfer agency fee 537 128 94
Accrued administrative services fee 662 137 94
Other accrued expenses 63,548 36,835 32,846
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 410,064 99,204 75,222
- -------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares $ 345,774,221 $ 71,360,896 $ 49,117,668
===============================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
REPRESENTED BY
- -------------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest -- $.01 par value (Note 1) $ 668,483 $ 144,203 $ 95,298
Additional paid-in capital 342,430,401 70,377,792 49,316,286
Undistributed net investment income 409,732 11,167 --
Accumulated net realized gain (loss) (Note 6) (2,204,229) (11,984) (45,403)
Unrealized appreciation (depreciation) on investments 4,469,834 839,718 (248,513)
- -------------------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable to outstanding shares $ 345,774,221 $ 71,360,896 $ 49,117,668
===============================================================================================================================
Net assets applicable to outstanding shares: Class A $ 303,210,542 $ 62,510,924 $ 42,254,434
Class B $ 34,360,562 $ 7,701,508 $ 5,314,345
Class C $ 8,203,117 $ 1,148,464 $ 1,548,889
Outstanding shares of beneficial interest: Class A shares 58,620,649 12,631,934 8,198,217
Class B shares 6,641,881 1,556,322 1,031,110
Class C shares 1,585,812 232,088 300,431
Net asset value per share: Class A $ 5.17 $ 4.95 $ 5.15
Class B $ 5.17 $ 4.95 $ 5.15
Class C $ 5.17 $ 4.95 $ 5.16
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
68 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
RiverSource State Tax-Exempt Funds
CALIFORNIA MASSACHUSETTS MICHIGAN
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
YEAR ENDED JUNE 30, 2006 FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------------------------------
Income:
Interest $ 8,784,573 $ 2,832,945 $ 2,329,003
- -------------------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 880,490 306,031 251,431
Distribution fee
Class A 450,844 131,376 124,222
Class B 124,630 140,903 42,252
Class C 25,844 11,424 18,031
Transfer agency fee 77,619 43,524 31,242
Incremental transfer agency fee
Class A 6,749 3,276 2,561
Class B 1,226 1,470 544
Class C 416 194 297
Administrative services fees and expenses 126,617 42,344 34,522
Compensation of board members 8,844 8,844 8,844
Custodian fees 18,695 10,119 9,125
Printing and postage 32,850 9,903 9,300
Registration fees 42,705 37,070 39,100
Audit fees 21,000 19,500 19,500
Other 12,375 4,775 2,572
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,830,904 770,753 593,543
Expenses waived/reimbursed by the
Investment Manager and its affiliates (Note 2) (129,935) (102,889) (94,095)
- -------------------------------------------------------------------------------------------------------------------------------
1,700,969 667,864 499,448
Earnings and bank fee credits on cash balances (Note 2) (17,465) (8,320) (6,650)
- -------------------------------------------------------------------------------------------------------------------------------
Total net expenses 1,683,504 659,544 492,798
- -------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 7,101,069 2,173,401 1,836,205
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Security transactions (Note 3) 123,549 60,245 236,365
Futures contracts 56,742 20,026 16,689
Reimbursement from affiliate (Note 2) 16,837 5,873 5,451
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 197,128 86,144 258,505
Net change in unrealized appreciation (depreciation) on investments (5,679,188) (2,607,074) (1,886,447)
- -------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (5,482,060) (2,520,930) (1,627,942)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,619,009 $ (347,529) $ 208,263
===============================================================================================================================
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 69
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
RiverSource State Tax-Exempt Funds
MINNESOTA NEW YORK OHIO
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
YEAR ENDED JUNE 30, 2006 FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------------------------------
Income:
Interest $ 16,187,482 $ 3,559,507 $ 2,284,047
- -------------------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 1,661,816 352,633 250,961
Distribution fee
Class A 815,467 169,873 117,636
Class B 408,052 89,633 68,128
Class C 85,832 12,639 17,305
Transfer agency fee 188,098 46,110 33,678
Incremental transfer agency fee
Class A 15,682 3,782 2,670
Class B 3,955 1,049 763
Class C 1,191 230 322
Administrative services fees and expenses 243,244 49,410 34,377
Compensation of board members 10,211 8,844 8,844
Custodian fees 27,720 11,296 9,950
Printing and postage 81,555 13,990 9,125
Registration fees 39,527 39,500 38,850
Audit fees 22,500 20,000 19,500
Other 10,258 6,580 2,996
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,615,108 825,569 615,105
Expenses waived/reimbursed by the
Investment Manager and its affiliates (Note 2) (205,028) (111,449) (97,315)
- -------------------------------------------------------------------------------------------------------------------------------
3,410,080 714,120 517,790
Earnings and bank fee credits on cash balances (Note 2) (50,995) (8,318) (6,726)
- -------------------------------------------------------------------------------------------------------------------------------
Total net expenses 3,359,085 705,802 511,064
- -------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 12,828,397 2,853,705 1,772,983
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Security transactions (Note 3) (2,248,309) 499,717 31,271
Futures contracts 106,808 20,027 16,689
Reimbursement from affiliate (Note 2) 27,504 8,239 5,251
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (2,113,997) 527,983 53,211
Net change in unrealized appreciation (depreciation) on investments (10,149,663) (3,334,496) (2,047,369)
- -------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (12,263,660) (2,806,513) (1,994,158)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 564,737 $ 47,192 $ (221,175)
===============================================================================================================================
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
70 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
RiverSource State Tax-Exempt Funds
CALIFORNIA TAX-EXEMPT FUND MASSACHUSETTS TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS AND DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net $ 7,101,069 $ 7,820,739 $ 2,173,401 $ 2,366,050
Net realized gain (loss) on investments 197,128 2,843,277 86,144 522,273
Net change in unrealized appreciation (depreciation) on investments (5,679,188) 6,675,883 (2,607,074) 2,650,326
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 1,619,009 17,339,899 (347,529) 5,538,649
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (6,678,350) (7,236,425) (1,851,979) (1,880,881)
Class B (365,234) (544,611) (387,693) (449,620)
Class C (75,848) (100,096) (31,553) (35,315)
Net realized gain
Class A (2,060,962) (2,650,310) (260,911) (266,380)
Class B (141,135) (248,451) (70,980) (82,558)
Class C (28,036) (42,061) (6,115) (6,105)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (9,349,565) (10,821,954) (2,609,231) (2,720,859)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales
Class A shares (Note 2) 20,891,751 18,129,921 6,460,310 5,250,331
Class B shares 1,055,877 964,281 849,949 643,022
Class C shares 491,178 755,510 151,990 265,254
Reinvestment of distributions at net asset value
Class A shares 6,405,081 7,334,232 1,715,619 1,789,144
Class B shares 436,470 670,599 357,931 419,010
Class C shares 97,101 132,696 34,168 38,737
Payments for redemptions
Class A shares (39,268,742) (35,789,588) (14,249,579) (12,453,873)
Class B shares (Note 2) (6,518,006) (7,417,183) (6,616,572) (4,843,199)
Class C shares (Note 2) (1,394,220) (1,664,249) (687,929) (600,562)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions (17,803,510) (16,883,781) (11,984,113) (9,492,136)
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (25,534,066) (10,365,836) (14,940,873) (6,674,346)
Net assets at beginning of year 208,900,434 219,266,270 74,968,700 81,643,046
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 183,366,368 $ 208,900,434 $ 60,027,827 $ 74,968,700
====================================================================================================================================
Undistributed net investment income $ 29,431 $ 30,957 $ 2,332 $ 94,283
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 71
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
RiverSource State Tax-Exempt Funds
MICHIGAN TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS AND DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net $ 1,836,205 $ 2,102,624 $ 12,828,397 $ 13,459,781
Net realized gain (loss) on investments 258,505 545,582 (2,113,997) 1,307,808
Net change in unrealized appreciation (depreciation) on investments (1,886,447) 1,522,358 (10,149,663) 11,874,424
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 208,263 4,170,564 564,737 26,642,013
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (1,683,666) (1,891,829) (11,469,702) (11,812,371)
Class B (110,672) (159,945) (1,122,358) (1,350,479)
Class C (47,318) (50,776) (236,496) (240,632)
Net realized gain
Class A (405,309) (261,330) (630,199) (1,142,029)
Class B (33,837) (28,921) (79,986) (166,188)
Class C (15,842) (9,068) (16,239) (29,796)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2,296,644) (2,401,869) (13,554,980) (14,741,495)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales
Class A shares (Note 2) 5,292,299 5,810,522 28,475,102 40,052,864
Class B shares 131,671 294,638 1,638,107 2,238,758
Class C shares 524,009 335,521 1,632,443 2,013,530
Reinvestment of distributions at net asset value
Class A shares 1,671,150 1,756,355 9,873,223 10,737,021
Class B shares 101,482 131,427 1,007,721 1,294,698
Class C shares 55,784 53,472 221,889 234,993
Payments for redemptions
Class A shares (13,226,236) (11,580,469) (65,255,595) (66,760,048)
Class B shares (Note 2) (2,254,715) (2,230,452) (15,531,202) (15,765,912)
Class C shares (Note 2) (866,833) (559,800) (2,355,251) (2,730,362)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions (8,571,389) (5,988,786) (40,293,563) (28,684,458)
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (10,659,770) (4,220,091) (53,283,806) (16,783,940)
Net assets at beginning of year 60,592,096 64,812,187 399,058,027 415,841,967
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 49,932,326 $ 60,592,096 $ 345,774,221 $ 399,058,027
====================================================================================================================================
Undistributed net investment income $ -- $ -- $ 409,732 $ 382,387
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
72 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
RiverSource State Tax-Exempt Funds
NEW YORK TAX-EXEMPT FUND OHIO TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS AND DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net $ 2,853,705 $ 3,103,932 $ 1,772,983 $ 1,931,489
Net realized gain (loss) on investments 527,983 571,057 53,211 618,488
Net change in unrealized appreciation (depreciation) on investments (3,334,496) 2,623,197 (2,047,369) 1,820,601
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 47,192 6,298,186 (221,175) 4,370,578
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (2,553,156) (2,732,716) (1,594,779) (1,682,964)
Class B (268,752) (325,543) (178,210) (196,329)
Class C (38,050) (43,807) (45,451) (49,329)
Net realized gain
Class A (665,061) (958,527) -- --
Class B (87,026) (144,685) -- --
Class C (12,789) (18,926) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (3,624,834) (4,224,204) (1,818,440) (1,928,622)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales
Class A shares (Note 2) 7,210,267 6,562,422 4,686,479 3,342,352
Class B shares 625,727 609,622 184,460 444,801
Class C shares 237,394 300,146 111,991 251,354
Reinvestment of distributions at net asset value
Class A shares 2,653,759 3,143,127 1,201,933 1,306,745
Class B shares 287,925 374,395 140,854 152,859
Class C shares 48,248 61,961 41,682 47,057
Payments for redemptions
Class A shares (16,835,510) (17,872,425) (12,949,939) (12,063,570)
Class B shares (Note 2) (3,708,928) (5,445,727) (2,915,146) (2,673,642)
Class C shares (Note 2) (452,020) (999,298) (454,252) (755,439)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from share transactions (9,933,138) (13,265,777) (9,951,938) (9,947,483)
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (13,510,780) (11,191,795) (11,991,553) (7,505,527)
Net assets at beginning of year 84,871,676 96,063,471 61,109,221 68,614,748
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 71,360,896 $ 84,871,676 $ 49,117,668 $ 61,109,221
====================================================================================================================================
Undistributed net investment income $ 11,167 $ 9,181 $ -- $ 40,206
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 73
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
RiverSource State Tax-Exempt Funds
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource California Tax-Exempt Trust (formerly AXP California Tax-Exempt
Trust) and RiverSource Special Tax-Exempt Series Trust (formerly AXP Special
Tax-Exempt Series Trust) were organized as Massachusetts business trusts.
