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: 8/31
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Date of reporting period: 8/31
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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
AUG. 31, 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 ..............................................3-14
RiverSource California Tax-Exempt Fund ......................3
RiverSource Massachusetts Tax-Exempt Fund ...................5
RiverSource Michigan Tax-Exempt Fund ........................7
RiverSource Minnesota Tax-Exempt Fund .......................9
RiverSource New York Tax-Exempt Fund .......................11
RiverSource Ohio Tax-Exempt Fund............................13
Performance Summary .......................................15-26
RiverSource California Tax-Exempt Fund .................... 15
RiverSource Massachusetts Tax-Exempt Fund ................. 17
RiverSource Michigan Tax-Exempt Fund ...................... 19
RiverSource Minnesota Tax-Exempt Fund ..................... 21
RiverSource New York Tax-Exempt Fund ...................... 23
RiverSource Ohio Tax-Exempt Fund .......................... 25
Questions & Answers
with Portfolio Management .................................27
The Fund's Long-term Performance ..........................32-43
RiverSource California Tax-Exempt Fund .....................32
RiverSource Massachusetts Tax-Exempt Fund ..................34
RiverSource Michigan Tax-Exempt Fund .......................36
RiverSource Minnesota Tax-Exempt Fund ......................38
RiverSource New York Tax-Exempt Fund .......................40
RiverSource Ohio Tax-Exempt Fund ...........................42
Investments in Securities .................................44-79
RiverSource California Tax-Exempt Fund .....................44
RiverSource Massachusetts Tax-Exempt Fund ..................51
RiverSource Michigan Tax-Exempt Fund .......................56
RiverSource Minnesota Tax-Exempt Fund ......................61
RiverSource New York Tax-Exempt Fund .......................69
RiverSource Ohio Tax-Exempt Fund ...........................75
Financial Statements .........................................80
Notes to Financial Statements ................................91
Report of Independent Registered
Public Accounting Firm ...................................129
Federal Income Tax Information ..............................131
Fund Expenses Examples ......................................137
Board Members and Officers ..................................144
Approval of Investment Management
Services Agreement .......................................147
Proxy Voting ................................................147
[LOGO]
DALBAR RATED
2006
FOR COMMUNICATION
The RiverSource mutual fund shareholder reports have been awarded the
Communications Seal from Dalbar Inc., an independent financial services
research firm. The Seal recognizes communications demonstrating a level of
excellence in the industry.
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2 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource California Tax-Exempt Fund
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FUND OVERVIEW
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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.
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QUALITY BREAKDOWN
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Percentage of bond portfolio assets
AAA bonds 55.8%
AA bonds 8.3%
A bonds 25.4% [PIE CHART]
BBB bonds 8.7%
Non-investment grade bonds 1.8%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself.
Whenever possible, the Standard and Poor's rating is used to determine the
credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories. If Standard and Poor's doesn't rate a security, then Moody's
rating is used. RiverSource Investments, LLC, the Fund's investment manager,
rates a security using an internal rating system when Moody's doesn't provide
a rating. 2.3% of the portfolio rating above was determined through internal
analysis.
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STYLE MATRIX
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[chart] Shading within the style matrix indicates areas in which the Fund
generally invests.
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, involve investment
risks including possible loss of principal and fluctuation in value.
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PORTFOLIO MANAGER
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YEARS IN INDUSTRY
Rick LaCoff* 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
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.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 3
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource California Tax-Exempt Fund
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FUND FACTS
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TICKER SYMBOL INCEPTION DATE
Class A ICALX 8/18/86
Class B ACABX 3/20/95
Class C -- 6/26/00
Total net assets $ 181.2 million
Number of holdings 107
Effective maturity(1) 14.5 years
Effective duration(2) 6.6 years
Weighted average bond rating(3) AA
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SEC YIELDS
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AT AUG. 31, 2006 AT SEPT. 29, 2006*
Class A 3.27% 3.20%
Class B 2.67% 2.60%
Class C 2.68% 2.60%
(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.
* The last business day of the period.
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 16 for
additional performance information.
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4 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource Massachusetts Tax-Exempt Fund
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FUND OVERVIEW
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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 the respective state
and local taxes.
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QUALITY BREAKDOWN
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Percentage of bond portfolio assets
AAA bonds 71.8%
AA bonds 23.9%
A bonds 1.9% [PIE CHART]
BBB bonds 2.4%
Non-investment grade bonds -%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself.
Whenever possible, the Standard and Poor's rating is used to determine the
credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories. If Standard and Poor's doesn't rate a security, then Moody's
rating is used. RiverSource Investments, LLC, the Fund's investment manager,
rates a security using an internal rating system when Moody's doesn't provide
a rating. 1.6% of the portfolio rating above was determined through internal
analysis.
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STYLE MATRIX
- ------------------------------------------------------------------------------
[chart] Shading within the style matrix indicates areas in which the Fund
generally invests.
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, involve investment
risks including possible loss of principal and fluctuation in value.
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER
- ------------------------------------------------------------------------------
YEARS IN INDUSTRY
Rick LaCoff* 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
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.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 5
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource Massachusetts Tax-Exempt Fund
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FUND FACTS
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TICKER SYMBOL INCEPTION DATE
Class A IDMAX 7/2/87
Class B AXMBX 3/20/95
Class C -- 6/26/00
Total net assets $ 58.6 million
Number of holdings 58
Effective maturity(1) 11.8 years
Effective duration(2) 6.6 years
Weighted average bond rating(3) AA+
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SEC YIELDS
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AT AUG. 31, 2006 AT SEPT. 29, 2006*
Class A 3.14% 3.08%
Class B 2.55% 2.48%
Class C 2.55% 2.48%
(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.
* The last business day of the period.
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 18 for
additional performance information.
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6 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource Michigan Tax-Exempt Fund
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FUND OVERVIEW
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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.
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QUALITY BREAKDOWN
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Percentage of bond portfolio assets
AAA bonds 72.9%
AA bonds 17.1%
A bonds 6.1% [PIE CHART]
BBB bonds 3.9%
Non-investment grade bonds -%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself.
Whenever possible, the Standard and Poor's rating is used to determine the
credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories. If Standard and Poor's doesn't rate a security, then Moody's
rating is used. RiverSource Investments, LLC, the Fund's investment manager,
rates a security using an internal rating system when Moody's doesn't provide
a rating. 1.0% of the portfolio rating above was determined through internal
analysis.
- ------------------------------------------------------------------------------
STYLE MATRIX
- ------------------------------------------------------------------------------
[chart] Shading within the style matrix indicates areas in which the Fund
generally invests.
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, involve investment
risks including possible loss of principal and fluctuation in value.
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER
- ------------------------------------------------------------------------------
YEARS IN INDUSTRY
Rick LaCoff* 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
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.
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RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 7
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource Michigan Tax-Exempt Fund
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FUND FACTS
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TICKER SYMBOL INCEPTION DATE
Class A INMIX 7/2/87
Class B -- 3/20/95
Class C -- 6/26/00
Total net assets $ 49.8 million
Number of holdings 60
Effective maturity(1) 11.1 years
Effective duration(2) 6.2 years
Weighted average bond rating(3) AA+
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SEC YIELDS
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AT AUG. 31, 2006 AT SEPT. 29, 2006*
Class A 3.09% 3.01%
Class B 2.49% 2.40%
Class C 2.48% 2.40%
(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.
* The last business day of the period.
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 20 for
additional performance information.
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8 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource Minnesota Tax-Exempt Fund
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FUND OVERVIEW
- ------------------------------------------------------------------------------
For Minnesota investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
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QUALITY BREAKDOWN
- ------------------------------------------------------------------------------
Percentage of bond portfolio assets
AAA bonds 63.8%
AA bonds 18.2%
A bonds 9.7% [PIE CHART]
BBB bonds 6.1%
Non-investment grade bonds 2.2%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself.
Whenever possible, the Standard and Poor's rating is used to determine the
credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories. If Standard and Poor's doesn't rate a security, then Moody's
rating is used. RiverSource Investments, LLC, the Fund's investment manager,
rates a security using an internal rating system when Moody's doesn't provide
a rating. 1.7% of the portfolio rating above was determined through internal
analysis.
- ------------------------------------------------------------------------------
STYLE MATRIX
- ------------------------------------------------------------------------------
[chart] Shading within the style matrix indicates areas in which the Fund
generally invests.
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, involve investment
risks including possible loss of principal and fluctuation in value.
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER
- ------------------------------------------------------------------------------
YEARS IN INDUSTRY
Rick LaCoff* 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund.
In general, bond prices rise when interest rates fall and vice versa. This
effect is usually more pronounced for longer-term securities. Non-investment
grade securities, commonly called "high-yield" or "junk" bonds, generally have
more volatile prices and carry more risk to principal and income than
investment grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative
minimum tax for certain investors. Federal income tax rules will apply to any
capital gains distribution.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 9
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource Minnesota Tax-Exempt Fund
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FUND FACTS
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TICKER SYMBOL INCEPTION DATE
Class A IMNTX 8/18/86
Class B IDSMX 3/20/95
Class C -- 6/26/00
Total net assets $ 346.2 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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SEC YIELDS
- ------------------------------------------------------------------------------
AT AUG. 31, 2006 AT SEPT. 29, 2006*
Class A 3.23% 3.13%
Class B 2.62% 2.53%
Class C 2.63% 2.53%
* The last business day of the period.
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 22 for
additional performance information.
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10 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource New York Tax-Exempt Fund
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FUND OVERVIEW
- ------------------------------------------------------------------------------
For New York investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
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QUALITY BREAKDOWN
- ------------------------------------------------------------------------------
Percentage of bond portfolio assets
AAA bonds 49.2%
AA bonds 39.2% [PIE CHART]
A bonds 5.2%
BBB bonds 6.4%
Non-investment grade bonds -%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself.
Whenever possible, the Standard and Poor's rating is used to determine the
credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories. If Standard and Poor's doesn't rate a security, then Moody's
rating is used. RiverSource Investments, LLC, the Fund's investment manager,
rates a security using an internal rating system when Moody's doesn't provide
a rating. 0.4% of the portfolio rating above was determined through internal
analysis.
- ------------------------------------------------------------------------------
STYLE MATRIX
- ------------------------------------------------------------------------------
[chart] Shading within the style matrix indicates areas in which the Fund
generally invests.
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, involve investment
risks including possible loss of principal and fluctuation in value.
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER
- ------------------------------------------------------------------------------
YEARS IN INDUSTRY
Rick LaCoff* 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund.
In general, bond prices rise when interest rates fall and vice versa. This
effect is usually more pronounced for longer-term securities. Non-investment
grade securities, commonly called "high-yield" or "junk" bonds, generally have
more volatile prices and carry more risk to principal and income than
investment grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative
minimum tax for certain investors. Federal income tax rules will apply to any
capital gains distribution.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 11
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource New York Tax-Exempt Fund
- ------------------------------------------------------------------------------
FUND FACTS
- ------------------------------------------------------------------------------
TICKER SYMBOL INCEPTION DATE
Class A INYKX 8/18/86
Class B -- 3/20/95
Class C -- 6/26/00
Total net assets $ 71.1 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.
- ------------------------------------------------------------------------------
SEC YIELDS
- ------------------------------------------------------------------------------
AT AUG. 31, 2006 AT SEPT. 29, 2006*
Class A 3.20% 3.10%
Class B 2.61% 2.50%
Class C 2.61% 2.50%
* The last business day of the period.
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 24 for
additional performance information.
- ------------------------------------------------------------------------------
12 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource Ohio Tax-Exempt Fund
- ------------------------------------------------------------------------------
FUND OVERVIEW
- ------------------------------------------------------------------------------
For Ohio investors, this Fund seeks to provide a high level of income
generally exempt from federal income tax as well as from the respective state
and local taxes.
- ------------------------------------------------------------------------------
QUALITY BREAKDOWN
- ------------------------------------------------------------------------------
Percentage of bond portfolio assets
AAA bonds 58.5%
AA bonds 29.6% [PIE CHART]
A bonds 7.4%
BBB bonds 4.5%
Non-investment grade bonds -%
Bond ratings apply to underlying holdings of the Fund and not the Fund itself.
Whenever possible, the Standard and Poor's rating is used to determine the
credit quality of a security. Standard and Poor's rates the creditworthiness
of corporate bonds, with 15 categories, ranging from AAA (highest) to D
(lowest). Ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories. If Standard and Poor's doesn't rate a security, then Moody's
rating is used. RiverSource Investments, LLC, the Fund's investment manager,
rates a security using an internal rating system when Moody's doesn't provide
a rating. 1.1% of the portfolio rating above was determined through internal
analysis.
- ------------------------------------------------------------------------------
STYLE MATRIX
- ------------------------------------------------------------------------------
[chart] Shading within the style matrix indicates areas in which the
Fund generally invests.
DURATION
SHORT INT. LONG
X HIGH
MEDIUM QUALITY
LOW
The style matrix can be a valuable tool for constructing and monitoring your
portfolio. It provides a frame of reference for distinguishing the types of
stocks or bonds owned by a mutual fund, and serves as a guideline for helping
you build a portfolio.
Investment products, including shares of mutual funds, involve investment
risks including possible loss of principal and fluctuation in value.
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER
- ------------------------------------------------------------------------------
YEARS IN INDUSTRY
Rick LaCoff* 14
* The Fund is managed by a team of portfolio managers led by Rick LaCoff.
There are risks associated with an investment in a bond fund, including credit
risk, interest rate risk, and prepayment and extension risk. See the Fund's
prospectus for information on these and other risks associated with the Fund.
In general, bond prices rise when interest rates fall and vice versa. This
effect is usually more pronounced for longer-term securities. Non-investment
grade securities, commonly called "high-yield" or "junk" bonds, generally have
more volatile prices and carry more risk to principal and income than
investment grade securities.
Income from tax-exempt funds may be subject to state and local taxes and a
portion of income may be subject to the federal and/or state alternative
minimum tax for certain investors. Federal income tax rules will apply to any
capital gains distribution.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 13
FUND SNAPSHOT AT AUG. 31, 2006
RiverSource Ohio Tax-Exempt Fund
- ------------------------------------------------------------------------------
FUND FACTS
- ------------------------------------------------------------------------------
TICKER SYMBOL INCEPTION DATE
Class A IOHIX 7/2/87
Class B -- 3/20/95
Class C -- 6/26/00
Total net assets $ 48.7 million
Number of holdings 61
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.
- ------------------------------------------------------------------------------
SEC YIELDS
- ------------------------------------------------------------------------------
AT AUG. 31, 2006 AT SEPT. 29, 2006*
Class A 3.17% 3.06%
Class B 2.57% 2.45%
Class C 2.57% 2.45%
* The last business day of the period.
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 26 for
additional performance information.
- ------------------------------------------------------------------------------
14 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
PERFORMANCE SUMMARY
RIVERSOURCE
CALIFORNIA TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended Aug. 31, 2006
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RiverSource
California Lehman Brothers Lipper
Tax-Exempt Fund California 2 Lehman Brothers California
Class A Plus Year Municipal Municipal
(excluding Municipal Bond Bond Index Debt Funds
sales charge) Index (unmanaged) (unmanaged) Index (unmanaged)
+2.64% +3.36% +3.03% +3.20%
(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 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 15
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
RiverSource California Tax-Exempt Fund
AT AUG. 31, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) +2.64% +5.11% +4.31% +5.13% +5.92%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +2.06% +4.39% +3.53% +4.34% +4.38%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +2.07% +4.39% +3.52% N/A +4.61%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) -2.23% +3.42% +3.30% +4.62% +5.66%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -2.83% +3.15% +3.19% +4.34% +4.38%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +1.09% +4.39% +3.52% N/A +4.61%
- -------------------------------------------------------------------------------------------
AT SEPT. 30, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) +4.03% +4.40% +4.50% +5.05% +5.93%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +3.45% +3.68% +3.75% +4.26% +4.40%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +3.45% +3.68% +3.75% N/A +4.65%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) -0.91% +2.72% +3.49% +4.53% +5.%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -1.51% +2.45% +3.41% +4.26% +4.40%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +2.46% +3.68% +3.75% N/A +4.65%
- -------------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B
reflects a contingent deferred sales charge (CDSC) applied as follows: first
year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year
1%. No sales charge thereafter. Class C shares may be subject to a 1% CDSC.
- ------------------------------------------------------------------------------
16 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
PERFORMANCE SUMMARY
RIVERSOURCE
MASSACHUSETTS TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended Aug. 31, 2006
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RiverSource Lehman Brothers
Massachusetts Massachusetts 3 Lehman Lipper
Tax-Exempt Fund Plus Year Brothers Massachusetts
Class A Enhanced Municipal Municipal Municipal
(excluding Bond Index Bond Index Debt Funds Index
sales charge) (unmanaged) (unmanaged) (unmanaged)
+2.12% +2.80% +3.03% +2.61%
(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 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 17
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
RiverSource Massachusetts Tax-Exempt Fund
AT AUG. 31, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) +2.12% +4.18% +3.83% +4.74% +5.79%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +1.35% +3.39% +3.05% +3.95% +4.04%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +1.16% +3.33% +3.01% N/A +4.19%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) -2.73% +2.50% +2.82% +4.23% +5.52%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -3.56% +2.12% +2.69% +3.95% +4.04%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +0.18% +3.33% +3.01% N/A +4.19%
- -------------------------------------------------------------------------------------------
AT SEPT. 30, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) +3.84% +3.47% +4.01% +4.64% +5.80%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +3.06% +2.69% +3.23% +3.86% +4.06%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +3.06% +2.69% +3.23% N/A +4.26%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) -1.09% +1.80% +3.00% +4.14% +5.53%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -1.93% +1.43% +2.87% +3.86% +4.06%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +2.06% +2.69% +3.23% N/A +4.26%
- -------------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B
reflects a contingent deferred sales charge (CDSC) applied as follows: first
year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year
1%. No sales charge thereafter. Class C shares may be subject to a 1% CDSC.
- ------------------------------------------------------------------------------
18 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
PERFORMANCE SUMMARY
RIVERSOURCE
MICHIGAN TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended Aug. 31, 2006
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RiverSource Lipper
Michigan Lehman Brothers Lehman Michigan
Tax-Exempt Michigan Brothers Municipal
Fund Class Municipal Municipal Debt Funds
A (excluding Bond Index Bond Index Index
sales charge) (unmanaged) (unmanaged) (unmanaged)
+2.56% +2.93% +3.03% +2.57%
(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 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 19
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
RiverSource Michigan Tax-Exempt Fund
AT AUG. 31, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) +2.56% +4.43% +4.11% +4.79% +5.95%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +1.97% +3.70% +3.37% +4.02% +4.12%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +1.97% +3.70% +3.36% N/A +4.51%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) -2.31% +2.75% +3.11% +4.28% +5.69%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -2.96% +2.45% +3.02% +4.02% +4.12%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +0.98% +3.70% +3.36% N/A +4.51%
- -------------------------------------------------------------------------------------------
AT SEPT. 30, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) +3.92% +3.64% +4.33% +4.71% +5.96%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +3.33% +2.92% +3.54% +3.94% +4.15%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +3.33% +2.92% +3.54% N/A +4.55%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) -1.02% +1.97% +3.32% +4.20% +5.70%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -1.66% +1.67% +3.20% +3.94% +4.15%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +2.33% +2.92% +3.54% N/A +4.55%
- -------------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B
reflects a contingent deferred sales charge (CDSC) applied as follows: first
year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year
1%. No sales charge thereafter. Class C shares may be subject to a 1% CDSC.
- ------------------------------------------------------------------------------
20 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
PERFORMANCE SUMMARY
RIVERSOURCE
MINNESOTA TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended Aug. 31, 2006
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RiverSource Lehman Brothers Lipper
Minnesota Minnesota 3 Lehman Minnesota
Tax-Exempt Fund Plus Year Brothers Municipal
Class A Enhanced Municipal Debt Funds
(excluding Municipal Bond Bond Index Index
sales charge) Index (unmanaged) (unmanaged) (unmanaged)
+2.46% +3.03% +3.03% +2.72%
(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 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 21
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
RiverSource Minnesota Tax-Exempt Fund
AT AUG. 31, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) +2.46% +4.24% +4.23% +5.00% +5.97%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +1.69% +3.45% +3.45% +4.21% +4.31%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +1.69% +3.45% +3.44% N/A +4.45%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) -2.40% +2.56% +3.22% +4.49% +5.71%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -3.25% +2.19% +3.09% +4.21% +4.31%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +0.70% +3.45% +3.44% N/A +4.45%
- -------------------------------------------------------------------------------------------
AT SEPT. 30, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) +4.02% +3.50% +4.41% +4.93% +5.98%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +3.24% +2.73% +3.63% +4.14% +4.33%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +3.23% +2.72% +3.62% N/A +4.50%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) -0.92% +1.84% +3.40% +4.42% +5.72%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -1.76% +1.46% +3.28% +4.14% +4.33%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +2.23% +2.72% +3.62% N/A +4.50%
- -------------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B
reflects a contingent deferred sales charge (CDSC) applied as follows: first
year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year
1%. No sales charge thereafter. Class C shares may be subject to a 1% CDSC.
- ------------------------------------------------------------------------------
22 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
PERFORMANCE SUMMARY
RIVERSOURCE
NEW YORK TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended Aug. 31, 2006
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RiverSource New Lehman Brothers Lehman Lipper New York
York Tax-Exempt New York 4 Plus Brothers Municipal
Fund Class A Year Municipal Municipal Debt Funds
(excluding Bond Index Bond Index Index
sales charge) (unmanaged) (unmanaged) (unmanaged)
+2.44% +3.13% +3.03% +2.89%
(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 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 23
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
RiverSource New York Tax-Exempt Fund
AT AUG. 31, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) +2.44% +4.31% +4.15% +5.04% +5.75%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +1.67% +3.52% +3.37% +4.25% +4.18%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +1.67% +3.53% +3.37% N/A +4.52%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) -2.43% +2.63% +3.15% +4.53% +5.50%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -3.22% +2.29% +3.03% +4.25% +4.18%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +0.69% +3.53% +3.37% N/A +4.52%
- -------------------------------------------------------------------------------------------
AT SEPT. 30, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) +4.05% +3.52% +4.43% +4.95% +5.77%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +3.27% +2.74% +3.64% +4.16% +4.20%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +3.27% +2.74% +3.64% N/A +4.57%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 8/18/86) -0.90% +1.85% +3.42% +4.44% +5.51%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -1.70% +1.52% +3.30% +4.16% +4.20%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +2.27% +2.74% +3.64% N/A +4.57%
- -------------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B
reflects a contingent deferred sales charge (CDSC) applied as follows: first
year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year
1%. No sales charge thereafter. Class C shares may be subject to a 1% CDSC.
- ------------------------------------------------------------------------------
24 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
PERFORMANCE SUMMARY
- ------------------------------------------------------------------------------
RIVERSOURCE
OHIO TAX-EXEMPT FUND
PERFORMANCE COMPARISON
For the year ended Aug. 31, 2006
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RiverSource Ohio Lehman Brothers Ohio Lehman Brothers Lipper Ohio
Tax-Exempt Fund 4 Plus Year Enhanced Municipal Municipal
Class A (excluding Municipal Bond Index Bond Index Debt Funds
sales charge) (unmanaged) (unmanaged) Index (unmanaged)
+2.13% +3.00% +3.03% +2.44%
(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 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 25
- ------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
RiverSource Ohio Tax-Exempt Fund
AT AUG. 31, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) +2.13% +3.85% +3.74% +4.68% +5.76%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +1.36% +3.06% +2.95% +3.89% +3.94%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +1.17% +3.06% +2.95% N/A +3.96%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) -2.72% +2.18% +2.73% +4.17% +5.49%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -3.58% +1.79% +2.60% +3.89% +3.94%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +0.19% +3.06% +2.95% N/A +3.96%
- -------------------------------------------------------------------------------------------
AT SEPT. 30, 2006
SINCE
Without sales charge 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) +3.64% +3.14% +3.92% +4.58% +5.77%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) +2.86% +2.35% +3.13% +3.80% +3.97%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +2.86% +2.35% +3.09% N/A +4.01%
- -------------------------------------------------------------------------------------------
With sales charge
- -------------------------------------------------------------------------------------------
Class A (inception date 7/2/87) -1.28% +1.48% +2.91% +4.08% +5.50%
- -------------------------------------------------------------------------------------------
Class B (inception date 3/20/95) -2.14% +1.09% +2.78% +3.80% +3.97%
- -------------------------------------------------------------------------------------------
Class C (inception date 6/26/00) +1.86% +2.35% +3.09% N/A +4.01%
- -------------------------------------------------------------------------------------------
Class A share performance reflects the maximum sales charge of 4.75%. Class B
reflects a contingent deferred sales charge (CDSC) applied as follows: first
year 5%; second and third years 4%; fourth year 3%; fifth year 2%; sixth year
1%. No sales charge thereafter. Class C shares may be subject to a 1% CDSC.
