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Riversource Special Tax-Exempt Series Trust – ‘N-30D’ for 12/31/02

On: Monday, 3/3/03, at 1:54pm ET · Effective: 3/3/03 · For: 12/31/02 · Accession #: 820027-3-192 · File #: 811-04647

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/03/03  Riversource Special Tax-Exemp… Tr N-30D      12/31/02    1:73K                                    Ameriprise Financial Inc

Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-30D       Axp Insured Tax-Exempt Fund -- 2002 Semiannual        32    149K 
                          Report                                                 

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AXP(R)                                                                          
Insured                                                                 
Tax-Exempt                                                      
Fund                                                                    

2002 SEMIANNUAL REPORT                                                          

AXP Insured Tax-Exempt Fund seeks to provide shareholders with a high level of  
income generally exempt from federal income tax and preservation of             
shareholders' capital.                                                          

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(logo)                                                                   (logo) 
American                                                                AMERICAN
   Express(R)                                                         EXPRESS(R)
Funds                                                                         
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Table of Contents                                                               

CONTENTS                                                                        

From the Chairman                           2                                   

Economic and Market Update                  4                                   

Fund Snapshot                               6                                   

Questions & Answers                                                             
with Portfolio Management              7                              

Investments in Securities                  10                                   

Financial Statements                       20                                   

Notes to Financial Statements              23                                   

Results of Meeting of Shareholders         30                                   

From the Chairman                                                               
(photo of) Arne H. Carlson                                                      
Arne H. Carlson                                                                 
Chairman of the board                                                           

Dear Shareholders,                                                              

As we began the new year, the proposed Bush economic stimulus package and       
potential conflicts around the globe were capturing headlines. While we don't   
know exactly what the future will bring for investors, we do know the past three
years have been difficult. Negative investment returns persisted in 2002. Public
confidence in the integrity of corporations was also shaken. While the scandals 
appear to be largely behind us, the recent past offers lessons on investing and 
on corporate governance, which I would like to discuss with you.                

First, and importantly, we have learned that diversification is not just a      
concept but a key tactic investors can use to help preserve assets. Many        
investors have come to a new understanding of their own degree of risk          
tolerance. We would encourage you to work closely with your financial advisor to
build a diversified portfolio designed to match your current thoughts about risk
and reward.                                                                     

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From the Chairman                                                               

A second lesson of 2002 is that we must have enhanced oversight of corporations 
to ensure their financial statements are accurate, their officers act in the    
interest of shareholders and their directors are truly independent. The         
Sarbanes-Oxley Act passed by Congress in August, is already having an impact in 
these areas. We believe governance of the American Express(R) Funds is          
consistent with the standards imposed by Sarbanes-Oxley.                        

The American Express Funds Board is an independent body comprised of 10 members 
who are nominated by the independent directors. American Express Financial      
Corporation is represented by three board members, however, they do not play a  
role on the nominating committee. I am proud of our board members who come from 
across the United States and bring strong, diverse skills to the assignment of  
looking out for the interest of the Funds' shareholders. In 2002, we saw solid  
evidence of progress in several areas including, importantly, investment        
performance.                                                                    

In addition, the Funds auditors, KPMG LLP, are independent of American Express  
Financial Corporation. KPMG serves the interest of shareholders by supporting   
the work of the Board and certifying unbiased financial reports.                

Further, the Board has confidence in Ted Truscott, American Express Financial   
Corporation's Chief Investment Officer, and shares his enthusiasm in the        
management changes he has effected to improve the investment performance of all 
American Express funds. The focus of the Board and American Express Financial   
Corporation is simple; we strive for consistent, competitive investment         
performance.                                                                    

All of the proposals in the proxy statement you received in September were      
approved at the shareholder meeting on Nov. 13, 2002, and most will be          
implemented in the coming weeks.                                                

On behalf of the Board,                                                         

Arne H. Carlson                                                                 

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Economic and Market Update                                                      
FROM CIO WILLIAM F. "TED" TRUSCOTT          

(photo of) William F. "Ted" Truscott                                            
William F. "Ted" Truscott                                                       
Chief Investment Officer                                                        
American Express                                                                
Financial Corporation                                                           

Dear Shareholders,                                                              

In spite of a mostly positive fourth quarter*, 2002 proved to be an             
extraordinarily challenging year for investors, with the benchmark stock indices
-- the Dow, the Nasdaq and the S&P 500 -- all registering percentage losses well
into the double digits.                                                         

While there were technical factors that put a damper on market performance last 
year, most notably, P/E ratios that are surprisingly high after three years of a
bear market, it was corporate governance issues that fostered a general         
atmosphere of mistrust. The collapse of several large, high profile companies   
due to outright fraud and malfeasance has been -- and ought to be -- outrageous 
to the investing public. The magnitude of this wrongdoing is still shocking     
months after the fact. When many economic factors should have been giving       
investors reason for optimism, the steady drip of news about these companies    
sapped overall confidence.                                                      

I believe there is ample evidence that conditions are not as bad as the markets 
seem to think. While corporate earnings have been weak, the economy grew at the 
respectable rate of about 3% last year, compared to 0.1% in 2001. A portion of  
the softness in earnings can be attributed to excess capacity added in the late 
`90s.                                                                           

KEY POINTS                                                                      

--   If you are rebalancing your portfolio, we encourage moderate changes from  
stocks to bonds.                                                      

--   Interest rates are the lowest they have been in 40 years.                  

--   There is ample evidence that conditions are not as bad as the markets seem 
to think.                                                             

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Economic and Market Update                                                      

Interest rates are another bright spot. They are the lowest they have been in 40
years, which has added to consumer and business purchasing power. There's no    
better illustration of this than the housing market, which has remained         
vigorous. Finally, the business productivity gains we've seen since the mid-`90s
are remarkable, making products and services less expensive. The macroeconomic  
picture, while not ideal, is certainly positive.                                

For these reasons, I'm cautiously optimistic about market prospects for 2003. Of
course, there are still risks. Much of what happens this year will depend on    
external factors, such as whether or not more scandals arise and the            
implications of potential conflict in Iraq. In the short term, military action  
in Iraq would almost certainly produce an oil price spike; if that increase     
became severe enough for a significant period of time, it would create          
inflationary pressures that could endanger economic growth.                     

In addition to stocks, some bond categories offer opportunity. Though we believe
U.S. Treasuries are currently overvalued, select corporate, high-yield and      
municipal issues may provide competitive returns this year. Speak to your       
financial advisor to learn more about different asset classes.                  

After three years of negative stock market returns, many individual investors   
are rebalancing portfolios with regard to risk and return. If you are           
repositioning, we would encourage moderate changes from stocks to bonds. The    
risk inherent in emotion-based repositioning is that you will go too far too    
fast. I encourage gradual movement across categories. Should interest rates move
at all in 2003, it's likely that they'll go up, which will have a negative      
impact on most bonds. Continue to invest according to your individual timeframe 
and financial goals.                                                            

As always, thank you for investing with American Express Financial Advisors.    

William F. Truscott                                                             

* Please see portfolio manager Q&A for fiscal period economic coverage.         

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5 -- AXP INSURED TAX-EXEMPT FUND -- 2002 SEMIANNUAL REPORT                      

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Fund Snapshot                                                                   
as of Dec. 31, 2002                                           

PORTFOLIO MANAGER                                                               

Portfolio manager      Terry Seierstad, CFA                                     
Tenure/since                           1/02                                     
Years in industry                        30                                     

FUND OBJECTIVE                                                                  

For investors seeking preservation of capital and a high level of income        
generally exempt from federal income tax.                                       

Inception dates                                                                 
A: 8/18/86     B: 3/20/95   C: 6/26/00   Y: 3/20/95                             

Ticker symbols                                                                  
A: IINSX       B: IINBX     C: --        Y: --                                  

Total net assets             $485.8 million                                     
Number of holdings        approximately 160                                     

STYLE MATRIX                                                                    

Shading within the style matrix indicates areas in which the Fund generally     
invests.                                                                        

DURATION                                                      
SHORT    INT.     LONG                                                          
X        X     LARGE                                    
MEDIUM   QUALITY          
SMALL                     

CREDIT QUALITY SUMMARY                                                          

Percentage of portfolio assets                                                  

AAA Bonds                              97.1%                                    

TOP FIVE STATES                                                                 

Percentage of portfolio assets                                                  

New York                               13.1%                                    
Texas                                  12.9                                     
Illinois                                6.2                                     
California                              4.7                                     
New Jersey                              4.4                                     

Certain income may be subject to the alternative minimum tax or state or local  
tax.                                                                            

Fund holdings are subject to change.                                            

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Questions & Answers                                                             
WITH PORTFOLIO MANAGEMENT                         

Q:  How did the Fund perform for the  six-month period ended Dec. 31, 2002?     

A:  The Fund returned 4.44% for Class A shares, excluding sales charges. In     
   comparison, the Lehman Brothers Municipal Bond Index returned 4.75% and the
Lipper Insured Municipal Debt Funds Index returned 4.77%.               

Q:  What factors significantly impacted performance of the Fund?                

A:  During the six-month period, we experienced a significant shift in the      
 environment for bond investors. From July through early October, interest
   rates continued a downward trend, generating a positive return (bond prices
rise when interest rates fall). Investors showed continued concern about
 economic growth and the impact of tensions overseas. In this environment,
money continued to flow away from higher-risk investments and toward    
    municipal bonds. The Fund was positioned in a way that allowed it to benefit
from the decline in interest rates, and helped us take full advantage of
favorable trends. A dramatic shift took place in early October when     
  investors were once again drawn to the equity markets, and municipal bonds
   suffered as a result. Interest rates began moving higher, and the Fund lost
ground for most of October and November. This accounted for the Fund's  
lagging                                                                 

(bar graph)                                                                     
PERFORMANCE COMPARISON
For the six-month period ended Dec. 31, 2002

5%       +4.44%   +4.75%   +4.77%                                               
(bar 1)  (bar 2)  (bar 3)                                     
4%                                                                              

3%                                                                              

2%                                                                              

1%                                                                              

0%                                                                              

(bar 1) AXP Insured Tax-Exempt Fund Class A (excluding sales charge)            

(bar 2) Lehman Brothers Municipal Bond Index (unmanaged)(1)                     

(bar 3) The Lipper Insured Municipal Debt Funds Index (unmanaged)(2)            

(1)  Lehman Brothers Municipal Bond Index, an unmanaged index, is made up of a  
representative list of general obligation, revenue, insured and       
  pre-refunded bonds. The index is frequently used as a general measure of
    tax-exempt bond market performance. The index reflects reinvestment of all
distributions and changes in market prices, but excludes brokerage    
     commissions or other fees. However, the securities used to create the index
may not be representative of the bonds held in the fund.              