RiverSource California Tax-Exempt Trust includes only RiverSource California
Tax-Exempt Fund. RiverSource Special Tax-Exempt Series Trust is a "series fund"
that is currently composed of individual state tax-exempt funds, including
RiverSource Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund,
RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and
RiverSource Ohio Tax-Exempt Fund (the Funds). The Funds are non-diversified,
open-end management investment companies as defined in the Investment Company
Act of 1940 (as amended). Each Fund has unlimited authorized shares of
beneficial interest.
Each Fund's goal is to provide a high level of income generally exempt from
federal income tax as well as from the respective state and local income tax. A
portion of each Fund's assets may be invested in bonds whose interest is subject
to the alternative minimum tax computation. The Funds concentrate their
investments in a single state and therefore may have more credit risk related to
the economic conditions of the respective state than Funds that have a broader
geographical diversification.
Each Fund offers Class A, Class B and Class C shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge (CDSC)
and automatically convert to Class A shares during the ninth year of
ownership.
o Class C shares may be subject to a CDSC.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee and transfer agency fees (class specific expenses) differ
among classes. Income, expenses (other than class-specific expenses) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based upon its relative net assets.
Each Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from actual
results.
- --------------------------------------------------------------------------------
74 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
VALUATION OF SECURITIES
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sale price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
Securities for which market quotations are not readily available are valued at
fair value according to methods selected in good faith by the Board. Short-term
securities maturing in more than 60 days from the valuation date are valued at
the market price or approximate market value based on current interest rates;
those maturing in 60 days or less are valued at amortized cost.
SECURITIES PURCHASED ON A FORWARD-COMMITMENT BASIS
Delivery and payment for securities that have been purchased by the Funds on a
forward-commitment basis, including when-issued securities and other
forward-commitments, can take place one month or more after the transaction
date. During this period, such securities are subject to market fluctuations,
and they may affect each Fund's net assets the same as owned securities. The
Funds designate cash or liquid securities at least equal to the amount of its
forward-commitments. At June 30, 2006, the Funds had no outstanding
forward-commitments.
OPTION TRANSACTIONS
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Funds may buy and sell put and call options
and write covered call options on portfolio securities as well as write
cash-secured put options. The risk in writing a call option is that the Funds
give up the opportunity for profit if the market price of the security
increases. The risk in writing a put option is that the Funds may incur a loss
if the market price of the security decreases and the option is exercised. The
risk in buying an option is that the Funds pay a premium whether or not the
option is exercised. The Funds also have the additional risk of being unable to
enter into a closing transaction if a liquid secondary market does not exist.
The Funds also may write over-the-counter options where completing the
obligation depends upon the credit standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Funds
will realize a gain or loss when the option transaction expires or closes. When
options on debt securities or futures are exercised, the Funds will realize a
gain or loss. When other options are exercised, the proceeds on sales for a
written call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of the
premium received or paid.
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Funds may buy and
sell financial futures contracts. Risks of entering into futures contracts and
related options include the possibility of an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 75
- --------------------------------------------------------------------------------
Upon entering into a futures contract, the Funds are required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Funds each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Funds recognize a realized gain or loss when the contract is closed
or expires.
SWAP TRANSACTIONS
To produce incremental earnings, to gain exposure to or protect itself from
market changes, the Funds may enter into swap agreements. Swaps are an agreement
between two parties to exchange periodic cash flows based on a specified amount
of principal. The net cash flow is generally the difference between a floating
market interest rate versus a fixed interest rate. The Funds may employ swaps to
synthetically add or subtract principal exposure to the municipal market.
Risks of entering into a swap include a lack of correlation between swaps and
the portfolio of municipal bonds the swaps are designed to hedge or replicate. A
lack of correlation may cause the swap to experience adverse changes in value
relative to expectations. In addition, swaps are subject to the risk of default
of a counterparty, and the risk of adverse movements in market interest rates
relative to the swap positions entered.
Swaps are valued daily and unrealized appreciation and depreciation is recorded.
The Funds will realize a gain or a loss when the swap is terminated. The Funds
did not enter into any swap agreements for the year ended June 30, 2006.
GUARANTEES AND INDEMNIFICATIONS
Under each Fund's organizational documents, its officers and directors are
indemnified against certain liabilities arising out of the performance of their
duties to each Fund. In addition, certain of each Fund's contracts with its
service providers contain general indemnification clauses. Each Fund's maximum
exposure under these arrangements is unknown since the amount of any future
claims that may be made against each Fund cannot be determined and each Fund has
no historical basis for predicting the likelihood of any such claims.
- --------------------------------------------------------------------------------
76 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
FEDERAL TAXES
Each Fund's policy is to comply with Subchapter M of the Internal Revenue Code
that applies to regulated investment companies and to distribute substantially
all of its taxable income to shareholders. No provision for income or excise
taxes is thus required. Each Fund is treated as a separate entity for federal
income tax purposes.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred losses on
certain futures contracts and losses deferred due to "wash sale" transactions.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Funds.
On the statement of assets and liabilities, as a result of permanent book-to-tax
differences, undistributed net investment income and accumulated net realized
gain (loss) have been increased (decreased), resulting in net reclassification
adjustments to additional paid-in capital by the following:
CALIFORNIA MASSACHUSETTS MICHIGAN MINNESOTA NEW YORK OHIO
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
Undistributed net
investment income $ 16,837 $ 5,873 $ 5,451 $ 27,504 $ 8,239 $ 5,251
Accumulated net
realized gain (loss) (16,837) (5,873) (5,451) (27,271) (8,239) (5,251)
- ------------------------------------------------------------------------------------------------------------
Additional paid-in capital
reduction (increase) $ -- $ -- $ -- $ 233 $ -- $ --
- ------------------------------------------------------------------------------------------------------------
The tax character of distributions paid for the years indicated is as follows:
YEAR ENDED JUNE 30, 2006 2005
- -----------------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(a) ................... $ 6,798,475 $ 7,236,561
Long-term capital gain .................................................... 1,940,837 2,650,174
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(a) ................... 373,460 544,611
Long-term capital gain .................................................... 132,909 248,451
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(a) ................... 77,483 99,960
Long-term capital gain .................................................... 26,401 42,197
(a) Tax-exempt distributions were 98% and 98.70% for the years ended 2006 and
2005, respectively.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 77
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 2005
- -----------------------------------------------------------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(b) ................... $ 1,869,690 $ 1,880,881
Long-term capital gain .................................................... 243,200 266,380
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(b) ................... 392,511 449,620
Long-term capital gain .................................................... 66,162 82,558
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(b) ................... 31,968 35,315
Long-term capital gain .................................................... 5,700 6,105
(b) Tax-exempt distributions were 98.78% and 97.10% for the years ended 2006
and 2005, respectively.
MICHIGAN TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(c) ................... $ 1,723,762 $ 1,950,028
Long-term capital gain .................................................... 365,213 203,131
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(c) ................... 114,019 166,262
Long-term capital gain .................................................... 30,490 22,604
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt interest distributions(c) ................... 48,885 52,795
Long-term capital gain .................................................... 14,275 7,049
(c) Tax-exempt distributions were 97.36% and 95.09% for the years ended 2006
and 2005, respectively.
MINNESOTA TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt distributions(d) ............................ $ 11,469,904 $ 11,812,371
Long-term capital gain .................................................... 629,997 1,142,029
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt distributions(d) ............................ 1,122,384 1,350,479
Long-term capital gain .................................................... 79,960 166,188
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt distributions(d) ............................ 236,501 240,632
Long-term capital gain .................................................... 16,234 29,796
(d) Tax-exempt distributions were 98.25% and 100% for the years ended 2006 and
2005, respectively.
- --------------------------------------------------------------------------------
78 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006 2005
- -----------------------------------------------------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt distributions(e) ............................ $ 2,592,222 $ 2,774,686
Long-term capital gain .................................................... 625,995 916,557
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt distributions(e) ............................ 273,864 331,878
Long-term capital gain .................................................... 81,914 138,350
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt distributions(e) ............................ 38,801 44,636
Long-term capital gain .................................................... 12,038 18,097
(e) Tax-exempt distributions were 98.21% and 97.38% for the years ended 2006
and 2005, respectively.
OHIO TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income -- tax-exempt distributions(f) ............................ $ 1,594,779 $ 1,682,964
Long-term capital gain .................................................... -- --
CLASS B
Distributions paid from:
Ordinary income -- tax-exempt distributions(f) ............................ 178,210 196,329
Long-term capital gain .................................................... -- --
CLASS C
Distributions paid from:
Ordinary income -- tax-exempt distributions(f) ............................ 45,451 49,329
Long-term capital gain .................................................... -- --
(f) Tax-exempt distributions were 99.73% and 98.41% for the years ended 2006
and 2005, respectively.
At June 30, 2006, the components of distributable earnings on a tax basis for
each Fund are as follows:
ACCUMULATED UNREALIZED
UNDISTRIBUTED LONG-TERM APPRECIATION
FUND TAX-EXEMPT INCOME GAIN (LOSS) (DEPRECIATION)
- -------------------------------------------------------------------------------------
California Tax-Exempt Fund $ 97,416 $ 1,944 $3,228,685
Massachusetts Tax-Exempt Fund 23,765 20 44,581
Michigan Tax-Exempt Fund 20,722 512 235,996
Minnesota Tax-Exempt Fund 338,673 (2,155,906) 4,626,507
New York Tax-Exempt Fund 46,278 61,501 760,336
Ohio Tax-Exempt Fund 19,271 (39,505) (254,412)
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 79
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income, declared daily and paid monthly, are
reinvested in additional shares of each Fund at net asset value or payable in
cash. Capital gains, when available, are distributed along with the last income
dividend of the calendar year.
OTHER
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including amortization of premium, market discount and
original issue discount using the effective interest method, is accrued daily.
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, RiverSource Investments, LLC
(the Investment Manager) determines which securities will be purchased, held or
sold. Prior to Oct. 1, 2005, investment management services were provided by
Ameriprise Financial, Inc. (Ameriprise Financial). The management fee is a
percentage of each Fund's average daily net assets that declines from 0.41% to
0.25% annually as each Fund's assets increase. Prior March 1, 2006, the fee
percentage of each Fund's average daily net assets declined from 0.47% to 0.38%
annually as each Fund's assets increased.
Under the current Administrative Services Agreement, each Fund pays Ameriprise
Financial a fee for administration and accounting services at a percentage of
each Fund's average daily net assets that declines from 0.07% to 0.04% annually
as each Fund's assets increase. Prior to Oct. 1, 2005, the fee percentage of
each Fund's average daily net assets declined from 0.04% to 0.02% annually as
each Fund's assets increased. A minor portion of additional administrative
service expenses paid by the Funds are consultants' fees and fund office
expenses. Under this agreement, the Funds also pay taxes, audit and certain
legal fees, registration fees for shares, compensation of board members,
corporate filing fees and any other expenses properly payable by the Funds and
approved by the Board.
Under a Deferred Compensation Plan (the Plan), non-interested board members may
defer receipt of their compensation. Deferred amounts are treated as though
equivalent dollar amounts had been invested in shares of each Fund or other
RiverSource funds. Each Fund's liability for these amounts is adjusted for
market value changes and remains in each Fund until distributed in accordance
with the Plan.
Under a separate Transfer Agency Agreement, RiverSource Service Corporation (the
Transfer Agent) maintains shareholder accounts and records. Each Fund pays the
Transfer Agent an annual fee per shareholder account for this service as
follows:
o Class A $20.50
o Class B $21.50
o Class C $21.00
- --------------------------------------------------------------------------------
80 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the base fee of $18.50.
The Transfer Agent charges an annual closed account fee of $5 per inactive
account, charged on a pro rata basis for 12 months from the date the account
becomes inactive. These fees are included in the transfer agency fees on the
statement of operations.