- --------------------------------------------------------------------------------
26 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
QUESTIONS & ANSWERS WITH PORTFOLIO MANAGEMENT
Shareholders were sent an annual report for RiverSource State Tax-Exempt Funds
as of June 30, 2006. This annual shareholder report reflects the change made
in the fiscal year-end for the RiverSource State Tax-Exempt Funds from June
30, 2006 to Aug. 31, 2006. Below, Portfolio Manager Rick LaCoff discusses the
Funds' positioning and results for the new fiscal year. Rick LaCoff replaced
David Kerwin as portfolio manager of the Funds effective July 24, 2006.
Q: How did the RiverSource State Tax-Exempt Funds perform for the fiscal
year ended Aug. 31, 2006?
A: All Fund returns are for Class A shares, excluding sales charge. All
returns are for the 12 months ended Aug. 31, 2006. All Lipper categories
represent the respective Fund's peer group.
o RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND gained 2.64%. The Fund
underperformed the Lehman Brothers California 2 Plus Year Municipal
Bond Index, which returned 3.36%. The Lipper California Municipal
Debt Funds Index rose 3.20% for the same period.
o RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND advanced 2.12%. The Fund
underperformed the Lehman Brothers Massachusetts 3 Plus Year
Enhanced Municipal Bond Index, which rose 2.80%. The Lipper
Massachusetts Municipal Debt Funds Index rose 2.61% for the same
period.
o RIVERSOURCE MICHIGAN TAX-EXEMPT FUND gained 2.56%. The Fund
underperformed the Lehman Brothers Michigan Municipal Bond Index,
which advanced 2.93%. The Lipper Michigan Municipal Debt Funds Index
produced a total return of 2.57% for the same period.
o RIVERSOURCE MINNESOTA TAX-EXEMPT FUND increased 2.46%. The Fund
underperformed the Lehman Brothers Minnesota 3 Plus Year Enhanced
Municipal Bond Index, which rose 3.03%. The Lipper Minnesota
Municipal Debt Funds Index rose 2.72% for the same period.
o RIVERSOURCE NEW YORK TAX-EXEMPT FUND advanced 2.44%. The Fund
underperformed the Lehman Brother New York 4 Plus Year Municipal
Bond Index, which rose 3.13%. The Lipper New York Municipal Debt
Funds Index increased 2.89% for the same period.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 27
QUESTIONS & ANSWERS
o RIVERSOURCE OHIO TAX-EXEMPT FUND increased 2.13%. The Fund
underperformed the Lehman Brothers Ohio 4 Plus Year Enhanced
Municipal Bond Index, which gained 3.00%. The Lipper Ohio Municipal
Debt Funds Index gained 2.44% for the same period.
A broad barometer applicable to each of the Funds, the Lehman Brothers
Municipal Bond Index, gained 3.03% for the same 12-month period.
Q: What factors most significantly affected performance during the annual
period?
A: The tax-exempt fixed income market managed to produce positive
performance during the period, even as rates rose sharply 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 seven more times, bringing the
targeted federal funds rate to 5.25%. In early August, the Fed observed
its first pause in its two-year tightening cycle, noting that economic
growth appeared to be moderating somewhat and inflation pressures --
though elevated -- were expected to recede over the balance of the year
and into 2007. The fixed income market rallied in response.
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 above, 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 less negative 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.
- ------------------------------------------------------------------------------
28 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
QUESTIONS & ANSWERS
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. Results of the
RiverSource state tax-exempt funds of California, Minnesota and New York
were further helped by having positions in select non-investment grade
or non-rated bonds, as these bonds notably outperformed the Lehman
benchmark indices.
-------------------------------------------------------------------------
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.
-------------------------------------------------------------------------
Bonds that were advance refunded during the period 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 bonds hurt index-relative 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 tax-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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 29
QUESTIONS & ANSWERS
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 except 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 Puerto
Rico municipal bonds, adding to positions on market weakness. Puerto
Rico's government is introducing a local sales tax to raise revenues and
reforms that would cut expenses. As these potential fiscal remedies take
hold, 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 faced by this sector
have been reduced, and thus we expect these bonds to continue to perform
well going forward. We added to each of the RiverSource state tax-exempt
fund's exposure to bonds rated BBB on a highly selective basis. Given
anticipated technical conditions within the municipal bond market, we
expect these bonds 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. In May
and June, 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. This strategy proved prudent, as
tax-exempt yields peaked in June. Toward the end of the period, when
tax-exempt bond yields rallied in response to the Fed's early August
pause, we took some profits and shortened the RiverSource state
tax-exempt funds' duration once again.
- ------------------------------------------------------------------------------
30 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 eight months of 2006. We expect the slowdown to
continue through the rest of the year providing support for municipal
bond valuations. 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.
We intend to maintain the Funds' current short duration positioning
compared to their respective Lehman benchmark index for the near term.
We further intend to 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. 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. Finally, given the current flatness of the yield curve and
our anticipation of a steeper yield curve going forward, we may also
look to increase the Funds' allocation to the intermediate segment of
the tax-exempt yield curve over the coming months.
-------------------------------------------------------------------------
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 EIGHT MONTHS OF 2006.
-------------------------------------------------------------------------
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 31
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
9/1/96 to 8/31/06) 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 riversource.com/funds. Also see "Past Performance" in
the Fund's current prospectus.
COMPARATIVE RESULTS
Results at Aug. 31, 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 $ 9,777 $ 11,061 $ 11,763 $ 15,706 $ 30,134
- ------------------------------------------------------------------------------------------------------
Average annual total return -2.23% +3.42% +3.30% +4.62% +5.66%
- ------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS CALIFORNIA 2 PLUS YEAR MUNICIPAL BOND INDEX(1)
- ------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,336 $ 11,924 $ 12,848 $ 18,339 N/A
- ------------------------------------------------------------------------------------------------------
Average annual total return +3.36% +6.04% +5.14% +6.25% N/A
- ------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- ------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,303 $ 11,623 $ 12,732 $ 17,871 $ 37,767
- ------------------------------------------------------------------------------------------------------
Average annual total return +3.03% +5.14% +4.95% +5.98% +6.87%
- ------------------------------------------------------------------------------------------------------
LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS INDEX(3)
- ------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,320 $ 11,766 $ 12,480 $ 17,210 $ 34,128
- ------------------------------------------------------------------------------------------------------
Average annual total return +3.20% +5.57% +4.53% +5.58% +6.33%
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
32 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
RIVERSOURCE CALIFORNIA TAX-EXEMPT FUND
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
RiverSource California Lehman Brothers
Tax-Exempt Fund Class A California 2 Plus Year Lehman Brothers Lipper California Municipal
Year (includes sales charge) Municipal Bond Index(1) Municipal Bond Index(2) Debt Funds Index(3)
1996 $ 9,525 $ 10,000 $ 10,000 $ 10,000
1997 $ 10,326 $ 10,987 $ 10,924 $ 10,923
1998 $ 11,141 $ 11,981 $ 11,869 $ 11,883
1999 $ 11,022 $ 12,015 $ 11,928 $ 11,777
2000 $ 11,794 $ 12,978 $ 12,736 $ 12,599
2001 $ 12,720 $ 14,270 $ 14,034 $ 13,786
2002 $ 13,392 $ 15,077 $ 14,909 $ 14,398
2003 $ 13,526 $ 15,381 $ 15,377 $ 14,626
2004 $ 14,459 $ 16,662 $ 16,471 $ 15,704
2005 $ 15,302 $ 17,743 $ 17,345 $ 16,676
2006 $ 15,706 $ 18,339 $ 17,871 $ 17,210
(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 indexes reflect 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.
(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 33
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
9/1/96 to 8/31/06) 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 riversource.com/funds. Also see "Past Performance" in
the Fund's current prospectus.
COMPARATIVE RESULTS
Results at Aug. 31, 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 $ 9,727 $ 10,769 $ 11,492 $ 15,135 $ 28,002
- ------------------------------------------------------------------------------------------------------
Average annual total return -2.73% +2.50% +2.82% +4.23% +5.52%
- ------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MASSACHUSETTS 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1)
- ------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,280 $ 11,616 $ 12,836 $ 18,134 N/A
- ------------------------------------------------------------------------------------------------------
Average annual total return +2.80% +5.12% +5.12% +6.13% N/A
- ------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- ------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,303 $ 11,623 $ 12,732 $ 17,871 $ 36,518
- ------------------------------------------------------------------------------------------------------
Average annual total return +3.03% +5.14% +4.95% +5.98% +6.99%
- ------------------------------------------------------------------------------------------------------
LIPPER MASSACHUSETTS MUNICIPAL DEBT FUNDS INDEX(3)
- ------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,261 $ 11,494 $ 12,432 $ 16,870 N/A
- ------------------------------------------------------------------------------------------------------
Average annual total return +2.61% +4.75% +4.45% +5.37% N/A
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
34 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
RIVERSOURCE MASSACHUSETTS TAX-EXEMPT FUND
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
RiverSource Massachusetts Lehman Brothers
Tax-Exempt Fund Class A Massachusetts 3 Plus Year Lehman Brothers Lipper Massachusetts
Year (includes sales charge) Enhanced Municipal Bond Index(1) Municipal Bond Index(2) Municipal Debt Funds Index(3)
1996 $ 9,525 $10,000 $10,000 $10,000
1997 $10,358 $10,933 $10,924 $10,877
1998 $11,196 $11,914 $11,869 $11,783
1999 $11,067 $11,907 $11,928 $11,643
2000 $11,524 $12,732 $12,736 $12,291
2001 $12,542 $14,128 $14,034 $13,567
2002 $13,280 $15,085 $14,909 $14,285
2003 $13,386 $15,608 $15,377 $14,676
2004 $14,200 $16,770 $16,471 $15,638
2005 $14,820 $17,640 $17,345 $16,441
2006 $15,135 $18,134 $17,871 $16,870
(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 indexes reflect 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.
(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 Year Enhanced Municipal Bond Index
and the Lipper peer group.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 35
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 9/1/96
to 8/31/06) 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 riversource.com/funds. Also see "Past Performance" in
the Fund's current prospectus.
COMPARATIVE RESULTS
Results at Aug. 31, 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 $ 9,769 $ 10,848 $ 11,655 $ 15,209 $ 28,880
- --------------------------------------------------------------------------------------------------------------
Average annual total return -2.31% +2.75% +3.11% +4.28% +5.69%
- --------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MICHIGAN MUNICIPAL BOND INDEX(1)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,293 $ 11,507 $ 12,732 $ 17,919 N/A
- --------------------------------------------------------------------------------------------------------------
Average annual total return +2.93% +4.79% +4.95% +6.01% N/A
- --------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,303 $ 11,623 $ 12,732 $ 17,871 $ 36,518
- --------------------------------------------------------------------------------------------------------------
Average annual total return +3.03% +5.14% +4.95% +5.98% +6.99%
- --------------------------------------------------------------------------------------------------------------
LIPPER MICHIGAN MUNICIPAL DEBT FUNDS INDEX(3)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,257 $ 11,323 $ 12,249 $ 16,303 N/A
- --------------------------------------------------------------------------------------------------------------
Average annual total return +2.57% +4.23% +4.14% +5.01% N/A
- --------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
36 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
RIVERSOURCE MICHIGAN TAX-EXEMPT FUND
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
RiverSource Michigan Lehman Brothers Lehman Brothers Lipper Michigan
Tax-Exempt Fund Class A Michigan Municipal Municipal Bond Municipal Debt Funds
Year (includes sales charge) Bond Index(1) Index(2) Index(3)
1996 $ 9,525 $ 10,000 $ 10,000 $ 10,000
1997 $ 10,282 $ 10,941 $ 10,924 $ 10,821
1998 $ 11,070 $ 11,921 $ 11,869 $ 11,672
1999 $ 10,972 $ 11,926 $ 11,928 $ 11,558
2000 $ 11,364 $ 12,718 $ 12,736 $ 12,141
2001 $ 12,432 $ 14,075 $ 14,034 $ 13,309
2002 $ 13,105 $ 15,008 $ 14,909 $ 14,008
2003 $ 13,354 $ 15,571 $ 15,377 $ 14,400
2004 $ 14,237 $ 16,589 $ 16,471 $ 15,205
2005 $ 14,829 $ 17,409 $ 17,345 $ 15,895
2006 $ 15,209 $ 17,919 $ 17,871 $ 16,303
(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 indexes reflect reinvestment of
all distributions and changes in market prices, but exclude brokerage
commissions or other fees.
(3) The Lipper Michigan Municipal Debt Funds Index includes the 10 largest
municipal debt funds in Michigan tracked by Lipper Inc.
(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 the Lipper peer group.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 37
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
9/1/96 to 8/31/06) 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 riversource.com/funds. Also see "Past Performance" in
the Fund's current prospectus.
COMPARATIVE RESULTS
Results at Aug. 31, 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 $ 9,760 $ 10,788 $ 11,717 $ 15,514 $ 30,421
- --------------------------------------------------------------------------------------------------------------
Average annual total return -2.40% +2.56% +3.22% +4.49% +5.71%
- --------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MINNESOTA 3 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,303 $ 11,583 $ 12,769 $ 17,794 N/A
- --------------------------------------------------------------------------------------------------------------
Average annual total return +3.03% +5.02% +5.01% +5.93% N/A
- --------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,303 $ 11,623 $ 12,732 $ 17,871 $ 37,767
- --------------------------------------------------------------------------------------------------------------
Average annual total return +3.03% +5.14% +4.95% +5.98% +6.87%
- --------------------------------------------------------------------------------------------------------------
LIPPER MINNESOTA MUNICIPAL DEBT FUNDS INDEX(3)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,272 $ 11,471 $ 12,462 $ 16,526 N/A
- --------------------------------------------------------------------------------------------------------------
Average annual total return +2.72% +4.68% +4.50% +5.15% N/A
- --------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
38 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
RIVERSOURCE MINNESOTA TAX-EXEMPT FUND
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
RiverSource Minnesota Lehman Brothers Lehman Brothers Lipper Minnesota
Tax-Exempt Fund Class A Minnesota 3 Plus Year Enhanced Municipal Bond Municipal Debt Funds
Year (includes sales charge) Municipal Bond Index(1) Index(2) Index(3)
1996 $ 9,525 $ 10,000 $ 10,000 $ 10,000
1997 $ 10,332 $ 10,922 $ 10,924 $ 10,811
1998 $ 11,168 $ 11,857 $ 11,869 $ 11,666
1999 $ 11,160 $ 11,883 $ 11,928 $ 11,625
2000 $ 11,659 $ 12,661 $ 12,736 $ 12,155
2001 $ 12,612 $ 13,935 $ 14,034 $ 13,263
2002 $ 13,378 $ 14,789 $ 14,909 $ 13,968
2003 $ 13,698 $ 15,362 $ 15,377 $ 14,407
2004 $ 14,567 $ 16,420 $ 16,471 $ 15,315
2005 $ 15,141 $ 17,271 $ 17,345 $ 16,088
2006 $ 15,514 $ 17,794 $ 17,871 $ 16,526
(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 indexes reflect 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.
(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
the Lipper peer group.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 39
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 9/1/96
to 8/31/06) 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 riversource.com/funds. Also see "Past Performance" in
the Fund's current prospectus.
COMPARATIVE RESULTS
Results at Aug. 31, 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 $ 9,757 $ 10,810 $ 11,677 $ 15,567 $ 29,233
- --------------------------------------------------------------------------------------------------------------
Average annual total return -2.43% +2.63% +3.15% +4.53% +5.50%
- --------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS NEW YORK 4 PLUS YEAR MUNICIPAL BOND INDEX(1)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,313 $ 11,759 $ 12,903 $ 18,647 N/A
- --------------------------------------------------------------------------------------------------------------
Average annual total return +3.13% +5.55% +5.23% +6.43% N/A
- --------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,303 $ 11,623 $ 12,732 $ 17,871 $ 38,196
- --------------------------------------------------------------------------------------------------------------
Average annual total return +3.03% +5.14% +4.95% +5.98% +6.87%
- --------------------------------------------------------------------------------------------------------------
LIPPER NEW YORK MUNICIPAL DEBT FUNDS INDEX(3)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,289 $ 11,514 $ 12,373 $ 16,792 $ 33,264
- --------------------------------------------------------------------------------------------------------------
Average annual total return +2.89% +4.81% +4.35% +5.32% +6.14%
- --------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
40 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
RIVERSOURCE NEW YORK TAX-EXEMPT FUND
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
RiverSource New York Lehman Brothers Lipper New York
Tax-Exempt Fund Class A New York 4 Plus Year Lehman Brothers Municipal Debt Funds
Year (includes sales charge) Municipal Bond Index(1) Municipal Bond Index(2) Index(3)
1996 $ 9,525 $ 10,000 $ 10,000 $ 10,000
1997 $ 10,382 $ 11,064 $ 10,924 $ 10,907
1998 $ 11,197 $ 12,128 $ 11,869 $ 11,841
1999 $ 11,102 $ 12,134 $ 11,928 $ 11,651
2000 $ 11,644 $ 13,004 $ 12,736 $ 12,278
2001 $ 12,699 $ 14,456 $ 14,034 $ 13,573
2002 $ 13,468 $ 15,339 $ 14,909 $ 14,247
2003 $ 13,713 $ 15,859 $ 15,377 $ 14,584
2004 $ 14,551 $ 17,086 $ 16,471 $ 15,519
2005 $ 15,196 $ 18,081 $ 17,345 $ 16,320
2006 $ 15,567 $ 18,647 $ 17,871 $ 16,792
(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 indexes reflect 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.
(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 New York 4 Plus
Year Municipal Bond Index.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 41
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 9/1/96 to
8/31/06) 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 riversource.com/funds. Also see "Past Performance" in
the Fund's current prospectus.
COMPARATIVE RESULTS
Results at Aug. 31, 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 $ 9,728 $ 10,668 $ 11,442 $ 15,041 $ 27,850
- --------------------------------------------------------------------------------------------------------------
Average annual total return -2.72% +2.18% +2.73% +4.17% +5.49%
- --------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS OHIO 4 PLUS YEAR ENHANCED MUNICIPAL BOND INDEX(1)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,300 $ 11,639 $ 12,903 $ 17,975 N/A
- --------------------------------------------------------------------------------------------------------------
Average annual total return +3.00% +5.19% +5.23% +6.04% N/A
- --------------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX(2)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,303 $ 11,623 $ 12,732 $ 17,871 $ 39,070
- --------------------------------------------------------------------------------------------------------------
Average annual total return +3.03% +5.14% +4.95% +5.98% +6.99%
- --------------------------------------------------------------------------------------------------------------
LIPPER OHIO MUNICIPAL DEBT FUNDS INDEX(3)
- --------------------------------------------------------------------------------------------------------------
Cumulative value of $10,000 $ 10,244 $ 11,435 $ 12,361 $ 16,627 N/A
- --------------------------------------------------------------------------------------------------------------
Average annual total return +2.44% +4.57% +4.33% +5.22% N/A
- --------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
42 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
RIVERSOURCE OHIO TAX-EXEMPT FUND
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
RiverSource Ohio Lehman Brothers Lehman Brothers Lipper Ohio
Tax-Exempt Fund Class A Ohio 4 Plus Year Enhanced Municipal Bond Municipal Debt Funds
Year (includes sales charge) Municipal Bond Index(1) Index(2) Index(3)
1996 $ 9,525 $ 10,000 $ 10,000 $ 10,000
1997 $ 10,315 $ 10,920 $ 10,924 $ 10,828
1998 $ 11,104 $ 11,838 $ 11,869 $ 11,700
1999 $ 11,071 $ 11,868 $ 11,928 $ 11,639
2000 $ 11,592 $ 12,655 $ 12,736 $ 12,261
2001 $ 12,522 $ 13,934 $ 14,034 $ 13,453
2002 $ 13,243 $ 14,869 $ 14,909 $ 14,148
2003 $ 13,429 $ 15,446 $ 15,377 $ 14,542
2004 $ 14,176 $ 16,538 $ 16,471 $ 15,473
2005 $ 14,728 $ 17,451 $ 17,345 $ 16,231
2006 $ 15,041 $ 17,975 $ 17,871 $ 16,627
(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 indexes reflect 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.
(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 the
Lipper peer group.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 43
INVESTMENTS IN SECURITIES
RiverSource California Tax-Exempt Fund
AUG. 31, 2006
(Percentages represent value of investments compared to net assets)
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (96.6%)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Abag Finance Authority for Nonprofit Corporations
Revenue Bonds
San Diego Hospital Association
Series 2001A
08-15-20 6.13% $ 2,500,000 $ 2,710,900
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) 512,319
Anaheim Union High School District
Prerefunded Unlimited General Obligation Bonds
Series 2002A (FSA)
08-01-16 5.38 1,550,000 1,697,669
Beaumont Financing Authority
Revenue Bonds
Series 2000A
09-01-32 7.38 1,955,000 2,099,944
Beverly Hills Public Financing Authority
Revenue Bonds
Capital Improvements Project
Series 1998A
06-01-23 5.00 3,000,000 3,077,160
California County Tobacco Securitization Agency
Asset-backed Revenue Bonds
Alameda County
Series 2002
06-01-29 5.75 785,000 821,361
06-01-42 6.00 240,000 251,640
California Educational Facilities Authority
Revenue Bonds
Stanford University
Series 1997N
12-01-27 5.20 1,000,000 1,029,420
- --------------------------------------------------------------------------------------------------------
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 $ 2,072,380
California Educational Facilities Authority
Revenue Bonds
University of the Pacific
Series 2006
11-01-25 5.00 1,685,000 1,753,950
California Health Facilities Financing Authority
Prerefunded Revenue Bonds
Sutter Health
Series 1999A (MBIA)
08-15-28 5.35 160,000 169,562
California Health Facilities Financing Authority
Refunding Revenue Bonds
Cedars-Sinai Medical Center
Series 2005
11-15-18 5.00 1,500,000 1,582,440
11-15-34 5.00 1,525,000 1,567,898
California Health Facilities Financing Authority
Revenue Bonds
Catholic Healthcare West
Series 2004G
07-01-23 5.25 3,500,000 3,671,184
California Health Facilities Financing Authority
Revenue Bonds
Kaiser Permanente
Series 2006A
04-01-39 5.25 2,000,000 2,104,400
California Health Facilities Financing Authority
Unrefunded Revenue Bonds
Sutter Health
Series 1999 (MBIA)
08-15-28 5.35 2,340,000 2,451,127
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
44 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 Infrastructure & Economic Development Bank
Prerefunded Revenue Bonds
Bay Area Toll Bridges
1st Lien
Series 2003A (AMBAC)
07-01-36 5.00% $ 225,000 $ 250,853
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 50,144
California State Department of Water Resources
Prerefunded Revenue Bonds
Series 2002A (MBIA)
05-01-15 6.00 2,000,000 2,263,060
California State Department of Water Resources
Revenue Bonds
Series 2002A (MBIA)
05-01-09 5.25 3,200,000 3,340,543
California State Public Works Board
Revenue Bonds
Department of General Services
Capital East End
Series 2002A
12-01-06 5.00 1,000,000 1,003,290
California Statewide Communities
Development Authority
Prerefunded Revenue Bonds
Thomas Jefferson School of Law Project
Series 2001
10-01-31 7.75 2,500,000 2,925,825
California Statewide Communities
Development Authority
Revenue Bonds
Kaiser Permanente
Series 2004E
04-01-32 3.88 750,000 748,620
California Statewide Communities
Development Authority
Revenue Bonds
Kaiser Permanente
Series 2006B
03-01-45 5.25 1,000,000 1,046,380
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
City of Long Beach
Refunding Revenue Bonds
Series 2005A (MBIA) A.M.T.