(2)  The Lipper Insured Municipal Debt Funds Index, published by Lipper Inc.,   
includes the 10 largest funds that are generally similar to the Fund, 
 although some funds in the index may have somewhat different investment
policies or objectives.                                               

Past performance is no guarantee of future results. 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 Class B, 
Class C and Class Y may vary from that shown above because of differences in    
sales charges and fees.                                                         

The indices do not reflect the effects of sales charges, expenses (excluding    
Lipper) and taxes.                                                              

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Questions & Answers                                                             

(begin callout quote)> We remain confident that municipal bonds can generate    
solid performance over the coming months.(end callout quote)                    

 performance compared to its unmanaged benchmark and peer group during the
  period. In December, the market stabilized again, and we closed the period
on a positive note with a solid return.                                 

Q:  Did you make significant changes to the Fund during this period?            

A:  The Fund is focused on high-quality issues with the additional protection   
of insurance against default by municipal bond issuers. Terry Seierstad 
took over management of the Fund in January 2002. At that time, the Fund
was restructured to fit a different management approach. This shift     
temporarily increased portfolio turnover. We put increasing             

                                                        [Enlarge/Download Table]

AVERAGE ANNUAL TOTAL RETURNS                                                                            

as of Dec. 31, 2002                                                                                     
                           Class A             Class B               Class C                Class Y     
(Inception dates)         (8/18/86)           (3/20/95)             (6/26/00)              (3/20/95)    
                      NAV(1)    POP(2)  NAV(1)   After CDSC(3) NAV(1)    After CDSC(4)  NAV(5)    POP(5)
                                                                                                        
 6 months*            +4.44%    -0.52%  +4.04%      -0.95%     +4.03%       +3.03%      +4.56%    +4.56%
 1 year               +7.94%    +2.81%  +7.13%      +3.13%     +7.12%       +7.12%      +8.18%    +8.18%
 5 years              +5.00%    +3.98%  +4.21%      +4.04%       N/A          N/A       +5.19%    +5.19%
 10 years             +5.75%    +5.24%    N/A         N/A        N/A          N/A         N/A       N/A 
 Since inception        N/A       N/A   +4.88%      +4.88%     +6.89%       +6.89%      +5.83%    +5.83%

* Not annualized.                                                               

(1)  Excluding sales charge.                                                    

(2)  Returns at public offering price (POP) reflect a sales charge of 4.75%.    

(3)  Returns at maximum contingent deferred sales charge (CDSC). CDSC applies as
 follows: first year 5%; second and third year 4%; fourth year 3%; fifth
year 2%; sixth year 1%; no sales charge thereafter.                   

(4)  1% CDSC applies to redemptions made within the first year of purchase.     

(5)  Sales charge is not applicable to these shares. Shares available to        
institutional investors only.                                         

Past performance is no guarantee of future results. Investment return and       
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than the original cost. The performance shown for each class of    
shares will vary due to differences in sales charges and fees. Short term       
performance may be higher or lower than the figures shown. Visit                
americanexpress.com for current information.                                    

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Questions & Answers                                                             

emphasis on the most reliable issuers, a strategy we feel makes sense in
these challenging economic times. In addition, we focused primarily on  
  intermediate-term bonds. This segment of the market performed particularly
 well in the months when municipal bonds delivered solid returns, but also
  was the hardest hit in October and November. When the interest rates began
moving higher, we adjusted the portfolio, reducing its interest rate    
sensitivity to help offset some of the volatility in the market.        

   Also, during the period we entered into Bond Market Association (BMA) swaps
as a tool to help manage the portfolio's duration. We use BMA swaps as a
substitute for Treasury futures because of the considerable basis risk  
    (taxable rates versus tax-exempt rates) associated with Treasury futures. By
  using BMA swaps we are able to adjust the Fund's duration quickly, without
buying or selling bonds. In this period the swaps detracted from Fund   
performance. However, the portfolio as a whole benefited as bond values 
increased.                                                              

Q:  What is your outlook for the  coming months?                                

A:  It seems reasonable to expect continued growth in the U.S. economy. While   
  this could put some upward pressure on interest rates, we don't anticipate
 that rates will rise significantly given modest expectations for economic
improvement. We remain confident that municipal bonds can generate solid
performance over the coming months. High-quality, insured bonds should  
    continue to attract a reasonable amount of investor interest in that type of
environment. As of Dec. 31, 99.3% of the Fund's portfolio consisted of  
insured bonds and notes.                                                

Q:  How are you positioning the Fund in light of your outlook?                  

A:  We are focused on positioning the Fund in two critical ways. The first is to
maintain a high level of quality, owning bonds from the most reliable   
issuers. Second is to generate a competitive dividend. In the current   
    market, that means keeping the portfolio fully invested, as earnings on cash
investments are poor given current low interest rates on short-term     
securities. In addition, we have concentrated our holdings on           
intermediate-term municipal debt securities, which should help limit the
Fund's volatility if interest rates rise in line with our expectations. 

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Investments in Securities                                                       
AXP Insured Tax-Exempt Fund                                                     

Dec. 31, 2002 (Unaudited)                                                       

(Percentages represent value of investments compared to net assets)             

Municipal bonds (97.0%)                                                         
Name of                    Coupon                Principal          Value(a)    
issuer and                  rate                  amount                        
title of                                                                        
issue(d,e)                                                                      

Alabama (0.2%)                                                                  
State Drinking Water Finance Authority                                          
Revolving Fund Loan Revenue Bonds                                         
Series 2002A (AMBAC Insured)                                              
   08-15-04             3.15%               $1,015,000        $1,044,506

Alaska (2.5%)                                                                   
North Slope Borough                                                             
Capital Appreciation                                                      
Unlimited General Obligation Bonds                                        
Zero Coupon Series 1995A                                                  
(MBIA Insured)                                                            
   06-30-06             5.61                 5,300,000(b)      4,882,360
North Slope Borough                                                             
General Obligation Bonds                                                  
Zero Coupon Series 1996B                                                  
(MBIA Insured)                                                            
   06-30-07             5.72                 8,000,000(b)      7,056,240
Total                                                             11,938,600    

Arizona (1.6%)                                                                  
Health Facilities Authority Hospital System                                     
Refunding Revenue Bonds Phoenix Baptist                                   
Hospital Escrowed to Maturity Series 1992                                 
(MBIA Insured)                                                            
   09-01-11             6.25                 1,650,000         1,724,976
Maricopa County School District #6                                              
Unlimited General Obligation Refunding                                    
Bonds Washington Elementary Series 2002A                                  
(FSA Insured)                                                             
   07-01-14             5.38                 4,500,000         5,146,335
Mesa Municipal Development Excise Tax                                           
Refunding Revenue Bonds                                                   
Series 2001 (FSA Insured)                                                 
   01-01-05             4.00                 1,000,000         1,049,890
Total                                                              7,921,201    

Arkansas (0.1%)                                                                 
State Development Finance Authority                                             
Economic Development Revenue Bonds                                        
ADFA Guaranty Madison Industrial                                          
Development Series 2000B                                                  
(AMBAC Insured) A.M.T.                                                    
   12-01-20             5.80                   500,000           526,590

California (4.7%)                                                               
Delta Counties Home Mtge                                                        
Finance Authority Revenue Bonds                                           
Single Family Mtge Series 1998A                                           
(MBIA GNMS/FNMA Insured) A.M.T.                                           
   06-01-24             6.70                   560,000           611,733
Desert Sands Unified School District Convertible                                
Capital Appreciation Pre-refunded Bonds                                   
Series 1995 (FSA Insured)                                                 
   03-01-20             6.45                 3,000,000         3,391,260
Fontana Unified School District                                                 
Unlimited General Obligation Bonds                                        
Series 1995C (FGIC Insured)                                               
   05-01-20             6.15                 6,000,000         6,906,060
Rural Home Mtge Finance Authority                                               
Refunding Revenue Bonds                                                   
Single Family Mtge 2nd Series 1997A                                       
(GNMA/FNMA Insured) A.M.T.                                                
   09-01-29             7.00                 1,025,000         1,080,586
San Mateo County Joint Powers Authority                                         
Lease Pre-refunded Revenue Bonds                                          
San Mateo County Health Center                                            
Series 1994A (FSA Insured)                                                
   07-15-22             5.75                 1,500,000         1,634,535
State Department of Water Resources                                             
Power Supply Revenue Bonds                                                
Series 2002A (MBIA Insured)                                               
   05-01-09             5.25                 8,000,000         9,083,760
Total                                                             22,707,934    

See accompanying notes to investments in securities.                            