Each Fund has agreements with Ameriprise Financial Services, Inc. (the
Distributor) for distribution and shareholder services. Under a Plan and
Agreement of Distribution pursuant to Rule 12b-1, each Fund pays a fee at an
annual rate up to 0.25% of each Fund's average daily net assets attributable to
Class A shares and up to 1.00% for Class B and Class C shares.
For the year ended June 30, 2006, the Investment Manager and its affiliates
waived certain fees and expenses as follows:
FUND CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
California Tax-Exempt Fund 0.81% 1.57% 1.58%
Massachusetts Tax-Exempt Fund 0.81 1.58 1.58
Michigan Tax-Exempt Fund 0.81 1.58 1.57
Minnesota Tax-Exempt Fund 0.81 1.57 1.57
New York Tax-Exempt Fund 0.81 1.58 1.58
Ohio Tax-Exempt Fund 0.81 1.58 1.58
Of these waived fees and expenses, the transfer agency fees waived are as
follows:
FUND AMOUNT
- ----------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND
Class A $ 58,036
Class B 3,499
Class C 850
The management fees waived at the Fund level were $67,550.
MASSACHUSETTS TAX-EXEMPT FUND
Class A 34,233
Class B 8,270
Class C 748
The management fees waived at the Fund level were $59,638.
MICHIGAN TAX-EXEMPT FUND
Class A 27,785
Class B 2,229
Class C 1,034
The management fees waived at the Fund level were $63,047.
MINNESOTA TAX-EXEMPT FUND
Class A 132,553
Class B 14,644
Class C 3,422
The management fees waived at the Fund level were $54,409.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 81
- --------------------------------------------------------------------------------
FUND AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND
Class A $ 40,263
Class B 4,927
Class C 780
The management fees waived at the Fund level were $65,479.
OHIO TAX-EXEMPT FUND
Class A 28,633
Class B 3,812
Class C 1,103
The management fees waived at the Fund level were $63,767.
Under an agreement which was effective until Sept. 30, 2005, net expenses would
not exceed 0.88% for Class A, 1.64% for Class B and 1.64% for Class C of the
Fund's average daily net assets for Massachusetts Tax-Exempt Fund, Michigan
Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt Fund. Effective as
of Oct. 1, 2005, the Investment Manager and its affiliates have agreed to waive
certain fees and expenses until June 30, 2007, unless sooner terminated at the
discretion of the Board, such that net expenses will not exceed 0.79% for Class
A, 1.55% for Class B and 1.55% for Class C of the Fund's average daily net
assets for California Tax-Exempt Fund, Massachusetts Tax-Exempt Fund, Michigan
Tax-Exempt Fund, Minnesota Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio
Tax-Exempt Fund.
Sales charges received by the Distributor for distributing the Funds' shares for
the year ended June 30, 2006, are as follows:
FUND CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund $ 151,906 $ 29,100 $ 449
Massachusetts Tax-Exempt Fund 53,101 38,137 582
Michigan Tax-Exempt Fund 38,134 9,161 1,077
Minnesota Tax-Exempt Fund 355,581 85,770 1,314
New York Tax-Exempt Fund 64,053 18,982 987
Ohio Tax-Exempt Fund 38,443 19,731 254
During the year ended June 30, 2006, the Funds' custodian and transfer agency
fees were reduced as a result of earnings and bank fee credits from overnight
cash balances as follows:
FUND REDUCTION
- -------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund $ 17,465
Massachusetts Tax-Exempt Fund 8,320
Michigan Tax-Exempt Fund 6,650
Minnesota Tax-Exempt Fund 50,995
New York Tax-Exempt Fund 8,318
Ohio Tax-Exempt Fund 6,726
- --------------------------------------------------------------------------------
82 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
In addition, the Funds received a one time reimbursement by Ameriprise Financial
for additional earnings from overnight cash balances determined to be owed for
prior years. This amount was insignificant to each Fund's net asset value and
total return.
FUND AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund $ 16,837
Massachusetts Tax-Exempt Fund 5,873
Michigan Tax-Exempt Fund 5,451
Minnesota Tax-Exempt Fund 27,504
New York Tax-Exempt Fund 8,239
Ohio Tax-Exempt Fund 5,251
3. SECURITIES TRANSACTIONS
For the year ended June 30, 2006, cost of purchases and proceeds from sales
(other than short-term obligations) aggregated for each Fund are as follows:
FUND PURCHASES PROCEEDS
- -------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund $ 37,444,049 $ 56,682,384
Massachusetts Tax-Exempt Fund 11,061,113 20,483,447
Michigan Tax-Exempt Fund 8,425,631 16,731,081
Minnesota Tax-Exempt Fund 46,848,044 94,852,979
New York Tax-Exempt Fund 12,725,196 24,426,424
Ohio Tax-Exempt Fund 9,865,820 20,218,584
Realized gains and losses are determined on an identified cost basis.
4. SHARE TRANSACTIONS
Transactions in shares for each Fund for the years indicated are as follows:
CALIFORNIA TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 4,036,004 204,267 95,008
Issued for reinvested distributions 1,243,495 84,748 18,813
Redeemed (7,590,967) (1,255,215) (269,704)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (2,311,468) (966,200) (155,883)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 3,470,204 184,660 144,458
Issued for reinvested distributions 1,403,867 128,452 25,370
Redeemed (6,850,880) (1,423,411) (317,324)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,976,809) (1,110,299) (147,496)
- -------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 83
- --------------------------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 1,209,044 159,477 28,692
Issued for reinvested distributions 322,790 67,314 6,428
Redeemed (2,681,419) (1,239,200) (129,837)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,149,585) (1,012,409) (94,717)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 973,442 118,798 49,187
Issued for reinvested distributions 330,855 77,493 7,167
Redeemed (2,306,644) (898,813) (111,173)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,002,347) (702,522) (54,819)
- -------------------------------------------------------------------------------------------------------------------------
MICHIGAN TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 1,007,240 25,135 99,433
Issued for reinvested distributions 318,908 19,353 10,644
Redeemed (2,520,700) (427,991) (165,508)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,194,552) (383,503) (55,431)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 1,092,631 55,503 63,091
Issued for reinvested distributions 329,971 24,678 10,044
Redeemed (2,177,836) (420,994) (105,325)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (755,234) (340,813) (32,190)
- -------------------------------------------------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 5,404,198 310,952 309,585
Issued for reinvested distributions 1,880,076 191,786 42,259
Redeemed (12,427,629) (2,948,175) (447,815)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (5,143,355) (2,445,437) (95,971)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 7,546,438 419,686 378,689
Issued for reinvested distributions 2,015,244 243,032 44,107
Redeemed (12,549,607) (2,978,564) (513,275)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (2,987,925) (2,315,846) (90,479)
- -------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
84 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 1,420,333 123,189 46,590
Issued for reinvested distributions 525,877 57,046 9,561
Redeemed (3,327,671) (729,908) (89,076)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,381,461) (549,673) (32,925)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 1,273,990 118,256 58,049
Issued for reinvested distributions 609,569 72,640 12,015
Redeemed (3,468,592) (1,058,818) (193,383)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,585,033) (867,922) (123,319)
- -------------------------------------------------------------------------------------------------------------------------
OHIO TAX-EXEMPT FUND
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 892,271 35,150 21,350
Issued for reinvested distributions 229,263 26,859 7,950
Redeemed (2,470,653) (554,877) (86,600)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,349,119) (492,868) (57,300)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Sold 634,596 83,991 47,441
Issued for reinvested distributions 246,552 28,844 8,876
Redeemed (2,278,127) (509,146) (142,885)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,396,979) (396,311) (86,568)
- -------------------------------------------------------------------------------------------------------------------------
5. BANK BORROWINGS
Each Fund has a revolving credit agreement with a syndicate of banks headed by
JPMorgan Chase Bank, N.A. (JPMCB), whereby each Fund may borrow for the
temporary funding of shareholder redemptions or for other temporary or emergency
purposes. The agreement went into effect Sept. 20, 2005. Each Fund must maintain
asset coverage for borrowings of at least 300%. The agreement, which enables
each Fund to participate with other RiverSource funds, permits borrowings up to
$500 million, collectively. Interest is charged to each Fund based on its
borrowings at a rate equal to either the higher of the Federal Funds Effective
Rate plus 0.40% or the JPMCB Prime Commercial Lending Rate. Borrowings are
payable within 60 days after such loan is executed. Each Fund also pays a
commitment fee equal to its pro rata share of the amount of the credit facility
at a rate of 0.07% per annum. Prior to this agreement, each Fund had a revolving
credit agreement that permitted borrowings up to $500 million with The Bank of
New York. Each Fund had no borrowings outstanding during the year ended June 30,
2006.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 85
- --------------------------------------------------------------------------------
6. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, capital loss carry-overs at June 30, 2006 are
as follows:
FUND 2013 2014 2015
- -------------------------------------------------------------------------------------------------------------------------
California Tax-Exempt Fund $ -- $ -- $ 210,187
- -------------------------------------------------------------------------------------------------------------------------
Massachusetts Tax-Exempt Fund -- -- 88,281
- -------------------------------------------------------------------------------------------------------------------------
Michigan Tax-Exempt Fund -- -- 20,334
- -------------------------------------------------------------------------------------------------------------------------
Minnesota Tax-Exempt Fund -- 1,520,753 635,153
- -------------------------------------------------------------------------------------------------------------------------
Ohio Tax-Exempt Fund 39,505 -- --
- -------------------------------------------------------------------------------------------------------------------------
It is unlikely the Board will authorize distributions of any net realized
capital gains for the Funds until the respective capital loss carry-overs have
been offset or expire.
7. INFORMATION REGARDING PENDING AND SETTLED LEGAL PROCEEDINGS
In December 2005, without admitting or denying the allegations, American Express
Financial Corporation (AEFC, which is now known as Ameriprise Financial, Inc.
(Ameriprise Financial)), the parent company of RiverSource Investments, LLC
(RiverSource Investments), entered into settlement agreements with the
Securities and Exchange Commission (SEC) and Minnesota Department of Commerce
(MDOC) related to market timing activities. In connection with these matters,
the SEC and MDOC issued orders (the Orders) alleging that AEFC violated certain
provisions of the federal and Minnesota securities laws by failing to adequately
disclose market timing activities by allowing certain identified market timers
to continue to market time contrary to disclosures in mutual fund and variable
annuity product prospectuses. The Orders also alleged that AEFC failed to
implement procedures to detect and prevent market timing in 401(k) plans for
employees of AEFC and related companies and failed to adequately disclose that
there were no such procedures. Pursuant to the MDOC Order, the MDOC also alleged
that AEFC allowed inappropriate market timing to occur by failing to have
written policies and procedures and failing to properly supervise its employees.
As a result of the Orders, AEFC was censured and ordered to cease and desist
from committing or causing any violations of certain provisions of the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and various
Minnesota laws. Pursuant to the terms of the Orders, AEFC agreed to pay
disgorgement of $10 million and civil money penalties of $7 million. AEFC also
agreed to make presentations at least annually to its board of directors and the
relevant mutual funds' board that include an overview of policies and procedures
to prevent market timing, material changes to these policies and procedures and
whether disclosures related to market timing are consistent with the SEC order
and federal securities laws. AEFC also agreed to retain an independent
distribution consultant to assist in developing a plan for distribution of all
disgorgement and civil penalties ordered by the SEC in accordance with various
undertakings detailed at http://www.sec.gov/litigation/admin/ia-2451.pdf. In
addition, AEFC agreed to complete and submit to the MDOC a compliance review of
its procedures regarding market timing within one year of the MDOC Order,
including a summary of actions taken to ensure compliance with applicable laws
and regulations and certification by a senior officer regarding compliance and
supervisory procedures.
Ameriprise Financial and its affiliates have cooperated with the SEC and the
MDOC in these legal proceedings, and have made regular reports to the
RiverSource Funds' Boards of Directors/Trustees.