05-15-20 5.00% $ 1,500,000 $ 1,582,065
05-15-21 5.00 1,000,000 1,051,000
City of Los Angeles
Revenue Bonds
Series 2003A (FSA)
02-01-13 5.00 2,000,000 2,159,960
Commonwealth of Puerto Rico
Unlimited General Obligation
Public Improvement Bonds
Series 2004A
07-01-24 5.00 1,000,000(c) 1,031,260
Commonwealth of Puerto Rico
Unlimited General Obligation Refunding &
Public Improvement Bonds
Series 2006B
07-01-32 5.25 1,250,000(c) 1,323,675
07-01-35 5.00 1,250,000(c) 1,281,125
Contra Costa Water District
Refunding Revenue Bonds
Series 2003M (FSA)
10-01-16 5.00 1,500,000 1,617,390
County of Riverside
Certificate of Participation
Series 1998 (MBIA)
12-01-21 5.00 1,530,000 1,581,653
County of San Diego
Certificate of Participation
Series 1993 Inverse Floater (AMBAC)
09-01-07 7.32 3,200,000(f) 3,327,999
Desert Sands Unified School District
Refunding Certificate of Participation
Series 2003 (MBIA)
03-01-17 5.25 1,135,000 1,232,894
Encinitas Union School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1996 (MBIA)
08-01-15 5.85 2,500,000(b) 1,740,375
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 45
RiverSource California Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Fontana Unified School District
Unlimited General Obligation Bonds
Convertible Capital Appreciation
Series 1997D (FGIC)
05-01-22 5.75% $ 2,000,000 $ 2,141,520
Golden State Tobacco Securitization Corporation
Enhanced Asset-backed Revenue Bonds
Series 2005A
06-01-45 5.00 2,500,000 2,555,325
Golden State Tobacco Securitization Corporation
Prerefunded Enhanced Asset-backed Revenue Bonds
Series 2003B (FSA)
06-01-43 5.00 110,000 118,315
Golden State Tobacco Securitization Corporation
Revenue Bonds
Series 2003A-1
06-01-33 6.25 2,490,000 2,734,443
06-01-39 6.75 1,250,000 1,408,650
06-01-40 6.63 750,000 839,798
Hillsborough School District
Unlimited General Obligation Bonds
Capital Appreciation Election of 2002
Zero Coupon
Series 2006B
09-01-23 4.80 2,285,000(b) 1,062,365
09-01-24 4.82 2,640,000(b) 1,169,177
Inglewood Redevelopment Agency
Refunding Tax Allocation Bonds
Merged Redevelopment Project
Series 1998A (AMBAC)
05-01-23 5.25 1,100,000 1,235,542
Lake Elsinore Public Financing Authority
Revenue Bonds
Series 1997F
09-01-20 7.10 800,000 837,544
Lammersville School District
Community Facilities District
Special Tax Bonds
#2002 Mountain House
Series 2006
09-01-35 5.13 1,000,000 1,007,220
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Lancaster Redevelopment Agency
Refunding Tax Allocation Bonds
Combined Redevelopment Project Areas
Series 2003 (MBIA)
08-01-17 5.13% $ 1,840,000 $ 2,040,284
Los Angeles Department of Water & Power
Revenue Bonds
Power System
Series 2003B (FSA)
07-01-16 5.13 1,460,000 1,581,560
07-01-17 5.13 2,315,000 2,499,066
Los Angeles Harbor Department
Refunding Revenue Bonds
Series 2006A (MBIA) A.M.T.
08-01-13 5.00 2,000,000(g) 2,139,440
Los Angeles Harbor Department
Revenue Bonds
Series 1988 Escrowed to Maturity
10-01-18 7.60 925,000 1,123,154
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 1,030,680
Menlo Park
Unlimited General Obligation Bonds
Series 2002
08-01-32 5.30 1,900,000 2,029,219
Metropolitan Water District of Southern California
Prerefunded Revenue Bonds
Series 1997A
07-01-26 5.00 1,735,000 1,785,905
Oxnard School District
Unlimited General Obligation Refunding Bonds
Series 2001A (MBIA)
08-01-30 5.75 2,575,000 3,064,920
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) 933,555
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
46 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)
Port of Oakland
Revenue Bonds
Series 1997G (MBIA) A.M.T.
11-01-25 5.38% $ 3,080,000 $ 3,196,577
Port of Oakland
Revenue Bonds
Series 2000K (FGIC) A.M.T.
11-01-18 5.63 1,000,000 1,061,990
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 1,000,000(c) 1,065,300
Puerto Rico Public Finance Corporation
Revenue Bonds
Commonwealth Appropriation
Series 2004A (MBIA)
08-01-29 5.25 1,000,000(c) 1,075,240
San Diego Public Water Facilities Financing Authority
Revenue Bonds
Series 2002 (MBIA)
08-01-26 5.00 2,500,000 2,606,150
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) 2,733,093
San Francisco Bay Area Transit Financing Authority
Revenue Bonds
Series 2001 (AMBAC)
07-01-36 5.13 2,000,000 2,069,260
San Francisco City & County Airports Commission
Refunding Revenue Bonds
2nd Series 2001-27B (FGIC)
05-01-16 5.25 2,170,000 2,328,757
San Francisco City & County Public Utilities Commission
Revenue Bonds
Series 2002A (MBIA)
11-01-25 5.00 2,000,000 2,091,380
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
San Juan Unified School District
Unlimited General Obligation Bonds
Capital Appreciation
Zero Coupon
Series 1999 (FSA)
08-01-21 5.68% $ 820,000(b) $ 423,702
08-01-24 5.70 1,810,000(b) 804,636
San Mateo County Community College District
Unlimited General Obligation Bonds
Election of 2001
Series 2002A (FGIC)
09-01-18 5.38 1,000,000 1,089,760
San Ysidro School District
Unlimited General Obligation Bonds
Capital Appreciation
Election of 1997
Zero Coupon
Series 2005D (FGIC)
08-01-27 4.91 2,500,000(b) 958,375
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 3,295,799
Semitropic Improvement District
Revenue Bonds
Series 2004A (XLCA)
12-01-28 5.00 2,000,000 2,080,620
State of California
Prerefunded Unlimited General Obligation Bonds
Series 2000
05-01-19 5.63 1,365,000 1,471,224
10-01-25 5.38 2,500,000 2,672,944
State of California
Unlimited General Obligation Bonds
Series 2001
03-01-31 5.13 2,500,000 2,575,100
06-01-31 5.13 2,500,000 2,578,400
State of California
Unlimited General Obligation Bonds
Series 2002
02-01-15 6.00 1,000,000(g) 1,146,870
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 47
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 2003
02-01-10 5.00% $ 1,000,000 $ 1,043,770
02-01-21 5.25 2,500,000 2,678,975
02-01-29 5.25 2,500,000 2,633,025
02-01-32 5.00 2,500,000 2,577,850
State of California
Unlimited General Obligation Bonds
Series 2003 (FGIC)
11-01-20 5.25 1,000,000 1,084,160
State of California
Unlimited General Obligation Bonds
Series 2004
03-01-14 5.25 2,000,000 2,184,680
04-01-29 5.30 2,000,000 2,135,980
02-01-33 5.00 1,000,000 1,033,050
State of California
Unlimited General Obligation Bonds
Series 2004 (FGIC)
02-01-33 5.00 2,500,000 2,600,200
State of California
Unlimited General Obligation Bonds
Series 2004A
01-01-11 5.25 1,000,000 1,065,820
State of California
Unlimited General Obligation Bonds
Series 2004A (FGIC)
07-01-17 5.00 2,000,000 2,119,140
State of California
Unlimited General Obligation Bonds
Various Purpose
Series 2003
11-01-22 5.00 2,000,000 2,096,600
11-01-23 5.13 2,500,000 2,638,300
11-01-24 5.13 2,000,000 2,108,120
11-01-29 5.25 500,000 530,850
State of California
Unlimited General Obligation Bonds
Veterans
Series 2000BJ A.M.T.
12-01-12 4.95 2,250,000 2,314,058
12-01-13 5.05 1,435,000(g) 1,477,103
12-01-14 5.15 2,535,000 2,607,983
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
State of California
Unrefunded Unlimited General Obligation Bonds
Series 2000
05-01-19 5.63% $ 400,000 $ 428,852
Stockton
Revenue Bonds
Mortgage-backed Securities Program
Series 1990A (GNMA/FNMA/FHLMC) A.M.T.
02-01-23 7.50 30,000 30,221
Tobacco Securitization Authority of Northern California
Prerefunded Asset-backed Revenue Bonds
Series 2001A
06-01-41 5.38 255,000 274,877
Tobacco Securitization Authority of Southern California
Revenue Bonds
Series 2006-A1
06-01-37 5.00 2,000,000 1,991,120
University of California
Revenue Bonds
Multiple Purpose Projects
Series 2003Q (FSA)
09-01-18 5.00 2,000,000 2,120,900
University of California
Revenue Bonds
Multiple Purpose
Series 2000K (FGIC)
09-01-20 5.00 1,010,000 1,045,481
Walnut Energy Center Authority
Revenue Bonds
Series 2004A (AMBAC)
01-01-29 5.00 2,500,000 2,603,975
01-01-34 5.00 1,000,000 1,036,500
Whittier Union High School District
Prerefunded Unlimited General Obligation Bonds
Election of 1999
Series 2003D (FSA)
08-01-28 5.00 2,615,000 2,831,862
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $168,032,081) $ 175,087,776
- --------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
48 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource California Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (2.3%)
- --------------------------------------------------------------------------------------------------------
ISSUE(d,e,h) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
California Infrastructure & Economic Development Bank
Revenue Bonds
Rand Corporation
V.R.D.N. Series 2002B
(JPMorgan Chase Bank) AMBAC
04-01-42 3.30% $ 1,300,000 $ 1,300,000
California State Department of Water Resources
Revenue Bonds
V.R.D.N. Series 2002B-3
(Bank of New York)
05-01-22 3.50 100,000 100,000
California State Department of Water Resources
Revenue Bonds
V.R.D.N. Series 2005F-4
(Bank of America)
05-01-22 3.50 1,600,000 1,600,000
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (CONTINUED)
- --------------------------------------------------------------------------------------------------------
ISSUE(d,e,h) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
Irvine
Limited Obligation Assessment Revenue Bonds
V.R.D.N. Series 2006-B
(KBC Bank)
09-02-30 3.23% $ 1,200,000 $ 1,200,000
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $4,200,000) $ 4,200,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $172,232,081)(i) $ 179,287,776
========================================================================================================
- ------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- ------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
3.2% of net assets at Aug. 31, 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
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
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 49
RiverSource California Tax-Exempt Fund
- ------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- ------------------------------------------------------------------------------
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2006, the value of
securities subject to alternative minimum tax represented
8.6% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(f) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed
is the rate in effect on Aug. 31, 2006. At Aug. 31, 2006, the value of
inverse floaters represented 1.8% of net assets.
(g) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT
------------------------------------------------------------------------
SALE CONTRACTS
U.S. Long Bond, Dec. 2006, 20-year $ 1,400,000
U.S. Treasury Note, Dec. 2006, 10-year 2,400,000
(h) 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 Aug. 31, 2006.
(i) At Aug. 31, 2006, the cost of securities for federal income tax purposes
was $172,194,581 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 7,216,133
Unrealized depreciation (122,938)
------------------------------------------------------------------------
Net unrealized appreciation $ 7,093,195
------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations
of the Public Reference Room may be obtained by calling 1-800-SEC-0330);
and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form
N-Q, can be found at riversource.com/funds.
- ------------------------------------------------------------------------------
50 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
INVESTMENTS IN SECURITIES
RiverSource Massachusetts Tax-Exempt Fund
AUG. 31, 2006
(Percentages represent value of investments compared to net assets)
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (97.4%)
- --------------------------------------------------------------------------------------------------------
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 $ 2,187,781
City of Boston
Revenue Bonds
Series 2004A
11-01-22 5.00 1,000,000 1,058,230
City of Boston
Unlimited General Obligation Bonds
Series 2005A
01-01-14 5.00 1,000,000 1,081,970
City of Boston
Unlimited General Obligation Refunding Bonds
Series 2003A (MBIA)
02-01-23 5.00 1,000,000 1,045,040
City of Springfield
Limited General Obligation Bonds
State Qualified
Series 2003 (MBIA)
01-15-20 5.25 1,405,000 1,515,756
Commonwealth of Massachusetts
Limited General Obligation Bonds
Consolidated Loan
Series 2002C (FSA)
11-01-15 5.50 2,500,000 2,817,599
Commonwealth of Massachusetts
Limited General Obligation Refunding Bonds
Series 1997A (AMBAC)
08-01-10 5.75 2,185,000 2,355,364
Commonwealth of Massachusetts
Limited General Obligation Refunding Bonds
Series 2004B
08-01-22 5.25 500,000 560,435
Commonwealth of Massachusetts
Limited General Obligation Refunding Bonds
Series 2004B (MBIA)
08-01-27 5.25 500,000 571,040
- --------------------------------------------------------------------------------------------------------
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 $ 2,575,974
Commonwealth of Massachusetts
Prerefunded Limited General Obligation Bonds
Consolidated Loan
Series 2002C
11-01-30 5.25 2,000,000 2,161,101
Commonwealth of Massachusetts
Prerefunded Unlimited General Obligation Bonds
Consolidated Loan
Series 2003D
10-01-22 5.25 1,000,000 1,087,830
Commonwealth of Massachusetts
Refunding Revenue Bonds
Series 2005 (FGIC)
01-01-28 5.50 500,000 585,480
Commonwealth of Massachusetts
Revenue Bonds
Grant Anticipation Notes
Series 1998A (FSA)
06-15-09 5.25 1,500,000(f) 1,563,105
Commonwealth of Massachusetts
Special Obligation Refunding Bonds
Federal Highway Grant Anticipation Notes
Series 2003A (FSA)
12-15-14 5.00 1,000,000 1,079,300
Commonwealth of Massachusetts
Unlimited General Obligation Bonds
Consolidated Loan
Series 2005B
08-01-14 5.00 750,000(f) 810,383
Commonwealth of Massachusetts
Unlimited General Obligation Refunding Bonds
Series 2004A (FSA)
08-01-20 5.25 500,000 562,150
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 51
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 Public Improvement
Bonds
Series 2001 (FSA)
07-01-16 5.50% $ 500,000(c) $ 567,775
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement Bonds
Series 2001A (FGIC)
07-01-29 5.50 500,000(c) 593,145
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement
Bonds
Series 2006A
07-01-27 5.25 375,000(c) 398,018
Commonwealth of Puerto Rico
Unlimited General Obligation Refunding & Public
Improvement Bonds
Series 2006B
07-01-32 5.25 375,000(c) 397,103
07-01-35 5.00 250,000(c) 256,225
Massachusetts Bay Transportation Authority
Prerefunded Special Assessment Bonds
Series 2005A
07-01-25 5.00 250,000 264,788
07-01-26 5.00 250,000 264,223
Massachusetts Bay Transportation Authority
Refunding Revenue Bonds
Series 1992B
03-01-16 6.20 1,500,000 1,720,470
Massachusetts Bay Transportation Authority
Revenue Bonds
Series 2005A
07-01-30 5.00 450,000 495,923
07-01-31 5.00 500,000 550,620
Massachusetts Development Finance Agency
Prerefunded Revenue Bonds
Briarwood
Series 2001B
12-01-30 8.25 750,000 887,723
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Massachusetts Development Finance Agency
Revenue Bonds
Devens Electric System
Series 2001
12-01-30 6.00% $ 1,000,000 $ 1,071,060
Massachusetts Development Finance Agency
Revenue Bonds
May Institute
Series 1999 (Radian Group Financial Guaranty)
09-01-29 5.75 1,000,000 1,048,630
Massachusetts Development Finance Agency
Revenue Bonds
Smith College
Series 2005
07-01-35 5.00 500,000 518,740
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Boston College
Series 2003N
06-01-21 5.25 1,000,000 1,078,620
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Harvard University
Series 2002FF
07-15-37 5.13 2,500,000 2,624,149
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Massachusetts Institute of Technology
Series 2004M
07-01-25 5.25 1,000,000 1,148,320
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Williams College
Series 2003H
07-01-33 5.00 1,000,000 1,040,930
Massachusetts Housing Finance Agency
Revenue Bonds
Single Family
Series 2003-98 A.M.T.
06-01-23 4.88 985,000 999,450
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
52 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 Housing Finance Agency
Revenue Bonds
Single Family
Series 2006-122 A.M.T.
12-01-31 4.85% $ 750,000 $ 758,685
Massachusetts Industrial Finance Agency
Revenue Bonds
Tufts University
Series 1998H (MBIA)
02-15-28 4.75 1,000,000(f) 1,010,990
Massachusetts Municipal Wholesale Electric Company
Revenue Bonds
Nuclear Project #5
Series 2001A (MBIA)
07-01-10 5.00 1,000,000 1,047,310
Massachusetts Port Authority
Revenue Bonds
Series 2003A (MBIA)
07-01-18 5.00 1,000,000 1,059,730
Massachusetts School Building Authority
Revenue Bonds
Series 2005A (FSA)
08-15-24 5.00 1,000,000 1,058,330
Massachusetts State Water Pollution Abatement
Revenue Bonds
Pool Program
Series 2004-10
08-01-34 5.00 1,000,000 1,042,360
Massachusetts State Water Pollution Abatement
Unrefunded Revenue Bonds
Pool Program
Series 2002-8
08-01-20 5.00 25,000 26,383
Massachusetts Water Resources Authority
Refunding Revenue Bonds
Series 1998B (FSA)
08-01-11 5.50 1,430,000 1,550,392
Massachusetts Water Resources Authority
Refunding Revenue Bonds
Series 2005A (MBIA)
08-01-22 5.00 500,000 536,950
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Massachusetts Water Resources Authority
Revenue Bonds
Series 1992A (FGIC)
07-15-19 6.50% $ 2,000,000 $ 2,398,119
Massachusetts Water Resources Authority
Revenue Bonds
Series 2004D (MBIA)
08-01-27 4.75 1,000,000 1,029,600
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 1,000,000(c) 1,046,779
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002 Inverse Floater (MBIA)
07-01-17 5.90 500,000(b,c) 641,970
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25 300,000(c) 337,254
Puerto Rico Infrastructure Financing Authority
Refunding Special Tax Bonds
Series 2005C (AMBAC)
07-01-23 5.50 500,000(c) 583,100
University of Massachusetts Building Authority
Prerefunded Revenue Bonds
Series 2003-1 (AMBAC)
11-01-21 5.25 1,000,000 1,095,260
University of Massachusetts Building Authority
Revenue Bonds
Series 1976 Escrowed to Maturity
05-01-11 7.50 50,000 54,704
Woods Hole Martha's Vineyard &
Nantucket Steamship Authority
Revenue Bonds
Series 2004B
03-01-20 5.00 750,000 802,403
Worcester
Limited General Obligation Bonds
Series 2001A (FGIC)
08-15-12 5.50 1,400,000 1,512,168
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $55,608,818) $ 57,136,937
- --------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 53
RiverSource Massachusetts Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (1.9%)
- --------------------------------------------------------------------------------------------------------
ISSUE(d,e,g) 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 3.56% $ 500,000 $ 500,000
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Capital Assets Program
V.R.D.N. Series 1985E (Fleet Natl Bank)
01-01-35 3.42 100,000 100,000
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (CONTINUED)
- --------------------------------------------------------------------------------------------------------
ISSUE(d,e,g) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
Massachusetts Health & Educational Facilities Authority
Revenue Bonds
Harvard University
V.R.D.N. Series 1999R
11-01-49 3.47% $ 500,000 $ 500,000
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $1,100,000) $ 1,100,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $56,708,818)(h) $ 58,236,937
========================================================================================================
- ------------------------------------------------------------------------------
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 Aug. 31, 2006. At Aug. 31, 2006, the value of
inverse floaters represented 1.1% 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
8.2% of net assets at Aug. 31, 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
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
- ------------------------------------------------------------------------------
54 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Massachusetts Tax-Exempt Fund
- ------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- ------------------------------------------------------------------------------
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 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
(f) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT
------------------------------------------------------------------------
SALE CONTRACTS
U.S. Long Bond, Dec. 2006, 20-year $ 500,000
U.S. Treasury Note, Dec. 2006, 10-year 800,000
(g) 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 Aug. 31, 2006.
(h) At Aug. 31, 2006, the cost of securities for federal income tax purposes
was $56,706,833 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 1,646,659
Unrealized depreciation (116,555)
------------------------------------------------------------------------
Net unrealized appreciation $ 1,530,104
------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations
of the Public Reference Room may be obtained by calling 1-800-SEC-0330);
and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form
N-Q, can be found at riversource.com/funds.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 55
INVESTMENTS IN SECURITIES
RiverSource Michigan Tax-Exempt Fund
AUG. 31, 2006
(Percentages represent value of investments compared to net assets)
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (96.2%)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Allen Park Public School District
Unlimited General Obligation Bonds
School Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-18 5.00% $ 1,000,000 $ 1,059,650
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 1,038,290
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement Bonds
Series 2001A (FGIC)
07-01-29 5.50 750,000(c) 889,718
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement Bonds
Series 2001 (FSA)
07-01-16 5.50 500,000(c) 567,775
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement Bonds
Series 2004A
07-01-24 5.00 500,000(c) 515,630
Commonwealth of Puerto Rico
Unlimited General Obligation Refunding & Public
Improvement Bonds
Series 2006B
07-01-32 5.25 250,000(c) 264,735
07-01-35 5.00 250,000(c) 256,225
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 1,068,730
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Detroit
Revenue Bonds
Second Lien
Series 2005A (MBIA)
07-01-30 5.00% $ 500,000 $ 523,940
Detroit
Revenue Bonds
Senior Lien
Series 2003A (MBIA)
07-01-34 5.00 1,375,000 1,429,642
Detroit
Revenue Bonds
Series 2003B (MBIA)
07-01-32 5.25 1,500,000 1,637,024
Detroit
Unlimited General Obligation Bonds
Series 2001A-1 (MBIA)
04-01-15 5.38 1,000,000 1,076,270
Eastern Michigan University
Prerefunded Revenue Bonds
Series 2003A (FGIC)
06-01-28 5.00 1,000,000 1,075,590
Goodrich Area School District
Prerefunded Unlimited General Obligation Bonds
Series 2003B
(Qualified School Bond Loan Fund)
05-01-27 5.00 505,000 545,243
Goodrich Area School District
Unrefunded Unlimited General Obligation Bonds
Series 2003B
(Qualified School Bond Loan Fund)
05-01-27 5.00 495,000 519,220
Grand Rapids Building Authority
Prerefunded Revenue Bonds
Series 2002A (AMBAC)
10-01-17 5.50 505,000(h) 554,859
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
56 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,e)
Grand Rapids Building Authority
Unrefunded Revenue Bonds
Series 2002A (AMBAC)
10-01-17 5.50% $ 765,000 $ 832,626
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 1,043,280
Jackson
Limited General Obligation Bonds
Capital Appreciation
Downtown Development
Zero Coupon
Series 2001 (FSA)
06-01-21 5.58 1,450,000(b) 753,696
L'Anse Creuse Public Schools
Unlimited General Obligation Refunding Bonds
Building & Site
Series 2003
(Qualified School Bond Loan Fund)
05-01-11 4.00 1,000,000 1,013,530
Lansing Community College
Limited General Obligation Bonds
Series 2002 (FGIC)
05-01-12 5.00 1,000,000 1,067,290
Lawton Community Schools
Prerefunded Unlimited General Obligation Bonds
Series 2001
(Qualified School Bond Loan Fund)
05-01-31 5.00 800,000 849,504
Lawton Community Schools
Unrefunded Unlimited General Obligation Bonds
Series 2001
(Qualified School Bond Loan Fund)
05-01-31 5.00 200,000 206,678
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(h) 1,481,983
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Michigan Higher Education Student Loan Authority
Revenue Bonds
Student Loan
Series 2006 XVII-Q (AMBAC) A.M.T.