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Municipal bonds (continued)                                                     

Name of                    Coupon                Principal          Value(a)    
issuer and                  rate                  amount                        
title of                                                                        
issue(d,e)                                                                      

Colorado (3.5%)                                                                 
Arapahoe County Certificates of Participation                                   
Series 2002 (FSA Insured)                                                 
   12-01-13             5.25%               $1,360,000        $1,545,898
Broomfield Certificates of Participation                                        
Open Space Park & Recreation Facilities                                   
Series 2000 (AMBAC Insured)                                               
   12-01-20             5.50                 1,000,000         1,108,760
Douglas & Elbert Counties School District R-1                                   
Unlimited General Obligation Pre-refunded                                 
Bonds Series 1994A (MBIA Insured)                                         
   12-15-16             6.50                 1,435,000         1,591,602
Douglas & Elbert Counties School District R-1                                   
Unlimited General Obligation Un-refunded                                  
Balance Bonds Series 1994A (MBIA Insured)                                 
   12-15-16             6.50                    65,000            71,671
Larimer, Weld & Boulder Counties                                                
School District R-2J Thompson Unlimited                                   
General Obligation Capital Appreciation                                   
Bonds Zero Coupon                                                         
Series 1997 (FGIC Insured)                                                
   12-15-11             5.45                 2,000,000(b)      1,370,420
   12-15-12             5.50                 1,400,000(b)        921,172
Larimer, Weld & Boulder Counties                                                
St Vrain Valley School District                                           
Unlimited General Obligation Bonds                                        
Series 2002 (MBIA Insured)                                                
   12-15-10             5.00                 7,390,000         8,260,985
Thornton Certificates of Participation                                          
Series 2002 (AMBAC Insured)                                               
   12-01-09             5.00                 1,000,000         1,121,670
   12-01-10             5.00                 1,000,000         1,117,790
Total                                                             17,109,968    

Delaware (0.2%)                                                                 
State Health Facilities Authority                                               
Refunding Revenue Bonds                                                   
Medical Center of Delaware                                                
Series 1989 (MBIA Insured)                                                
   10-01-15             7.00                 1,000,000         1,078,940

Florida (3.8%)                                                                  
Indian River County School District Unlimited General                           
Obligation Bonds Series 2002 (FSA Insured)                                
   04-01-13             5.50                 2,500,000         2,884,975
Jacksonville Excise Tax                                                         
Refunding Revenue Bonds                                                   
Series 2002A (AMBAC Insured)                                              
   10-01-13             5.50                 3,030,000         3,529,555
Jacksonville Guaranteed Entitlement                                             
Refunding Revenue Bonds                                                   
Series 2002 (FGIC Insured)                                                
   10-01-17             5.38                 2,025,000         2,239,225
Jacksonville Sales Tax Revenue Bonds                                            
Series 2001 (AMBAC Insured)                                               
   10-01-15             5.50                 3,000,000         3,376,440
Lee County Transportation Facilities Refunding                                  
Revenue Bonds Series 2001A                                                
(AMBAC Insured)                                                           
   10-01-15             5.50                 2,745,000         3,089,443
Orange County Tourist Development Tax Refunding                                 
Revenue Bonds Series 2002A                                                
(AMBAC Insured)                                                           
   10-01-12             5.50                 3,000,000         3,472,230
Total                                                             18,591,868    

Georgia (3.0%)                                                                  
Atlanta Airport Facilities Refunding Revenue Bonds                              
Series 1994A (AMBAC Insured)                                              
   01-01-08             6.50                 2,750,000         3,235,705
Atlanta Airport Revenue Bonds Series 2000B                                      
(FGIC Insured) A.M.T.                                                     
   01-01-08             5.63                 3,190,000         3,557,297
Cherokee County Water & Sewer Authority                                         
Revenue Bonds Series 1995                                                 
Escrowed to Maturity (MBIA Insured)                                       
   08-01-25             5.20                   570,000           615,190
Cherokee County Water & Sewer Authority                                         
Un-refunded Balance Revenue Bonds                                         
Series 1995 (MBIA Insured)                                                
   08-01-25             5.20                 1,395,000         1,497,449
Fulton County Water & Sewer                                                     
Refunding Revenue Bonds                                                   
Series 1992 Escrowed to Maturity                                          
(FGIC Insured)                                                            
   01-01-14             6.38                 3,125,000         3,819,656
Fulton County Water & Sewer                                                     
Un-refunded Balance Refunding Revenue                                     
Bonds Series 1992 (FGIC Insured)                                          
   01-01-14             6.38                   125,000           150,811

See accompanying notes to investments in securities.                            

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11 -- AXP INSURED TAX-EXEMPT FUND -- 2002 SEMIANNUAL REPORT                     

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Municipal bonds (continued)                                                     
Name of                Coupon                    Principal          Value(a)    
issuer and               rate                       amount                      
title of                                                                        
issue(d,e)                                                                      

Georgia (cont.)                                                                 
Savannah Resource Recovery Development                                          
Authority Refunding Revenue Bonds                                         
Waste to Energy Series 2001                                               
(AMBAC Insured)                                                           
   12-01-03             2.50%               $1,500,000        $1,518,885
Total                                                             14,394,993    

Hawaii (0.5%)                                                                   
State Airports Systems                                                          
Refunding Revenue Bonds                                                   
Series 2000B (FGIC Insured) A.M.T.                                        
   07-01-20             6.00                 2,000,000         2,210,220

Illinois (6.2%)                                                                 
Lake County Community High School                                               
District #127 Capital Appreciation                                        
Unlimited General Obligation Bonds                                        
Grayslake Zero Coupon Series 2002B                                        
(FGIC Insured)                                                            
   02-01-16             5.32                 4,000,000(b)      2,183,760
McHenry County Community High School                                            
District #154 Capital Appreciation                                        
Unlimited General Obligation Bonds                                        
Zero Coupon Series 2001 (FGIC Insured)                                    
   01-01-04             3.45                 1,375,000(b)      1,357,304
McHenry County Community High School                                            
District #157 Capital Appreciation                                        
Unlimited General Obligation Bonds                                        
Zero Coupon Series 1998 (FSA Insured)                                     
   12-01-17             5.60                 5,790,000(b)      2,742,607
Rockford School District #205 Unlimited                                         
General Obligation Refunding Bonds                                        
Series 2001 (FGIC Insured)                                                
   02-01-17             5.00                   500,000           540,520
Southern Illinois University Housing                                            
& Auxiliary Capital Appreciation                                          
Revenue Bonds Zero Coupon                                                 
Series 1999A (MBIA Insured)                                               
   04-01-26             5.55                 4,000,000(b)      1,166,760
St. Clair County Public Community Building                                      
Capital Appreciation Revenue Bonds                                        
Zero Coupon Series 1997B (FGIC Insured)                                   
   12-01-14             5.95                 2,000,000(b)      1,185,100
State Unlimited General Obligation Bonds                                        
1st Series 2002 (MBIA Insured)                                            
   07-01-10             5.38                 2,500,000         2,845,725
State Unlimited General Obligation Refunding                                    
Revenue Bonds First Series 2002 (MBIA Insured)                            
   08-01-14             5.50                14,050,000        16,086,266
University of Illinois                                                          
Certificates of Participation                                             
Series 2001 (AMBAC Insured)                                               
   10-01-05             3.80                 2,000,000         2,113,160
Total                                                             30,221,202    

Indiana (2.2%)                                                                  
Ball State University Student Fee                                               
Revenue Bonds Series 2002K                                                
(FGIC Insured)                                                            
   07-01-18             5.75                   750,000           842,355
Clark-Pleasant Community School Building                                        
Revenue Bonds 1st Mtge Lease                                              
Series 2001 (AMBAC Insured)                                               
   07-15-16             5.50                 1,000,000         1,109,620
Crown Point Multi-School Building                                               
1st Mtge Revenue Bonds                                                    
Zero Coupon Series 2000                                                   
(MBIA Insured)                                                            
   01-15-25             6.59                 8,230,000(b)      2,565,209
Health Facility Finance Authority Hospital                                      
Refunding Revenue Bonds                                                   
Columbus Regional Hospital                                                
Series 1993 (FSA Insured)                                                 
   08-15-15             7.00                 5,000,000         6,315,350
Total                                                             10,832,534    

Kansas (0.4%)                                                                   
Labette County Single Family Housing                                            
Revenue Bonds Series 1998A-2                                              
(GNMA Insured)                                                            
   12-01-11             7.65                    35,000            35,266
Sedgwick & Shawnee Counties                                                     
Single Family Housing                                                     
Revenue Mtge Backed Securities                                            
1st Series 1997A (GNMA Insured) A.M.T.                                    
   06-01-29             6.95                 1,535,000         1,747,859
Total                                                              1,783,125    

See accompanying notes to investments in securities.                            

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Municipal bonds (continued)                                                     
Name of                Coupon                    Principal          Value(a)    
issuer and               rate                       amount                      
title of                                                                        
issue(d,e)                                                                      

Kentucky (0.3%)                                                                 
State Turnpike Authority Economic Development                                   
Road Refunding Revenue Bonds                                              
Revitalization Project Series 2001A                                       
(AMBAC Insured)                                                           
   07-01-13             5.50%               $1,275,000        $1,468,991

Maine (0.4%)                                                                    
State Turnpike Authority Turnpike                                               
Pre-refunded Revenue Bonds Series 1994                                    
(MBIA Insured)                                                            
   07-01-18             6.00                 1,790,000         1,950,527

Massachusetts (3.6%)                                                            
Municipal Wholesale Electric Power                                              
Supply System Pre-refunded Revenue Bonds                                  
Series 1994B (MBIA Insured)                                               
   07-01-11             4.75                 5,250,000         5,623,643
State Unlimited General Obligation                                              
Refunding Bonds 2nd Series 2002R                                          
Inverse Floater (FGIC Insured)                                            
   11-01-15             9.83                 9,000,000(c)     11,786,580
Total                                                             17,410,223    

Michigan (3.7%)                                                                 
Jackson County Public Schools                                                   
Unlimited General Obligation Bonds                                        
Series 1999 (FGIC Insured)                                                
   05-01-22             5.38                 1,000,000         1,053,440
Lincoln Park School District                                                    
Pre-refunded Unlimited General Obligation                                 
Bonds Series 1996 (FGIC Insured)                                          
   05-01-26             5.90                 1,500,000         1,710,465
Monroe County Pollution Control                                                 
Revenue Bonds Detroit Edison Series 1992                                  
(MBIA Insured) A.M.T.                                                     
   09-01-24             6.55                 5,000,000         5,258,450
State Comprehensive Transportation Revenue                                      
Bonds Series 2002B (FSA Insured)                                          
   05-15-15             5.25                 1,000,000         1,102,610
State Public Power Agency Refunding Revenue Bonds                               
Belle River Project Series 2002A                                          
(MBIA Insured)                                                            
   01-01-10             5.25                 4,100,000         4,620,659
Western Townships Utilities Authority General                                   
Obligation Sewer Disposal System Bonds                                    
Series 2002 (FGIC Insured)                                                
   01-01-09             5.00                 2,000,000         2,228,600
   01-01-10             5.00                 2,000,000         2,225,500
Total                                                             18,199,724    

Mississippi (0.6%)                                                              
State Development Bank                                                          
Special Obligation Revenue Bonds                                          
Jackson Water & Sewer System                                              
Series 2002 (FGIC Insured)                                                
   09-01-13             5.25                 1,070,000         1,201,845
State Home Single Family Mtge                                                   
Refunding Revenue Bonds Series 1997H                                      
(GNMA/ FNMA Insured) A.M.T.                                               
   12-01-29             6.70                 1,390,000         1,495,126
Total                                                              2,696,971    

Missouri (2.2%)                                                                 
Bi-State Development Agency                                                     
Metrolink Cross County Revenue Bonds                                      
Series 2002B (FSA Insured)                                                
   10-01-09             5.25                 1,000,000         1,134,750
   10-01-10             5.25                 2,000,000         2,266,140
Sikeston Electric System Refunding Revenue Bonds                                
Series 1992 (MBIA Insured)                                                
   06-01-10             6.20                 6,370,000         7,528,193
Total                                                             10,929,083    

Montana (2.0%)                                                                  
Forsyth Rosebud County Pollution                                                
Refunding Revenue Bonds                                                   
Puget Sound Power & Light                                                 
Series 1991 (AMBAC Insured)                                               
A.M.T.                                                                    
   08-01-21             7.25                 4,000,000         4,083,200
State Board of Investments Refunded Balance                                     
Payroll Tax Revenue Bonds                                                 
Series 1991 Escrowed to Maturity                                          
(MBIA Insured)                                                            
   06-01-20             6.88                 4,750,000         5,510,190
Total                                                              9,593,390    

See accompanying notes to investments in securities.                            