- --------------------------------------------------------------------------------
86 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
Ameriprise Financial and certain of its affiliates have historically been
involved in a number of legal, arbitration and regulatory proceedings, including
routine litigation, class actions, and governmental actions, concerning matters
arising in connection with the conduct of their business activities. Ameriprise
Financial believes that the Funds are not currently the subject of, and that
neither Ameriprise Financial nor any of its affiliates are the subject of, any
pending legal, arbitration or regulatory proceedings that are likely to have a
material adverse effect on the Funds or the ability of Ameriprise Financial or
its affiliates to perform under their contracts with the Funds. Ameriprise
Financial is required to make 10-Q, 10-K and, as necessary, 8-K filings with the
Securities and Exchange Commission on legal and regulatory matters that relate
to Ameriprise Financial and its affiliates. Copies of these filings may be
obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity
associated with them, will not result in increased fund redemptions, reduced
sale of fund shares or other adverse consequences to the Funds.
8. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating
each Fund's results.
RiverSource California Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.27 $ 5.11 $ 5.37 $ 5.23 $ 5.18
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .19 .20 .21 .23 .24
Net gains (losses) (both realized and unrealized) (.15) .23 (.20) .14 .05
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .04 .43 .01 .37 .29
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.19) (.20) (.21) (.23) (.24)
Distributions from realized gains (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.27) (.27) (.23) (.24)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.06 $ 5.27 $ 5.11 $ 5.37 $ 5.23
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 171 $ 190 $ 194 $ 237 $ 234
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .81%(c) .86% .86% .85% .84%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.69% 3.71% 4.03% 4.34% 4.56%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 20% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(d) .81% 8.53% .25% 7.26% 5.66%
- ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class A would have been 0.88% for the year ended June 30, 2006.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 87
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.27 $ 5.11 $ 5.37 $ 5.23 $ 5.17
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15 .16 .17 .19 .20
Net gains (losses) (both realized and unrealized) (.15) .23 (.20) .14 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .39 (.03) .33 .26
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.15) (.16) (.17) (.19) (.20)
Distributions from realized gains (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.23) (.23) (.19) (.20)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.06 $ 5.27 $ 5.11 $ 5.37 $ 5.23
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 11 $ 16 $ 21 $ 27 $ 27
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.57%(c) 1.61% 1.61% 1.60% 1.59%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.92% 2.95% 3.28% 3.58% 3.81%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 20% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(d) .05% 7.72% (.50%) 6.44% 5.07%
- ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class B would have been 1.63% for the year ended June 30, 2006.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
88 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.28 $ 5.12 $ 5.38 $ 5.24 $ 5.18
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15 .16 .17 .19 .20
Net gains (losses) (both realized and unrealized) (.15) .23 (.20) .14 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations -- .39 (.03) .33 .26
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.15) (.16) (.17) (.19) (.20)
Distributions from realized gains (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.23) (.23) (.19) (.20)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.07 $ 5.28 $ 5.12 $ 5.38 $ 5.24
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 2 $ 3 $ 4 $ 5 $ 3
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c) 1.62% 1.62% 1.61% 1.60%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.93% 2.94% 3.27% 3.56% 3.86%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 20% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(d) .06% 7.71% (.50%) 6.43% 5.07%
- ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class C would have been 1.64% for the year ended June 30, 2006.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 89
- --------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.45 $ 5.26 $ 5.51 $ 5.37 $ 5.28
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18 .17 .18 .19 .22
Net gains (losses) (both realized and unrealized) (.20) .22 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .39 (.01) .35 .31
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.17) (.18) (.19) (.22)
Distributions from realized gains (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.20) (.24) (.21) (.22)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 48 $ 56 $ 59 $ 73 $ 66
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .81%(c) .88%(c) .88%(c) .88%(c) .91%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.38% 3.17% 3.35% 3.57% 4.11%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(d) (.29%) 7.42% (.24%) 6.73% 5.94%
- ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.97%, 0.94%, 0.93% and 0.92% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
90 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.45 $ 5.26 $ 5.51 $ 5.37 $ 5.28
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14 .13 .14 .15 .18
Net gains (losses) (both realized and unrealized) (.20) .22 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) .35 (.05) .31 .27
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.13) (.14) (.15) (.18)
Distributions from realized gains (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.16) (.20) (.17) (.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 12 $ 18 $ 21 $ 24 $ 24
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.64%(c) 1.63%(c) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.61% 2.41% 2.59% 2.81% 3.34%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(d) (1.05%) 6.61% (.99%) 5.92% 5.15%
- ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.72%, 1.69%, 1.69% and 1.68% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 91
- --------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.44 $ 5.26 $ 5.51 $ 5.37 $ 5.28
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14 .13 .14 .15 .18
Net gains (losses) (both realized and unrealized) (.20) .21 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) .34 (.05) .31 .27
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.13) (.14) (.15) (.18)
Distributions from realized gains (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.17) (.16) (.20) (.17) (.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.21 $ 5.44 $ 5.26 $ 5.51 $ 5.37
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 1 $ 1 $ 2 $ 2 $ 2
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.64%(c) 1.64%(c) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.62% 2.41% 2.58% 2.88% 3.32%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(d) (1.05%) 6.41% (.97%) 5.91% 5.16%
- ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.73%, 1.70%, 1.69% and 1.68% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
92 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18 .18 .19 .22 .24
Net gains (losses) (both realized and unrealized) (.16) .17 (.18) .19 .06
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .02 .35 .01 .41 .30
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.18) (.19) (.22) (.24)
Distributions from realized gains (.04) (.03) (.08) (.05) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.21) (.27) (.27) (.24)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 45 $ 53 $ 56 $ 70 $ 70
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .81%(c) .88%(c) .88%(c) .88%(c) .92%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.38% 3.45% 3.55% 4.06% 4.57%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 16% 9% 32% 113% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
Total return(d) .40% 6.80% .19% 8.00% 5.83%
- ----------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.98%, 0.96%, 0.94% and 0.93% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 93
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14 .14 .15 .18 .20
Net gains (losses) (both realized and unrealized) (.15) .17 (.18) .19 .06
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.01) .31 (.03) .37 .26
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.14) (.15) (.18) (.20)
Distributions from realized gains (.04) (.03) (.08) (.05) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.17) (.23) (.23) (.20)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.16 $ 5.35 $ 5.21 $ 5.47 $ 5.33
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 3 $ 5 $ 7 $ 9 $ 8
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.63%(c) 1.63%(c) 1.67%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.61% 2.69% 2.79% 3.28% 3.82%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 16% 9% 32% 113% 33%
- ------------------------------------------------------------------------------------------------------------------------------
Total return(d) (.17)% 5.99% (.56)% 7.18% 5.04%
- ------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.74%, 1.71%, 1.70% and 1.69% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
94 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14 .14 .15 .18 .20
Net gains (losses) (both realized and unrealized) (.16) .17 (.18) .19 .06
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .31 (.03) .37 .26
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.14) (.15) (.18) (.20)
Distributions from realized gains (.04) (.03) (.08) (.05) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.17) (.23) (.23) (.20)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 1 $ 2 $ 2 $ 2 $ 1
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.57%(c) 1.64%(c) 1.64%(c) 1.63%(c) 1.66%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.61% 2.70% 2.80% 3.27% 3.80%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 16% 9% 32% 113% 33%
- ------------------------------------------------------------------------------------------------------------------------------
Total return(d) (.36)% 5.99% (.57)% 7.18% 5.05%
- ------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.74%, 1.72%, 1.70% and 1.69% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 95
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .18 .18 .19 .22 .25
Net gains (losses) (both realized and unrealized) (.17) .17 (.17) .17 .06
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .35 .02 .39 .31
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.18) (.19) (.22) (.25)
Distributions from realized gains (.01) (.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.20) (.19) (.22) (.25)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 303 $ 341 $ 347 $ 393 $ 375
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .81%(c) .85% .84% .84% .83%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.52% 3.37% 3.60% 4.26% 4.82%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 13% 15% 23% 73% 36%
- ------------------------------------------------------------------------------------------------------------------------------
Total return(d) .29% 6.73% .32% 7.78% 6.15%
- ------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class A would have been 0.86% for the year ended June 30, 2006.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
96 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14 .14 .15 .18 .21
Net gains (losses) (both realized and unrealized) (.17) .17 (.17) .17 .06
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) .31 (.02) .35 .27
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.14) (.15) (.18) (.21)
Distributions from realized gains (.01) (.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.16) (.15) (.18) (.21)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 34 $ 49 $ 59 $ 68 $ 64
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.57%(c) 1.60% 1.59% 1.59% 1.59%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.75% 2.62% 2.85% 3.48% 4.02%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 13% 15% 23% 73% 36%
- ------------------------------------------------------------------------------------------------------------------------------
Total return(d) (.47%) 5.94% (.44%) 6.97% 5.36%
- ------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class B would have been 1.62% for the year ended June 30, 2006.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 97
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .14 .14 .15 .18 .21
Net gains (losses) (both realized and unrealized) (.17) .17 (.17) .17 .06
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) .31 (.02) .35 .27
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.14) (.15) (.18) (.21)
Distributions from realized gains (.01) (.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.16) (.15) (.18) (.21)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 8 $ 9 $ 9 $ 9 $ 5
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.57%(c) 1.61% 1.60% 1.60% 1.59%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.76% 2.62% 2.84% 3.44% 4.04%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 13% 15% 23% 73% 36%
- ------------------------------------------------------------------------------------------------------------------------------
Total return(d) (.47%) 5.94% (.44%) 6.96% 5.36%
- ------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratio of expenses for
Class C would have been 1.62% for the year ended June 30, 2006.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
98 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ------------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.12
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .19 .18 .18 .20 .22
Net gains (losses) (both realized and unrealized) (.18) .17 (.18) .22 .04
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .01 .35 -- .42 .26
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.19) (.18) (.18) (.20) (.22)
Distributions from realized gains (.05) (.06) (.11) (.02) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.24) (.29) (.22) (.22)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 63 $ 73 $ 79 $ 97 $ 92
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .81%(c) .88%(c) .88%(c) .88%(c) .90%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.75% 3.47% 3.44% 3.88% 4.38%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 30% 36% 91% 44%
- ------------------------------------------------------------------------------------------------------------------------------
Total return(d) .20% 7.04% (.02%) 8.43% 5.26%
- ------------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.96%, 0.92%, 0.93% and 0.90% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 99
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.12
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15 .14 .14 .16 .19
Net gains (losses) (both realized and unrealized) (.18) .17 (.18) .22 .04
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) .31 (.04) .38 .23
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.15) (.14) (.14) (.16) (.19)
Distributions from realized gains (.05) (.06) (.11) (.02) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.20) (.25) (.18) (.19)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 8 $ 11 $ 15 $ 18 $ 18
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.63%(c) 1.63%(c) 1.65%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.98% 2.70% 2.69% 3.13% 3.60%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 30% 36% 91% 44%
- -----------------------------------------------------------------------------------------------------------------------------
Total return(d) (.55%) 6.23% (.78%) 7.61% 4.48%
- -----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.71%, 1.67%, 1.69% and 1.66% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
100 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.11
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .15 .14 .14 .16 .19
Net gains (losses) (both realized and unrealized) (.18) .17 (.18) .22 .05
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.03) .31 (.04) .38 .24
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.15) (.14) (.14) (.16) (.19)
Distributions from realized gains (.05) (.06) (.11) (.02) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.20) (.25) (.18) (.19)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 1 $ 1 $ 2 $ 2 $ 1
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.63%(c) 1.64%(c) 1.66%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.99% 2.70% 2.68% 3.07% 3.69%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 17% 30% 36% 91% 44%
- -----------------------------------------------------------------------------------------------------------------------------
Total return(d) (.55%) 6.23% (.78%) 7.60% 4.68%
- -----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.72%, 1.68%, 1.69% and 1.66% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 101
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.16 $ 5.43 $ 5.35 $ 5.27
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .17 .16 .17 .18 .22
Net gains (losses) (both realized and unrealized) (.19) .19 (.20) .19 .08
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.02) .35 (.03) .37 .30
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.16) (.17) (.18) (.22)
Distributions from realized gains -- -- (.07) (.11) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.16) (.24) (.29) (.22)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.35
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 42 $ 51 $ 56 $ 67 $ 69
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) .81%(c) .88%(c) .88%(c) .88%(c) .91%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 3.31% 3.07% 3.13% 3.40% 4.22%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 18% 33% 17% 194% 33%
- -----------------------------------------------------------------------------------------------------------------------------
Total return(d) (.41%) 6.90% (.67%) 7.08% 5.87%
- -----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class A would have been 0.99%, 0.95%, 0.95% and 0.92% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
102 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.16 $ 5.43 $ 5.34 $ 5.27
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .13 .12 .13 .14 .18
Net gains (losses) (both realized and unrealized) (.19) .19 (.20) .20 .07
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.06) .31 (.07) .34 .25
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.12) (.13) (.14) (.18)
Distributions from realized gains -- -- (.07) (.11) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.12) (.20) (.25) (.18)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.34
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 5 $ 8 $ 10 $ 13 $ 12
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.63%(c) 1.63%(c) 1.66%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.54% 2.31% 2.38% 2.62% 3.46%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 18% 33% 17% 194% 33%
- -----------------------------------------------------------------------------------------------------------------------------
Total return(d) (1.17%) 6.10% (1.43%) 6.47% 4.89%
- -----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class B would have been 1.74%, 1.70%, 1.71% and 1.68% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 103
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal period ended June 30, 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.35 $ 5.16 $ 5.43 $ 5.35 $ 5.28
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .13 .12 .13 .14 .18
Net gains (losses) (both realized and unrealized) (.18) .19 (.20) .19 .07
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.05) .31 (.07) .33 .25
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.12) (.13) (.14) (.18)
Distributions from realized gains -- -- (.07) (.11) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.14) (.12) (.20) (.25) (.18)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.16 $ 5.35 $ 5.16 $ 5.43 $ 5.35
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 2 $ 2 $ 2 $ 3 $ 1
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average daily net assets(b) 1.58%(c) 1.64%(c) 1.63%(c) 1.63%(c) 1.66%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets 2.55% 2.31% 2.38% 2.54% 3.45%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (excluding short-term securities) 18% 33% 17% 194% 33%
- -----------------------------------------------------------------------------------------------------------------------------
Total return(d) (.98%) 6.10% (1.44%) 6.26% 4.89%
- -----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(c) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses for
Class C would have been 1.75%, 1.71%, 1.71% and 1.68% for the years ended
June 30, 2006, 2005, 2004 and 2003, respectively.