03-01-26 4.95% $ 200,000 $ 204,748
03-01-31 5.00 375,000 384,784
Michigan Municipal Bond Authority
Refunding Revenue Bonds
Clean Water State Revolving Fund
Series 2005
10-01-15 5.00 500,000 545,255
Michigan Municipal Bond Authority
Revenue Bonds
Clean Water State Revolving Fund
Series 2001
10-01-14 5.00 500,000 529,070
10-01-20 5.00 1,000,000 1,049,660
Michigan Municipal Bond Authority
Revenue Bonds
Clean Water State Revolving Fund
Series 2002
10-01-20 5.38 1,000,000 1,084,060
10-01-21 5.38 1,000,000 1,084,630
Michigan Municipal Bond Authority
Revenue Bonds
School District City of Detroit
Series 2005 (FSA)
06-01-19 5.00 500,000 531,600
Michigan Public Power Agency
Refunding Revenue Bonds
Belle River Project
Series 2002A (MBIA)
01-01-09 5.25 2,000,000 2,070,899
01-01-14 5.25 500,000 546,920
Michigan State Building Authority
Refunding Revenue Bonds
Facilities Program
Series 2003 II (MBIA)
10-15-29 5.00 1,000,000 1,045,550
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 57
RiverSource Michigan Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Michigan State Hospital Finance Authority
Refunding Revenue Bonds
Henry Ford Health System
Series 2006A
11-15-26 5.00% $ 500,000 $ 519,810
11-15-46 5.25 750,000 785,528
Michigan State Hospital Finance Authority
Revenue Bonds
Oakwood Obligated Group
Series 2003
11-01-18 5.50 1,000,000 1,076,340
Michigan Strategic Fund
Refunding Revenue Bonds
Detroit Edison
Series 1990BB (MBIA)
07-15-08 7.00 1,000,000 1,059,420
Plymouth-Canton Community School District
Unlimited General Obligation Refunding Bonds
Series 2003
(Qualified School Bond Loan Fund)
05-01-15 5.25 600,000(h) 653,262
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002 Inverse Floater (MBIA)
07-01-17 5.90 250,000(c,g) 320,985
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2002C (XLCA)
07-01-13 5.50 1,000,000(c) 1,110,100
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 500,000(c) 532,650
Roseville School District
Refunding Unlimited General Obligation Bonds
School Building & Site
Series 2006 (FSA)
(Qualified School Bond Loan Fund)
05-01-23 5.00 500,000 531,040
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Saginaw Hospital Finance Authority
Refunding Revenue Bonds
Covenant Medical Center
Series 2004G
07-01-22 5.13% $ 500,000 $ 521,380
Saline Area Schools
Unlimited General Obligation Bonds
Series 2000A
(Qualified School Bond Loan Fund)
05-01-09 4.75 1,000,000 1,028,040
South Lyon Community Schools
Unlimited General Obligation Bonds
School Building & Site
Series 2003 (FGIC)
05-01-28 5.00 1,000,000 1,041,830
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 1,100,994
State of Michigan
Certificate of Participation
Series 2004A (MBIA)
09-01-31 4.25 750,000 762,128
State of Michigan
Unlimited General Obligation Bonds
Environmental Programs
Series 2003A
05-01-10 5.00 1,000,000 1,047,120
Summit Academy North
Prerefunded Certificate of Participation
Series 2001
07-01-30 7.38 750,000 847,568
Summit Academy
Prerefunded Certificate of Participation
Full Term
Series 1998
09-01-18 7.00 480,000 508,498
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
58 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,e)
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 $ 532,265
Waverly Community School
Prerefunded Unlimited General Obligation Bonds
Series 2000 (FGIC)
05-01-17 5.25 1,000,000 1,056,310
Wayne County Airport Authority
Revenue Bonds
Detroit Metro Wayne County Airport
Series 2005 (MBIA) A.M.T.
12-01-19 4.75 500,000 511,985
Western Township Utilities Authority
Limited General Obligation Bonds
Series 2002 (FGIC)
01-01-08 5.00 500,000 508,655
Williamston Community School District
Unlimited General Obligation Bonds
Series 1996 (MBIA)
(Qualified School Bond Loan Fund)
05-01-25 5.50 1,000,000 1,138,930
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 1,357,850
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
TOTAL MUNICIPAL BONDS
(Cost: $46,586,903) $ 47,900,992
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (1.2%)
- --------------------------------------------------------------------------------------------------------
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 3.41% $ 500,000 $ 500,000
University of Michigan
Refunding Revenue Bonds
University of Michigan Hospitals
V.R.D.N. Series 1992A
12-01-19 3.45 100,000 100,000
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $600,000) $ 600,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $47,186,903)(i) $ 48,500,992
========================================================================================================
- ------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- ------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(c) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
9.0% of net assets at Aug. 31, 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
CIFG -- IXIS Financial Guaranty
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 59
RiverSource Michigan Tax-Exempt Fund
- ------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- ------------------------------------------------------------------------------
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 Aug. 31, 2006, the value of
securities subject to alternative minimum tax represented
2.2% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(f) The Fund is entitled to receive principal and interest from the party
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 Aug. 31, 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 Aug. 31, 2006. At Aug. 31, 2006, the value of
inverse floaters represented 0.6% of net assets.
(h) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT
------------------------------------------------------------------------
SALE CONTRACTS
U.S. Long Bond, Dec. 2006, 20-year $ 400,000
U.S. Treasury Note, Dec. 2006, 10-year 700,000
(i) At Aug. 31, 2006, the cost of securities for federal income tax purposes
was $47,186,903 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 1,382,933
Unrealized depreciation (68,844)
- ------------------------------------------------------------------------------
Net unrealized appreciation $ 1,314,089
- ------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations
of the Public Reference Room may be obtained by calling 1-800-SEC-0330);
and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form
N-Q, can be found at riversource.com/funds.
- ------------------------------------------------------------------------------
60 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
INVESTMENTS IN SECURITIES
RiverSource Minnesota Tax-Exempt Fund
AUG. 31, 2006
(Percentages represent value of investments compared to net assets)
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (96.5%)
- --------------------------------------------------------------------------------------------------------
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 $ 1,411,924
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 2,492,087
02-01-10 5.00 1,000,000 1,043,770
02-01-13 5.00 4,175,000 4,395,231
02-01-15 5.00 1,990,000 2,087,550
02-01-16 5.00 2,000,000 2,097,220
Austin Housing & Redevelopment Authority
Revenue Bonds
Courtyard Residence Project
Series 2000A
01-01-32 7.25 2,000,000 2,097,860
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(i) 2,107,280
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 1,563,225
City of Breckenridge
Revenue Bonds
Catholic Health Initiatives
Series 2004A
05-01-30 5.00 3,335,000 3,492,312
- --------------------------------------------------------------------------------------------------------
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 $ 1,261,916
10-01-30 5.00 3,800,000 3,937,218
City of Minneapolis
Revenue Bonds
Fairview Health Services
Series 2002B (MBIA)
05-15-14 5.50 2,050,000 2,251,023
05-15-15 5.50 2,160,000 2,368,310
05-15-16 5.50 2,200,000 2,408,626
05-15-17 5.50 1,295,000 1,416,406
City of Minneapolis
Unlimited General Obligation Bonds
Convention Center
Series 2002
12-01-12 5.00 1,500,000 1,578,735
City of Minneapolis
Unlimited General Obligation Bonds
Various Purpose
Series 2001
12-01-11 5.00 3,035,000 3,237,465
City of Stillwater
Revenue Bonds
Health System Obligation Group
Series 2005
06-01-19 5.00 2,505,000 2,603,647
06-01-25 5.00 1,750,000 1,804,845
06-01-35 5.00 3,145,000 3,234,444
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement
Bonds
Series 2001 (FSA)
07-01-16 5.50 1,500,000(c) 1,703,325
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 61
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 Public Improvement
Bonds
Series 2006A
07-01-27 5.25% $ 2,000,000(c) $ 2,122,760
Commonwealth of Puerto Rico
Unlimited General Obligation Refunding & Public
Improvement Bonds
Series 2006B
07-01-32 5.25 2,000,000(c) 2,117,880
07-01-35 5.00 1,500,000(c) 1,537,350
County of Anoka
Limited General Obligation Refunding Bonds
Capital Improvement
Series 2001C (MBIA)
02-01-09 4.60 2,960,000 3,032,934
County of Ramsey
Unlimited General Obligation Refunding Bonds
Capital Improvement Plan
Series 2002B
02-01-10 5.25 2,150,000 2,266,810
02-01-14 5.25 3,840,000 4,090,867
County of Washington
Unlimited General Obligation Refunding Bonds
Capital Improvement Plan
Series 2000A
02-01-20 5.50 1,000,000 1,058,000
Edina Independent School District #273
Unlimited General Obligation Bonds
Series 2004
02-01-12 4.00 3,700,000 3,768,339
02-01-22 4.25 3,000,000 2,993,160
02-01-23 4.50 3,000,000 3,061,800
02-01-24 4.50 3,400,000 3,487,346
Elk River Independent School District #728
Unlimited General Obligation Bonds
Series 2002 Inverse Floater (FSA)
(School District Credit Enhancement Program)
02-01-18 6.34 1,200,000(h) 1,498,332
02-01-19 6.34 1,150,000(h) 1,423,689
02-01-20 6.34 950,000(h) 1,169,393
02-01-21 6.35 1,285,000(h) 1,575,731
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Elk River Independent School District #728
Unlimited General Obligation Bonds
Series 2002A (FSA)
(School District Credit Enhancement Program)
02-01-16 5.00% $ 3,000,000 $ 3,197,520
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 3,838,877
Hennepin County
Unlimited General Obligation Bonds
Series 2003
12-01-06 4.00 2,000,000 2,002,260
12-01-23 4.75 2,000,000 2,062,480
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 1,928,853
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 2,448,552
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 1,557,691
Metropolitan Council Minneapolis-St. Paul
Metropolitan Area
Unlimited General Obligation Bonds
Transportation
Series 2002C
02-01-09 5.00 3,240,000 3,348,702
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
62 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)
Minneapolis & St. Paul
Housing & Redevelopment Authority
Revenue Bonds
HealthPartners Obligation Group Project
Series 2003
12-01-12 5.25% $ 1,000,000 $ 1,054,210
12-01-15 5.13 1,500,000 1,564,785
12-01-16 5.25 1,250,000 1,312,775
Minneapolis & St. Paul
Housing & Redevelopment Authority
Revenue Bonds
HealthSpan
Series 1993A (AMBAC)
11-15-18 4.75 5,000,000 5,009,950
Minneapolis Community Development Agency
Revenue Bonds
Limited Tax -- Common Bond Fund
Series 1996-1
06-01-11 6.00 980,000 985,586
Minneapolis Community Development Agency
Revenue Bonds
Limited Tax -- Common Bond Fund
Series 1997-7A
06-01-12 5.50 250,000 255,770
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 1,070,740
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 1,047,040
Minneapolis/St. Paul Housing Finance Board
Revenue Bonds
Mortgage-backed-City Living
Series 2006A-5 (GNMA/FNMA/FHLMC)
04-01-27 5.45 2,250,000(b) 2,406,353
Minneapolis/St. Paul Housing Finance Board
Revenue Bonds
Single Family Housing
Series 2005-A-4 (GNMA/FNMA/FHLMC) A.M.T.
12-01-37 4.70 107,219 106,689
- --------------------------------------------------------------------------------------------------------
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 1998A (AMBAC)
01-01-24 5.20% $ 4,000,000 $ 4,117,080
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Series 1999B (FGIC) A.M.T.
01-01-16 5.63 2,920,000(i) 3,063,839
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Series 2001B (FGIC) A.M.T.
01-01-16 5.75 4,875,000 5,202,064
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Sub Series 2001C (FGIC)
01-01-18 5.50 2,000,000(i) 2,143,200
01-01-32 5.25 7,000,000 7,332,219
Minneapolis-St. Paul Metropolitan Airports Commission
Revenue Bonds
Sub Series 2005A (AMBAC)
01-01-29 5.00 1,900,000 1,992,074
Minnesota Agricultural & Economic Development Board
Prerefunded Revenue Bonds
Health Care System
Series 2000A
11-15-22 6.38 4,845,000 5,397,185
11-15-29 6.38 2,910,000 3,241,653
Minnesota Agricultural & Economic Development Board
Revenue Bonds
Health Care System -- Benedictine Health
Series 1999A (MBIA)
02-15-16 4.75 1,000,000 1,034,750
Minnesota Agricultural & Economic Development Board
Unrefunded Revenue Bonds
Health Care System
Series 2000A
11-15-22 6.38 155,000 171,074
11-15-29 6.38 90,000 99,554
Minnesota Higher Education Facilities Authority
Revenue Bonds
Macalester College
6th Series 2004B
03-01-17 5.00 2,395,000 2,556,591
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 63
RiverSource Minnesota Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Minnesota Higher Education Facilities Authority
Revenue Bonds
St. John's University
6th Series 2005G
10-01-22 5.00% $ 2,000,000 $ 2,110,320
Minnesota Higher Education Facilities Authority
Revenue Bonds
University of St. Thomas
5th Series 2004Y
10-01-34 5.25 2,800,000 2,965,956
Minnesota Housing Finance Agency
Revenue Bonds
Residential Housing Finance
Series 2006B A.M.T.
07-01-26 4.75 1,905,000 1,921,288
07-01-31 4.85 2,570,000 2,597,396
07-01-37 4.90 5,000,000 5,038,850
Minnesota Housing Finance Agency
Revenue Bonds
Series 2002 Inverse Floater A.M.T.
07-01-33 7.19 1,075,000(h) 1,153,271
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1996J A.M.T.
07-01-21 5.60 90,000 91,625
Minnesota Housing Finance Agency
Revenue Bonds
Single Family Mortgage
Series 1997K A.M.T.
01-01-26 5.75 975,000 991,107
Minnesota Public Facilities Authority
Prerefunded Revenue Bonds
Series 2001A
03-01-20 5.00 4,000,000 4,183,240
Minnesota Public Facilities Authority
Revenue Bonds
Series 2002B
03-01-10 5.00 2,500,000 2,620,375
03-01-13 5.25 2,500,000 2,727,650
03-01-14 5.25 2,500,000 2,751,350
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Minnesota Public Facilities Authority
Revenue Bonds
Series 2005C
03-01-25 5.00% $ 2,000,000 $ 2,123,480
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2004A
10-01-29 5.13 3,500,000 3,648,960
Minnesota State Municipal Power Agency
Revenue Bonds
Series 2005
10-01-30 5.00 2,000,000 2,072,220
Monticello Big Lake Community Hospital District
Revenue Bonds
Health Care Facilities
Series 1998A
(Asset Guaranty/Radian Group Financial Guaranty)
12-01-19 5.75 1,600,000 1,685,584
Northern Municipal Power Agency
Refunding Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1989A (AMBAC)
01-01-10 3.80 2,000,000(g) 1,755,900
Northern Municipal Power Agency
Refunding Revenue Bonds
Series 1998B (AMBAC)
01-01-20 4.75 5,000,000 5,116,800
Northfield
Revenue Bonds
Series 2006
11-01-31 5.38 1,500,000 1,564,950
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 1,659,364
02-01-12 5.00 3,455,000 3,681,717
02-01-15 5.25 3,585,000 3,858,356
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
64 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)
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 $ 3,439,840
02-01-14 5.75 1,100,000 1,180,795
Plymouth Housing & Redevelopment Authority
Unlimited General Obligation Bonds
Governmental Housing Project
Series 2005
02-01-35 5.00 2,135,000 2,254,795
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 3,000,000(c) 3,140,339
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2003NN (MBIA)
07-01-32 5.00 2,820,000(c) 2,945,603
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25 1,650,000(c) 1,854,897
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 2,250,000(c) 2,432,093
Puerto Rico Public Buildings Authority
Refunding Revenue Bonds
Government Facilities
Series 2004J (AMBAC)
07-01-36 5.00 1,500,000(c) 1,597,950
Shakopee
Revenue Bonds
St. Francis Regional Medical Center
Series 2004
09-01-25 5.10 3,300,000 3,420,384
Southern Minnesota Municipal Power Agency
Revenue Bonds
Capital Appreciation
Zero Coupon
Series 1994A (MBIA)
01-01-19 6.67 17,000,000(g) 9,968,629
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
Southern Minnesota Municipal Power Agency
Revenue Bonds
Series 2002A (AMBAC)
01-01-17 5.25% $ 6,000,000 $ 6,660,839
Southern Minnesota Municipal Power Agency
Revenue Bonds
Series 2003A (MBIA)
01-01-11 5.00 5,500,000 5,805,195
St. Cloud Housing & Redevelopment Authority
Revenue Bonds
State University Foundation Project
Series 2002
05-01-18 5.13 3,000,000 3,181,560
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Community of Peace Academy Project
Series 2001A
12-01-30 7.88 2,390,000 2,553,882
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Healtheast Project
Series 2005
11-15-25 6.00 1,250,000 1,360,988
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Lyngblomsten Care Center Housing Project
Series 1993
11-01-06 7.13 265,000 265,739
11-01-17 7.13 1,480,000 1,483,152
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Rental -- Lyngblomsten Housing Project
Series 1993
11-01-24 7.00 1,680,000 1,682,621
St. Paul Port Authority
Revenue Bonds
Office Building at Cedar Street
Series 2003
12-01-23 5.00 5,000,000 5,240,700
12-01-27 5.13 5,350,000 5,638,633
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 65
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 2001
10-01-10 5.00% $ 5,000,000 $ 5,272,350
10-01-14 5.00 4,000,000(i) 4,257,280
10-01-15 5.00 4,455,000 4,730,943
State of Minnesota
Unlimited General Obligation Bonds
Series 2002
08-01-10 5.00 4,075,000 4,288,449
11-01-15 5.25 3,575,000 3,879,304
State of Minnesota
Unlimited General Obligation Bonds
Series 2003
08-01-12 5.00 2,000,000 2,147,640
State of Minnesota
Unlimited General Obligation Bonds
Series 2004
11-01-24 5.00 3,500,000 3,718,750
Steele County
Refunding Revenue Bonds
Elderly Housing Project
Series 2000
06-01-30 6.88 2,205,000 2,438,928
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 2,562,575
University of Minnesota
Revenue Bonds
Residual Certificates
Series 2002 Inverse Floater
07-01-21 7.00 2,830,000(h) 4,097,812
Virginia Housing & Redevelopment Authority
Revenue Bonds
Series 2005
10-01-20 5.13 1,350,000 1,385,910
Western Minnesota Municipal Power Agency
Revenue Bonds
Series 2003A (MBIA)
01-01-26 5.00 7,250,000 7,589,082
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(d,e)
White Bear Lake Independent School District #624
Unlimited General Obligation Refunding Bonds
School Building
Series 2002C (FSA)
(School District Credit Enhancement Program)
02-01-09 5.00% $ 1,375,000 $ 1,421,448
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 1,496,494
02-01-14 5.00 1,480,000 1,571,893
Willmar
Unlimited General Obligation Bonds
Rice Memorial Hospital Project
Series 2002 (FSA)
02-01-11 5.00 1,025,000 1,080,781
02-01-12 5.00 1,120,000 1,190,112
02-01-13 5.00 1,200,000 1,283,232
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $322,805,781) $334,190,302
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (2.6%)
- --------------------------------------------------------------------------------------------------------
ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
Center City
Revenue Bonds
Hazelden Foundation Project
V.R.D.N. Series 2005
(Bank of New York)
11-01-35 3.57% $ 700,000 $ 700,000
City of Minneapolis
Refunding Revenue Bonds
Fairview Health Services
V.R.D.N. Series 2005B
(Royal Bank of Canada) AMBAC
11-15-29 3.38 700,000 700,000
City of Minneapolis
Revenue Bonds
Guthrie Theater Project
V.R.D.N. Series 2003A (Wells Fargo Bank)
10-01-23 3.27 1,400,000 1,400,000
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
66 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Minnesota Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (CONTINUED)
- --------------------------------------------------------------------------------------------------------
ISSUE(d,e,f) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
Robbinsdale
Revenue Bonds
North Memorial Healthcare-Tranche II
V.R.D.N. Series 2003 AMBAC
05-15-33 3.62% $ 3,600,000 $ 3,600,000
St. Paul Housing & Redevelopment Authority
Revenue Bonds
Minnesota Public Radio Project
V.R.D.N. Series 2005
(Allied Irish Bank)
10-01-25 3.57 1,400,000 1,400,000
- --------------------------------------------------------------------------------------------------------
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 3.57% $ 1,100,000 $ 1,100,000
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $8,900,000) $ 8,900,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $331,705,781)(j) $343,090,302
========================================================================================================
- ------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES
- ------------------------------------------------------------------------------
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) At Aug. 31, 2006, the cost of securities purchased, including interest
purchased, on a when-issued and/or other forward-commitment basis was
$2,404,575.
(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
5.6% of net assets at Aug. 31, 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
CIFG -- IXIS Financial Guaranty
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
MBIA -- MBIA Insurance Corporation
XLCA -- XL Capital Assurance
(e) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2006, the value of
securities subject to alternative minimum tax represented
6.1% 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 67
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 Aug. 31, 2006.
(g) For zero coupon bonds, the interest rate disclosed represents the
annualized effective yield on the date of acquisition.
(h) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a
decline (increase) in market short-term rates. Interest rate disclosed
is the rate in effect on Aug. 31, 2006. At Aug. 31, 2006, the value of
inverse floaters represented 3.2% of net assets.
(i) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT
------------------------------------------------------------------------
SALE CONTRACTS
U.S. Long Bond, Dec. 2006, 20-year $2,700,000
U.S. Treasury Note, Dec. 2006, 10-year 4,500,000
(j) At Aug. 31, 2006, the cost of securities for federal income tax purposes
was $331,495,846 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $12,058,957
Unrealized depreciation (464,501)
------------------------------------------------------------------------
Net unrealized appreciation $11,594,456
------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations
of the Public Reference Room may be obtained by calling 1-800-SEC-0330);
and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form
N-Q, can be found at riversource.com/funds.
- ------------------------------------------------------------------------------
68 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
INVESTMENTS IN SECURITIES
RiverSource New York Tax-Exempt Fund
AUG. 31, 2006
(Percentages represent value of investments compared to net assets)
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (96.2%)
- --------------------------------------------------------------------------------------------------------
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 7.98% $ 830,000(g) $ 1,051,652
City of New York
Unlimited General Obligation Bonds
Series 2002C (XLCA)
03-15-12 5.00 1,000,000 1,061,850
City of New York
Unlimited General Obligation Bonds
Series 2002E
08-01-16 5.75 2,000,000 2,202,179
City of New York
Unlimited General Obligation Bonds
Series 2003J
06-01-18 5.50 2,000,000 2,177,939
06-01-20 5.50 2,000,000 2,168,119
City of New York
Unlimited General Obligation Bonds
Series 2004D
11-01-34 5.00 1,000,000 1,037,210
City of New York
Unlimited General Obligation Bonds
Series 2004E (FSA)
11-01-22 5.00 750,000(f) 792,083
City of New York
Unlimited General Obligation Refunding Bonds
Series 2003I
03-01-27 5.38 2,000,000 2,141,580
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement
Bonds
Series 2001A (FGIC)
07-01-29 5.50 1,000,000(d) 1,186,290
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement
Bonds
Series 2004A
07-01-24 5.00% $ 500,000(d) $ 515,630
Commonwealth of Puerto Rico
Unlimited General Obligation Refunding & Public
Improvement Bonds
Series 2006B
07-01-32 5.25 500,000(d) 529,470
07-01-35 5.00 375,000(d) 384,338
County of Monroe
Unlimited General Obligation Refunding & Public
Improvement Bonds
Series 1996 (MBIA)
03-01-15 6.00 1,250,000 1,437,125
Liberty Development Corporation
Revenue Bonds
Goldman Sachs Headquarters
Series 2005
10-01-35 5.25 500,000 564,865
Long Island Power Authority
Revenue Bonds
Series 1998-8 (AMBAC)
04-01-09 5.25 1,000,000 1,041,370
Long Island Power Authority
Revenue Bonds
Series 2003C (CIFG)
09-01-33 5.00 20,000 20,837
Metropolitan Transportation Authority
Prerefunded Revenue Bonds
Series 1998A (FGIC)
04-01-28 4.75 1,000,000 1,077,050
Metropolitan Transportation Authority
Refunding Revenue Bonds
Series 2002A
01-01-16 5.75 500,000 567,065
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 69
RiverSource New York Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Metropolitan Transportation Authority
Refunding Revenue Bonds
Series 2002A (AMBAC)
11-15-19 5.50% $ 1,000,000 $ 1,098,150
Metropolitan Transportation Authority
Revenue Bonds
Series 2002A (FSA)
11-15-26 5.50 750,000 819,278
Metropolitan Transportation Authority
Revenue Bonds
Series 2005F
11-15-12 5.00 560,000 597,688
11-15-35 5.00 500,000 519,380
Metropolitan Transportation Authority
Revenue Bonds
Series 2006A
11-15-22 5.00 750,000 795,450
Nassau County Tobacco Settlement Corporation
Asset-backed Revenue Bonds
Series 2006A-3
06-01-46 5.13 500,000 499,525
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 1,585,335
New York City Industrial Development Agency
Revenue Bonds
Queens Baseball Stadium Pilot
Series 2006 (AMBAC)
01-01-23 5.00 500,000 534,920
01-01-24 5.00 500,000 534,055
New York City Industrial Development Agency
Revenue Bonds
Terminal One Group Association Project
Series 2005 A.M.T.
01-01-24 5.50 500,000 536,895
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2002A
06-15-29 5.00 1,000,000 1,039,540
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
New York City Municipal Water Finance Authority
Revenue Bonds
Series 2004A
06-15-39 5.00% $ 1,000,000 $ 1,035,080
New York City Transitional Finance Authority
Prerefunded Revenue Bonds
Future Tax
Series 1999C
05-01-25 5.50 220,000 232,936
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2003D
02-01-23 5.00 500,000 525,095
02-01-31 5.00 1,000,000 1,038,210
New York City Transitional Finance Authority
Revenue Bonds
Future Tax Secured
Series 2004C
02-01-33 5.00 1,000,000 1,041,370
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 1,081,310
New York Counties Tobacco Trust II
Revenue Bonds
Tobacco Settlement Pass Thru Bonds
Series 2001
06-01-35 5.63 500,000 515,000
New York Mortgage Agency
Revenue Bonds
Series 2002 Inverse Floater A.M.T.