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Municipal bonds (continued)                                                     
Name of                Coupon                    Principal          Value(a)    
issuer and               rate                       amount                      
title of                                                                        
issue(d,e)                                                                      

Nevada (1.3%)                                                                   
Las Vegas Water District Unlimited General Obligation                           
Water Improvement Refunding Bonds                                         
Series 2003A (FGIC Insured)                                               
   06-01-10             5.00%               $2,215,000(g)     $2,467,665
State General Obligation Capital Improvement Bonds                              
Series 2002A (FSA Insured)                                                
   04-01-12             5.00                 3,680,000         4,086,677
Total                                                              6,554,342    

New Jersey (4.4%)                                                               
State Building Authority Refunding Revenue Bonds                                
Series 2002B (AMBAC Insured)                                              
   12-15-08             5.25                 7,000,000         7,951,090
State Transportation                                                            
Certificates Series 2002-264                                              
Inverse Floater (AMBAC Insured)                                           
   09-15-15             9.86                 5,500,000(c)      7,130,310
State Transportation Certificates of Participation                              
Series 2000B (AMBAC Insured)                                              
   09-15-10             5.50                 5,500,000         6,318,675
Total                                                             21,400,075    

New Mexico (1.7%)                                                               
Farmington Utility System Refunding Revenue Bonds                               
Series 2002A (FSA Insured)                                                
   05-15-10             5.00                 5,525,000         6,154,519
Santa Fe Water                                                                  
Pre-refunded Revenue Bonds                                                
Series 1994 (AMBAC Insured)                                               
   06-01-24             6.30                 1,000,000         1,070,620
State Highway Commission Sub Lien Tax                                           
Refunding Revenue Bonds Series 2002B                                      
(AMBAC Insured)                                                           
   06-15-05             5.00                 1,000,000         1,081,390
Total                                                              8,306,529    

New York (13.2%)                                                                
Buffalo School                                                                  
Unlimited General Obligation Bonds                                        
Series 2001D (FGIC Insured)                                               
   12-15-05             5.00                   940,000         1,029,582
Metropolitan Transportation Authority                                           
Refunding Revenue Bonds                                                   
Series 2002 Inverse Floater                                               
(AMBAC Insured)                                                           
   11-15-19            14.09                 2,000,000(c)      2,619,620
Metropolitan Transportation Authority                                           
Refunding Revenue Bonds                                                   
Series 2002F (MBIA Insured)                                               
   11-15-10             5.00                 5,000,000         5,588,200
Metropolitan Transportation Authority                                           
Service Contract Revenue Bonds                                            
Series 2002B (MBIA Insured)                                               
   01-01-14             5.50                17,500,000        20,222,649
New York City Health & Hospital System                                          
Revenue Bonds Series 2002A                                                
(FSA Insured)                                                             
   02-15-17             5.50                 3,000,000         3,321,630
   02-15-18             5.50                 2,150,000         2,368,462
   02-15-19             5.50                 1,250,000         1,368,063
New York City Transitional Finance Authority                                    
Tax Revenue Bonds Series 2002C                                            
(FSA Insured)                                                             
   08-01-09             5.00                 2,690,000         3,002,874
   08-01-10             5.25                 2,000,000         2,261,560
State Dormitory Authority                                                       
Pre-refunded Revenue Bonds                                                
City University 3rd General Resolution                                    
2nd Series 1994 (MBIA Insured)                                            
   07-01-19             6.25                 2,500,000         2,685,575
State Dormitory Authority                                                       
Refunding Revenue Bonds                                                   
State University Educational Facilities                                   
Series 1993A (AMBAC Insured)                                              
   05-15-15             5.25                 2,700,000         3,040,794
State Dormitory Authority School District Financing                             
Program Revenue Bonds                                                     
Series 2002C (MBIA Insured)                                               
   10-01-13             5.50                 1,000,000         1,142,890
   10-01-14             5.50                 1,000,000         1,139,560
   10-01-15             5.38                 1,000,000         1,121,200
State Dormitory Authority School District Financing                             
Program Revenue Bonds                                                     
Series 2002D (MBIA Insured)                                               
   10-01-10             5.00                 6,385,000         7,134,088
State Thruway Authority                                                         
Highway & Bridge Trust Fund                                               
Revenue Bonds Series 2002C                                                
(AMBAC Insured)                                                           
   04-01-14             5.50                 5,000,000         5,663,650
Total                                                             63,710,397    

See accompanying notes to investments in securities.                            

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Municipal bonds (continued)                                                     
Name of                Coupon                    Principal          Value(a)    
issuer and               rate                       amount                      
title of                                                                        
issue(d,e)                                                                      

North Carolina (0.8%)                                                           
Concord Certificates of Participation                                           
Series 1996B (MBIA Insured)                                               
   06-01-16             5.75%               $1,480,000        $1,660,619
Kannapolis Water & Sewer Revenue                                                
Bonds Series 2001B                                                        
(FSA Insured) A.M.T.                                                      
   02-01-21             5.25                 1,000,000         1,026,740
Piedmont Triad Airport Authority                                                
Refunding Revenue Bonds Series 1999B                                      
(FSA Insured) A.M.T.                                                      
   07-01-21             6.00                 1,000,000         1,097,140
Total                                                              3,784,499    

Ohio (2.7%)                                                                     
Franklin County Convention Facilities Authority                                 
Tax & Lease Refunding Revenue Bonds                                       
Series 2002 (AMBAC Insured)                                               
   12-01-14             5.25                 3,450,000         3,854,582
State Building Authority                                                        
State Facilities Admin Bldg Fund                                          
Refunding Revenue Bonds                                                   
Series 2002B (FSA Insured)                                                
   10-01-09             5.25                 8,050,000         9,134,737
Total                                                             12,989,319    

Oklahoma (0.9%)                                                                 
Lawton Water Authority Sales                                                    
Tax & Utility System Revenue Bonds                                        
Series 2001 (AMBAC Insured)                                               
   03-01-04             4.50                 1,255,000         1,303,481
McAlester Public Works Authority                                                
Improvement Pre-refunded Revenue Bonds                                    
Series 1995 (FSA Insured)                                                 
   12-01-17             5.25                 1,470,000         1,692,910
   12-01-18             5.25                 1,000,000         1,151,640
Total                                                              4,148,031    

Oregon (0.4%)                                                                   
State Department Administrative Services                                        
Lottery Revenue Bonds                                                     
Series 1999B (FSA Insured)                                                
   04-01-09             5.00                 1,700,000         1,900,396

Pennsylvania (3.4%)                                                             
Berks County Unlimited General Obligation Bonds                                 
Series 202B (AMBAC Insured)                                               
   11-15-07             5.60                 1,925,000         2,208,033
Harrisburg Authority Dauphin County                                             
Revenue Bonds                                                             
Series 1997-II (MBIA Insured)                                             
   09-15-22             5.63                 2,000,000         2,293,740
Pittsburgh Public Parking Authority Refunding                                   
Revenue Bonds Series 2002 (AMBAC Insured)                                 
   12-01-10             5.00                 2,820,000         3,147,994
Pittsburgh School District                                                      
Unlimited General Obligation Refunding                                    
Bonds Series 2002A (FSA Insured)                                          
   09-01-14             5.50                 6,280,000         7,239,772
Robinson Township Municipal Authority                                           
Water & Sewer Revenue Bonds                                               
Series 1989 Escrowed To Maturity                                          
(FGIC Insured)                                                            
   11-15-19             6.00                 1,290,000         1,473,348
Total                                                             16,362,887    

Puerto Rico (4.0%)                                                              
Commonwealth of Puerto Rico Unlimited General                                   
Obligation Public Improvement Bonds                                       
Series 2002 (FSA Insured)                                                 
   07-01-15             5.50                 3,000,000(h)      3,484,260
Puerto Rico Electric Power Authority                                            
Refunding Revenue Bonds                                                   
Series 2002-682 Inverse Floater                                           
(MBIA Insured)                                                            
   07-01-17             9.87                 7,500,000(c,h)    9,885,600
Puerto Rico Electric Power Authority                                            
Refunding Revenue Bonds                                                   
Series 2002KK (FSA Insured)                                               
   07-01-14             5.50                 2,000,000(h)      2,324,520
Puerto Rico Municipal Finance Agency                                            
Revenue Bonds Series 2002A (FSA Insured)                                  
   08-01-10             4.50                 3,500,000(h)      3,800,930
Total                                                             19,495,310    

See accompanying notes to investments in securities.                            