(d) Total return does not reflect payment of a sales charge.
- --------------------------------------------------------------------------------
104 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD AND SHAREHOLDERS
RIVERSOURCE CALIFORNIA TAX-EXEMPT TRUST
RIVERSOURCE SPECIAL TAX-EXEMPT SERIES TRUST
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments in securities, of RiverSource California Tax-Exempt
Fund (a fund within RiverSource California Tax-Exempt Trust) and RiverSource
Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource
Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund and RiverSource
Ohio Tax-Exempt Fund (funds within RiverSource Special Tax-Exempt Series Trust)
as of June 30, 2006, the related statements of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period ended June 30, 2006, and the financial highlights for each of
the years in the five-year period ended June 30, 2006. These financial
statements and the financial highlights are the responsibility of fund
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2006, by correspondence with the custodian and
brokers or by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
RiverSource California Tax-Exempt Fund, RiverSource Massachusetts Tax-Exempt
Fund, RiverSource Michigan Tax-Exempt Fund, RiverSource Minnesota Tax-Exempt
Fund, RiverSource New York Tax-Exempt Fund and RiverSource Ohio Tax-Exempt Fund
as of June 30, 2006, and the results of their operations, changes in their net
assets and the financial highlights for each of the periods stated in the first
paragraph above, in conformity with U.S. generally accepted accounting
principles.
KPMG LLP
Minneapolis, Minnesota
August 21, 2006
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 105
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION
(UNAUDITED)
Each Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its fiscal
year. The dividends listed below are reported to you on your year-end statement.
RiverSource California Tax-Exempt Fund
Fiscal year ended June 30, 2006
CLASS A
INCOME DISTRIBUTIONS -- 98% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01471
Aug. 29, 2005 ..................................................... 0.01659
Sept. 29, 2005 .................................................... 0.01565
Oct. 27, 2005 ..................................................... 0.01450
Nov. 29, 2005 ..................................................... 0.01733
Dec. 22, 2005 ..................................................... 0.01563
Jan. 26, 2006 ..................................................... 0.01830
Feb. 27, 2006 ..................................................... 0.01679
March 27, 2006 .................................................... 0.01478
April 26, 2006 .................................................... 0.01596
May 25, 2006 ...................................................... 0.01549
June 26, 2006 ..................................................... 0.01766
Total ............................................................. $ 0.19339
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.05671
Total distributions ............................................... $ 0.25010
CLASS B
INCOME DISTRIBUTIONS -- 98% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01156
Aug. 29, 2005 ..................................................... 0.01303
Sept. 29, 2005 .................................................... 0.01226
Oct. 27, 2005 ..................................................... 0.01157
Nov. 29, 2005 ..................................................... 0.01378
Dec. 22, 2005 ..................................................... 0.01314
Jan. 26, 2006 ..................................................... 0.01452
Feb. 27, 2006 ..................................................... 0.01336
March 27, 2006 .................................................... 0.01177
April 26, 2006 .................................................... 0.01276
May 25, 2006 ...................................................... 0.01241
June 26, 2006 ..................................................... 0.01425
Total ............................................................. $ 0.15441
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.05671
Total distributions ............................................... $ 0.21112
- --------------------------------------------------------------------------------
106 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS C
INCOME DISTRIBUTIONS -- 98% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01155
Aug. 29, 2005 ..................................................... 0.01311
Sept. 29, 2005 .................................................... 0.01226
Oct. 27, 2005 ..................................................... 0.01159
Nov. 29, 2005 ..................................................... 0.01381
Dec. 22, 2005 ..................................................... 0.01311
Jan. 26, 2006 ..................................................... 0.01458
Feb. 27, 2006 ..................................................... 0.01332
March 27, 2006 .................................................... 0.01179
April 26, 2006 .................................................... 0.01278
May 25, 2006 ...................................................... 0.01244
June 26, 2006 ..................................................... 0.01427
Total ............................................................. $ 0.15461
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.05671
Total distributions ............................................... $ 0.21132
SOURCE OF DISTRIBUTIONS
For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50%
of its assets in tax-exempt obligations at the end of each fiscal quarter.
FEDERAL TAXATION
Tax-exempt distributions are exempt from federal income taxes and should not be
included in shareholders' gross income. The income from this Fund is subject to
the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was
7.43%.
OTHER TAXATION
Tax-exempt distributions may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for state
and local tax purposes.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 107
- --------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
Fiscal year ended June 30, 2006
CLASS A
INCOME DISTRIBUTIONS -- 98.78% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01369
Aug. 29, 2005 ..................................................... 0.01984
Sept. 29, 2005 .................................................... 0.01677
Oct. 27, 2005 ..................................................... 0.01360
Nov. 29, 2005 ..................................................... 0.01644
Dec. 22, 2005 ..................................................... 0.01320
Jan. 26, 2006 ..................................................... 0.01751
Feb. 27, 2006 ..................................................... 0.01593
March 27, 2006 .................................................... 0.01400
April 26, 2006 .................................................... 0.01526
May 25, 2006 ...................................................... 0.01460
June 26, 2006 ..................................................... 0.01691
Total ............................................................. $ 0.18775
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.02458
Total distributions ............................................... $ 0.21233
CLASS B
INCOME DISTRIBUTIONs -- 98.78% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01042
Aug. 29, 2005 ..................................................... 0.01620
Sept. 29, 2005 .................................................... 0.01328
Oct. 27, 2005 ..................................................... 0.01060
Nov. 29, 2005 ..................................................... 0.01279
Dec. 22, 2005 ..................................................... 0.01051
Jan. 26, 2006 ..................................................... 0.01362
Feb. 27, 2006 ..................................................... 0.01238
March 27, 2006 .................................................... 0.01091
April 26, 2006 .................................................... 0.01197
May 25, 2006 ...................................................... 0.01142
June 26, 2006 ..................................................... 0.01340
Total ............................................................. $ 0.14750
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.02458
Total distributions ............................................... $ 0.17208
- --------------------------------------------------------------------------------
108 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS C
INCOME DISTRIBUTIONS -- 98.78% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01042
Aug. 29, 2005 ..................................................... 0.01626
Sept. 29, 2005 .................................................... 0.01327
Oct. 27, 2005 ..................................................... 0.01059
Nov. 29, 2005 ..................................................... 0.01280
Dec. 22, 2005 ..................................................... 0.01055
Jan. 26, 2006 ..................................................... 0.01362
Feb. 27, 2006 ..................................................... 0.01239
March 27, 2006 .................................................... 0.01092
April 26, 2006 .................................................... 0.01196
May 25, 2006 ...................................................... 0.01143
June 26, 2006 ..................................................... 0.01340
Total ............................................................. $ 0.14761
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.02458
Total distributions ............................................... $ 0.17219
SOURCE OF DISTRIBUTIONS
For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50%
of its assets in tax-exempt obligations at the end of each fiscal quarter.
FEDERAL TAXATION
Tax-exempt distributions are exempt from federal income taxes and should not be
included in shareholders' gross income. The income from this Fund is subject to
the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was
2.05%.
OTHER TAXATION
Tax-exempt distributions may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for state
and local tax purposes.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 109
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
Fiscal year ended June 30, 2006
CLASS A
INCOME DISTRIBUTIONS -- 97.36% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01398
Aug. 29, 2005 ..................................................... 0.01562
Sept. 29, 2005 .................................................... 0.01498
Oct. 27, 2005 ..................................................... 0.01356
Nov. 29, 2005 ..................................................... 0.01606
Dec. 22, 2005 ..................................................... 0.01529
Jan. 26, 2006 ..................................................... 0.01702
Feb. 27, 2006 ..................................................... 0.01545
March 27, 2006 .................................................... 0.01364
April 26, 2006 .................................................... 0.01481
May 25, 2006 ...................................................... 0.01413
June 26, 2006 ..................................................... 0.01619
Total ............................................................. $ 0.18073
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.03862
Total distributions ............................................... $ 0.21935
CLASS B
INCOME DISTRIBUTIONS -- 97.36% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01077
Aug. 29, 2005 ..................................................... 0.01203
Sept. 29, 2005 .................................................... 0.01155
Oct. 27, 2005 ..................................................... 0.01059
Nov. 29, 2005 ..................................................... 0.01246
Dec. 22, 2005 ..................................................... 0.01278
Jan. 26, 2006 ..................................................... 0.01320
Feb. 27, 2006 ..................................................... 0.01196
March 27, 2006 .................................................... 0.01058
April 26, 2006 .................................................... 0.01156
May 25, 2006 ...................................................... 0.01101
June 26, 2006 ..................................................... 0.01274
Total ............................................................. $ 0.14123
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.03862
Total distributions ............................................... $ 0.17985
- --------------------------------------------------------------------------------
110 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS C
INCOME DISTRIBUTIONS -- 97.36% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01074
Aug. 29, 2005 ..................................................... 0.01208
Sept. 29, 2005 .................................................... 0.01153
Oct. 27, 2005 ..................................................... 0.01060
Nov. 29, 2005 ..................................................... 0.01243
Dec. 22, 2005 ..................................................... 0.01277
Jan. 26, 2006 ..................................................... 0.01319
Feb. 27, 2006 ..................................................... 0.01196
March 27, 2006 .................................................... 0.01058
April 26, 2006 .................................................... 0.01155
May 25, 2006 ...................................................... 0.01101
June 26, 2006 ..................................................... 0.01274
Total ............................................................. $ 0.14118
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 ..................................................... $ 0.03862
Total distributions ............................................... $ 0.17980
SOURCE OF DISTRIBUTIONS
For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50%
of its assets in tax-exempt obligations at the end of each fiscal quarter.