04-01-32 6.67 400,000(g) 433,648
New York Power Authority
Revenue Bonds
Series 2000A
11-15-30 5.25 1,000,000 1,054,050
New York State Dormitory Authority
Prerefunded Revenue Bonds
Series 1990B
05-15-11 7.50 415,000 462,053
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
70 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 Dormitory Authority
Revenue Bonds
Brooklyn Law School
Series 2003B (XLCA)
07-01-30 5.13% $ 1,000,000 $ 1,058,550
New York State Dormitory Authority
Revenue Bonds
Consolidated City University System
Series 1993A
07-01-13 5.75 3,000,000 3,254,279
New York State Dormitory Authority
Revenue Bonds
Cornell University
Series 2006A
07-01-26 5.00 1,000,000 1,062,940
New York State Dormitory Authority
Revenue Bonds
Education
Series 2005F
03-15-23 5.00 250,000 264,573
New York State Dormitory Authority
Revenue Bonds
Memorial Sloan-Kettering Center
Series 2003-1 (MBIA)
07-01-21 5.00 1,000,000 1,051,800
New York State Dormitory Authority
Revenue Bonds
Memorial Sloan-Kettering Center
Series 2006-1
07-01-35 5.00 500,000 523,275
New York State Dormitory Authority
Revenue Bonds
Mental Health Services Facilities Improvement
Series 2005E (FGIC)
02-15-22 5.00 750,000 792,803
New York State Dormitory Authority
Revenue Bonds
Montefiore Hospital
Series 2004 (FGIC/FHA)
08-01-19 5.00 735,000 784,282
- --------------------------------------------------------------------------------------------------------
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
Pratt Institute
Series 1999
(Radian Group Financial Guaranty)
07-01-20 6.00% $ 1,500,000 $ 1,615,170
New York State Dormitory Authority
Revenue Bonds
Series 2002B (AMBAC)
05-15-12 5.25 1,000,000 1,076,710
New York State Dormitory Authority
Unrefunded Revenue Bonds
Series 1990B
11-15-26 7.50 970,000 1,077,757
New York State Energy Research & Development
Authority
Revenue Bonds
Residual Certificates
Series 2000-379 Inverse Floater (MBIA)
01-01-21 7.03 330,000(g) 345,454
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 1,057,980
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 1,041,100
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 1,045,800
New York State Thruway Authority
Revenue Bonds
Second General Resolution
Series 2003B (FSA)
04-01-21 4.75 835,000 864,985
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 71
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 Thruway Authority
Revenue Bonds
Series 2005G (FSA)
01-01-24 5.00% $ 1,000,000 $ 1,061,430
New York State Thruway Authority
Revenue Bonds
Transportation
Series 2003A (MBIA)
03-15-22 5.00 1,000,000 1,050,470
New York State Thruway Authority
Revenue Bonds
Transportation
Series 2004A (AMBAC)
03-15-12 5.25 750,000 810,713
New York State Urban Development Corporation
Refunding Revenue Bonds
Service Contract
Series 2005 (FSA)
01-01-17 5.00 1,000,000(f) 1,081,370
New York State Urban Development Corporation
Revenue Bonds
Series 2002A (XLCA)
01-01-11 5.25 1,000,000 1,064,170
Port Authority of New York & New Jersey
Revenue Bonds
Consolidated 134th
Series 2004
07-15-34 5.00 1,000,000 1,045,220
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 1,056,820
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002 Inverse Floater (MBIA)
07-01-17 5.90 500,000(d,g) 641,970
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 1,000,000(d) 1,080,930
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Puerto Rico Public Finance Corporation
Revenue Bonds
Commonwealth Appropriation
Series 2004A (MBIA)
08-01-29 5.25% $ 1,000,000(d) $ 1,075,240
Suffolk County Industrial Development Agency
Prerefunded Revenue Bonds
1st Mortgage Jeffersons Ferry
Series 1999A
11-01-28 7.25 250,000 281,258
Tobacco Settlement Financing Authority
Asset-backed Revenue Bonds
Series 2003A-1
06-01-16 5.50 500,000 529,135
Tobacco Settlement Financing Authority
Revenue Bonds
Series 2003B-1C
06-01-14 5.50 500,000 523,050
06-01-15 5.50 500,000 529,135
Triborough Bridge & Tunnel Authority
Refunding Revenue Bonds
Series 2002B
11-15-29 5.13 1,000,000 1,051,580
Triborough Bridge & Tunnel Authority
Revenue Bonds
Convention Center Project
Series 1990E
01-01-11 6.00 1,145,000 1,249,172
TSASC Incorporated
Revenue Bonds
Series 2006-1
06-01-34 5.00 500,000 500,100
Westchester Tobacco Asset Securitization
Revenue Bonds
Series 2005
06-01-26 5.00 875,000 876,295
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $65,999,328) $ 68,361,136
- --------------------------------------------------------------------------------------------------------
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
72 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource New York Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (4.4%)
- --------------------------------------------------------------------------------------------------------
ISSUE(b,c,e) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
City of New York
Unlimited General Obligation Bonds
V.R.D.N. Series 2006H-1 (Dexia Credit Local)
01-01-36 3.55% $ 800,000 $ 800,000
New York City Municipal Water Finance Authority
2nd Generation Resolution Revenue Bonds
V.R.D.N. Series 2005AA-2
06-15-32 3.55 1,900,000 1,900,000
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (CONTINUED)
- --------------------------------------------------------------------------------------------------------
ISSUE(b,c,e) EFFECTIVE AMOUNT VALUE(a)
YIELD PAYABLE AT
MATURITY
New York City Municipal Water Finance Authority
Revenue Bonds
V.R.D.N. Series 1993C FGIC
06-15-23 3.56% $ 400,000 $ 400,000
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $3,100,000) $ 3,100,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $69,099,328)(h) $ 71,461,136
========================================================================================================
- ------------------------------------------------------------------------------
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 Aug. 31, 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
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 73
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
7.6% of net assets at Aug. 31, 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 Aug. 31, 2006.
(f) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT
------------------------------------------------------------------------
SALE CONTRACTS
U.S. Long Bond, Dec. 2006, 20-year $ 600,000
U.S. Treasury Note, Dec. 2006, 10-year 900,000
(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 Aug. 31, 2006. At Aug. 31, 2006, the value of
inverse floaters represented 3.5% of net assets.
(h) At Aug. 31, 2006, the cost of securities for federal income tax purposes
was $69,087,782 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $2,416,541
Unrealized depreciation (43,187)
------------------------------------------------------------------------
Net unrealized appreciation $2,373,354
------------------------------------------------------------------------
- ------------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
- ------------------------------------------------------------------------------
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations
of the Public Reference Room may be obtained by calling 1-800-SEC-0330);
and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form
N-Q, can be found at riversource.com/funds.
- ------------------------------------------------------------------------------
74 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
INVESTMENTS IN SECURITIES
RiverSource Ohio Tax-Exempt Fund
AUG. 31, 2006
(Percentages represent value of investments compared to net assets)
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (97.7%)
- --------------------------------------------------------------------------------------------------------
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 $ 1,223,066
Brookville Local School District
Unlimited General Obligation Bonds
Series 2003 (FSA)
12-01-18 5.25 1,000,000 1,086,310
Cincinnati City School District
Limited General Obligation Bonds
School Improvement
Series 2002 (FSA)
06-01-21 5.25 1,000,000 1,074,610
City of Cincinnati
Unlimited General Obligation Bonds
Series 2000
12-01-16 5.25 1,000,000 1,061,410
City of Cleveland
Limited General Obligation Refunding Bonds
Series 2005 (AMBAC)
10-01-23 5.50 500,000 584,645
City of Cleveland
Revenue Bonds
Series 2002K (FGIC)
01-01-10 5.00 1,000,000 1,043,380
City of Columbus
Prerefunded Unlimited General Obligation Bonds
Series 1999-2
06-15-15 5.75 1,000,000 1,084,300
Cleveland State University
Revenue Bonds
Series 2003A (FGIC)
06-01-15 5.00 1,000,000 1,070,060
Cleveland State University
Revenue Bonds
Series 2004 (FGIC)
06-01-24 5.25 500,000(g) 539,130
- --------------------------------------------------------------------------------------------------------
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 $ 1,063,270
Columbus City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2004 (FSA)
12-01-29 5.25 500,000 537,645
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement
Bonds
Series 2001A (FGIC)
07-01-29 5.50 500,000(d) 593,145
Commonwealth of Puerto Rico
Unlimited General Obligation Public Improvement
Bonds
Series 2006A
07-01-27 5.25 250,000(d) 265,345
Commonwealth of Puerto Rico
Unlimited General Obligation Refunding & Public
Improvement Bonds
Series 2006B
07-01-32 5.25 250,000(d) 264,735
07-01-35 5.00 250,000(d) 256,225
County of Cuyahoga
Limited General Obligation Bonds
Series 1993
05-15-13 5.60 450,000 476,294
County of Cuyahoga
Refunding Revenue Bonds
Series 2003A
01-01-17 6.00 1,000,000 1,115,750
01-01-32 6.00 1,000,000 1,101,350
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 75
RiverSource Ohio Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
County of Cuyahoga
Revenue Bonds
Canton Incorporated Project
Series 2000
01-01-30 7.50% $ 500,000(g) $ 559,450
County of Erie
Revenue Bonds
Firelands Regional Medical Center
Series 2002A
08-15-32 5.63 245,000 260,050
County of Montgomery
Revenue Bonds
Catholic Health Initiatives
Series 2004A
05-01-30 5.00 750,000 778,928
05-01-32 5.00 500,000 518,630
Dayton City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2003A (FGIC)
12-01-27 5.00 1,250,000 1,308,813
12-01-31 5.00 1,000,000 1,041,680
Dayton City School District
Unlimited General Obligation Bonds
School Facilities Construction & Improvement
Series 2003D (FGIC)
12-01-17 5.00 1,000,000 1,063,940
Franklin County
Refunding Revenue Bonds
OhioHealth Corporation
Series 2003C
05-15-24 5.25 1,000,000 1,060,040
Franklin County
Refunding Revenue Bonds
Trinity Health Credit
Series 2005A
06-01-20 5.00 500,000 524,490
Hamilton County Convention Facilities Authority
Revenue Bonds
First Lien
Series 2004 (FGIC)
12-01-33 5.00 1,000,000 1,041,580
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
Jackson
Prerefunded Revenue Bonds
Consolidated Health System -- Jackson Hospital
Series 1999
(Radian Group Financial Guaranty)
10-01-20 6.13% $ 1,000,000 $ 1,082,600
Kenston Local School District
Unlimited General Obligation Bonds
School Improvement
Series 2003 (MBIA)
12-01-16 5.00 1,000,000 1,067,000
Lakewood
Limited General Obligation Bonds
Series 2003
12-01-19 5.00 1,515,000 1,593,885
Miami County Refunding & Improvement
Revenue Bonds
Upper Valley Medical Center
Series 2006
05-15-26 5.25 500,000 526,350
Miami University
Refunding Revenue Bonds
Series 2005 (AMBAC)
09-01-23 4.75 500,000 521,925
Ohio Housing Finance Agency
Revenue Bonds
Residential Mortgage-backed Securities
Series 2006A (GNMA) A.M.T.
09-01-26 4.75 500,000 505,710
09-01-36 4.90 500,000 505,290
Ohio Housing Finance Agency
Revenue Bonds
Residential Mortgage-backed Securities
Series 2006E (GNMA/FNMA) A.M.T.
09-01-36 5.00 500,000 506,215
Ohio Municipal Electric Generation Agency
Refunding Revenue Bonds
Joint Venture 5
Series 2004 (AMBAC)
02-15-24 4.75 750,000 774,173
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
76 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)
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 $ 1,079,600
Ohio State Building Authority
State Facilities Revenue Bonds
Adult Correctional Building Fund Projects
Series 2005A (FSA)
04-01-22 5.00 750,000 796,665
Ohio State Higher Educational Facility Commission
Unrefunded Revenue Bonds
Oberlin
Series 1999
10-01-29 5.00 85,000 87,613
Port of Greater Cincinnati Development Authority
Revenue Bonds
Sisters of Mercy
Series 2006
10-01-25 5.00 500,000 518,405
Puerto Rico Electric Power Authority
Revenue Bonds
Series 1998DD (FSA)
07-01-13 5.13 1,000,000(d) 1,046,780
Puerto Rico Electric Power Authority
Revenue Bonds
Series 2002 Inverse Floater (MBIA)
07-01-17 5.90 250,000(d,e) 320,985
Puerto Rico Highway & Transportation Authority
Revenue Bonds
Series 1996Y
07-01-13 6.25 250,000(d) 281,045
Puerto Rico Infrastructure Financing Authority
Refunding Special Tax Bonds
Series 2005C (AMBAC)
07-01-23 5.50 400,000(d) 466,480
Puerto Rico Municipal Finance Agency
Revenue Bonds
Series 2002A (FSA)
08-01-17 5.25 750,000(d) 810,698
- --------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
NAME OF COUPON PRINCIPAL VALUE(a)
ISSUER AND RATE AMOUNT
TITLE OF
ISSUE(b,c)
State of Ohio
Revenue Bonds
Mount Union College Project
Series 2006
10-01-31 5.00% $ 500,000 $ 515,550
State of Ohio
Unlimited General Obligation Bonds
Common Schools Capital Facilities
Series 2001A
06-15-13 5.00 1,500,000(g) 1,577,219
State of Ohio
Unlimited General Obligation Bonds
Common Schools Capital Facilities
Series 2001B
09-15-20 5.00 1,000,000 1,052,540
State of Ohio
Unlimited General Obligation Bonds
Conservation Projects
Series 2005A
03-01-20 5.00 500,000 528,315
State of Ohio
Unlimited General Obligation Bonds
Higher Education
Series 2003A
05-01-11 5.00 1,000,000 1,059,880
State of Ohio
Unlimited General Obligation Bonds
Higher Education
Series 2004B
02-01-12 5.00 500,000 533,820
State of Ohio
Unlimited General Obligation Bonds
Higher Education
Series 2005B
05-01-23 5.00 500,000 530,230
State of Ohio
Unlimited General Obligation Bonds
Highway Capital Improvements
Series 2002G
05-01-12 5.25 750,000 811,553
See accompanying notes to investments in securities.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 77
RiverSource Ohio Tax-Exempt Fund
- --------------------------------------------------------------------------------------------------------
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
Infrastructure Improvement
Series 2005A
09-01-21 5.00% $ 500,000 $ 531,975
Summit County
Limited General Obligation Bonds
Series 2003
12-01-18 5.25 1,490,000 1,625,470
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 1,075,240
University of Akron
Revenue Bonds
Series 2003A (AMBAC)
01-01-22 5.00 1,000,000 1,049,030
University of Cincinnati
Revenue Bonds
Series 2001A (FGIC)
06-01-14 5.50 1,000,000 1,085,430
- --------------------------------------------------------------------------------------------------------
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 $ 534,775
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost: $46,786,485) $ 47,600,717
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
MUNICIPAL NOTES (2.3%)
- --------------------------------------------------------------------------------------------------------
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 3.57% $ 1,100,000 $ 1,100,000
- --------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL NOTES
(Cost: $1,100,000) $1,100,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES
(Cost: $47,886,485)(h) $ 48,700,717
========================================================================================================
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
78 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Ohio Tax-Exempt Fund
- ------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES (CONTINUED)
- ------------------------------------------------------------------------------
(c) The following abbreviations may be used in the portfolio descriptions:
A.M.T. -- Alternative Minimum Tax -- At Aug. 31, 2006, the value of
securities subject to alternative minimum tax represented
3.1% of net assets.
B.A.N. -- Bond Anticipation Note
C.P. -- Commercial Paper
R.A.N. -- Revenue Anticipation Note
T.A.N. -- Tax Anticipation Note
T.R.A.N. -- Tax & Revenue Anticipation Note
V.R. -- Variable Rate
V.R.D.B. -- Variable Rate Demand Bond
V.R.D.N. -- Variable Rate Demand Note
(d) Municipal obligations include debt obligations issued by or on behalf of
states, territories, possessions, or sovereign nations within the
territorial boundaries of the United States. The securities represented
8.8% of net assets at Aug. 31, 2006.
(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 Aug. 31, 2006. At Aug. 31, 2006, the value of
inverse floaters represented 0.7% 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 Aug. 31, 2006.
(g) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 5 to the financial statements):
TYPE OF SECURITY NOTIONAL AMOUNT
------------------------------------------------------------------------
SALE CONTRACTS
U.S. Long Bond, Dec. 2006, 20-year $ 400,000
U.S. Treasury Note, Dec. 2006, 10-year 600,000
(h) At Aug. 31, 2006, the cost of securities for federal income tax purposes
was $47,886,485 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $ 890,478
Unrealized depreciation (76,246)
------------------------------------------------------------------------
Net unrealized appreciation $ 814,232
------------------------------------------------------------------------
HOW TO FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS
(i) The Fund files its complete schedule of portfolio holdings with the
Securities and Exchange Commission (Commission) for the first and third
quarters of each fiscal year on Form N-Q;
(ii) The Fund's Forms N-Q are available on the Commission's website at
http://www.sec.gov;
(iii) The Fund's Forms N-Q may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC (information on the operations
of the Public Reference Room may be obtained by calling 1-800-SEC-0330);
and
(iv) The Fund's complete schedule of portfolio holdings, as disclosed in its
annual and semiannual shareholder reports and in its filings on Form
N-Q, can be found at riversource.com/funds.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 79
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
CALIFORNIA MASSACHUSETTS MICHIGAN
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
AUG. 31, 2006 FUND FUND FUND
ASSETS
Investments in securities, at value (Note 1)
(identified cost $172,232,081, $56,708,818
and $47,186,903) $ 179,287,776 $ 58,236,937 $ 48,500,992
Cash in bank on demand deposit 16,770 59,238 49,059
Capital shares receivable -- 500 --
Accrued interest receivable 2,110,377 565,763 675,965
Receivable for investment securities sold -- -- 2,022,510
- ------------------------------------------------------------------------------------------------------------------
Total assets 181,414,923 58,862,438 51,248,526
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 55,014 16,520 14,339
Capital shares payable 15,377 2,477 5,000
Payable for investment securities purchased 10,437 150,386 1,397,398
Accrued investment management services fee 2,042 660 559
Accrued distribution fee 42,931 14,024 11,668
Accrued transfer agency fee 217 117 85
Accrued administrative services fee 349 113 95
Other accrued expenses 50,379 39,311 46,217
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 176,746 223,608 1,475,361
- ------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares $ 181,238,177 $ 58,638,830 $ 49,773,165
==================================================================================================================
REPRESENTED BY
Shares of beneficial interest -- $.01 par value (Note 1) $ 351,008 $ 110,072 $ 94,716
Additional paid-in capital 174,078,461 57,226,801 48,473,061
Undistributed (excess of distributions over)
net investment income 30,617 2,144 (159)
Accumulated net realized gain (loss) (Note 7) (259,490) (222,079) (103,306)
Unrealized appreciation (depreciation)
on investments (Note 5) 7,037,581 1,521,892 1,308,853
- ------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable
to outstanding shares $ 181,238,177 $ 58,638,830 $ 49,773,165
==================================================================================================================
Net assets applicable to outstanding shares: Class A $ 170,289,094 $ 48,768,545 $ 45,706,641
Class B $ 8,771,389 $ 9,072,094 $ 2,650,676
Class C $ 2,177,694 $ 798,191 $ 1,415,848
Outstanding shares of beneficial interest: Class A shares 32,979,699 9,154,223 8,698,092
Class B shares 1,699,853 1,703,066 504,169
Class C shares 421,234 149,911 269,384
Net asset value per share: Class A $ 5.16 $ 5.33 $ 5.25
Class B $ 5.16 $ 5.33 $ 5.26
Class C $ 5.17 $ 5.32 $ 5.26
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
80 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
STATEMENTS OF ASSETS AND LIABILITIES
MINNESOTA NEW YORK OHIO
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
AUG. 31, 2006 FUND FUND FUND
ASSETS
Investments in securities, at value (Note 1)
(identified cost $331,705,781, $69,099,328
and $47,886,485) $ 343,090,302 $ 71,461,136 $ 48,700,717
Cash in bank on demand deposit 32,450 38,334 69,656
Capital shares receivable 109,896 12,000 619
Accrued interest receivable 3,504,716 824,226 611,738
Receivable for investment securities sold 2,147,420 -- --
- ------------------------------------------------------------------------------------------------------------------
Total assets 348,884,784 72,335,696 49,382,730
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable to shareholders 96,596 21,855 13,952
Capital shares payable 12,201 -- 2,800
Payable for investment securities purchased 2,424,403 1,180,702 591,046
Accrued investment management services fee 3,820 797 548
Accrued distribution fee 81,170 16,732 11,544
Accrued transfer agency fee 527 125 92
Accrued administrative services fee 663 136 94
Other accrued expenses 83,186 44,294 37,976
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 2,702,566 1,264,641 658,052
- ------------------------------------------------------------------------------------------------------------------
Net assets applicable to outstanding shares $ 346,182,218 $ 71,071,055 $ 48,724,678
==================================================================================================================
REPRESENTED BY
Shares of beneficial interest -- $.01 par value (Note 1) $ 656,508 $ 140,741 $ 92,602
Additional paid-in capital 336,209,128 68,651,439 47,914,316
Undistributed net investment income 414,143 8,807 --
Accumulated net realized gain (loss) (Note 7) (2,447,694) (84,523) (91,661)
Unrealized appreciation (depreciation)
on investments (Note 5) 11,350,133 2,354,591 809,421
- ------------------------------------------------------------------------------------------------------------------
Total -- representing net assets applicable
to outstanding shares $ 346,182,218 $ 71,071,055 $ 48,724,678
==================================================================================================================
Net assets applicable to outstanding shares: Class A $ 308,554,161 $ 63,093,671 $ 42,239,331
Class B $ 29,477,245 $ 6,828,613 $ 4,990,875
Class C $ 8,150,812 $ 1,148,771 $ 1,494,472
Outstanding shares of beneficial interest: Class A shares 58,516,172 12,494,210 8,027,783
Class B shares 5,589,082 1,352,374 948,475
Class C shares 1,545,590 227,499 283,946
Net asset value per share: Class A $ 5.27 $ 5.05 $ 5.26
Class B $ 5.27 $ 5.05 $ 5.26
Class C $ 5.27 $ 5.05 $ 5.26
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 81
STATEMENTS OF OPERATIONS
CALIFORNIA TAX-EXEMPT FUND MASSACHUSETTS TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 AUG. 31, 2006(a) JUNE 30, 2006
INVESTMENT INCOME
Income:
Interest $ 1,430,060 $ 8,784,573 $ 434,466 $ 2,832,945
- ------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 127,684 880,490 41,475 306,031
Distribution fee
Class A 72,992 450,844 20,570 131,376
Class B 15,773 124,630 17,499 140,903
Class C 3,680 25,844 1,377 11,424
Transfer agency fee 12,322 77,619 6,643 43,524
Incremental transfer agency fee
Class A 1,086 6,749 505 3,276
Class B 165 1,226 205 1,470
Class C 61 416 26 194
Administrative services fees and expenses 22,618 126,617 7,162 42,344
Compensation of board members 1,797 8,844 1,797 8,844
Custodian fees 3,100 18,695 1,664 10,119
Printing and postage 2,840 32,850 1,400 9,903
Registration fees 5,824 42,705 5,980 37,070
Audit fees 14,500 21,000 13,600 19,500
Other 535 12,375 232 4,775
- ------------------------------------------------------------------------------------------------------------------
Total expenses 284,977 1,830,904 120,135 770,753
Expenses waived/reimbursed by
the Investment Manager and
its affiliates (Note 2) (24,169) (129,935) (25,874) (102,889)
- ------------------------------------------------------------------------------------------------------------------
260,808 1,700,969 94,261 667,864
Earnings and bank fee credits on
cash balances (Note 2) (1,945) (17,465) (672) (8,320)
- ------------------------------------------------------------------------------------------------------------------
Total net expenses 258,863 1,683,504 93,589 659,544
- ------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 1,171,197 7,101,069 340,877 2,173,401
- ------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security tranactions (Note 3) 141,692 123,549 (48,017) 60,245
Futures contracts (22,669) 56,742 (7,556) 20,026
Payment from affiliate (Note 2) -- 16,837 -- 5,873
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 119,023 197,128 (55,573) 86,144
Net change in unrealized appreciation
(depreciation) on investments 3,438,131 (5,679,188) 1,311,823 (2,607,074)
- ------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 3,557,154 (5,482,060) 1,256,250 (2,520,930)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 4,728,351 $ 1,619,009 $ 1,597,127 $ (347,529)
==================================================================================================================
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
82 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
STATEMENTS OF OPERATIONS
MICHIGAN TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 AUG. 31, 2006(a) JUNE 30, 2006
INVESTMENT INCOME
Income:
Interest $ 357,077 $ 2,329,003 $ 2,563,885 $ 16,187,482
- ------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 34,676 251,431 236,249 1,661,816
Distribution fee
Class A 19,288 124,222 129,940 815,467
Class B 4,968 42,252 52,438 408,052
Class C 2,452 18,031 13,856 85,832
Transfer agency fee 4,832 31,242 29,827 188,098
Incremental transfer agency fee
Class A 400 2,561 2,514 15,682
Class B 74 544 552 3,955
Class C 44 297 187 1,191
Administrative services fees and expenses 5,953 34,522 42,806 243,244
Compensation of board members 1,797 8,844 1,930 10,211
Custodian fees 1,550 9,125 4,325 27,720
Printing and postage 1,280 9,300 11,805 81,555
Registration fees 6,200 39,100 7,990 39,527
Audit fees 13,600 19,500 15,400 22,500
Other 247 2,572 10,623 10,258
- ------------------------------------------------------------------------------------------------------------------
Total expenses 97,361 593,543 560,442 3,615,108
Expenses waived/reimbursed by
the Investment Manager and
its affiliates (Note 2) (24,907) (94,095) (47,073) (205,028)
- ------------------------------------------------------------------------------------------------------------------
72,454 499,448 513,369 3,410,080
Earnings and bank fee credits on
cash balances (Note 2) (570) (6,650) (9,068) (50,995)
- ------------------------------------------------------------------------------------------------------------------
Total net expenses 71,884 492,798 504,301 3,359,085
- ------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 285,193 1,836,205 2,059,584 12,828,397
- ------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (Note 3) (41,518) 236,365 (201,478) (2,248,309)
Futures contracts (5,985) 16,689 (41,987) 106,808