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Municipal bonds (continued)                                                     
Name of                Coupon                    Principal          Value(a)    
issuer and               rate                       amount                      
title of                                                                        
issue(d,e)                                                                      

South Carolina (1.5%)                                                           
Chester County School District Unlimited                                        
General Obligation Refunding Bonds                                        
Series 2003 (FSA Insured)                                                 
   02-01-10             5.00%               $2,110,000(g)     $2,354,064
Piedmont Municipal Power Agency Electric                                        
Refunding Revenue Bonds                                                   
Series 1991 (FGIC Insured)                                                
   01-01-21             6.25                 1,000,000         1,186,870
State Public Service Authority                                                  
Refunding Revenue Bonds                                                   
Series 2002D (FSA Insured)                                                
   01-01-13             5.25                 3,350,000         3,780,743
Total                                                              7,321,677    

Tennessee (3.1%)                                                                
Franklin Special School District                                                
Limited General Obligation Bonds                                          
Capital Appreciation Zero Coupon                                          
Series 1999 (FSA Insured)                                                 
   06-01-19             5.79                 1,425,000(b)        644,713
   06-01-20             5.80                 2,345,000(b)        995,570
Knox County Health Educational & Housing Facilities                             
Board Refunding Revenue Bonds                                             
Series 2002A (MBIA Insured)                                               
   01-01-07             5.00                 3,780,000         4,157,244
   01-01-08             5.00                 4,595,000         5,079,404
Putnam County Unlimited General Obligation Bonds                                
Series 2002 (AMBAC Insured)                                               
   04-01-10             5.00                 3,820,000         4,256,359
Total                                                             15,133,290    

Texas (12.8%)                                                                   
Austin Airport System                                                           
Prior Lien Revenue Bonds                                                  
Series 1995A (MBIA Insured)                                               
A.M.T.                                                                    
   11-15-25             6.13                 3,000,000         3,319,890
Austin Utilities System                                                         
Pre-refunded Revenue Bonds                                                
Series 1994 (FGIC Insured)                                                
   05-15-24             5.75                 2,605,000         2,818,063
Austin Utilities System                                                         
Refunding Revenue Bonds                                                   
Capital Appreciation Zero Coupon                                          
Series 1994 (FGIC Insured)                                                
   05-15-17             5.83                 5,900,000(b)      3,000,681
Austin Utilities System                                                         
Refunding Revenue Bonds                                                   
Series 2002A (AMBAC Insured)                                              
   11-15-14             5.50                 5,310,000         6,062,108
Austin Utilities System                                                         
Un-refunded Balance Revenue Bonds                                         
Series 1994 (FGIC Insured)                                                
   05-15-24             5.75                 5,895,000         6,211,620
Austin Water & Wastewater System                                                
Refunding Revenue Bonds                                                   
Series 2001C (FSA Insured)                                                
   11-15-04             4.00                 7,000,000         7,340,760
Austin Water & Wastewater System                                                
Refunding Revenue Bonds                                                   
Series 2002A (AMBAC Insured)                                              
   11-15-14             5.50                 6,130,000         7,023,264
Bexar County Health Facilities Development                                      
Hospital Pre-refunded Revenue Bonds                                       
Baptist Health System Series 1994                                         
(MBIA Insured)                                                            
   08-15-19             6.75                 5,000,000         5,530,650
Bryan Waterworks & Sewer                                                        
Refunding Revenue Bonds                                                   
Series 2001 (FSA Insured)                                                 
   07-01-04             4.00                 1,195,000         1,242,418
   07-01-05             5.00                 2,390,000         2,585,908
Corsicana Waterworks & Sewer System                                             
Refunding Revenue Bonds                                                   
Series 1997A (FGIC Insured)                                               
   08-15-22             5.75                 1,575,000         1,717,931
Houston Airport Systems                                                         
Sub Lien Refunding Revenue Bonds                                          
Series 1998B (FGIC Insured) A.M.T.                                        
   07-01-04             4.00                 3,500,000         3,620,295
Laredo Independent School District                                              
Unlimited General Obligation                                              
Refunding Bonds Series 2001                                               
(Permanent School Fund Guarantee)                                         
   08-01-03             3.50                 2,195,000         2,225,072

See accompanying notes to investments in securities.                            

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Municipal bonds (continued)                                                     
Name of                Coupon                    Principal          Value(a)    
issuer and               rate                       amount                      
title of                                                                        
issue(d,e)                                                                      

Texas (cont.)                                                                   

Raven Hills Higher Education                                                    
Student Housing Educational Facilities                                    
Revenue Bonds Bobcat Village LLC                                          
Series 2001A (AMBAC Insured)                                              
   06-01-17             5.38%               $1,460,000        $1,589,152
   06-01-18             5.38                 1,535,000         1,662,835
San Antonio Electric & Gas                                                      
Capital Appreciation Refunding Revenue                                    
Bonds Zero Coupon Series 1989A                                            
Escrowed To Maturity (AMBAC Insured)                                      
   02-01-03             2.95                 3,000,000(b)      2,996,191
Socorro Independent School District                                             
Unlimited General Obligation Refunding                                    
Bonds Series 2001                                                         
(Permanent School Fund Guarantee)                                         
   08-15-04             3.00                   500,000           513,335
   08-15-05             4.00                   670,000           710,019
Turnpike Authority Dallas North Tollway                                         
Pre-refunded Revenue Bonds Addison Airport                                
Toll Tunnel Series 1994 (FGIC Insured)                                    
   01-01-23             6.60                 2,000,000         2,242,460
Total                                                             62,412,652    

Utah (0.4%)                                                                     
State Building Ownership Authority                                              
Capital Appreciation Lease                                                
Revenue Bonds Zero Coupon                                                 
Series 1998B (FSA Insured)                                                
   05-15-05             3.82                 2,000,000(b)      1,911,180

Virginia (0.6%)                                                                 
Metropolitan Washington D.C. Airport Authority                                  
Revenue Bonds 2nd Series 2001R                                            
Inverse Floater (MBIA Insured) A.M.T.                                     
   10-01-27             9.68                 2,500,000(c)      2,699,650

Washington (1.0%)                                                               
Port of Seattle Subordinate Lien Revenue Bonds                                  
Series 1999B (FGIC Insured) A.M.T.                                        
   09-01-10             5.50                 4,420,000         4,925,692

Wisconsin (2.9%)                                                                
Appleton Waterworks Refunding Revenue                                           
Bonds Series 2001 (FGIC Insured)                                          
   01-01-04             3.25                 1,155,000         1,178,701
Center District Tax Capital Appreciation                                        
Revenue Bonds Senior Dedicated                                            
Zero Coupon Series 1996A                                                  
(MBIA Insured)                                                            
   12-15-17             6.03                 4,000,000(b)      1,979,320
Milwaukee Unlimited General Obligation Bonds                                    
Series 2002A (FSA Insured)                                                
   09-01-10             5.00                10,000,000        11,123,500
Total                                                             14,281,521    

Wyoming (0.2%)                                                                  
State Building                                                                  
Revenue Bonds Series 2001                                                 
(AMBAC Insured)                                                           
   10-01-22             5.50                 1,000,000         1,069,190

Total municipal bonds                                                           
(Cost: $443,993,860)                                            $471,017,227    

See accompanying notes to investments in securities.                            

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Municipal notes (2.9%)                                                          
Issuer(d,e,f)     Effective                        Amount            Value(a)   
yield                        payable at 
                            maturity

Arden Hills Housing & Health Care Facilities                                    
Revenue Bonds Presbyterian Homes                                          
(U.S. Bank) V.R. Series 1999B                                             
   09-01-29             1.85%                 $900,000          $900,000
District of Columbia Revenue Bonds                                              
Medlantic (Bank of America)                                               
V.R. Series 1998C (FSA Insured)                                           
   08-15-38             1.80                   650,000           650,000
Duluth Minnesota Economic Development Authority                                 
Health Care Facilities Revenue Bonds                                      
Miller-Dwan Medical Center                                                
(U.S. Bank) V.R. Series 1997                                              
   06-01-19             1.85                 1,500,000         1,500,000
Harris County Texas Health Facilities Revenue Bonds                             
Texas Children's Hospital (Morgan Guaranty)                               
V.R. Series 1999B (MBIA Insured)                                          
   10-01-29             1.80                 3,700,000         3,700,000
Louisiana Offshore Terminal Authority                                           
Deepwater Port Refunding Revenue Bonds                                    
1st Stage A-Loop                                                          
(SunTrust Bank) V.R. Series 1992                                          
   09-01-08             1.80                   400,000           400,000
Minneapolis & St. Paul Housing & Redevelopment                                  
Authority Health Care System Revenue Bonds                                
Children's Health Care (Norwest Bank)                                     
V.R. Series 1995B (FSA Insured)                                           
   08-15-25             1.85                 1,500,000         1,500,000
Missouri State Development Finance Board                                        
Cultural Facilities Revenue Bonds                                         
Nelson Gallery Foundation                                                 
(J.P. Morgan Chase Bank) V.R. Series 2001B (MBIA Insured)                 
   12-01-31             1.80                 5,200,000         5,200,000
New Jersey State Economic Development Authority                                 
Water Facilities Revenue Bonds                                            
United Water New Jersey (Bank of New York)                                
V.R. Series 1996B (AMBAC Insured)                                         
   11-01-25             1.85                   300,000           300,000

Total municipal notes                                                           
(Cost: $14,150,001)                                              $14,150,000    

Total investments in securities                                                 
(Cost: $458,143,861)(i)                                         $485,167,227    

See accompanying notes to investments in securities.                            

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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)  Inverse floaters represent securities that pay interest at a rate that     
increases (decreases) in the same magnitude as, or in a multiple of, a
   decline (increase) in market short-term rates. Interest rate disclosed is
the rate in effect on Dec. 31, 2002. As of Dec. 31, 2002, the value of
inverse floaters represented 7.0% of net assets.                      

(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     -- American Municipal Bond Association Corporation          

BIG       -- Bond Investors Guarantee                                 

CGIC      -- Capital Guaranty Insurance Company                       

FGIC      -- Financial Guarantee Insurance Corporation                

FHA       -- Federal Housing Authority                                

FNMA      -- Federal National Mortgage Association                    

FSA       -- Financial Security Assurance                             

GNMA      -- Government National Mortgage Association                 

MBIA      -- Municipal Bond Investors Assurance                       

XLCA      -- XL Capital Assurance                                     

(e) The following abbreviations may be used in the portfolio descriptions:      

   A.M.T.    -- Alternative Minimum Tax -- As of Dec. 31, 2002, the value of
                  securities subject to alternative minimum tax represented 7.7%
of net assets.                              