FEDERAL TAXATION
Tax-exempt distributions are exempt from federal income taxes and should not be
included in shareholders' gross income. The income from this Fund is subject to
the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was 0%.
OTHER TAXATION
Tax-exempt distributions may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for state
and local tax purposes.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 111
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
Fiscal year ended June 30, 2006
CLASS A
INCOME DISTRIBUTIONS -- 98.25% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01432
Aug. 29, 2005 ..................................................... 0.01548
Sept. 29, 2005 .................................................... 0.01600
Oct. 27, 2005 ..................................................... 0.01414
Nov. 29, 2005 ..................................................... 0.01683
Dec. 22, 2005 ..................................................... 0.01156
Jan. 26, 2006 ..................................................... 0.01756
Feb. 27, 2006 ..................................................... 0.01611
March 27, 2006 .................................................... 0.01399
April 26, 2006 .................................................... 0.01528
May 25, 2006 ...................................................... 0.01509
June 26, 2006 ..................................................... 0.01716
Total ............................................................. $ 0.18352
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2006 ..................................................... $ 0.01019
Total distributions ............................................... $ 0.19371
CLASS B
INCOME DISTRIBUTIONS -- 98.25% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01112
Aug. 29, 2005 ..................................................... 0.01193
Sept. 29, 2005 .................................................... 0.01259
Oct. 27, 2005 ..................................................... 0.01118
Nov. 29, 2005 ..................................................... 0.01323
Dec. 22, 2005 ..................................................... 0.00905
Jan. 26, 2006 ..................................................... 0.01372
Feb. 27, 2006 ..................................................... 0.01259
March 27, 2006 .................................................... 0.01092
April 26, 2006 .................................................... 0.01202
May 25, 2006 ...................................................... 0.01195
June 26, 2006 ..................................................... 0.01369
Total ............................................................. $ 0.14399
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2006 ..................................................... $ 0.01019
Total distributions ............................................... $ 0.15418
- --------------------------------------------------------------------------------
112 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS C
INCOME DISTRIBUTIONS -- 98.25% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 ..................................................... $ 0.01087
Aug. 29, 2005 ..................................................... 0.01195
Sept. 29, 2005 .................................................... 0.01257
Oct. 27, 2005 ..................................................... 0.01118
Nov. 29, 2005 ..................................................... 0.01323
Dec. 22, 2005 ..................................................... 0.00905
Jan. 26, 2006 ..................................................... 0.01372
Feb. 27, 2006 ..................................................... 0.01260
March 27, 2006 .................................................... 0.01092
April 26, 2006 .................................................... 0.01202
May 25, 2006 ...................................................... 0.01195
June 26, 2006 ..................................................... 0.01369
Total ............................................................. $ 0.14375
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2006 ..................................................... $ 0.01019
Total distributions ............................................... $ 0.15394
SOURCE OF DISTRIBUTIONS
For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50%
of its assets in tax-exempt obligations at the end of each fiscal quarter.
FEDERAL TAXATION
Tax-exempt distributions are exempt from federal income taxes and should not be
included in shareholders' gross income. The income from this Fund is subject to
the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was
6.14%.
OTHER TAXATION
Tax-exempt distributions may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for state
and local tax purposes.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 113
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
Fiscal year ended June 30, 2006
CLASS A
INCOME DISTRIBUTIONS -- 98.21% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 .................................................... $ 0.01506
Aug. 29, 2005 .................................................... 0.01647
Sept. 29, 2005 ................................................... 0.01579
Oct. 27, 2005 .................................................... 0.01451
Nov. 29, 2005 .................................................... 0.01727
Dec. 22, 2005 .................................................... 0.01525
Jan. 26, 2006 .................................................... 0.01827
Feb. 27, 2006 .................................................... 0.01658
March 27, 2006 ................................................... 0.01462
April 26, 2006 ................................................... 0.01572
May 25, 2006 ..................................................... 0.01487
June 26, 2006 .................................................... 0.01729
Total ............................................................ $ 0.19170
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 .................................................... $ 0.04663
Total distributions .............................................. $ 0.23833
CLASS B
INCOME DISTRIBUTIONS -- 98.21% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 .................................................... $ 0.01195
Aug. 29, 2005 .................................................... 0.01334
Sept. 29, 2005 ................................................... 0.01238
Oct. 27, 2005 .................................................... 0.01154
Nov. 29, 2005 .................................................... 0.01394
Dec. 22, 2005 .................................................... 0.01282
Jan. 26, 2006 .................................................... 0.01459
Feb. 27, 2006 .................................................... 0.01321
March 27, 2006 ................................................... 0.01168
April 26, 2006 ................................................... 0.01259
May 25, 2006 ..................................................... 0.01187
June 26, 2006 .................................................... 0.01397
Total ............................................................ $ 0.15388
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 .................................................... $ 0.04663
Total distributions .............................................. $ 0.20051
- --------------------------------------------------------------------------------
114 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS C
INCOME DISTRIBUTIONS -- 98.21% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 .................................................... $ 0.01195
Aug. 29, 2005 .................................................... 0.01348
Sept. 29, 2005 ................................................... 0.01248
Oct. 27, 2005 .................................................... 0.01154
Nov. 29, 2005 .................................................... 0.01394
Dec. 22, 2005 .................................................... 0.01283
Jan. 26, 2006 .................................................... 0.01459
Feb. 27, 2006 .................................................... 0.01321
March 27, 2006 ................................................... 0.01168
April 26, 2006 ................................................... 0.01260
May 25, 2006 ..................................................... 0.01187
June 26, 2006 .................................................... 0.01398
Total ............................................................ $ 0.15415
CAPITAL GAIN DISTRIBUTION -- taxable as long-term capital gain.
PAYABLE DATE PER SHARE
Dec. 22, 2005 .................................................... $ 0.04663
Total distributions .............................................. $ 0.20078
SOURCE OF DISTRIBUTIONS
For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50%
of its assets in tax-exempt obligations at the end of each fiscal quarter.
FEDERAL TAXATION
Tax-exempt distributions are exempt from federal income taxes and should not be
included in shareholders' gross income. The income from this Fund is subject to
the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was
3.98%.
OTHER TAXATION
Tax-exempt distributions may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for state
and local tax purposes.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 115
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
Fiscal year ended June 30, 2006
CLASS A
INCOME DISTRIBUTIONS -- 99.73% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 .................................................... $ 0.01302
Aug. 29, 2005 .................................................... 0.01516
Sept. 29, 2005 ................................................... 0.01704
Oct. 27, 2005 .................................................... 0.01351
Nov. 29, 2005 .................................................... 0.01587
Dec. 22, 2005 .................................................... 0.01093
Jan. 26, 2006 .................................................... 0.01704
Feb. 27, 2006 .................................................... 0.01534
March 27, 2006 ................................................... 0.01350
April 26, 2006 ................................................... 0.01475
May 25, 2006 ..................................................... 0.01409
June 26, 2006 .................................................... 0.01616
Total ............................................................ $ 0.17641
CLASS B
INCOME DISTRIBUTIONs -- 99.73% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 .................................................... $ 0.00981
Aug. 29, 2005 .................................................... 0.01159
Sept. 29, 2005 ................................................... 0.01350
Oct. 27, 2005 .................................................... 0.01045
Nov. 29, 2005 .................................................... 0.01218
Dec. 22, 2005 .................................................... 0.00842
Jan. 26, 2006 .................................................... 0.01321
Feb. 27, 2006 .................................................... 0.01183
March 27, 2006 ................................................... 0.01043
April 26, 2006 ................................................... 0.01149
May 25, 2006 ..................................................... 0.01096
June 26, 2006 .................................................... 0.01269
Total ............................................................ $ 0.13656
- --------------------------------------------------------------------------------
116 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
CLASS C
INCOME DISTRIBUTIONS -- 99.73% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2005 .................................................... $ 0.00980
Aug. 29, 2005 .................................................... 0.01163
Sept. 29, 2005 ................................................... 0.01351
Oct. 27, 2005 .................................................... 0.01056
Nov. 29, 2005 .................................................... 0.01217
Dec. 22, 2005 .................................................... 0.00843
Jan. 26, 2006 .................................................... 0.01321
Feb. 27, 2006 .................................................... 0.01185
March 27, 2006 ................................................... 0.01044
April 26, 2006 ................................................... 0.01149
May 25, 2006 ..................................................... 0.01096
June 26, 2006 .................................................... 0.01271
Total ............................................................ $ 0.13676
SOURCE OF DISTRIBUTIONS
For dividends paid by the Fund to be tax-exempt, the Fund must have at least 50%
of its assets in tax-exempt obligations at the end of each fiscal quarter.
FEDERAL TAXATION
Tax-exempt distributions are exempt from federal income taxes and should not be
included in shareholders' gross income. The income from this Fund is subject to
the alternative minimum tax (AMT). The AMT percentage at June 30, 2006 was
1.99%.
OTHER TAXATION
Tax-exempt distributions may be subject to state and local taxes. Each
shareholder should consult a tax advisor about reporting this income for state
and local tax purposes.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 117
- --------------------------------------------------------------------------------
FUND EXPENSE EXAMPLES
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including management fees; distribution and service (12b-1) fees; and
other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in each Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the beginning of
the period and held for the six months ended June 30, 2006.
ACTUAL EXPENSES
The first line of each table provides information about actual account values
and actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading titled "Expenses paid during the period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of each table provides information about hypothetical account
values and hypothetical expenses based on each Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare each 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in each table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of each table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
- --------------------------------------------------------------------------------
118 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO
- -----------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 1,001.30 $ 3.94(c) .79%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79%
- -----------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 997.50 $ 7.72(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 997.50 $ 7.72(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended June 30, 2006: +0.13%
for Class A, -0.25% for Class B and -0.25% for Class C.
(c) On Feb. 15, 2006, shareholders approved a change to the Investment
Management Services Agreement. If this change had been in place for the
entire six-month period ended June 30, 2006, the actual and hypothetical
expenses paid would have been the same as those presented in the table
above.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 119
- --------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO
- -----------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 998.50 $ 3.94(c) .79%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79%
- -----------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 994.70 $ 7.71(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 992.80 $ 7.70(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended June 30, 2006: -0.15%
for Class A, -0.53% for Class B and -0.72% for Class C.
(c) On Feb. 15, 2006, shareholders approved a change to the Investment
Management Services Agreement. If this change had been in place for the
entire six-month period ended June 30, 2006, the actual and hypothetical
expenses paid would have been the same as those presented in the table
above.
- --------------------------------------------------------------------------------
120 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO
- -----------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 999.80 $ 3.94(c) .79%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79%
- -----------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 998.00 $ 7.72(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 996.00 $ 7.71(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended June 30, 2006: -0.02%
for Class A, -0.20% for Class B and -0.40% for Class C.
(c) On Feb. 15, 2006, shareholders approved a change to the Investment
Management Services Agreement. If this change had been in place for the
entire six-month period ended June 30, 2006, the actual and hypothetical
expenses paid would have been the same as those presented in the table
above.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 121
- --------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO
- -----------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 1,000.60 $ 3.94(c) .79%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79%
- -----------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 994.90 $ 7.71(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 994.90 $ 7.71(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended June 30, 2006: +0.06%
for Class A, -0.51% for Class B and -0.51% for Class C.
(c) On Feb. 15, 2006, shareholders approved a change to the Investment
Management Services Agreement. If this change had been in place for the
entire six-month period ended June 30, 2006, the actual and hypothetical
expenses paid would have been the same as those presented in the table
above.