Payment from affiliate (Note 2) -- 5,451 -- 27,504
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (47,503) 258,505 (243,465) (2,113,997)
Net change in unrealized appreciation
(depreciation) on investments 1,016,039 (1,886,447) 6,880,299 (10,149,663)
- ------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 968,536 (1,627,942) 6,636,834 (12,263,660)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,253,729 $ 208,263 $ 8,696,418 $ 564,737
==================================================================================================================
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 83
STATEMENTS OF OPERATIONS
NEW YORK TAX-EXEMPT FUND OHIO TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 AUG. 31, 2006(a) JUNE 30, 2006
INVESTMENT INCOME
Income:
Interest $ 549,443 $ 3,559,507 $ 351,321 $ 2,284,047
- ------------------------------------------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 49,608 352,633 34,119 250,961
Distribution fee
Class A 26,781 169,873 18,012 117,636
Class B 11,930 89,633 8,607 68,128
Class C 1,938 12,639 2,561 17,305
Transfer agency fee 7,101 46,110 5,196 33,678
Incremental transfer agency fee
Class A 587 3,782 417 2,670
Class B 141 1,049 102 763
Class C 35 230 45 322
Administrative services fees and expenses 8,563 49,410 5,858 34,377
Compensation of board members 1,797 8,844 1,797 8,844
Custodian fees 1,984 11,296 1,860 9,950
Printing and postage 2,170 13,990 1,550 9,125
Registration fees 6,200 39,500 5,580 38,850
Audit fees 13,900 20,000 13,600 19,500
Other 265 6,580 316 2,996
- ------------------------------------------------------------------------------------------------------------------
Total expenses 133,000 825,569 99,620 615,105
Expenses waived/reimbursed by
the Investment Manager and
its affiliates (Note 2) (26,875) (111,449) (25,390) (97,315)
- ------------------------------------------------------------------------------------------------------------------
106,125 714,120 74,230 517,790
Earnings and bank fee credits
on cash balances (Note 2) (1,748) (8,318) (1,024) (6,726)
- ------------------------------------------------------------------------------------------------------------------
Total net expenses 104,377 705,802 73,206 511,064
- ------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net 445,066 2,853,705 278,115 1,772,983
- ------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) -- NET
Net realized gain (loss) on:
Security transactions (Note 3) (63,412) 499,717 (40,482) 31,271
Futures contracts (9,127) 20,027 (5,776) 16,689
Payment from affiliate (Note 2) -- 8,239 -- 5,251
- ------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (72,539) 527,983 (46,258) 53,211
Net change in unrealized appreciation
(depreciation) on investments 1,514,873 (3,334,496) 1,057,934 (2,047,369)
- ------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 1,442,334 (2,806,513) 1,011,676 (1,994,158)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,887,400 $ 47,192 $ 1,289,791 $ (221,175)
==================================================================================================================
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
84 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
CALIFORNIA TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 JUNE 30, 2005
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 1,171,197 $ 7,101,069 $ 7,820,739
Net realized gain (loss) on investments 119,023 197,128 2,843,277
Net change in unrealized appreciation
(depreciation) on investments 3,438,131 (5,679,188) 6,675,883
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 4,728,351 1,619,009 17,339,899
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (1,111,403) (6,678,350) (7,236,425)
Class B (47,396) (365,234) (544,611)
Class C (11,212) (75,848) (100,096)
Net realized gain
Class A -- (2,060,962) (2,650,310)
Class B -- (141,135) (248,451)
Class C -- (28,036) (42,061)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (1,170,011) (9,349,565) (10,821,954)
- ------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 3,629,083 20,891,751 18,129,921
Class B shares 143,769 1,055,877 964,281
Class C shares 56,836 491,178 755,510
Reinvestment of distributions at net asset value
Class A shares 799,255 6,405,081 7,334,232
Class B shares 40,099 436,470 670,599
Class C shares 10,802 97,101 132,696
Payments for redemptions
Class A shares (8,060,501) (39,268,742) (35,789,588)
Class B shares (Note 2) (2,227,223) (6,518,006) (7,417,183)
Class C shares (Note 2) (78,651) (1,394,220) (1,664,249)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (5,686,531) (17,803,510) (16,883,781)
- ------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (2,128,191) (25,534,066) (10,365,836)
Net assets at beginning of period 183,366,368 208,900,434 219,266,270
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 181,238,177 $ 183,366,368 $ 208,900,434
==================================================================================================================
Undistributed net investment income $ 30,617 $ 29,431 $ 30,957
- ------------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 85
STATEMENTS OF CHANGES IN NET ASSETS
MASSACHUSETTS TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 JUNE 30, 2005
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 340,877 $ 2,173,401 $ 2,366,050
Net realized gain (loss) on investments (55,573) 86,144 522,273
Net change in unrealized appreciation
(depreciation) on investments 1,311,823 (2,607,074) 2,650,326
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,597,127 (347,529) 5,538,649
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (289,620) (1,851,979) (1,880,881)
Class B (47,646) (387,693) (449,620)
Class C (3,799) (31,553) (35,315)
Net realized gain
Class A -- (260,911) (266,380)
Class B -- (70,980) (82,558)
Class C -- (6,115) (6,105)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (341,065) (2,609,231) (2,720,859)
- ------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 1,907,931 6,460,310 5,250,331
Class B shares 53,468 849,949 643,022
Class C shares 17,855 151,990 265,254
Reinvestment of distributions at net asset value
Class A shares 236,232 1,715,619 1,789,144
Class B shares 36,650 357,931 419,010
Class C shares 3,546 34,168 38,737
Payments for redemptions
Class A shares (2,110,518) (14,249,579) (12,453,873)
Class B shares (Note 2) (2,732,774) (6,616,572) (4,843,199)
Class C shares (Note 2) (57,449) (687,929) (600,562)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (2,645,059) (11,984,113) (9,492,136)
- ------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,388,997) (14,940,873) (6,674,346)
Net assets at beginning of period 60,027,827 74,968,700 81,643,046
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 58,638,830 $ 60,027,827 $ 74,968,700
==================================================================================================================
Undistributed net investment income $ 2,144 $ 2,332 $ 94,283
- ------------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
86 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
MICHIGAN TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 JUNE 30, 2005
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 285,193 $ 1,836,205 $ 2,102,624
Net realized gain (loss) on investments (47,503) 258,505 545,582
Net change in unrealized appreciation
(depreciation) on investments 1,016,039 (1,886,447) 1,522,358
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,253,729 208,263 4,170,564
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (265,857) (1,683,666) (1,891,829)
Class B (13,020) (110,672) (159,945)
Class C (6,475) (47,318) (50,776)
Net realized gain
Class A -- (405,309) (261,330)
Class B -- (33,837) (28,921)
Class C -- (15,842) (9,068)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (285,352) (2,296,644) (2,401,869)
- ------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 650,935 5,292,299 5,810,522
Class B shares 10,393 131,671 294,638
Class C shares 26,971 524,009 335,521
Reinvestment of distributions at net asset value
Class A shares 219,921 1,671,150 1,756,355
Class B shares 9,697 101,482 131,427
Class C shares 5,742 55,784 53,472
Payments for redemptions
Class A shares (1,196,107) (13,226,236) (11,580,469)
Class B shares (Note 2) (722,774) (2,254,715) (2,230,452)
Class C shares (Note 2) (132,316) (866,833) (559,800)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (1,127,538) (8,571,389) (5,988,786)
- ------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (159,161) (10,659,770) (4,220,091)
Net assets at beginning of period 49,932,326 60,592,096 64,812,187
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 49,773,165 $ 49,932,326 $ 60,592,096
==================================================================================================================
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 87
STATEMENTS OF CHANGES IN NET ASSETS
MINNESOTA TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 JUNE 30, 2005
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 2,059,584 $ 12,828,397 $ 13,459,781
Net realized gain (loss) on investments (243,465) (2,113,997) 1,307,808
Net change in unrealized appreciation
(depreciation) on investments 6,880,299 (10,149,663) 11,874,424
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 8,696,418 564,737 26,642,013
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (1,869,249) (11,469,702) (11,812,371)
Class B (146,952) (1,122,358) (1,350,479)
Class C (38,972) (236,496) (240,632)
Net realized gain
Class A -- (630,199) (1,142,029)
Class B -- (79,986) (166,188)
Class C -- (16,239) (29,796)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (2,055,173) (13,554,980) (14,741,495)
- ------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 6,491,810 28,475,102 40,052,864
Class B shares 117,193 1,638,107 2,238,758
Class C shares 79,478 1,632,443 2,013,530
Reinvestment of distributions at net asset value
Class A shares 1,552,821 9,873,223 10,737,021
Class B shares 126,055 1,007,721 1,294,698
Class C shares 35,357 221,889 234,993
Payments for redemptions
Class A shares (8,600,320) (65,255,595) (66,760,048)
Class B shares (Note 2) (5,711,230) (15,531,202) (15,765,912)
Class C shares (Note 2) (324,412) (2,355,251) (2,730,362)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (6,233,248) (40,293,563) (28,684,458)
- ------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 407,997 (53,283,806) (16,783,940)
Net assets at beginning of period 345,774,221 399,058,027 415,841,967
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 346,182,218 $ 345,774,221 $ 399,058,027
==================================================================================================================
Undistributed net investment income $ 414,143 $ 409,732 $ 382,387
- ------------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
88 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
NEW YORK TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 JUNE 30, 2005
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 445,066 $ 2,853,705 $ 3,103,932
Net realized gain (loss) on investments (72,539) 527,983 571,057
Net change in unrealized appreciation
(depreciation) on investments 1,514,873 (3,334,496) 2,623,197
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,887,400 47,192 6,298,186
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (405,739) (2,553,156) (2,732,716)
Class B (35,821) (268,752) (325,543)
Class C (5,866) (38,050) (43,807)
Net realized gain
Class A -- (665,061) (958,527)
Class B -- (87,026) (144,685)
Class C -- (12,789) (18,926)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (447,426) (3,624,834) (4,224,204)
- ------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 1,254,286 7,210,267 6,562,422
Class B shares 104,005 625,727 609,622
Class C shares 32,356 237,394 300,146
Reinvestment of distributions at net asset value
Class A shares 333,628 2,653,759 3,143,127
Class B shares 28,703 287,925 374,395
Class C shares 5,642 48,248 61,961
Payments for redemptions
Class A shares (2,281,555) (16,835,510) (17,872,425)
Class B shares (Note 2) (1,146,108) (3,708,928) (5,445,727)
Class C shares (Note 2) (60,772) (452,020) (999,298)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (1,729,815) (9,933,138) (13,265,777)
- ------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (289,841) (13,510,780) (11,191,795)
Net assets at beginning of period 71,360,896 84,871,676 96,063,471
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 71,071,055 $ 71,360,896 $ 84,871,676
==================================================================================================================
Undistributed net investment income $ 8,807 $ 11,167 $ 9,181
- ------------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 89
STATEMENTS OF CHANGES IN NET ASSETS
OHIO TAX-EXEMPT FUND
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006(a) JUNE 30, 2006 JUNE 30, 2005
OPERATIONS AND DISTRIBUTIONS
Investment income (loss) -- net $ 278,115 $ 1,772,983 $ 1,931,489
Net realized gain (loss) on investments (46,258) 53,211 618,488
Net change in unrealized appreciation
(depreciation) on investments 1,057,934 (2,047,369) 1,820,601
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,289,791 (221,175) 4,370,578
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (248,276) (1,594,779) (1,682,964)
Class B (22,960) (178,210) (196,329)
Class C (6,879) (45,451) (49,329)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (278,115) (1,818,440) (1,928,622)
- ------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 4)
Proceeds from sales
Class A shares (Note 2) 1,007,750 4,686,479 3,342,352
Class B shares 52,305 184,460 444,801
Class C shares 14,061 111,991 251,354
Reinvestment of distributions at net asset value
Class A shares 191,425 1,201,933 1,306,745
Class B shares 18,814 140,854 152,859
Class C shares 6,450 41,682 47,057
Payments for redemptions
Class A shares (2,090,937) (12,949,939) (12,063,570)
Class B shares (Note 2) (498,609) (2,915,146) (2,673,642)
Class C shares (Note 2) (105,925) (454,252) (755,439)
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from share transactions (1,404,666) (9,951,938) (9,947,483)
- ------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (392,990) (11,991,553) (7,505,527)
Net assets at beginning of period 49,117,668 61,109,221 68,614,748
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 48,724,678 $ 49,117,668 $ 61,109,221
==================================================================================================================
Undistributed net investment income $ -- $ -- $ 40,206
- ------------------------------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
90 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RiverSource California Tax-Exempt Trust and RiverSource Special Tax-Exempt
Series Trust were organized as Massachusetts business trusts. RiverSource
California Tax-Exempt Trust includes only RiverSource California Tax-Exempt
Fund. RiverSource Special Tax-Exempt Series Trust is a "series fund" that is
currently composed of individual state tax-exempt funds, including RiverSource
Massachusetts Tax-Exempt Fund, RiverSource Michigan Tax-Exempt Fund,
RiverSource Minnesota Tax-Exempt Fund, RiverSource New York Tax-Exempt Fund
and RiverSource Ohio Tax-Exempt Fund (the Funds). The Funds are
non-diversified, except for RiverSource Minnesota Tax-Exempt Fund, which is a
diversified fund, open-end management investment companies as defined in the
Investment Company Act of 1940 (as amended). Each Fund has unlimited
authorized shares of beneficial interest.
Each Fund's goal is to provide a high level of income generally exempt from
federal income tax as well as from the respective state and local income tax.
A portion of each Fund's assets may be invested in bonds whose interest is
subject to the alternative minimum tax computation. The Funds concentrate
their investments in a single state and therefore may have more credit risk
related to the economic conditions of the respective state than Funds that
have a broader geographical diversification.
Each Fund offers Class A, Class B and Class C shares.
o Class A shares are sold with a front-end sales charge.
o Class B shares may be subject to a contingent deferred sales charge
(CDSC) and automatically convert to Class A shares during the ninth year
of ownership.
o Class C shares may be subject to a CDSC.
All classes of shares have identical voting, dividend and liquidation rights.
The distribution fee and transfer agency fees (class specific expenses) differ
among classes. Income, expenses (other than class-specific expenses) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based upon its relative net assets.
Each Fund's significant accounting policies are summarized below:
USE OF ESTIMATES
Preparing financial statements that conform to U.S. generally accepted
accounting principles requires management to make estimates (e.g., on assets,
liabilities and contingent assets and liabilities) that could differ from
actual results.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 91
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 Aug. 31, 2006, outstanding forward-commitments for the
Funds are as follows:
WHEN-ISSUED OTHER
FUND SECURITIES FORWARD-COMMITMENTS
Minnesota Tax-Exempt Fund $2,404,575 $--
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.
- ------------------------------------------------------------------------------
92 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUTURES TRANSACTIONS
To gain exposure to or protect itself from market changes, the Funds may buy
and sell financial futures contracts. Risks of entering into futures contracts
and related options include the possibility of an illiquid market and that a
change in the value of the contract or option may not correlate with changes
in the value of the underlying securities.
Upon entering into a futures contract, the Funds are required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Funds each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as
unrealized gains and losses. The Funds recognize a realized gain or loss when
the contract is closed or expires.
SWAP TRANSACTIONS
To produce incremental earnings, to gain exposure to or protect itself from
market changes, the Funds may enter into swap agreements. Swaps are an
agreement between two parties to exchange periodic cash flows based on a
specified amount of principal. The net cash flow is generally the difference
between a floating market interest rate versus a fixed interest rate. The
Funds may employ swaps to synthetically add or subtract principal exposure to
the municipal market.
Risks of entering into a swap include a lack of correlation between swaps and
the portfolio of municipal bonds the swaps are designed to hedge or replicate.
A lack of correlation may cause the swap to experience adverse changes in
value relative to expectations. In addition, swaps are subject to the risk of
default of a counterparty, and the risk of adverse movements in market
interest rates relative to the swap positions entered.
Swaps are valued daily and unrealized appreciation and depreciation is
recorded. The Funds will realize a gain or a loss when the swap is terminated.
The Funds did not enter into any swap agreements for the period ended Aug. 31,
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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 93
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.
- ------------------------------------------------------------------------------
94 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
The tax character of distributions paid for the periods indicated is as
follows:
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006* JUNE 30, 2006 JUNE 30, 2005
- ------------------------------------------------------------------------------------------------------
CALIFORNIA TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income --
tax-exempt interest distributions(a)..........$ 1,111,403 $ 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).................47,396 373,460 544,611
Long-term capital gain......................................-- 132,909 248,451
CLASS C
Distributions paid from:
Ordinary income --
tax-exempt interest distributions(a).................11,212 77,483 99,960
Long-term capital gain......................................-- 26,401 42,197
(a) Tax-exempt distributions were 99.99% for the period ended Aug. 31, 2006
and 98% and 98.70% for the years ended June 30, 2006 and 2005,
respectively.
MASSACHUSETTS TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income --
tax-exempt interest distributions(b)..........$ 289,620 $ 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).................47,646 392,511 449,620
Long-term capital gain......................................-- 66,162 82,558
CLASS C
Distributions paid from:
Ordinary income --
tax-exempt interest distributions(b)..................3,799 31,968 35,315
Long-term capital gain......................................-- 5,700 6,105
(b) Tax-exempt distributions were 99.99% for the period ended Aug. 31, 2006
and 98.78% and 97.10% for the years ended June 30, 2006 and 2005,
respectively.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 95
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006* JUNE 30, 2006 JUNE 30, 2005
- ------------------------------------------------------------------------------------------------------
MICHIGAN TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income --
tax-exempt interest distributions(c)..........$ 265,857 $ 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).................13,020 114,019 166,262
Long-term capital gain......................................-- 30,490 22,604
CLASS C
Distributions paid from:
Ordinary income --
tax-exempt interest distributions(c)..................6,475 48,885 52,795
Long-term capital gain......................................-- 14,275 7,049
(c) Tax-exempt distributions were 99.98% for the period ended Aug. 31, 2006
and 97.36% and 95.09% for the years ended June 30, 2006 and 2005,
respectively.
MINNESOTA TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income --
tax-exempt distributions(d)...................$ 1,869,249 $ 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).........................146,952 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)..........................38,972 236,501 240,632
Long-term capital gain......................................-- 16,234 29,796
(d) Tax-exempt distributions were 99.72% for the period ended Aug. 31, 2006
and 98.25% and 100% for the years ended June 30, 2006 and 2005,
respectively.
- ------------------------------------------------------------------------------
96 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
PERIOD ENDED YEAR ENDED YEAR ENDED
AUG. 31, 2006* JUNE 30, 2006 JUNE 30, 2005
- ------------------------------------------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income --
tax-exempt distributions(e)...................$ 405,739 $ 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)..........................35,821 273,864 331,878
Long-term capital gain......................................-- 81,914 138,350
CLASS C
Distributions paid from:
Ordinary income --
tax-exempt distributions(e)...........................5,866 38,801 44,636
Long-term capital gain......................................-- 12,038 18,097
(e) Tax-exempt distributions were 99.98% for the period ended Aug. 31, 2006
and 98.21% and 97.38% for the years ended June 30, 2006 and 2005,
respectively.
OHIO TAX-EXEMPT FUND
CLASS A
Distributions paid from:
Ordinary income --
tax-exempt distributions(f)...................$ 248,276 $ 1,594,779 $ 1,682,964
Long-term capital gain......................................-- -- --
CLASS B
Distributions paid from:
Ordinary income --
tax-exempt distributions(f)..........................22,960 178,210 196,329
Long-term capital gain......................................-- -- --
CLASS C
Distributions paid from:
Ordinary income --
tax-exempt distributions(f)...........................6,879 45,451 49,329
Long-term capital gain......................................-- -- --
(f) Tax-exempt distributions were 99.98% for the period ended Aug. 31, 2006
and 99.73% and 98.41% for the years ended June 30, 2006 and 2005,
respectively.
* For the period from July 1, 2006 to Aug. 31, 2006.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 97
At Aug. 31, 2006, the components of distributable earnings on a tax basis for
each Fund are as follows:
UNDISTRIBUTED ACCUMULATED UNREALIZED
TAX-EXEMPT LONG-TERM APPRECIATION
FUND INCOME GAIN (LOSS) (DEPRECIATION)
- --------------------------------------------------------------------------------------
California Tax-Exempt Fund $ 67,870 $ (107,334) $ 6,903,186
Massachusetts Tax-Exempt Fund 17,592 (150,060) 1,450,945
Michigan Tax-Exempt Fund 14,683 (72,561) 1,277,605
Minnesota Tax-Exempt Fund 300,804 (2,433,759) 11,546,133
New York Tax-Exempt Fund 36,179 (18,255) 2,282,806
Ohio Tax-Exempt Fund 13,953 (90,574) 808,333
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation 48 (FIN 48), "Accounting for Uncertainty in Income Taxes." FIN
48 clarifies the accounting for uncertainty in income taxes recognized in
accordance with FASB Statement 109, "Accounting for Income Taxes." FIN 48
prescribes a two-step process to recognize and measure a tax position taken or
expected to be taken in a tax return. The first step is to determine whether a
tax position has met the more-likely-than-not recognition threshold and the
second step is to measure a tax position that meets the threshold to determine
the amount of benefit to recognize. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after Dec. 15, 2006. Tax positions of each Fund are being evaluated
to determine the impact, if any, that will result from the adoption of FIN 48.
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.
- ------------------------------------------------------------------------------
98 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
2. EXPENSES AND SALES CHARGES
Under an Investment Management Services Agreement, RiverSource Investments,
LLC (the Investment Manager) determines which securities will be purchased,
held or sold. Prior to Oct. 1, 2005, investment management services were
provided by Ameriprise Financial, Inc. (Ameriprise Financial). The management
fee is a percentage of each Fund's average daily net assets that declines from
0.41% to 0.25% annually as each Fund's assets increase. Prior to March 1,
2006, the fee percentage of each Fund's average daily net assets declined from
0.47% to 0.38% annually as each Fund's assets increased.
Under 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
The incremental transfer agency fee is the amount charged to the specific
classes for the additional expense above the base fee of $18.50.
The Transfer Agent charges an annual closed account fee of $5 per inactive
account, charged on a pro rata basis for 12 months from the date the account
becomes inactive. These fees are included in the transfer agency fees on the
statements of operations.
Each Fund has agreements with Ameriprise Financial Services, Inc. (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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 99
Under an agreement which was effective until Sept. 30, 2005, net expenses
would not exceed 0.88% for Class A, 1.64% for Class B and 1.64% for Class C of
the Fund's average daily net assets for Massachusetts Tax-Exempt Fund,
Michigan Tax-Exempt Fund, New York Tax-Exempt Fund and Ohio Tax-Exempt Fund.
Effective as of Oct. 1, 2005, the Investment Manager and its affiliates have
agreed to waive certain fees and expenses until Aug. 31, 2007, unless sooner
terminated at the discretion of the Board, such that net expenses 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.