B.A.N.    -- Bond Anticipation Note                                   

C.P.      -- Commercial Paper                                         

R.A.N.    -- Revenue Anticipation Note                                

T.A.N.    -- Tax Anticipation Note                                    

T.R.A.N.  -- Tax & Revenue Anticipation Note                          

V.R.      -- Variable Rate                                            

V.R.D.B.  -- Variable Rate Demand Bond                                

V.R.D.N.  -- Variable Rate Demand Note                                

(f)  The Fund is entitled to receive principal amount from issuer or corporate  
     guarantor, if indicated in parentheses, after a day or a week's notice. The
     maturity date disclosed represents the final maturity. Interest rate varies
   to reflect current market conditions; rate shown is the effective rate on
Dec. 31, 2002.                                                        

(g)  At Dec. 31, 2002, the cost of securities purchased, including interest     
purchased, on a when-issued and/or other forward commitment basis was 
$4,751,398.                                                           

(h)  Municipal obligations include debt obligations issued by or on behalf of   
states, territories, possessions, or sovereign nations within the     
 territorial boundaries of the United States. The securities represented
4.0% of net assets as of Dec. 31, 2002.                               

(i)  At Dec. 31, 2002, the cost of securities for federal income tax purposes   
was approximately $458,144,000 and the approximate aggregate gross    
unrealized appreciation and depreciation based on that cost was:      

Unrealized appreciation                                    $27,104,000
 Unrealized depreciation                                        (81,000)
                                                               -------
Net unrealized appreciation                                $27,023,000
                                                           -----------

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Financial Statements                                                            

                                                        [Enlarge/Download Table]

Statement of assets and liabilities                                                         
AXP Insured Tax-Exempt Fund                                                                 
Dec. 31, 2002 (Unaudited)                                                                   
Assets                                                                                      
Investments in securities, at value (Note 1)                                                
                                                                                            
   (identified cost $458,143,861)                                              $485,167,227 
Cash in bank on demand deposit                                                       25,724 
Capital shares receivable                                                            87,220 
Accrued interest receivable                                                       5,808,828 
Receivable for investment securities sold                                            15,064 
                                                                                     ------ 
Total assets                                                                    491,104,063 
                                                                                ----------- 
Liabilities                                                                                 
Dividends payable to shareholders                                                   485,746 
Capital shares payable                                                               14,655 
Payable for investment securities purchased                                       4,751,398 
Accrued investment management services fee                                            5,969 
Accrued distribution fee                                                              4,974 
Accrued transfer agency fee                                                             614 
Accrued administrative services fee                                                     531 
Other accrued expenses                                                               65,051 
                                                                                     ------ 
Total liabilities                                                                 5,328,938 
                                                                                  --------- 
Net assets applicable to outstanding shares                                    $485,775,125 
                                                                               ============ 
Represented by                                                                              
Shares of beneficial interest -- $.01 par value (Note 1)                       $    878,382 
Additional paid-in capital                                                      465,029,815 
Excess of distributions over net investment income                                   (7,550)
Accumulated net realized gain (loss) (Note 5)                                    (7,148,888)
Unrealized appreciation (depreciation) on investments                            27,023,366 
                                                                                 ---------- 
Total -- representing net assets applicable to outstanding shares              $485,775,125 
                                                                               ============ 
Net assets applicable to outstanding shares:    Class A                        $404,786,474 
                                                Class B                        $ 73,614,176 
                                                Class C                        $  7,373,024 
                                                Class Y                        $      1,451 
Outstanding shares of beneficial interest:      Class A shares     73,196,133  $       5.53 
                                                Class B shares     13,311,037  $       5.53 
                                                Class C shares      1,330,808  $       5.54 
                                                Class Y shares            263  $       5.52 
                                                                          ---  ------------ 

See accompanying notes to financial statements.                                 

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                                                                [Download Table]

Statement of operations                                                          
AXP Insured Tax-Exempt Fund                                                      
Six months ended Dec. 31, 2002 (Unaudited)                                       
Investment income                                                                
Income:                                                                          
                                                                                 
Interest                                                             $11,819,063 
                                                                     ----------- 
Expenses (Note 2):                                                               
Investment management services fee                                     1,110,108 
Distribution fee                                                                 
   Class A                                                               518,730 
   Class B                                                               356,655 
   Class C                                                                35,324 
Transfer agency fee                                                       98,598 
Incremental transfer agency fee                                                  
   Class A                                                                 9,054 
   Class B                                                                 2,932 
   Class C                                                                   324 
Administrative services fees and expenses                                101,462 
Compensation of board members                                              6,580 
Custodian fees                                                            17,436 
Printing and postage                                                      26,749 
Registration fees                                                         28,107 
Audit fees                                                                 9,625 
Other                                                                      4,135 
                                                                           ----- 
Total expenses                                                         2,325,819 
   Earnings credits on cash balances (Note 2)                             (4,591)
                                                                          ------ 
Total net expenses                                                     2,321,228 
                                                                       --------- 
Investment income (loss) -- net                                        9,497,835 
                                                                       --------- 
Realized and unrealized gain (loss) -- net                                       
Net realized gain (loss) on:                                                     
   Security transactions (Note 3)                                     16,416,045 
   Swap transactions                                                  (1,074,764)
                                                                      ---------- 
Net realized gain (loss) on investments                               15,341,281 
Net change in unrealized appreciation (depreciation) on investments   (4,406,402)
                                                                      ---------- 
Net gain (loss) on investments                                        10,934,879 
                                                                      ---------- 
Net increase (decrease) in net assets resulting from operations      $20,432,714 
                                                                     =========== 

See accompanying notes to financial statements.                                 

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                                                        [Enlarge/Download Table]

Statements of changes in net assets                                                                  
AXP Insured Tax-Exempt Fund                                                                          
                                                                       Dec. 31, 2002   June 30, 2002 
                                                                     Six months ended    Year ended  
                                                                       (Unaudited)                   
Operations and distributions                                                                         
                                                                                                     
Investment income (loss) -- net                                       $  9,497,835      $ 18,757,684 
Net realized gain (loss) on investments                                 15,341,281         3,669,945 
Net change in unrealized appreciation (depreciation) on investments     (4,406,402)          909,130 
                                                                        ----------           ------- 
Net increase (decrease) in net assets resulting from operations         20,432,714        23,336,759 
                                                                        ----------        ---------- 
Distributions to shareholders from:                                                                  
   Net investment income                                                                             
      Class A                                                           (8,249,775)      (16,421,735)
      Class B                                                           (1,142,930)       (2,091,822)
      Class C                                                             (112,712)         (140,258)
      Class Y                                                                  (32)              (63)
   Net realized gain                                                                                 
      Class A                                                           (9,927,215)               -- 
      Class B                                                           (1,803,815)               -- 
      Class C                                                             (179,632)               -- 
      Class Y                                                                  (36)               -- 
                                                                       -----------       ----------- 
Total distributions                                                    (21,416,147)      (18,653,878)
                                                                       -----------       ----------- 
Share transactions (Note 4)                                                                          
Proceeds from sales                                                                                  
   Class A shares (Note 2)                                              37,949,249        49,446,929 
   Class B shares                                                       12,590,937        16,548,576 
   Class C shares                                                        2,592,838         4,827,429 
Reinvestment of distributions at net asset value                                                     
   Class A shares                                                       13,986,939        11,607,797 
   Class B shares                                                        2,334,549         1,549,140 
   Class C shares                                                          266,269           119,896 
   Class Y shares                                                               --                26 
Payments for redemptions                                                                             
   Class A shares                                                      (43,320,295)      (54,857,849)
   Class B shares (Note 2)                                              (6,186,243)       (9,270,317)
   Class C shares (Note 2)                                              (1,288,622)       (1,030,116)
                                                                        ----------        ---------- 
Increase (decrease) in net assets from share transactions               18,925,621        18,941,511 
                                                                        ----------        ---------- 
Total increase (decrease) in net assets                                 17,942,188        23,624,392 
Net assets at beginning of period                                      467,832,937       444,208,545 
                                                                       -----------       ----------- 
Net assets at end of period                                           $485,775,125      $467,832,937 
                                                                      ============      ============ 
Undistributed (excess of distributions over) net investment income    $     (7,550)     $         64 
                                                                      ------------      ------------ 

See accompanying notes to financial statements.                                 

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Notes to Financial Statements                                                   

AXP Insured Tax-Exempt Fund                                                     

(Unaudited as to Dec. 31, 2002)                                                 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

AXP Special Tax-Exempt Series Trust was organized as a Massachusetts business   
trust. AXP Special Tax-Exempt Series Trust is a "series fund" that is currently 
composed of six individual funds, including AXP Insured Tax-Exempt Fund. The    
Fund is registered under the Investment Company Act of 1940 (as amended) as a   
diversified, open-end management investment company. The Fund has unlimited     
authorized shares of beneficial interest.                                       

The Fund invests primarily in securities that are insured as to their scheduled 
payment of principal and interest for at least as long as the securities are    
held in the Fund. Insured securities fluctuate in market value as interest rates
change.                                                                         

The Fund offers Class A, Class B, Class C and Class Y 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 calendar year
of ownership.                                                         

o    Class C shares may be subject to a CDSC.                                   

o    Class Y shares have no sales charge and are offered only to qualifying     
institutional investors.                                              

All classes of shares have identical voting, dividend and liquidation rights.   
The distribution fee, incremental transfer agency fee and service fee (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.       

The Fund's significant accounting policies are summarized below:                

Use of estimates                                                                

Preparing financial statements that conform to accounting principles generally  
accepted in the United States of America requires management to make estimates  
(e.g., on assets, liabilities and contingent assets and liabilities) that could 
differ from actual results.                                                     

Valuation of securities                                                         

All securities are valued at the close of each business day. Securities traded  
on national securities exchanges or included in national market systems are     
valued at the last quoted sales 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.                 

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Option transactions                                                             

To produce incremental earnings, protect gains, and facilitate buying and       
selling of securities for investments, the Fund 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 Fund    
gives up the opportunity for profit if the market price of the security         
increases. The risk in writing a put option is that the Fund 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 Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of being unable to enter into a
closing transaction if a liquid secondary market does not exist. The Fund 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 Fund will
realize a gain or loss when the option transaction expires or closes. When      
options on debt securities or futures are exercised, the Fund 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 premium
received or paid.                                                               

Futures transactions                                                            

To gain exposure to or protect itself from market changes, the Fund 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 Fund is 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 Fund 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 Fund recognizes 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 Fund may enter into Bond Market Association (BMA) swap      
agreements. BMA 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 BMA market interest rate versus a   
fixed interest rate. The Fund may employ BMA swaps to synthetically add or      
subtract principal exposure to the municipal market.                            