- --------------------------------------------------------------------------------
122 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO
- -----------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 1,001.00 $ 3.94(c) .79%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.99 $ 3.98(c) .79%
- -----------------------------------------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 997.20 $ 7.72(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------------------------------------
Actual(b) $ 1,000 $ 997.20 $ 7.72(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.20 $ 7.80(c) 1.55%
- -----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended June 30, 2006: +0.10%
for Class A, -0.28% for Class B and -0.28% for Class C.
(c) On Feb. 15, 2006, shareholders approved a change to the Investment
Management Services Agreement. If this change had been in place for the
entire six-month period ended June 30, 2006, the actual and hypothetical
expenses paid would have been the same as those presented in the table
above.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 123
- --------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
JAN. 1, 2006 JUNE 30, 2006 THE PERIOD(a) EXPENSE RATIO
- ----------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 997.80 $3.93(c) .79%
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.99 $3.98(c) .79%
- ----------------------------------------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 994.00 $7.71(c) 1.55%
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.20 $7.80(c) 1.55%
- ----------------------------------------------------------------------------------------------------------
Class C
- ----------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $ 994.10 $7.71(c) 1.55%
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.20 $7.80(c) 1.55%
- ----------------------------------------------------------------------------------------------------------
(a) Expenses are equal to the Fund's annualized expense ratio as indicated
above, multiplied by the average account value over the period, multiplied
by 182/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended June 30, 2006: -0.22%
for Class A, -0.60% for Class B and -0.59% for Class C.
(c) On Feb. 15, 2006, shareholders approved a change to the Investment
Management Services Agreement. If this change had been in place for the
entire six-month period ended June 30, 2006, the actual and hypothetical
expenses paid would have been the same as those presented in the table
above.
- --------------------------------------------------------------------------------
124 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
BOARD MEMBERS AND OFFICERS
Shareholders elect a Board that oversees the Fund's operations. The Board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the Board.
The following is a list of the Fund's Board members. Each member oversees 99
RiverSource funds. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the Board. Under the current Board policy, members may serve until the end of
the meeting following their 75th birthday, or the fifteenth anniversary of the
first Board meeting they attended as members of the Board, whichever occurs
first. This policy does not apply to Ms. Jones who may retire after her 75th
birthday.
INDEPENDENT BOARD MEMBERS
NAME POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------------------------------------
Kathleen Blatz Board member Chief Justice, Minnesota Supreme Court, 1998-2005
901 S. Marquette Ave. since 2006
Minneapolis, MN 55402
Age 52
- -----------------------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member Chair, Board Services Corporation (provides
901 S. Marquette Ave. since 1999 administrative services to boards); former Governor of
Minneapolis, MN 55402 Minnesota
Age 71
- -----------------------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and Management, Bentley
901 S. Marquette Ave. since 2004 College; former Dean, McCallum Graduate School of
Minneapolis, MN 55402 Business, Bentley College
Age 55
- -----------------------------------------------------------------------------------------------------------------------------------
Anne P. Jones Board member Attorney and Consultant
901 S. Marquette Ave. since 1985
Minneapolis, MN 55402
Age 71
- -----------------------------------------------------------------------------------------------------------------------------------
Jeffrey Laikind Board member Former Managing Director, Shikiar Asset Management American
901 S. Marquette Ave. since 2005 Progressive
Minneapolis, MN 55402 Insurance
Age 70
- -----------------------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Professor of Economics, Valmont Industries,
901 S. Marquette Ave. since 2002 Carleton College Inc. (manufactures
Minneapolis, MN 55402 irrigation systems)
Age 67
- -----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 125
- --------------------------------------------------------------------------------
INDEPENDENT BOARD MEMBERS (CONTINUED)
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------------------------------------
Catherine James Paglia Board member since 2004 Director, Enterprise Asset Management, Inc. (private Strategic
901 S. Marquette Ave. real estate and asset management company) Distribution, Inc.
Minneapolis, MN 55402 (transportation,
Age 53 distribution and
logistics
consultants)
- -----------------------------------------------------------------------------------------------------------------------------------
Vikki L. Pryor Board member since 2006 President and Chief Executive Officer, SBLI USA Mutual
901 S. Marquette Ave. Life Insurance Company, Inc. since 1999
Minneapolis, MN 55402
Age 53
- -----------------------------------------------------------------------------------------------------------------------------------
Alan K. Simpson Board member since 1997 Former three-term United States Senator for Wyoming
1201 Sunshine Ave.
Cody, WY 82414
Age 74
- -----------------------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member since 2002 Chief Executive Officer, RiboNovix, Inc. since 2003 Hybridon, Inc.
901 S. Marquette Ave. (biotechnology); former President, Forester Biotech (biotechnology);
Minneapolis, MN 55402 American
Age 62 Healthways, Inc.
(health management
programs)
- -----------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER AFFILIATED WITH RIVERSOURCE INVESTMENTS*
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION OTHER
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS DIRECTORSHIPS
- -----------------------------------------------------------------------------------------------------------------------------------
William F. Truscott** Board member President, Ameriprise Certificate Company since 2006;
53600 Ameriprise Financial since 2001, President - U.S. Asset Management and Chief Investment
Center Vice President Officer, Ameriprise Financial, Inc. and President,
Minneapolis, MN 55474 since 2002, Chairman of the Board and Chief Investment Officer,
Age 45 Acting President RiverSource Investments, LLC since 2005; Senior Vice
since 2006 President - Chief Investment Officer, Ameriprise
Financial, Inc. and Chairman of the Board and Chief
Investment Officer, RiverSource Investments, LLC,
2001-2005
- -----------------------------------------------------------------------------------------------------------------------------------
* Interested person by reason of being an officer, director, security holder
and/or employee of RiverSource Investments.
** Paula R. Meyer resigned her position as President for the RiverSource
funds. Mr. Truscott has been appointed Acting President and will be
assuming the responsibilities of President until a permanent replacement
for Ms. Meyer is found.
- --------------------------------------------------------------------------------
126 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
The Board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Mr. Truscott, who is Vice President, the
Fund's other officers are:
FUND OFFICERS
NAME, POSITION HELD
ADDRESS, WITH FUND AND PRINCIPAL OCCUPATION
AGE LENGTH OF SERVICE DURING PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
Jeffrey P. Fox Treasurer Vice President - Investment Accounting, Ameriprise Financial, Inc., since
105 Ameriprise Financial Center since 2002 2002; Vice President - Finance, American Express Company, 2000-2002
Minneapolis, MN 55474
Age 51
- -----------------------------------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed Income, Ameriprise Financial,
172 Ameriprise Financial Center since 2004 Inc. and RiverSource Investments, LLC since 2006; Vice President -
Minneapolis, MN 55474 Investments, Ameriprise Certificate Company since 2003; Senior Vice
Age 42 President - Fixed Income, Ameriprise Financial, Inc., 2002-2006 and
RiverSource Investments, LLC, 2004-2006; Managing Director, Zurich Global
Assets, 2001-2002
- -----------------------------------------------------------------------------------------------------------------------------------
Leslie L. Ogg Vice President, President of Board Services Corporation
901 S. Marquette Ave. General Counsel,
Minneapolis, MN 55402 and Secretary
Age 67 since 1978
- -----------------------------------------------------------------------------------------------------------------------------------
Edward S. Dryden* Acting Chief Chief Compliance Officer, Ameriprise Certificate Company since 2006; Vice
1875 Ameriprise Financial Center Compliance Officer President - Asset Management Compliance, RiverSource Investments, LLC since
Minneapolis, MN 55474 since 2006 2006; Chief Compliance Officer - Mason Street Advisors, LLC, 2002-2006
Age 41
- -----------------------------------------------------------------------------------------------------------------------------------
Neysa M. Alecu Anti-Money Compliance Director and Anti-Money Laundering Officer, Ameriprise Financial,
2934 Ameriprise Financial Center Laundering Officer Inc. since 2004; Manager Anti-Money Laundering, Ameriprise Financial, Inc.,
Minneapolis, MN 55474 since 2004 2003-2004; Compliance Director and Bank Secrecy Act Officer, American
Age 42 Express Centurion Bank, 2000-2003
- -----------------------------------------------------------------------------------------------------------------------------------
* Beth E. Weimer resigned her position as Chief Compliance Officer for the
RiverSource funds. Mr. Dryden has been appointed Acting Chief Compliance
Officer and will be assuming the responsibilities of Chief Compliance
Officer until a permanent replacement for Ms. Weimer is found.
The SAI has additional information about the Fund's directors and is available,
without charge, upon request by calling RiverSource Funds at (888) 791-3380;
contacting your financial institution; or visiting www.riversource.com/funds.
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 127
- --------------------------------------------------------------------------------
APPROVAL OF INVESTMENT MANAGEMENT SERVICES AGREEMENT
During the period covered by this report, RiverSource Investments, LLC
("RiverSource Investments" or the "investment manager"), a wholly-owned
subsidiary of Ameriprise Financial, Inc. ("Ameriprise Financial"), served as the
investment manager to RiverSource funds under an Investment Management Services
Agreement ("IMS Agreement").
The Board of Directors (the "Board") annually determines whether to continue the
IMS Agreement and subadvisory agreements, as applicable, by evaluating the
quality and level of services received and the costs associated with those
services. The Board did not make the specific determination this year as each
fund's IMS Agreement was approved by the vote of a majority of the outstanding
voting securities of the funds at a shareholder meeting held on Feb. 15, 2006.
PROXY VOTING
The policy of the Board is to vote all proxies of the companies in which the
Fund holds investments. The procedures are stated in the Statement of Additional
Information (SAI). You may obtain a copy of the SAI without charge by calling
RiverSource Funds at (888) 791-3380; contacting your financial institution;
visiting www.riversource.com/funds; or searching the website of the Securities
and Exchange Commission (SEC) at http://www.sec.gov. Information regarding how
the Fund voted proxies relating to portfolio securities during the 12-month
period ended June 30, 2006 is available without charge by visiting
www.riversource.com/funds; or searching the website of the SEC at www.sec.gov.
- --------------------------------------------------------------------------------
128 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RESULTS OF MEETING OF SHAREHOLDERS
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006
(UNAUDITED)
A brief description of each proposal voted upon at the meeting and the votes
cast for, against or withheld, as well as the number of abstentions and broker
non-votes as to each proposal is set forth below. A vote is based on total
dollar interest in a fund.
ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD
- --------------------------------------------------------------------------------
Kathleen Blatz 109,404,967.67 10,845,879.41
- --------------------------------------------------------------------------------
Arne H. Carlson 109,366,235.14 10,884,611.94
- --------------------------------------------------------------------------------
Patricia M. Flynn 109,412,504.55 10,838,342.53
- --------------------------------------------------------------------------------
Anne P. Jones 109,371,157.11 10,879,689.97
- --------------------------------------------------------------------------------
Jeffrey Laikind 109,399,154.87 10,851,692.21
- --------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 109,504,027.26 10,746,819.82
- --------------------------------------------------------------------------------
Catherine James Paglia 109,378,087.01 10,872,760.07
- --------------------------------------------------------------------------------
Vikki L. Pryor 109,273,821.60 10,977,025.48
- --------------------------------------------------------------------------------
Alan K. Simpson 109,209,255.53 11,041,591.55
- --------------------------------------------------------------------------------
Alison Taunton-Rigby 109,484,884.51 10,765,962.57
- --------------------------------------------------------------------------------
William F. Truscott 109,466,068.77 10,784,778.31
- --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE
INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
107,274,620.58 1,913,403.67 11,017,638.69 45,184.14
- --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES
LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
106,519,267.44 2,770,807.48 10,915,588.02 45,184.14
- --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
105,342,167.12 2,745,810.08 12,117,685.74 45,184.14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 129
- --------------------------------------------------------------------------------
RESULTS OF MEETING OF SHAREHOLDERS
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006
(UNAUDITED)
A brief description of each proposal voted upon at the meeting and the votes
cast for, against or withheld, as well as the number of abstentions and broker
non-votes as to each proposal is set forth below. A vote is based on total
dollar interest in a fund.
ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD
- --------------------------------------------------------------------------------
Kathleen Blatz 32,670,491.04 6,729,639.60
- --------------------------------------------------------------------------------
Arne H. Carlson 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
Patricia M. Flynn 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
Anne P. Jones 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
Jeffrey Laikind 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
Catherine James Paglia 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
Vikki L. Pryor 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
Alan K. Simpson 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
Alison Taunton-Rigby 32,679,549.30 6,720,581.34
- --------------------------------------------------------------------------------
William F. Truscott 32,621,421.19 6,778,709.45
- --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE
INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
32,547,854.13 531,038.86 6,321,237.65 0.00
- --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES
LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
31,538,164.21 1,246,501.44 6,615,464.99 0.00
- --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
31,529,262.02 1,267,894.15 6,602,974.47 0.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
130 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RESULTS OF MEETING OF SHAREHOLDERS
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006
(UNAUDITED)
A brief description of each proposal voted upon at the meeting and the votes
cast for, against or withheld, as well as the number of abstentions and broker
non-votes as to each proposal is set forth below. A vote is based on total
dollar interest in a fund.
ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD
- --------------------------------------------------------------------------------
Kathleen Blatz 31,511,106.38 2,140,762.26
- --------------------------------------------------------------------------------
Arne H. Carlson 31,530,288.21 2,121,580.43
- --------------------------------------------------------------------------------
Patricia M. Flynn 31,530,288.21 2,121,580.43
- --------------------------------------------------------------------------------
Anne P. Jones 31,511,106.38 2,140,762.26
- --------------------------------------------------------------------------------
Jeffrey Laikind 31,537,739.76 2,114,128.88
- --------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 31,537,739.76 2,114,128.88
- --------------------------------------------------------------------------------
Catherine James Paglia 31,530,288.21 2,121,580.43
- --------------------------------------------------------------------------------
Vikki L. Pryor 31,518,557.94 2,133,310.70
- --------------------------------------------------------------------------------
Alan K. Simpson 31,518,557.94 2,133,310.70
- --------------------------------------------------------------------------------
Alison Taunton-Rigby 31,537,739.76 2,114,128.88
- --------------------------------------------------------------------------------
William F. Truscott 31,455,155.33 2,196,713.31
- --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE
INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
30,981,492.38 1,181,865.37 1,488,484.59 26.30
- --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES
LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
30,958,013.02 1,167,443.41 1,526,385.91 26.30
- --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
31,063,619.48 1,001,892.66 1,586,330.20 26.30
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 131
- --------------------------------------------------------------------------------
RESULTS OF MEETING OF SHAREHOLDERS
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006
(UNAUDITED)
A brief description of each proposal voted upon at the meeting and the votes
cast for, against or withheld, as well as the number of abstentions and broker
non-votes as to each proposal is set forth below. A vote is based on total
dollar interest in a fund.
ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD
- --------------------------------------------------------------------------------
Kathleen Blatz 197,476,387.65 20,804,045.77
- --------------------------------------------------------------------------------
Arne H. Carlson 196,732,680.48 21,547,752.94
- --------------------------------------------------------------------------------
Patricia M. Flynn 198,039,772.54 20,240,660.88
- --------------------------------------------------------------------------------
Anne P. Jones 197,671,787.54 20,608,645.88
- --------------------------------------------------------------------------------
Jeffrey Laikind 197,534,399.86 20,746,033.56
- --------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 198,050,712.30 20,229,721.12
- --------------------------------------------------------------------------------
Catherine James Paglia 197,699,534.83 20,580,898.59
- --------------------------------------------------------------------------------
Vikki L. Pryor 197,672,202.43 20,608,230.99
- --------------------------------------------------------------------------------
Alan K. Simpson 197,395,026.66 20,885,406.76
- --------------------------------------------------------------------------------
Alison Taunton-Rigby 197,981,873.22 20,298,560.20
- --------------------------------------------------------------------------------
William F. Truscott 197,716,339.86 20,564,093.56
- --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE
INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
194,497,455.81 5,333,001.16 18,247,182.41 202,794.04
- --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES
LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
192,139,907.64 6,563,405.35 19,374,326.39 202,794.04
- --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
192,823,816.49 6,157,018.63 19,096,804.26 202,794.04
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
132 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RESULTS OF MEETING OF SHAREHOLDERS
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006
(UNAUDITED)
A brief description of each proposal voted upon at the meeting and the votes
cast for, against or withheld, as well as the number of abstentions and broker
non-votes as to each proposal is set forth below. A vote is based on total
dollar interest in a fund.
ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD
- --------------------------------------------------------------------------------
Kathleen Blatz 40,200,466.06 7,489,839.64
- --------------------------------------------------------------------------------
Arne H. Carlson 40,167,538.87 7,522,766.83
- --------------------------------------------------------------------------------
Patricia M. Flynn 40,229,452.29 7,460,853.41
- --------------------------------------------------------------------------------
Anne P. Jones 40,071,299.37 7,619,006.33
- --------------------------------------------------------------------------------
Jeffrey Laikind 40,105,747.44 7,584,558.26
- --------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 40,193,668.04 7,496,637.66
- --------------------------------------------------------------------------------
Catherine James Paglia 40,229,452.29 7,460,853.41
- --------------------------------------------------------------------------------
Vikki L. Pryor 40,186,363.25 7,503,942.45
- --------------------------------------------------------------------------------
Alan K. Simpson 39,955,578.68 7,734,727.02
- --------------------------------------------------------------------------------
Alison Taunton-Rigby 40,214,282.90 7,476,022.80
- --------------------------------------------------------------------------------
William F. Truscott 40,169,526.02 7,520,779.68
- --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE
INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
39,400,203.69 936,719.17 7,318,574.68 34,808.16
- --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES
LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
38,494,932.47 1,784,859.77 7,375,705.30 34,808.16
- --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
38,749,521.21 1,579,462.54 7,326,513.79 34,808.16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT - 133
- --------------------------------------------------------------------------------
RESULTS OF MEETING OF SHAREHOLDERS
RIVERSOURCE OHIO TAX-EXEMPT FUND
REGULAR MEETING OF SHAREHOLDERS HELD ON FEB. 15, 2006
(UNAUDITED)
A brief description of each proposal voted upon at the meeting and the votes
cast for, against or withheld, as well as the number of abstentions and broker
non-votes as to each proposal is set forth below. A vote is based on total
dollar interest in a fund.
ELECTION OF BOARD MEMBERS
AFFIRMATIVE WITHHOLD
- --------------------------------------------------------------------------------
Kathleen Blatz 31,103,892.97 1,831,514.89
- --------------------------------------------------------------------------------
Arne H. Carlson 30,743,455.12 2,191,952.74
- --------------------------------------------------------------------------------
Patricia M. Flynn 31,103,892.97 1,831,514.89
- --------------------------------------------------------------------------------
Anne P. Jones 30,743,455.12 2,191,952.74
- --------------------------------------------------------------------------------
Jeffrey Laikind 30,794,380.63 2,141,027.23
- --------------------------------------------------------------------------------
Stephen R. Lewis, Jr. 30,700,912.83 2,234,495.03
- --------------------------------------------------------------------------------
Catherine James Paglia 31,050,323.95 1,885,083.91
- --------------------------------------------------------------------------------
Vikki L. Pryor 31,103,892.97 1,831,514.89
- --------------------------------------------------------------------------------
Alan K. Simpson 30,695,114.41 2,240,293.45
- --------------------------------------------------------------------------------
Alison Taunton-Rigby 31,039,740.70 1,895,667.16
- --------------------------------------------------------------------------------
William F. Truscott 31,050,323.95 1,885,083.91
- --------------------------------------------------------------------------------
APPROVE AN INVESTMENT MANAGEMENT SERVICES AGREEMENT WITH RIVERSOURCE
INVESTMENTS, LLC
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
30,193,477.77 1,665,303.75 1,076,626.34 0.00
- --------------------------------------------------------------------------------
APPROVE CHANGES IN FUNDAMENTAL INVESTMENT POLICIES
LENDING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
30,045,451.57 1,609,793.82 1,280,162.47 0.00
- --------------------------------------------------------------------------------
BORROWING
AFFIRMATIVE AGAINST ABSTAIN BROKER NON-VOTES
- --------------------------------------------------------------------------------
29,857,379.64 1,619,762.29 1,458,265.93 0.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
134 - RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
- --------------------------------------------------------------------------------
RIVERSOURCE(SM) STATE TAX-EXEMPT FUNDS
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
This report must be accompanied or preceded by the
Fund's current prospectus. RiverSource Funds are managed
by RiverSource Investments, LLC and distributed by
Ameriprise Financial Services, Inc., Member NASD. Both
RIVERSOURCE [LOGO] (SM) companies are part of Ameriprise Financial, Inc.
INVESTMENTS
S-6328 AC (8/06)
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Registrant's board of directors has determined that independent
directors Jeffrey Laikind and Anne P. Jones, each qualify as audit
committee financial experts.
Item 4. Principal Accountant Fees and Services
Fund - Related Fees*
(a) Audit Fees. The fees paid for the years ended June 30, to KPMG LLP
for professional services rendered for the audits of the annual
financial statements for RiverSource California Tax-Exempt Trust were
as follows:
2006 - $20,500; 2005 - $19,500
(b) Audit - Related Fees. The fees paid for the years ended June 30, to
KPMG LLP for additional professional services rendered in connection
with the registrant's security count pursuant to Rule 17f-2 for
RiverSource California Tax-Exempt Trust were as follows:
2006 - $46; 2005 - $50
(c) Tax Fees. The fees paid for the years ended June 30, to KPMG LLP for
tax compliance related services for RiverSource California Tax-Exempt
Trust were as follows:
2006 - $2,756; 2005 - $2,550
(d) All Other Fees. The fees paid for the years ended June 30, to KPMG
LLP for additional professional services rendered for RiverSource
California Tax-Exempt Trust were as follows:
2006 - $113; 2005 - $40
(e) (1) Audit Committee Pre-Approval Policy. Pursuant to Sarbanes-Oxley
pre-approval requirements, all services to be performed by KPMG LLP
for the registrant and to the registrant's investment adviser and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
must be pre-approved by the audit committee.
(e) (2) 100% of the services performed for items (b) through (d) above
during 2006 and 2005 were pre-approved by the audit committee.
(f) Not applicable.
(g) Non-Audit Fees. The fees paid for the years ended June 30, by the
registrant for non-audit services to KPMG LLP were as follows:
2006 -$56,369; 2005 - $141,490
The fees paid for the years ended June 30, to KPMG LLP by the
registrant's investment adviser, and any entity controlling,
controlled by, or under common control with the adviser that provides
ongoing services to the registrant were as follows:
2006 - $53,500; 2005 - $138,900
(h) 100% of the services performed for item (g) above during 2006 and
2005 were pre-approved by the audit committee.
*2005 represents bills paid 7/1/04 - 6/30/05
2006 represents bills paid 7/1/05 - 6/30/06
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. The complete schedule of investments is included in Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 10. Submission of matters to a vote of security holders. Not applicable.
Item 11. Controls and Procedures.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing
date of this Form N-CSR, the registrant's Principal Financial
Officer and Principal Executive Officer have concluded that those
disclosure controls and procedures provide reasonable assurance
that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RiverSource California Tax-Exempt Trust
By /s/ William F. Truscott
-------------------
William F. Truscott
President and Principal Executive Officer
Date September 1, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ William F. Truscott
-------------------
William F. Truscott
President and Principal Executive Officer
Date September 1, 2006
By /s/ Jeffrey P. Fox
--------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date September 1, 2006