For the period from July 1, 2006 to Aug. 31, 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 0.79% 1.55% 1.55%
Massachusetts Tax-Exempt Fund 0.79 1.55 1.55
Michigan Tax-Exempt Fund 0.79 1.55 1.55
Minnesota Tax-Exempt Fund 0.79 1.55 1.55
New York Tax-Exempt Fund 0.79 1.55 1.55
Ohio Tax-Exempt Fund 0.79 1.55 1.55
Of these waived fees and expenses, the transfer agency fees waived are as
follows:
FUND AMOUNT
- ------------------------------------------------------------------------------
California Tax-Exempt Fund
Class A $ 9,368
Class B 385
Class C 128
The management fees waived at the Fund level were $14,288.
Massachusetts Tax-Exempt Fund
Class A 15,032
Class B 2,876
Class C 252
The management fees waived at the Fund level were $7,714.
Michigan Tax-Exempt Fund
Class A 4,808
Class B 309
Class C 159
The management fees waived at the Fund level were $19,631.
Minnesota Tax-Exempt Fund
Class A 28,966
Class B 2,697
Class C 754
The management fees waived at the Fund level were $14,656.
- ------------------------------------------------------------------------------
100 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUND AMOUNT
- ------------------------------------------------------------------------------
New York Tax-Exempt Fund
Class A $ 6,875
Class B 722
Class C 129
The management fees waived at the Fund level were $19,149.
Ohio Tax-Exempt Fund
Class A 4,914
Class B 553
Class C 179
The management fees waived at the Fund level were $19,744.
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 101
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.
Sales charges received by the Distributor for distributing the Funds' shares
for the periods indicated are as follows:
PERIOD ENDED AUG. 31, 2006(a)
FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------
California Tax-Exempt Fund $ 28,971 $ 1,714 $ 17
Massachusetts Tax-Exempt Fund 7,835 7,394 1
Michigan Tax-Exempt Fund 2,094 3,820 362
Minnesota Tax-Exempt Fund 32,269 5,001 467
New York Tax-Exempt Fund 4,504 959 75
Ohio Tax-Exempt Fund 8,897 767 --
(a) For the period from July 1, 2006 to Aug. 31, 2006.
YEAR ENDED JUNE 30, 2006
FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------
California Tax-Exempt Fund $ 151,906 $ 29,100 $ 449
Massachusetts Tax-Exempt Fund 53,101 38,137 582
Michigan Tax-Exempt Fund 38,134 9,161 1,077
Minnesota Tax-Exempt Fund 355,581 85,770 1,314
New York Tax-Exempt Fund 64,053 18,982 987
Ohio Tax-Exempt Fund 38,443 19,731 254
The Funds' custodian and transfer agency fees were reduced as a result of
earnings and bank fee credits from overnight cash balances for the periods
indicated as follows:
PERIOD ENDED AUG. 31, 2006(a)
FUND REDUCTION
- ------------------------------------------------------------------------------
California Tax-Exempt Fund $ 1,945
Massachusetts Tax-Exempt Fund 672
Michigan Tax-Exempt Fund 570
Minnesota Tax-Exempt Fund 9,068
New York Tax-Exempt Fund 1,748
Ohio Tax-Exempt Fund 1,024
(a) For the period from July 1, 2006 to Aug. 31, 2006.
- ------------------------------------------------------------------------------
102 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
YEAR ENDED JUNE 30, 2006
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
For the year ended June 30, 2006, the Funds received a one time payment by
Ameriprise Financial for additional earnings from overnight cash balances
determined to be owed for prior years. This amount was insignificant to each
Fund's net asset value and total return.
FUND AMOUNT
- ------------------------------------------------------------------------------
California Tax-Exempt Fund $16,837
Massachusetts Tax-Exempt Fund 5,873
Michigan Tax-Exempt Fund 5,451
Minnesota Tax-Exempt Fund 27,504
New York Tax-Exempt Fund 8,239
Ohio Tax-Exempt Fund 5,251
3. SECURITIES TRANSACTIONS
For the period ended Aug. 31, 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 $ 11,996,543 $ 16,232,721
Massachusetts Tax-Exempt Fund 2,804,483 5,135,098
Michigan Tax-Exempt Fund 2,693,890 4,638,294
Minnesota Tax-Exempt Fund 9,372,320 9,386,251
New York Tax-Exempt Fund 4,883,179 6,405,945
Ohio Tax-Exempt Fund 3,361,402 4,687,225
Realized gains and losses are determined on an identified cost basis.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 103
4. SHARE TRANSACTIONS
Transactions in shares for each Fund for the periods indicated are as follows:
CALIFORNIA TAX-EXEMPT FUND
PERIOD ENDED AUG. 31, 2006(a)
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 713,105 28,307 11,091
Issued for reinvested distributions 155,930 7,832 2,105
Redeemed (1,573,086) (438,186) (15,324)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (704,051) (402,047) (2,128)
- ------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 4,036,004 204,267 95,008
Issued for reinvested distributions 1,243,495 84,748 18,813
Redeemed (7,590,967) (1,255,215) (269,704)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (2,311,468) (966,200) (155,883)
- ------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2005
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 3,470,204 184,660 144,458
Issued for reinvested distributions 1,403,867 128,452 25,370
Redeemed (6,850,880) (1,423,411) (317,324)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (1,976,809) (1,110,299) (147,496)
- ------------------------------------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND
PERIOD ENDED AUG. 31, 2006(a)
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 363,719 10,202 3,388
Issued for reinvested distributions 44,686 6,934 672
Redeemed (401,184) (518,954) (10,891)
- ------------------------------------------------------------------------------------------
Net increase (decrease) 7,221 (501,818) (6,831)
- ------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 1,209,044 159,477 28,692
Issued for reinvested distributions 322,790 67,314 6,428
Redeemed (2,681,419) (1,239,200) (129,837)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (1,149,585) (1,012,409) (94,717)
- ------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
104 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
MICHIGAN TAX-EXEMPT FUND
PERIOD ENDED AUG. 31, 2006(a)
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 125,670 1,992 5,188
Issued for reinvested distributions 42,120 1,857 1,100
Redeemed (230,194) (139,247) (25,467)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (62,404) (135,398) (19,179)
- ------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 1,007,240 25,135 99,433
Issued for reinvested distributions 318,908 19,353 10,644
Redeemed (2,520,700) (427,991) (165,508)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (1,194,552) (383,503) (55,431)
- ------------------------------------------------------------------------------------------
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
PERIOD ENDED AUG. 31, 2006(a)
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 1,249,041 22,719 15,239
Issued for reinvested distributions 296,839 24,100 6,760
Redeemed (1,650,357) (1,099,618) (62,221)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (104,477) (1,052,799) (40,222)
- ------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 5,404,198 310,952 309,585
Issued for reinvested distributions 1,880,076 191,786 42,259
Redeemed (12,427,629) (2,948,175) (447,815)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (5,143,355) (2,445,437) (95,971)
- ------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 105
NEW YORK TAX-EXEMPT FUND
PERIOD ENDED AUG. 31, 2006(a)
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 252,039 20,852 6,460
Issued for reinvested distributions 66,580 5,730 1,126
Redeemed (456,343) (230,530) (12,175)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (137,724) (203,948) (4,589)
- ------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 1,420,333 123,189 46,590
Issued for reinvested distributions 525,877 57,046 9,561
Redeemed (3,327,671) (729,908) (89,076)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (1,381,461) (549,673) (32,925)
- ------------------------------------------------------------------------------------------
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
PERIOD ENDED AUG. 31, 2006(a)
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 194,690 10,118 2,707
Issued for reinvested distributions 36,662 3,603 1,235
Redeemed (401,786) (96,356) (20,427)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (170,434) (82,635) (16,485)
- ------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 2006
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Sold 892,271 35,150 21,350
Issued for reinvested distributions 229,263 26,859 7,950
Redeemed (2,470,653) (554,877) (86,600)
- ------------------------------------------------------------------------------------------
Net increase (decrease) (1,349,119) (492,868) (57,300)
- ------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------
(a) For the period from July 1, 2006 to Aug. 31, 2006.
- ------------------------------------------------------------------------------
106 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
5. INTEREST RATE FUTURES CONTRACTS
At Aug. 31, 2006, RiverSource California Tax-Exempt Fund's investments in
securities included securities valued at $36,885 that were pledged as
collateral to cover initial margin deposits on 38 open sale contracts. The
notional market value of the open sale contracts at Aug. 31, 2006 was
$4,131,875 with a net unrealized loss of $18,114. See "Summary of significant
accounting policies" and "Notes to investments in securities."
At Aug. 31, 2006, RiverSource Massachusetts Tax-Exempt Fund's investments in
securities included securities valued at $18,955 that were pledged as
collateral to cover initial margin deposits on 13 open sale contracts. The
notional market value of the open sale contracts at Aug. 31, 2006 was
$1,414,313 with a net unrealized loss of $6,226. See "Summary of significant
accounting policies" and "Notes to investments in securities."
At Aug. 31, 2006, RiverSource Michigan Tax-Exempt Fund's investments in
securities included securities valued at $17,807 that were pledged as
collateral to cover initial margin deposits on 11 open sale contracts. The
notional market value of the open sale contracts at Aug. 31, 2006 was
$1,195,875 with a net unrealized loss of $5,236. See "Summary of significant
accounting policies" and "Notes to investments in securities."
At Aug. 31, 2006, RiverSource Minnesota Tax-Exempt Fund's investments in
securities included securities valued at $79,978 that were pledged as
collateral to cover initial margin deposits on 72 open sale contracts. The
notional market value of the open sale contracts at Aug. 31, 2006 was
$7,830,563 with a net unrealized loss of $34,388. See "Summary of significant
accounting policies" and "Notes to investments in securities."
At Aug. 31, 2006, RiverSource New York Tax-Exempt Fund's investments in
securities included securities valued at $19,601 that were pledged as
collateral to cover initial margin deposits on 15 open sale contracts. The
notional market value of the open sale contracts at Aug. 31, 2006 was
$1,632,750 with a net unrealized loss of $7,217. See "Summary of significant
accounting policies" and "Notes to investments in securities."
At Aug. 31, 2006, RiverSource Ohio Tax-Exempt Fund's investments in securities
included securities valued at $16,835 that were pledged as collateral to cover
initial margin deposits on 10 open sale contracts. The notional market value
of the open sale contracts at Aug. 31, 2006 was $1,088,500 with a net
unrealized loss of $4,811. See "Summary of significant accounting policies"
and "Notes to investments in securities."
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 107
6. BANK BORROWINGS
Each Fund has a revolving credit agreement with a syndicate of banks headed by
JPMorgan Chase Bank, N.A. (JPMCB), whereby each Fund may borrow for the
temporary funding of shareholder redemptions or for other temporary or
emergency purposes. 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.
Each Fund had no borrowings outstanding during the period ended Aug. 31, 2006.
7. CAPITAL LOSS CARRY-OVER
For federal income tax purposes, capital loss carry-overs at Aug. 31, 2006 are
as follows:
FUND 2012 2013 2014
- -------------------------------------------------------------------------------
California Tax-Exempt Fund $ -- $ -- $ 109,278
Massachusetts Tax-Exempt Fund -- -- 150,080
Michigan Tax-Exempt Fund -- -- 73,073
Minnesota Tax-Exempt Fund -- 1,520,753 913,006
New York Tax-Exempt Fund -- -- 79,756
Ohio Tax-Exempt Fund 39,505 -- 51,069
It is unlikely the Board will authorize distributions of any net realized
capital gains for the Funds until the respective capital loss carry-overs have
been offset or expire.
- ------------------------------------------------------------------------------
108 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
8. 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 109
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.
9. CHANGE OF FUND'S FISCAL YEAR
The By-Laws of each Fund were amended on April 13, 2006, changing their fiscal
year end from June 30 to Aug. 31, effective Aug. 31, 2006.
- ------------------------------------------------------------------------------
110 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
10. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating
each Fund's results.
RiverSource California Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.06 $ 5.27 $ 5.11 $ 5.37 $ 5.23 $ 5.18
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .19 .20 .21 .23 .24
Net gains (losses) (both realized
and unrealized) .10 (.15) .23 (.20) .14 .05
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .04 .43 .01 .37 .29
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.19) (.20) (.21) (.23) (.24)
Distributions from realized gains -- (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.25) (.27) (.27) (.23) (.24)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.16 $ 5.06 $ 5.27 $ 5.11 $ 5.37 $ 5.23
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 170 $ 171 $ 190 $ 194 $ 237 $ 234
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) .79%(d),(e) .81%(d) .86% .86% .85% .84%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.81%(e) 3.69% 3.71% 4.03% 4.34% 4.56%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 20% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.63%(g) .81% 8.53% .25% 7.26% 5.66%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class A would have been 0.87% for the period ended Aug. 31, 2006 and
0.88% for the year ended June 30, 2006.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 111
RiverSource California Tax-Exempt Fund
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.06 $ 5.27 $ 5.11 $ 5.37 $ 5.23 $ 5.17
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .15 .16 .17 .19 .20
Net gains (losses) (both realized
and unrealized) .10 (.15) .23 (.20) .14 .06
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 -- .39 (.03) .33 .26
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.15) (.16) (.17) (.19) (.20)
Distributions from realized gains -- (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.21) (.23) (.23) (.19) (.20)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.16 $ 5.06 $ 5.27 $ 5.11 $ 5.37 $ 5.23
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 9 $ 11 $ 16 $ 21 $ 27 $ 27
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.57%(d) 1.61% 1.61% 1.60% 1.59%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.01%(e) 2.92% 2.95% 3.28% 3.58% 3.81%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 20% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.50%(g) .05% 7.72% (.50%) 6.44% 5.07%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class B would have been 1.62% for the period ended Aug. 31, 2006 and
1.63% for the year ended June 30, 2006.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
112 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource California Tax-Exempt Fund
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.07 $ 5.28 $ 5.12 $ 5.38 $ 5.24 $ 5.18
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .15 .16 .17 .19 .20
Net gains (losses) (both realized
and unrealized) .10 (.15) .23 (.20) .14 .06
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 -- .39 (.03) .33 .26
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.15) (.16) (.17) (.19) (.20)
Distributions from realized gains -- (.06) (.07) (.06) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.21) (.23) (.23) (.19) (.20)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.17 $ 5.07 $ 5.28 $ 5.12 $ 5.38 $ 5.24
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 2 $ 2 $ 3 $ 4 $ 5 $ 3
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.58%(d) 1.62% 1.62% 1.61% 1.60%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.05%(e) 2.93% 2.94% 3.27% 3.56% 3.86%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 20% 28% 30% 95% 16%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.50%(g) .06% 7.71% (.50%) 6.43% 5.07%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class C would have been 1.63% for the period ended Aug. 31, 2006 and
1.64% for the year ended June 30, 2006.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 113
RiverSource Massachusetts Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37 $ 5.28
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .18 .17 .18 .19 .22
Net gains (losses) (both realized
and unrealized) .11 (.20) .22 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .14 (.02) .39 (.01) .35 .31
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.18) (.17) (.18) (.19) (.22)
Distributions from realized gains -- (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.21) (.20) (.24) (.21) (.22)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.33 $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 49 $ 48 $ 56 $ 59 $ 73 $ 66
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) .79%(d),(e) .81%(d) .88%(d) .88%(d) .88%(d) .91%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.52%(e) 3.38% 3.17% 3.35% 3.57% 4.11%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 5% 17% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.72%(g) (.29%) 7.42% (.24%) 6.73% 5.94%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class A would have been 1.05% for the period ended Aug. 31, 2006 and
0.97%, 0.94%, 0.93% and 0.92% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
114 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Massachusetts Tax-Exempt Fund
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37 $ 5.28
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .14 .13 .14 .15 .18
Net gains (losses) (both realized
and unrealized) .10 (.20) .22 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 (.06) .35 (.05) .31 .27
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.02) (.14) (.13) (.14) (.15) (.18)
Distributions from realized gains -- (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.02) (.17) (.16) (.20) (.17) (.18)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.33 $ 5.22 $ 5.45 $ 5.26 $ 5.51 $ 5.37
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 9 $ 12 $ 18 $ 21 $ 24 $ 24
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.58%(d) 1.64%(d) 1.64%(d) 1.63%(d) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.72%(e) 2.61% 2.41% 2.59% 2.81% 3.34%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 5% 17% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.58%(g) (1.05%) 6.61% (.99%) 5.92% 5.15%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class B would have been 1.79% for the period ended Aug. 31, 2006 and
1.72%, 1.69%, 1.69% and 1.68% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 115
RiverSource Massachusetts Tax-Exempt Fund
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.21 $ 5.44 $ 5.26 $ 5.51 $ 5.37 $ 5.28
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .14 .13 .14 .15 .18
Net gains (losses) (both realized
and unrealized) .11 (.20) .21 (.19) .16 .09
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .14 (.06) .34 (.05) .31 .27
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.14) (.13) (.14) (.15) (.18)
Distributions from realized gains -- (.03) (.03) (.06) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.17) (.16) (.20) (.17) (.18)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.32 $ 5.21 $ 5.44 $ 5.26 $ 5.51 $ 5.37
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 1 $ 1 $ 1 $ 2 $ 2 $ 2
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.58%(d) 1.64%(d) 1.64%(d) 1.64%(d) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.76%(e) 2.62% 2.41% 2.58% 2.88% 3.32%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 5% 17% 9% 14% 141% 53%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.59%(g) (1.05%) 6.41% (.97%) 5.91% 5.16%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class C would have been 1.81% for the period ended Aug. 31, 2006 and
1.73%, 1.70%, 1.69% and 1.68% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
116 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Michigan Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .18 .18 .19 .22 .24
Net gains (losses) (both realized
and unrealized) .10 (.16) .17 (.18) .19 .06
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .02 .35 .01 .41 .30
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.18) (.18) (.19) (.22) (.24)
Distributions from realized gains -- (.04) (.03) (.08) (.05) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.22) (.21) (.27) (.27) (.24)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.25 $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 46 $ 45 $ 53 $ 56 $ 70 $ 70
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) .79%(d),(e) .81%(d) .88%(d) .88%(d) .88%(d) .92%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.44%(e) 3.38% 3.45% 3.55% 4.06% 4.57%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 6% 16% 9% 32% 113% 33%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.54%(g) .40% 6.80% .19% 8.00% 5.83%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class A would have been 1.09% for the period ended Aug. 31, 2006 and
0.98%, 0.96%, 0.94% and 0.93% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 117
RiverSource Michigan Tax-Exempt Fund
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.16 $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .02 .14 .14 .15 .18 .20
Net gains (losses) (both realized
and unrealized) .10 (.15) .17 (.18) .19 .06
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .12 (.01) .31 (.03) .37 .26
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.02) (.14) (.14) (.15) (.18) (.20)
Distributions from realized gains -- (.04) (.03) (.08) (.05) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.02) (.18) (.17) (.23) (.23) (.20)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.26 $ 5.16 $ 5.35 $ 5.21 $ 5.47 $ 5.33
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 3 $ 3 $ 5 $ 7 $ 9 $ 8
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.58%(d) 1.64%(d) 1.63%(d) 1.63%(d) 1.67%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.65%(e) 2.61% 2.69% 2.79% 3.28% 3.82%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 6% 16% 9% 32% 113% 33%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.39%(g) (.17%) 5.99% (.56%) 7.18% 5.04%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class B would have been 1.83% for the period ended Aug. 31, 2006 and
1.74%, 1.71%, 1.70% and 1.69% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
118 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Michigan Tax-Exempt Fund
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33 $ 5.27
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .02 .14 .14 .15 .18 .20
Net gains (losses) (both realized
and unrealized) .11 (.16) .17 (.18) .19 .06
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 (.02) .31 (.03) .37 .26
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.02) (.14) (.14) (.15) (.18) (.20)
Distributions from realized gains -- (.04) (.03) (.08) (.05) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.02) (.18) (.17) (.23) (.23) (.20)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.26 $ 5.15 $ 5.35 $ 5.21 $ 5.47 $ 5.33
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 1 $ 1 $ 2 $ 2 $ 2 $ 1
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.57%(d) 1.64%(d) 1.64%(d) 1.63%(d) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.67%(e) 2.61% 2.70% 2.80% 3.27% 3.80%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 6% 16% 9% 32% 113% 33%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.59%(g) (.36%) 5.99% (.57%) 7.18% 5.05%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class C would have been 1.84% for the period ended Aug. 31, 2006 and
1.74%, 1.72%, 1.70% and 1.69% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 119
RiverSource Minnesota Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .18 .18 .19 .22 .25
Net gains (losses) (both realized
and unrealized) .10 (.17) .17 (.17) .17 .06
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .01 .35 .02 .39 .31
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.18) (.18) (.19) (.22) (.25)
Distributions from realized gains -- (.01) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.19) (.20) (.19) (.22) (.25)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 309 $ 303 $ 341 $ 347 $ 393 $ 375
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) .79%(d),(e) .81%(d) .85% .84% .84% .83%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.60%(e) 3.52% 3.37% 3.60% 4.26% 4.82%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 3% 13% 15% 23% 73% 36%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.56%(g) .29% 6.73% .32% 7.78% 6.15%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class A would have been 0.87% for the period ended Aug. 31, 2006 and
0.86% for the year ended June 30, 2006.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
120 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Minnesota Tax-Exempt Fund
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .14 .14 .15 .18 .21
Net gains (losses) (both realized
and unrealized) .10 (.17) .17 (.17) .17 .06
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 (.03) .31 (.02) .35 .27
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.14) (.14) (.15) (.18) (.21)
Distributions from realized gains -- (.01) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.15) (.16) (.15) (.18) (.21)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 29 $ 34 $ 49 $ 59 $ 68 $ 64
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.57%(d) 1.60% 1.59% 1.59% 1.59%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.81%(e) 2.75% 2.62% 2.85% 3.48% 4.02%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 3% 13% 15% 23% 73% 36%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.42%(g) (.47%) 5.94% (.44%) 6.97% 5.36%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class B would have been 1.62% for the period ended Aug. 31, 2006 and
1.62% for the year ended June 30, 2006.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 121
RiverSource Minnesota Tax-Exempt Fund
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20 $ 5.14
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .14 .14 .15 .18 .21
Net gains (losses) (both realized
and unrealized) .10 (.17) .17 (.17) .17 .06
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 (.03) .31 (.02) .35 .27
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.14) (.14) (.15) (.18) (.21)
Distributions from realized gains -- (.01) (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.15) (.16) (.15) (.18) (.21)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.27 $ 5.17 $ 5.35 $ 5.20 $ 5.37 $ 5.20
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 8 $ 8 $ 9 $ 9 $ 9 $ 5
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.57%(d) 1.61% 1.60% 1.60% 1.59%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.84%(e) 2.76% 2.62% 2.84% 3.44% 4.04%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 3% 13% 15% 23% 73% 36%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.42%(g) (.47%) 5.94% (.44%) 6.96% 5.36%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class C would have been 1.63% for the period ended Aug. 31, 2006 and
1.62% for the year ended June 30, 2006.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
122 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource New York Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.12
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .19 .18 .18 .20 .22
Net gains (losses) (both realized
and unrealized) .10 (.18) .17 (.18) .22 .04
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 .01 .35 -- .42 .26
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.19) (.18) (.18) (.20) (.22)
Distributions from realized gains -- (.05) (.06) (.11) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.24) (.24) (.29) (.22) (.22)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.05 $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 63 $ 63 $ 73 $ 79 $ 97 $ 92
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) .79%(d),(e) .81%(d) .88%(d) .88%(d) .88%(d) .90%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.77%(e) 3.75% 3.47% 3.44% 3.88% 4.38%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 17% 30% 36% 91% 44%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.67%(g) .20% 7.04% (.02%) 8.43% 5.26%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class A would have been 1.01% for the period ended Aug. 31, 2006 and
0.96%, 0.92%, 0.93% and 0.90% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 123
RiverSource New York Tax-Exempt Fund
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.12
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .15 .14 .14 .16 .19
Net gains (losses) (both realized
and unrealized) .10 (.18) .17 (.18) .22 .04
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 (.03) .31 (.04) .38 .23
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.15) (.14) (.14) (.16) (.19)
Distributions from realized gains -- (.05) (.06) (.11) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.20) (.20) (.25) (.18) (.19)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.05 $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 7 $ 8 $ 11 $ 15 $ 18 $ 18
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.58%(d) 1.64%(d) 1.63%(d) 1.63%(d) 1.65%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.98%(e) 2.98% 2.70% 2.69% 3.13% 3.60%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 17% 30% 36% 91% 44%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.54%(g) (.55%) 6.23% (.78%) 7.61% 4.48%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class B would have been 1.76% for the period ended Aug. 31, 2006 and
1.71%, 1.67%, 1.69% and 1.66% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
124 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource New York Tax-Exempt Fund
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16 $ 5.11
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .15 .14 .14 .16 .19
Net gains (losses) (both realized
and unrealized) .10 (.18) .17 (.18) .22 .05
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 (.03) .31 (.04) .38 .24
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.15) (.14) (.14) (.16) (.19)
Distributions from realized gains -- (.05) (.06) (.11) (.02) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.20) (.20) (.25) (.18) (.19)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.05 $ 4.95 $ 5.18 $ 5.07 $ 5.36 $ 5.16
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 1 $ 1 $ 1 $ 2 $ 2 $ 1
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.58%(d) 1.64%(d) 1.63%(d) 1.64%(d) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.01%(e) 2.99% 2.70% 2.68% 3.07% 3.69%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 17% 30% 36% 91% 44%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.54%(g) (.55%) 6.23% (.78%) 7.60% 4.68%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class C would have been 1.78% for the period ended Aug. 31, 2006 and
1.72%, 1.68%, 1.69% and 1.66% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 125
RiverSource Ohio Tax-Exempt Fund
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.35 $ 5.27
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .03 .17 .16 .17 .18 .22
Net gains (losses) (both realized
and unrealized) .11 (.19) .19 (.20) .19 .08
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .14 (.02) .35 (.03) .37 .30
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03) (.18) (.16) (.17) (.18) (.22)
Distributions from realized gains -- -- -- (.07) (.11) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) (.18) (.16) (.24) (.29) (.22)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.26 $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.35
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 42 $ 42 $ 51 $ 56 $ 67 $ 69
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) .79%(d),(e) .81%(d) .88%(d) .88%(d) .88%(d) .91%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 3.45%(e) 3.31% 3.07% 3.13% 3.40% 4.22%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 18% 33% 17% 194% 33%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.73%(g) (.41%) 6.90% (.67%) 7.08% 5.87%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class A would have been 1.10% for the period ended Aug. 31, 2006 and
0.99%, 0.95%, 0.95% and 0.92% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
126 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Ohio Tax-Exempt Fund
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.34 $ 5.27
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .02 .13 .12 .13 .14 .18
Net gains (losses) (both realized
and unrealized) .11 (.19) .19 (.20) .20 .07
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .13 (.06) .31 (.07) .34 .25
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.02) (.14) (.12) (.13) (.14) (.18)
Distributions from realized gains -- -- -- (.07) (.11) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.02) (.14) (.12) (.20) (.25) (.18)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.26 $ 5.15 $ 5.35 $ 5.16 $ 5.43 $ 5.34
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 5 $ 5 $ 8 $ 10 $ 13 $ 12
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.58%(d) 1.64%(d) 1.63%(d) 1.63%(d) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.67%(e) 2.54% 2.31% 2.38% 2.62% 3.46%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 18% 33% 17% 194% 33%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.60%(g) (1.17%) 6.10% (1.43%) 6.47% 4.89%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class B would have been 1.85% for the period ended Aug. 31, 2006 and
1.74%, 1.70%, 1.71% and 1.68% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 127
RiverSource Ohio Tax-Exempt Fund
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE INCOME AND CAPITAL CHANGES(a)
- ----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED
AUG. 31, YEAR ENDED JUNE 30,
2006(b) 2006 2005 2004 2003 2002
Net asset value, beginning of period $ 5.16 $ 5.35 $ 5.16 $ 5.43 $ 5.35 $ 5.28
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) .02 .13 .12 .13 .14 .18
Net gains (losses) (both realized
and unrealized) .10 (.18) .19 (.20) .19 .07
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .12 (.05) .31 (.07) .33 .25
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.02) (.14) (.12) (.13) (.14) (.18)
Distributions from realized gains -- -- -- (.07) (.11) --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.02) (.14) (.12) (.20) (.25) (.18)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.26 $ 5.16 $ 5.35 $ 5.16 $ 5.43 $ 5.35
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $ 1 $ 2 $ 2 $ 2 $ 3 $ 1
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
daily net assets(c) 1.55%(d),(e) 1.58%(d) 1.64%(d) 1.63%(d) 1.63%(d) 1.66%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average daily net assets 2.69%(e) 2.55% 2.31% 2.38% 2.54% 3.45%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
(excluding short-term securities) 7% 18% 33% 17% 194% 33%
- ----------------------------------------------------------------------------------------------------------------------------
Total return(f) 2.40%(g) (.98%) 6.10% (1.44%) 6.26% 4.89%
- ----------------------------------------------------------------------------------------------------------------------------
(a) For a share outstanding throughout the period. Rounded to the nearest
cent.