The BMA index serves as the reference for the floating market interest rate, and
is a weekly high-grade market index comprised of 7-day tax-exempt variable rate 
demand notes produced by Municipal Market Data Group.                           

Risks of entering into a swap include a lack of correlation between BMA 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, BMA 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.                   

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BMA swaps are valued daily and unrealized appreciation and depreciation is      
recorded. The Fund will realize a gain or a loss when the swap is terminated.   

Securities purchased on a forward-commitment basis                              

Delivery and payment for securities that have been purchased by the Fund 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 the Fund's net assets the same as owned securities. The Fund
designates cash or liquid securities at least equal to the amount of its        
forward-commitments. As of Dec. 31, 2002, the Fund has entered into outstanding 
when-issued securities of $4,751,398.                                           

Federal taxes                                                                   

The Fund's policy is to comply with all sections of the Internal Revenue Code   
that apply 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.                                                               

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 Fund.                

Dividends to shareholders                                                       

Dividends from net investment income, declared daily and payable monthly, are   
reinvested in additional shares of the 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 and discount using the 
effective interest method, is accrued daily.                                    

As of Dec. 31, 2002, American Express Financial Corporation (AEFC) owned 263    
Class Y shares.                                                                 

2. EXPENSES AND SALES CHARGES                                                   

The Fund has an agreement with AEFC to manage its portfolio and provide         
administrative services. Under an Investment Management Services Agreement, AEFC
determines which securities will be purchased, held or sold. The management fee 
is a percentage of the Fund's average daily net assets in reducing percentages  
from 0.45% to 0.35% annually.                                                   

Under an Administrative Services Agreement, the Fund pays AEFC a fee for        
administration and accounting services at a percentage of the Fund's average    
daily net assets in reducing percentages from 0.04% to 0.02% annually. A minor  
portion of additional administrative service expenses paid by the Fund are      
consultants' fees and fund office expenses. Under this agreement, the Fund also 
pays taxes, audit and certain legal fees, registration fees for shares,         

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compensation of board members, corporate filing fees and any other expenses     
properly payable by the Fund and approved by the board.                         

Under a separate Transfer Agency Agreement, American Express Client Service     
Corporation (AECSC) maintains shareholder accounts and records. The incremental 
transfer agency fee is the amount charged to the specific classes for the       
additional expense above the fee for Class Y. The Fund pays AECSC an annual fee 
per shareholder account for this service as follows:                            

o    Class A $19.50                                                             

o    Class B $20.50                                                             

o    Class C $20.00                                                             

o    Class Y $17.50                                                             

The Fund has agreements with American Express Financial Advisors Inc. (the      
Distributor) for distribution and shareholder services. Under a Plan and        
Agreement of Distribution, the Fund pays a distribution fee at an annual rate up
to 0.25% of the Fund's average daily net assets attributable to Class A shares  
and up to 1.00% for Class B and Class C shares.                                 

Under a Shareholder Service Agreement, the Fund pays the Distributor a fee for  
service provided to shareholders by financial advisors and other servicing      
agents. The fee is calculated at a rate of 0.10% of the Fund's average daily net
assets attributable to Class Y shares.                                          

Sales charges received by the Distributor for distributing Fund shares were     
$349,621 for Class A, $25,661 for Class B and $3,372 for Class C for the six    
months ended Dec. 31, 2002.                                                     

During the six months ended Dec. 31, 2002, the Fund's custodian and transfer    
agency fees were reduced by $4,591 as a result of earnings credits from         
overnight cash balances.                                                        

3. SECURITIES TRANSACTIONS                                                      

Cost of purchases and proceeds from sales of securities (other than short-term  
obligations) aggregated $387,778,965 and $391,616,934, respectively, for the six
months ended Dec. 31, 2002. Realized gains and losses are determined on an      
identified cost basis.                                                          

4. SHARE TRANSACTIONS                                                           

Transactions in shares of the Fund for the periods indicated are as follows:    

                                                        [Enlarge/Download Table]

                                              Six months ended Dec. 31, 2002          
                                        Class A       Class B     Class C      Class Y
                                                                                      
Sold                                  6,750,260    2,235,341     457,377         --   
Issued for reinvested distributions   2,529,308      422,709      48,132         --   
Redeemed                             (7,713,462)  (1,098,812)   (230,303)        --   
                                     ----------   ----------    --------      -----   
Net increase (decrease)               1,566,106    1,559,238     275,206         --   
                                      ---------    ---------     -------      -----   

                                               Year ended June 30, 2002               
                                        Class A       Class B     Class C      Class Y
Sold                                  8,950,029    2,993,800     872,672         --   
Issued for reinvested distributions   2,102,482      280,613      21,698          5   
Redeemed                             (9,951,236)  (1,679,916)   (186,865)        --   
                                     ----------   ----------    --------      -----   
Net increase (decrease)               1,101,275    1,594,497     707,505          5   
                                      ---------    ---------     -------      -----   

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5. CAPITAL LOSS CARRY-OVER                                                      

For federal income tax purposes, the Fund has a capital loss carry-over of      
$4,061,035 as of June 30, 2002, that will expire in 2008 through 2011 if not    
offset by capital gains. It is unlikely the board will authorize a distribution 
of any net realized capital gains until the available capital loss carry-over   
has been offset or expires.                                                     

6. BANK BORROWINGS                                                              

The Fund has a revolving credit agreement with Deutsche Bank, whereby the Fund  
is permitted to have bank borrowings for temporary or emergency purposes to fund
shareholder redemptions. The agreement went into effect Sept. 24, 2002. The Fund
must maintain asset coverage for borrowings of at least 300%. The agreement,    
which enables the Fund to participate with other American Express mutual 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 LIBOR plus 0.50%, the
IBOR plus 0.50% or the higher of the Federal Funds Rate plus 0.25% and the Prime
Lending Rate. Borrowings are payable within 60 days after such loan is executed.
The Fund also pays a commitment fee equal to its pro rata share of the amount of
the credit facility at a rate of 0.09% per annum. Prior to this agreement, the  
Fund had a revolving credit agreement that permitted borrowings up to $200      
million with U.S. Bank N.A. The Fund had no borrowings outstanding during the   
six months ended Dec. 31, 2002.                                                 

7. FINANCIAL HIGHLIGHTS                                                         

The tables below show certain important financial information for evaluating the
Fund's results.                                                                 

                                                        [Enlarge/Download Table]

Class A                                                                                                    
Per share income and capital changes(a)                                                                    
Fiscal period ended June 30,                                       2002(f)    2002    2001    2000    1999 
                                                                                                           
Net asset value, beginning of period                               $5.54     $5.48   $5.28   $5.44   $5.63 
Income from investment operations:                                                                         
Net investment income (loss)                                         .11       .23     .27     .27     .27 
Net gains (losses) (both realized and unrealized)                    .13       .06     .20    (.16)   (.18)
Total from investment operations                                     .24       .29     .47     .11     .09 
Less distributions:                                                                                        
Dividends from net investment income                                (.11)     (.23)   (.27)   (.27)   (.27)
Distributions from realized gains                                   (.14)       --      --      --    (.01)
Total distributions                                                 (.25)     (.23)   (.27)   (.27)   (.28)
Net asset value, end of period                                     $5.53     $5.54   $5.48   $5.28   $5.44 

Ratios/supplemental data                                                                                   
Net assets, end of period (in millions)                             $405      $397    $387    $371    $439 
Ratio of expenses to average daily net assets(c)                    .82%(d)   .82%    .82%    .82%    .75% 
Ratio of net investment income (loss) to average daily net assets  3.97%(d)  4.18%   4.88%   5.16%   4.87% 
Portfolio turnover rate (excluding short-term securities)            84%       32%      4%      9%     13% 
Total return(e)                                                    4.44%(g)  5.37%   8.98%   2.13%   1.74% 

See accompanying notes to financial highlights.                                 

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                                                        [Enlarge/Download Table]

Class B                                                                                                    
Per share income and capital changes(a)                                                                    
Fiscal period ended June 30,                                        2002(f)   2002    2001    2000    1999 
                                                                                                           
Net asset value, beginning of period                               $5.54     $5.48   $5.28   $5.44   $5.63 
Income from investment operations:                                                                         
Net investment income (loss)                                         .09       .19     .23     .23     .23 
Net gains (losses) (both realized and unrealized)                    .13       .06     .20    (.16)   (.18)
Total from investment operations                                     .22       .25     .43     .07     .05 
Less distributions:                                                                                        
Dividends from net investment income                                (.09)     (.19)   (.23)   (.23)   (.23)
Distributions from realized gains                                   (.14)       --      --      --    (.01)
Total distributions                                                 (.23)     (.19)   (.23)   (.23)   (.24)
Net asset value, end of period                                     $5.53     $5.54   $5.48   $5.28   $5.44 

Ratios/supplemental data                                                                                   
Net assets, end of period (in millions)                              $74       $65     $56     $51     $61 
Ratio of expenses to average daily net assets(c)                   1.58%(d)  1.58%   1.58%   1.57%   1.51% 
Ratio of net investment income (loss) to average daily net assets  3.20%(d)  3.43%   4.13%   4.41%   4.13% 
Portfolio turnover rate (excluding short-term securities)            84%       32%      4%      9%     13% 
Total return(e)                                                    4.04%(g)  4.59%   8.17%   1.35%    .99% 

                                                        [Enlarge/Download Table]

Class C                                                                                               
Per share income and capital changes(a)                                                               
Fiscal period ended June 30,                                        2002(f)   2002    2001  2000(b)   
                                                                                                      
Net asset value, beginning of period                               $5.55     $5.49   $5.28    $5.27   
Income from investment operations:                                                                    
Net investment income (loss)                                         .09       .19     .23       --   
Net gains (losses) (both realized and unrealized)                    .13       .06     .21      .01   
Total from investment operations                                     .22       .25     .44      .01   
Less distributions:                                                                                   
Dividends from net investment income                                (.09)     (.19)   (.23)      --   
Distributions from realized gains                                   (.14)       --      --       --   
Total distributions                                                 (.23)     (.19)   (.23)      --   
Net asset value, end of period                                     $5.54     $5.55   $5.49    $5.28   

Ratios/supplemental data                                                                              
Net assets, end of period (in millions)                               $7        $6      $2      $--   
Ratio of expenses to average daily net assets(c)                   1.58%(d)  1.58%   1.58%    1.57%(d)
Ratio of net investment income (loss) to average daily net assets  3.18%(d)  3.44%   4.16%    5.22%(d)
Portfolio turnover rate (excluding short-term securities)            84%       32%      4%       9%   
Total return(e)                                                    4.03%(g)  4.59%   8.40%     .19%(g)

See accompanying notes to financial highlights.                                 

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                                                        [Enlarge/Download Table]

Class Y                                                                                                    
Per share income and capital changes(a)                                                                    
Fiscal period ended June 30,                                        2002(f)   2002    2001    2000    1999 
                                                                                                           
Net asset value, beginning of period                               $5.53     $5.47   $5.27   $5.44   $5.64 
Income from investment operations:                                                                         
Net investment income (loss)                                         .11       .24     .28     .28     .30 
Net gains (losses) (both realized and unrealized)                    .13       .06     .20    (.17)   (.19)
Total from investment operations                                     .24       .30     .48     .11     .11 
Less distributions:                                                                                        
Dividends from net investment income                                (.11)     (.24)   (.28)   (.28)   (.30)
Distributions from realized gains                                   (.14)       --      --      --    (.01)
Total distributions                                                 (.25)     (.24)   (.28)   (.28)   (.31)
Net asset value, end of period                                     $5.52     $5.53   $5.47   $5.27   $5.44 

Ratios/supplemental data                                                                                   
Net assets, end of period (in millions)                              $--       $--     $--     $--     $-- 
Ratio of expenses to average daily net assets(c)                    .67%(d)   .67%    .67%    .67%    .60% 
Ratio of net investment income (loss) to average daily net assets  4.25%(d)  4.39%   5.05%   5.33%   5.01% 
Portfolio turnover rate (excluding short-term securities)            84%       32%      4%      9%     13% 
Total return(e)                                                    4.56%(g)  5.60%   9.22%   2.30%   1.87% 

Notes to financial highlights                                                   

(a)  For a share outstanding throughout the period. Rounded to the nearest cent.

(b)  Inception date was June 26, 2000.                                          

(c)  Expense ratio is based on total expenses of the Fund before reduction of   
earnings credits on cash balances.                                    

(d)  Adjusted to an annual basis.                                               

(e)  Total return does not reflect payment of a sales charge.                   

(f)  Six months ended Dec. 31, 2002 (Unaudited).                                

(g)  Not annualized.                                                            

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29 -- AXP INSURED TAX-EXEMPT FUND -- 2002 SEMIANNUAL REPORT                     

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Results of Meeting of Shareholders                                              

AXP INSURED TAX-EXEMPT FUND                                                     

REGULAR MEETING OF SHAREHOLDERS HELD ON NOVEMBER 13, 2002                       

(UNAUDITED)                                                                     

A brief description of each proposal voted upon at the meeting and the number of
votes cast for, against or withheld, as well as the number of abstentions and   
broker non-votes as to each proposal is set forth below.                        

Proposal 1                                                                      

To elect the thirteen nominees specified below as Board members*.               

                       Shares Voted "For"   Shares Withholding Authority to Vote
Arne H. Carlson          102,201,694.488                3,972,658.871         
Philip J. Carroll, Jr.   102,777,695.900                3,396,657.459         
Livio D. DeSimone        102,616,862.894                3,557,490.465         
Barbara H. Fraser        102,758,688.359                3,415,665.000         
Ira D. Hall              102,618,136.459                3,556,216.900         
Heinz F. Hutter          102,629,210.503                3,545,142.856         
Anne P. Jones            102,669,606.951                3,504,746.408         
Stephen R. Lewis, Jr.    102,794,186.542                3,380,166.817         
Alan G. Quasha           102,517,180.869                3,657,172.490         
Stephen W. Roszell       102,695,490.099                3,478,863.260         
Alan K. Simpson          102,320,300.877                3,854,052.482         
Alison Taunton-Rigby     102,796,502.435                3,377,850.924         
William F. Truscott      102,922,576.476                3,251,776.883         

Proposal 2                                                                      

To Amend the Articles of Incorporation/Declaration of Trust*:                   

2(a). To allow one vote/dollar instead of one vote/share.                       

Shares Voted "For"  Shares Voted "Against"   Abstentions   Broker Non-Votes 
86,408,676.886         8,461,136.116      4,054,686.357    7,249,854.000

* Denotes Registrant-wide proposals and voting results.                         

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American Express(R) Funds                                                       

Growth Funds                                                                    
AXP(R) Emerging Markets Fund                                                    
AXP Equity Select Fund                                                          
AXP Focused Growth Fund                                                         
AXP Global Growth Fund                                                          
AXP Growth Fund                                                                 
AXP Growth Dimensions Fund                                                      
AXP New Dimensions Fund(R)                                                      
AXP Partners International Aggressive Growth Fund                               
AXP Partners Small Cap Growth Fund                                              
AXP Strategy Aggressive Fund                                                    

Blend Funds                                                                     
AXP Blue Chip Advantage Fund                                                    
AXP Discovery Fund*                                                             
AXP European Equity Fund                                                        
AXP Global Balanced Fund                                                        
AXP International Fund                                                          
AXP Large Cap Equity Fund                                                       
AXP Managed Allocation Fund                                                     
AXP Mid Cap Index Fund                                                          
AXP Partners International Core Fund                                            
AXP Partners International Small Cap Fund                                       
AXP Partners Small Cap Core Fund                                                
AXP Research Opportunities Fund                                                 
AXP S&P 500 Index Fund                                                          
AXP Small Cap Advantage Fund                                                    
AXP Small Company Index Fund                                                    
AXP Stock Fund                                                                  

Value Funds                                                                     
AXP Diversified Equity Income Fund                                              
AXP Equity Value Fund                                                           
AXP Large Cap Value Fund                                                        
AXP Mid Cap Value Fund                                                          
AXP Mutual                                                                      
AXP Partners Fundamental Value Fund                                             
AXP Partners International Select Value Fund                                    
AXP Partners Select Value Fund                                                  
AXP Partners Small Cap Value Fund                                               
AXP Partners Value Fund                                                         
AXP Progressive Fund*                                                           

Income/Tax-Exempt Income Funds                                                  
AXP Bond Fund                                                                   
AXP Cash Management Fund**                                                      
AXP Extra Income Fund                                                           
AXP Federal Income Fund                                                         
AXP Global Bond Fund                                                            
AXP High Yield Tax-Exempt Fund                                                  
AXP Insured Tax-Exempt Fund                                                     
AXP Intermediate Tax-Exempt Fund                                                
AXP Selective Fund                                                              
AXP State Tax-Exempt Funds                                                      
AXP Tax-Exempt Bond Fund                                                        
AXP Tax-Free Money Fund**                                                       
AXP U.S. Government Mortgage Fund                                               

Sector Funds                                                                    
AXP Global Technology Fund                                                      
AXP Precious Metals Fund                                                        
AXP Utilities Fund                                                              

These funds are also listed in the categories above.                            

AXP(R)Partners Funds                                                            
AXP Partners Fundamental Value Fund                                             
AXP Partners International Aggressive Growth Fund                               
AXP Partners International Core Fund                                            
AXP Partners International Select Value Fund                                    
AXP Partners International Small Cap Fund                                       
AXP Partners Select Value Fund                                                  
AXP Partners Small Cap Core Fund                                                
AXP Partners Small Cap Growth Fund                                              
AXP Partners Small Cap Value Fund                                               
AXP Partners Value Fund                                                         

International Funds                                                             
AXP Emerging Markets Fund                                                       
AXP European Equity Fund                                                        
AXP Global Balanced Fund                                                        
AXP Global Bond Fund                                                            
AXP Global Growth Fund                                                          
AXP International Fund                                                          
AXP Partners International Aggressive Growth Fund                               
AXP Partners International Core Fund                                            
AXP Partners International Select Value Fund                                    
AXP Partners International Small Cap Fund                                       

* Closed to new investors.                                                    

** An investment in the Fund is not insured or guaranteed by the Federal        
 Deposit Insurance Corporation or any other government agency.  Although the
 Fund seeks to preserve the value of your  investment at $1.00 per share, it
is possible to lose money by investing in the Fund.                       

For more complete information about our funds, including fees and expenses,     
please call (800) 862-7919 for prospectuses. Read them carefully before you     
invest.                                                                         

                                                                          (2/03)

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AXP Insured Tax-Exempt Fund                                                     
70100 AXP Financial Center                                                      
Minneapolis, MN 55474                                                           
americanexpress.com                                                             

--------------------------------------------------------------------------------
(logo)                                                                   (logo) 
American                                                                AMERICAN
   Express(R)                                                         EXPRESS(R)
Funds                                                                         
--------------------------------------------------------------------------------

This report must be accompanied or preceded by the Fund's current prospectus.   
Distributed by American Express Financial Advisors Inc. Member NASD. American   
Express Company is separate from American Express Financial Advisors Inc. and   
is not a broker-dealer.                                                         

                                                                 S-6330 T (2/03)

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘N-30D’ Filing	Date	First	Last	Other Filings

Filed on / Effective on:	3/3/03
For Period End:	12/31/02	6	29	N-30D, NSAR-A
	11/13/02	3	30	DEF 14A, PRE 14A
	9/24/02	27
	6/30/02	22	29	N-30D, NSAR-B
	6/26/00	29
				List all Filings

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Riversource Special Tax-Exempt Series Trust – ‘N-30D’ for 12/31/02

On: Monday, 3/3/03, at 1:54pm ET · Effective: 3/3/03 · For: 12/31/02 · Accession #: 820027-3-192 · File #: 811-04647

Previous ‘N-30D’: ‘N-30D’ on 2/26/03 for 12/31/02 · Latest ‘N-30D’: This Filing

Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1Filing Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1
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