(b) For the period from July 1, 2006 to Aug. 31, 2006.
(c) Expense ratio is based on total expenses of the Fund before reduction of
earnings and bank fee credits on cash balances.
(d) The Investment Manager and its affiliates waived/reimbursed the Fund for
certain expenses. Had they not done so, the annual ratios of expenses
for Class C would have been 1.86% for the period ended Aug. 31, 2006 and
1.75%, 1.71%, 1.71% and 1.68% for the years ended June 30, 2006, 2005,
2004 and 2003, respectively.
(e) Adjusted to an annual basis.
(f) Total return does not reflect payment of a sales charge.
(g) Not annualized.
- ------------------------------------------------------------------------------
128 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 August 31, 2006, the related statements
of operations for the period from July 1, 2006 to August 31, 2006 and for the
year ended June 30, 2006, the statements of changes in net assets for the
period from July 1, 2006 to August 31, 2006 and for each of the years in the
two-year period ended June 30, 2006, and the financial highlights for the
period from July 1, 2006 to August 31, 2006 and 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 August 31, 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 129
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 August 31, 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
October 20, 2006
- ------------------------------------------------------------------------------
130 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
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
For the period from July 1, 2006 to Aug. 31, 2006
CLASS A
INCOME DISTRIBUTIONS -- 99.99% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006........................................................$ 0.01616
Aug. 28, 2006..........................................................0.01745
Total distributions..................................................$ 0.03361
CLASS B
INCOME DISTRIBUTIONS -- 99.99% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006........................................................$ 0.01289
Aug. 28, 2006..........................................................0.01392
Total distributions..................................................$ 0.02681
CLASS C
INCOME DISTRIBUTIONS -- 99.99% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006........................................................$ 0.01300
Aug. 28, 2006..........................................................0.01395
Total distributions..................................................$ 0.02695
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 Aug. 31,
2006 was 7.54%.
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 131
RiverSource Massachusetts Tax-Exempt Fund
For the period from July 1, 2006 to Aug. 31, 2006
CLASS A
INCOME DISTRIBUTIONS -- 99.99% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01519
Aug. 28, 2006 .........................................................0.01674
Total distributions .................................................$ 0.03193
CLASS B
INCOME DISTRIBUTIONS -- 99.99% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01185
Aug. 28, 2006 .........................................................0.01311
Total distributions..................................................$ 0.02496
CLASS C
INCOME DISTRIBUTIONS -- 99.99% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01192
Aug. 28, 2006 .........................................................0.01310
Total distributions..................................................$ 0.02502
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 Aug. 31,
2006 was 2.88%.
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.
- ------------------------------------------------------------------------------
132 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Michigan Tax-Exempt Fund
For the period from July 1, 2006 to Aug. 31, 2006
CLASS A
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01474
Aug. 28, 2006 .........................................................0.01627
Total distributions..................................................$ 0.03101
CLASS B
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2006 .......................................................$ 0.01113
Aug. 29, 2006 .........................................................0.01271
Total distributions..................................................$ 0.02384
CLASS C
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 28, 2006 .......................................................$ 0.01119
Aug. 29, 2006 .........................................................0.01268
Total distributions..................................................$ 0.02387
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 Aug. 31,
2006 was 0.55%.
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 133
RiverSource Minnesota Tax-Exempt Fund
For the period from July 1, 2006 to Aug. 31, 2006
CLASS A
INCOME DISTRIBUTIONS -- 99.72% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01546
Aug. 28, 2006 .........................................................0.01693
Total distributions..................................................$ 0.03239
CLASS B
INCOME DISTRIBUTIONS -- 99.72% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01216
Aug. 28, 2006 .........................................................0.01333
Total distributions..................................................$ 0.02549
CLASS C
INCOME DISTRIBUTIONS -- 99.72% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01223
Aug. 28, 2006 .........................................................0.01313
Total distributions..................................................$ 0.02536
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 Aug. 31,
2006 was 6.55%.
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.
- ------------------------------------------------------------------------------
134 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource New York Tax-Exempt Fund
For the period from July 1, 2006 to Aug. 31, 2006
CLASS A
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01564
Aug. 28, 2006 .........................................................0.01696
Total distributions..................................................$ 0.03260
CLASS B
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01248
Aug. 28, 2006 .........................................................0.01352
Total distributions..................................................$ 0.02600
CLASS C
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01254
Aug. 28, 2006 .........................................................0.01352
Total distributions..................................................$ 0.02606
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 Aug. 31,
2006 was 3.10%.
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 135
RiverSource Ohio Tax-Exempt Fund
For the period from July 1, 2006 to Aug. 31, 2006
CLASS A
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01473
Aug. 28, 2006 .........................................................0.01625
Total distributions..................................................$ 0.03098
CLASS B
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01147
Aug. 28, 2006 .........................................................0.01267
Total distributions..................................................$ 0.02414
CLASS C
INCOME DISTRIBUTIONS -- 99.98% are tax-exempt.
PAYABLE DATE PER SHARE
July 26, 2006 .......................................................$ 0.01150
Aug. 28, 2006 .........................................................0.01267
Total distributions..................................................$ 0.02417
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 Aug. 31,
2006 was 3.21%.
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.
- ------------------------------------------------------------------------------
136 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
FUND EXPENSES EXAMPLES
(UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, 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 Aug. 31, 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 137
RiverSource California Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2006 AUG. 31, 2006 THE PERIOD(a) EXPENSE RATIO
- -------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,017.50 $4.02 .79%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,021.22 $4.02 .79%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,015.50 $7.87 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,015.60 $7.87 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
(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 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2006:
+1.75% for Class A, +1.55% for Class B and +1.56% for Class C.
- ------------------------------------------------------------------------------
138 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Massachusetts Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2006 AUG. 31, 2006 THE PERIOD(a) EXPENSE RATIO
- -------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,017.90 $4.02 .79%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,021.22 $4.02 .79%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,014.00 $7.87 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,012.20 $7.86 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
(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 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2006:
+1.79% for Class A, +1.40% for Class B and +1.22% for Class C.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 139
RiverSource Michigan Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2006 AUG. 31, 2006 THE PERIOD(a) EXPENSE RATIO
- -------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,015.70 $4.01 .79%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,021.22 $4.02 .79%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,013.60 $7.87 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,013.60 $7.87 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
(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 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2006:
+1.57% for Class A, +1.36% for Class B and +1.36% for Class C.
- ------------------------------------------------------------------------------
140 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Minnesota Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2006 AUG. 31, 2006 THE PERIOD(a) EXPENSE RATIO
- -------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,016.40 $4.02 .79%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,021.22 $4.02 .79%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,012.50 $7.86 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,012.50 $7.86 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
(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 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2006:
+1.64% for Class A, +1.25% for Class B and +1.25% for Class C.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 141
RiverSource New York Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2006 AUG. 31, 2006 THE PERIOD(a) EXPENSE RATIO
- -------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,017.40 $4.02 .79%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,021.22 $4.02 .79%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,013.50 $7.87 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,013.50 $7.87 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
(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 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2006:
+1.74% for Class A, +1.35% for Class B and +1.35% for Class C.
- ------------------------------------------------------------------------------
142 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
RiverSource Ohio Tax-Exempt Fund
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING ANNUALIZED
MARCH 1, 2006 AUG. 31, 2006 THE PERIOD(a) EXPENSE RATIO
- -------------------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,015.60 $4.01 .79%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,021.22 $4.02 .79%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class B
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,011.70 $7.86 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
Class C
- -------------------------------------------------------------------------------------------------------
Actual(b) $1,000 $1,011.70 $7.86 1.55%
- -------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,017.39 $7.88 1.55%
(5% return before expenses)
- -------------------------------------------------------------------------------------------------------
(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 184/365 (to reflect the one-half year period).
(b) Based on the actual return for the six months ended Aug. 31, 2006:
+1.56% for Class A, +1.17% for Class B and +1.17% for Class C.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 143
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 100
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
901 S. Marquette Ave. since 2006 Court, 1998-2005
Minneapolis, MN 55402
Age 52
- ---------------------------------------------------------------------------------------------------------------------
Arne H. Carlson Board member Chair, Board Services Corporation
901 S. Marquette Ave. since 1999 (provides administrative services
Minneapolis, MN 55402 to boards); former Governor
Age 71 of Minnesota
- ---------------------------------------------------------------------------------------------------------------------
Patricia M. Flynn Board member Trustee Professor of Economics and
901 S. Marquette Ave. since 2004 Management, Bentley College;
Minneapolis, MN 55402 former Dean, McCallum Graduate
Age 55 School of Business, Bentley College
- ---------------------------------------------------------------------------------------------------------------------
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, American Progressive
901 S. Marquette Ave. since 2005 Shikiar Asset Management Insurance
Minneapolis, MN 55402
Age 71
- ---------------------------------------------------------------------------------------------------------------------
Stephen R. Lewis, Jr. Board member President Emeritus and Valmont Industries, Inc.
901 S. Marquette Ave. since 2002 Professor of Economics, (manufactures irrigation
Minneapolis, MN 55402 Carleton College systems)
Age 67
- ---------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
144 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
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 Director, Enterprise Asset Strategic Distribution,
901 S. Marquette Ave. since 2004 Management, Inc. (private real Inc. (transportation,
Minneapolis, MN 55402 estate and asset management distribution and logistics
Age 54 company) consultants)
- ---------------------------------------------------------------------------------------------------------------------
Vikki L. Pryor Board member President and Chief Executive
901 S. Marquette Ave. since 2006 Officer, SBLI USA Mutual Life
Minneapolis, MN 55402 Insurance Company, Inc. since 1999
Age 53
- ---------------------------------------------------------------------------------------------------------------------
Alison Taunton-Rigby Board member Chief Executive Officer, RiboNovix, Hybridon, Inc.
901 S. Marquette Ave. since 2002 Inc. since 2003 (biotechnology); (biotechnology);
Minneapolis, MN 55402 former President, Forester Biotech American Healthways,
Age 62 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
53600 Ameriprise since 2001, Company since 2006; President -
Financial Center Vice President U.S. Asset Management and Chief
Minneapolis, MN 55474 since 2002, Investment Officer, Ameriprise
Age 46 Acting President Financial, Inc. and President,
since 2006 Chairman of the Board and Chief
Investment Officer, RiverSource
Investments, LLC since 2005; Senior
Vice 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.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 145
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 and
Acting 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,
105 Ameriprise since 2002 Inc., since 2002; Vice President - Finance, American Express
Financial Center Company, 2000-2002
Minneapolis, MN 55474
Age 51
- -------------------------------------------------------------------------------------------------------------------
Michelle M. Keeley Vice President Executive Vice President - Equity and Fixed Income,
172 Ameriprise since 2004 Ameriprise Financial, Inc. and RiverSource Investments, LLC
Financial Center since 2006; Vice President - Investments, Ameriprise
Minneapolis, MN 55474 Certificate Company since 2003; Senior Vice President - Fixed
Age 42 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 68 since 1978
- -------------------------------------------------------------------------------------------------------------------
Edward S. Dryden* Acting Chief Chief Compliance Officer, Ameriprise Certificate Company since
1875 Ameriprise Compliance Officer 2006; Vice President - Asset Management Compliance,
Financial Center since 2006 RiverSource Investments, LLC since 2006; Chief Compliance
Minneapolis, MN 55474 Officer - Mason Street Advisors, LLC, 2002-2006
Age 41
- -------------------------------------------------------------------------------------------------------------------
Neysa M. Alecu Anti-Money Compliance Director and Anti-Money Laundering Officer,
2934 Ameriprise Laundering Officer Ameriprise Financial, Inc. since 2004; Manager Anti-Money
Financial Center since 2004 Laundering, Ameriprise Financial, Inc., 2003-2004; Compliance
Minneapolis, MN 55474 Director and Bank Secrecy Act Officer, American Express
Age 42 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
riversource.com/funds.
- ------------------------------------------------------------------------------
146 RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT
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/Trustees (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 riversource.com/funds; or searching the website of the
Securities and Exchange Commission (SEC) at http://www.sec.gov. Information
regarding how the Fund voted proxies relating to portfolio securities during
the 12-month period ended June 30, 2006 is available without charge by
visiting riversource.com/funds; or searching the website of the SEC at
www.sec.gov.
- ------------------------------------------------------------------------------
RIVERSOURCE STATE TAX-EXEMPT FUNDS - 2006 ANNUAL REPORT 147
THROUGH THE RIVERSOURCE INVESTMENTS FAMILY OF FUNDS, YOU CAN BUILD A
DIVERSIFIED PORTFOLIO THAT IS DESIGNED TO HELP YOU REACH YOUR GOALS.
GROWTH FUNDS ASSET ALLOCATION FUNDS
RiverSource(SM) Growth Fund RiverSource(SM) Portfolio Builder
RiverSource(SM) Fundamental Growth Fund Conservative Fund
RiverSource(SM) Mid Cap Growth Fund RiverSource(SM) Income Builder Basic
RiverSource(SM) Aggressive Growth Fund Income Fund
RiverSource(SM) Small Cap Growth Fund RiverSource(SM) Income Builder Moderate
Sector: RiverSource(SM) Global Income Fund
Technology Fund RiverSource(SM) Income Builder Enhanced
Income Fund
BLEND FUNDS RiverSource(SM) Portfolio Builder Moderate
Conservative Fund
RiverSource(SM) Disciplined Equity Fund RiverSource(SM) Portfolio Builder
RiverSource(SM) Large Cap Equity Fund Moderate Fund
RiverSource(SM) S&P 500 Index Fund RiverSource Retirement Plus(SM) 2010 Fund
RiverSource(SM) Disciplined Small and RiverSource(SM) Balanced Fund
Mid Cap Equity Fund RiverSource(SM) Portfolio Builder Moderate
RiverSource(SM) Small Cap Advantage Fund Aggressive Fund
RiverSource(SM) Small Company Index Fund RiverSource Retirement Plus(SM) 2015 Fund
RiverSource(SM) Small Cap Equity Fund RiverSource(SM) Strategic Allocation Fund
Sector: RiverSource(SM) Precious Metals Fund RiverSource Retirement Plus(SM) 2020 Fund
RiverSource(SM) Portfolio Builder
VALUE FUNDS Aggressive Fund
RiverSource Retirement Plus(SM) 2025 Fund
RiverSource(SM) Dividend Opportunity Fund RiverSource Retirement Plus(SM) 2030 Fund
RiverSource(SM) Value Fund RiverSource Retirement Plus(SM) 2035 Fund
RiverSource(SM) Fundamental Value Fund RiverSource Retirement Plus(SM) 2040 Fund
RiverSource(SM) Equity Value Fund RiverSource Retirement Plus(SM) 2045 Fund
RiverSource(SM) Large Cap Value Fund RiverSource(SM) Portfolio Builder Total
RiverSource(SM) Diversified Equity Equity Fund
Income Fund
RiverSource(SM) Select Value Fund
RiverSource(SM) Mid Cap Value Fund
RiverSource(SM) Disciplined Small Cap
Value Fund
RiverSource(SM) Small Cap Value Fund
Sector: RiverSource(SM) Real Estate Fund
- ------------------------------------------------------------------------------
THIS PAGE IS NOT PART OF THE ANNUAL REPORT
TAXABLE INCOME FUNDS TAX-EXEMPT FUNDS
RiverSource(SM) Cash Management Fund RiverSource(SM) Tax-Exempt Money
RiverSource(SM) Short Duration U.S. Market Fund
Government Fund RiverSource(SM) Intermediate Tax-Exempt Fund
RiverSource(SM) U.S. Government RiverSource(SM) Tax-Exempt Bond Fund
Mortgage Fund RiverSource(SM) State Tax-Exempt Funds
RiverSource(SM) Inflation Protected RiverSource(SM) Tax-Exempt High Income Fund
Securities Fund
RiverSource(SM) Floating Rate Fund GLOBAL/INTERNATIONAL FUNDS
RiverSource(SM) Limited Duration Bond Fund
RiverSource(SM) Core Bond Fund RiverSource(SM) Global Equity Fund
RiverSource(SM) Diversified Bond Fund RiverSource(SM) International Select
RiverSource(SM) Income Opportunities Fund Value Fund
RiverSource(SM) High Yield Bond Fund RiverSource(SM) International Equity Fund
RiverSource(SM) Global Bond Fund RiverSource(SM) Disciplined International
RiverSource(SM) Emerging Markets Bond Fund Equity Fund
RiverSource(SM) International Opportunity Fund
RiverSource(SM) International Small Cap Fund
RiverSource(SM) International Aggressive
Growth Fund
RiverSource(SM) European Equity Fund
RiverSource(SM) Emerging Markets Fund
You should consider the investment objectives, risks, charges and expenses of
a mutual fund carefully before investing. For a free prospectus of any of the
funds listed above, which contains this and other important information about
the funds, contact your financial institution or visit riversource.com/funds.
Read the prospectus carefully before investing.
Investment products, including shares of mutual funds, involve risks including
possible loss of principal and fluctuation in value. Investing in certain
funds involves special risks, such as those related to investments in foreign
securities, small- and mid-capitalization stocks, fixed income securities
(especially high-yield securities), and funds which focus their investments in
a particular sector, such as real estate, technology and precious metals. See
each fund's prospectus for specific risks associated with the fund.
AN INVESTMENT IN MONEY MARKET FUNDS IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE FUND SEEKS TO MAINTAIN THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
"Standard & Poors(R)," "S&P ," "S&P 500(R)," and "Standard & Poor's 500(R)"
are trademarks of the McGraw-Hill Companies, Inc. These trademarks and service
marks have been licensed for use by Ameriprise Financial, Inc. The Funds are
not sponsored, endorsed, sold or promoted by Standard & Poor's or any of their
subsidiaries or affiliates (the "Licensors") and the Licensors make no
representation regarding the advisability of investing in the Funds.
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THIS PAGE IS NOT PART OF THE ANNUAL REPORT
RIVERSOURCE(SM) STATE TAX-EXEMPT FUNDS
734 Ameriprise Financial Center
Minneapolis, MN 55474
RIVERSOURCE.COM/FUNDS
RIVERSOURCE [LOGO](SM) This report must be accompanied or preceded by the
INVESTMENTS Fund's current prospectus. RiverSource(SM) mutual
funds are distributed by RiverSource Distributors,
Inc. and Ameriprise Financial Services, Inc., Members
NASD, and managed by RiverSource Investments, LLC.
These companies are part of Ameriprise Financial,
Inc.
S-6328 AD (10/06)
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(1),(2)
(a) Audit Fees. The fees paid for the periods represented below, to KPMG
LLP for professional services rendered for the audits of the annual
financial statements for RiverSource California Tax-Exempt Trust were
as follows:
Period ended Aug. 31, 2006: Year ended June 30, 2006: Year ended June 30, 2005:
None; $20,500; $19,500
(b) Audit - Related Fees. The fees paid for the periods represented
below, 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:
Period ended Aug. 31, 2006: Year ended June 30, 2006: Year ended June 30, 2005:
None; $46; $50
(c) Tax Fees. The fees paid for the periods represented below, to KPMG
LLP for tax compliance related services for RiverSource California
Tax-Exempt Trust were as follows:
Period ended Aug. 31, 2006: Year ended June 30, 2006: Year ended June 30, 2005:
None; $2,756; $2,550
(d) All Other Fees. The fees paid for the periods represented below, to
KPMG LLP for additional professional services rendered for
RiverSource California Tax-Exempt Trust were as follows:
Period ended Aug. 31, 2006: Year ended June 30, 2006: Year ended June 30, 2005:
None; $113; $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 periods represented below, by
the registrant for non-audit services to KPMG LLP were as follows:
Period ended Aug. 31, 2006: Year ended June 30, 2006: Year ended June 30, 2005:
None; $56,369; $141,490
The fees paid for the periods represented below, 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:
Period ended Aug. 31, 2006: Year ended June 30, 2006: Year ended June 30, 2005:
None; $53,500; $138,900
(h) 100% of the services performed for item (g) above during 2006 and
2005 were pre-approved by the audit committee.
(1) Year ended June 30, 2005 represents bills paid 7/1/04 - 6/30/05
Year ended June 30, 2006 represents bills paid 7/1/05 - 6/30/06
Period ended Aug. 31, 2006 represents bills paid 7/1/06 - 8/31/06
(2) The By-Laws of each Fund were amended on April 13, 2006, changing their
fiscal year end from June 30 to Aug. 31, effective Aug. 31, 2006.
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 November 3, 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 November 3, 2006
By /s/ Jeffrey P. Fox
-----------------------
Jeffrey P. Fox
Treasurer and Principal Financial Officer
Date November 3, 2006